Growth in the transport segments in 2021 – reduction in offshore

The total revenue of Norwegian Shipowners’ Association member companies has remained relatively stable, from NOK 216.5 billion in 2020 to NOK 217.4 billion in 2021. The transport segments, which include deep sea and short sea shipowners, have gradually increased their turnover since the financial crisis hit across the industry in 2008, currently accounting for almost 60 percent of total turnover among shipping companies.

The offshore segments have faced very demanding times since the oil price collapse in 2014. Sales and profitability are still far lower than before the fall in oil prices, and have not yet returned to a sustainable level. In 2021, total turnover in the offshore segments accounted for about 40 percent of total turnover among shipping companies. This is significantly lower than the peak year of 2014, when turnover in the offshore industry accounted for as much as 63 percent of shipping companies’ total turnover.

The transport segments experienced significant growth in turnover in 2021. Deep sea shipowners experienced a growth of five percent, and now report total revenues of more than NOK 112 billion. Short sea shipowners showed growth in turnover of seven percent, now with revenues of almost NOK 10 billion. Much of the growth is due to the very strong container market, which is also spilling over to other segments. Increased volumes and congestion in ports as a result of very rapid growth in activity and strict corona restrictions contributed to increasing the need for ships by almost six percent.
The passenger ship segment also experienced growth in turnover in 2021, but will only make up about one-seventh of the reduction they were subject to in 2020. In 2021, total turnover in this segment was just over NOK 7 billion. This is far from expectations stated by the companies in last year’s survey. At that time, this segment stated an expected growth of 73 percent. This shows that the pandemic turned out to be longer lasting and more serious than the passenger shipping companies could have imagined.

The offshore segments have experienced a further decline in turnover. Rig companies have in particular experienced a large drop in turnover, of 11 percent. Rig companies have seen their revenues more than halved since 2014, and in 2021 had revenues of about NOK 31 billion. Offshore service companies have had their turnover reduced by a further four percent, and now show total revenues of NOK 56 billion. This is also close to a 50 percent reduction in turnover compared to 2014.

Shipowners expect increased revenues in 2022

There is a degree of increased optimism for 2022, where overall expectations for the year are moderately positive. Overall, shipping companies state that they expect an increase in turnover of four percent in 2021. However, there is a large gap in expectations and sharp differences between the segments, with short sea, passenger and offshore service segments anticipating growth in turnover.

If the forecast is correct, shipping companies’ total revenue will end up at around NOK 227 billion in 2022, up four percent from 2021.

Offshore remains demanding

The large fall in revenue among offshore service and rig companies following the fall in oil prices in +restructuring, including sales and significant recycling in the fleet in both rigs and offshore service. Increased oil prices and increased activity in oil and gas production have already resulted in increased rates, and Lorentzen & Stemoco expect that rates will continue to rise in 2022.

The offshore segment is highly divided in expectations for 2022. Offshore service companies expect a significant growth in turnover, about eight percent. This would lead to the segment rising again to pre-pandemic levels, with a total turnover of about NOK 61 billion.

Rig companies expect a further decline in turnover in 2022, about seven percent. This is seen in connection with the large number of rigs that have been recycled and taken out of activity on the Norwegian Continental Shelf. Turnover is thus reduced as a consequence of fewer rigs in activity, and not directly as a result of lower rates. Lorentzen & Stemoco expects that more contracts and the current strong oil price will make the available fleet smaller, and send rates upwards in this market. This may explain why this segment expects turnover to decline while profitability improves.

The transport segments anticipate growth in 2022

There is significant optimism among short sea shipowners. As many as three out of four shipowners expect growth in 2022, while none anticipate reduced turnover. Overall, they expect a growth of seven percent, which would match last year’s growth. This would be the second largest growth in turnover since the financial crisis in 2008.

By far the greatest optimism is to be found among passenger shipowners, where all companies expect growth in 2022. In total, passenger shipowners expect turnover to more than double, giving growth of 111 percent. This is due to the fact that the passenger shipping companies envisage a normalization of the market situation in 2022. Such growth would lift the turnover of passenger shipowners to above pre-pandemic levels.

The deep sea segment is divided in its expectations for 2022. Fifteen percent of companies state that they have expectations of significantly reduced turnover, explained by the restructuring of the fleet through the sale of vessels. The remaining companies expect about the same or somewhat higher turnover as a result of stronger markets. Improved markets for deep sea are the result of a record strong container ship market that also generates better markets for car carriers, bulk carriers and the dry cargo market. An example of this is that used cars, previously transported in containers, are now to a greater extent transported on car ships. Overall, expectations are for a reduction of about one percent in turnover in 2022, which is related to changes in the number of ships in the fleet.

Shipowners are divided on profitability expectations

There is increasing optimism in the industry related to profitability in 2022. Overall, about three out of five state that they expect increased profitability in 2022 compared with 2021. This is a significant improvement from last year, when less than half reported such expectations.

Also among offshore service and rig companies, more companies expect increased profitability than those anticipating reduced profitability. Sixty-four percent of offshore service companies and 41 percent of rig companies expect increased profitability in 2022. This is the first time that both offshore segments expect stronger profitability. These segments have operated in very weak markets since the fall in oil prices in 2014, with a number of shipping companies incurring large losses and write-offs. Increased profitability in the offshore service and rig companies does not mean large profits or sustainable finances, but may mean that the industry can now take some steps towards a brighter future. At the same time, one in five offshore service and one in three rig companies state that they expect a further reduction in profitability in 2022.

Within deep sea, three out of five shipowners state that they expect profitability to improve in 2022. Only one in seven expects reduced profitability this year. Twice as many shipowners – eight percent – expect significantly improved profitability, compared with the four percent who expect significantly reduced profitability.

Among short sea shipowners, none expect reduced profitability in 2022, and as many as three out of four expect increased profitability. One in four companies in this segment state that profitability is likely to remain unchanged in 2022. This overall optimism in the short sea segment may indicate that shipowners expect the positive markets they have experienced over the past year to continue into 2022.

Within the passenger ship segment, all shipowners have expectations of improved profitability in 2022. This is due to the fact that large parts of passenger ship operations were halted as a result of the corona pandemic, leading to a significant reduction in operating profit for these companies in 2020 and 2021. As with offshore, it is not a given that increased profitability in this context means a positive operating result. Also in this context, increased profitability can mean reduced negative operating profit.

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