Relevant financial derivatives are used to reduce the company’s financial risks. We do not use derivatives for speculative arbitrage or investments, and closely monitor the risk related to market valuation of our hedging instruments and the effect this may have on the equity ratio.
Earnings
Earnings and demand for our chemical tankers are influenced by external market factors such as global economic growth, regional feedstock and production capabilities, and customer trading patterns. Time charter earnings are further influenced by the general freight market sentiment, including the highly correlated product tanker market, cargo type and volume, contract and spot rates, bunker prices, and operational efficiency.
The average historical fluctuation in time charter earnings per day for our chemical tanker fleet has been approximately 11% per annum over the last five years, a decrease of around four percentage points from last year. Sensitivity analysis shows that a prolonged change in time charter earnings of 10% will impact our pre-tax net income by approximately USD 68 million.
The largest single cost component affecting time charter earnings is bunkers, and Odfjell makes physical purchases of bunkers worldwide. In 2025, this amounted to USD 217 million, equivalent to 54% of voyage costs. A substantial part of our consumption is hedged through bunker adjustment clauses in contracts of affreightments with our customers. Uncovered consumption from spot volumes, or contracts without bunker adjustment clauses, is considered for financial hedging. However, we did not have any financial bunkers hedges in place during 2025. A USD 50 increase in the average bunker price per metric ton would reduce our pre-tax net income by approximately USD 8 million.
As of 2026, the EU Emissions Trading System (EU ETS) was fully implemented. Our vessels call on EU ports on a regular basis and as a commercial operator, we are financially liable for ETS and will compensate vessel owners who have the legal responsibility to surrender emission allowances to the EU. In 2025, we were liable for approximately 158,700 allowances. Most of our exposure is hedged through ETS clauses in our contracts of affreightments, while for spot voyages and contracts without an ETS clause, the estimated ETS cost is added to the agreed freight rate in the chartering terms upon fixture. Based on expected exposure for 2026, a EUR 25 increase in the average price for an EU emission allowance unit would increase our gross voyage expense by EUR 6 million. The effect on pre-tax net income is likely limited as the cost is, to a significant extent, passed through to charterers.
Our tank terminal activities have historically shown more stable earnings than our shipping activities. The main drivers for earnings are occupancy rate, the volume of cargoes handled through and by our terminals, and operational efficiency. A substantial part of tank terminal costs is fixed.
Interest rates
All interest-bearing debt, except bonds in the Norwegian bond market and debt borne by tank terminals outside the USA, is denominated in USD. Most of the loans are floating rate with SOFR as a benchmark. NOK denominated bond is also swapped to USD with SOFR as the benchmark. We use interest rate swaps to reduce the variability of interest expenses. Our coverage rate has been stable at around 25-45% of floating interest-bearing debt over the last five years, while our base exposure has been reduced substantially through the repayment of debt. As of December 31, 2025, we have USD 300 million of interest rate hedges in place, covering 43% of interest-bearing debt. A 1% increase in the interest rate would reduce our pre-tax net income by approximately USD 7 million, before hedges.
Currency
The group’s revenues are primarily denominated in USD. Non-financial currency risk relates mainly to the net income and cash flow from voyage related expenses, ship operating expenses (including crew costs), and general and administrative expenses denominated in non-USD currencies, mainly NOK and EUR. A 10% decrease in the USD against the NOK would reduce our pre-tax net income by approximately USD 9 million, before hedges. Our NOK exposure is relatively long-term, visible and stable, and we have hedged expected NOK cash flows, for up to two and a half years, through forward exchange contracts.
Financial currency risk, relating to non-USD denominated debt, being our NOK denominated bond, is hedged 100%, as interest payments and principal in NOK is swapped for principal and interest payments in USD at the time of issuance. As of December 31, 2025, we had one bond outstanding for an amount of NOK 1 billion swapped to USD 97.1 million.
Financing and liquidity
Odfjell has a diversified debt structure and solid access to a wide range of funding sources and structures from top-tier banks, leasing houses, and the bond markets. Our cost of financing has improved in all credit markets over the last few years, driven by our strengthened balance sheet, positive chemical tanker market fundamentals, and ESG initiatives. We continue to focus on sustainable finance and as of year-end 2025, 43% our interest-bearing debt was sustainability-linked.
In 2025, we established one new bank debt facility involving six vessels. The six vessels financed were already in the Odfjell operated fleet as operational and financial lease vessels. The transaction was done at improved terms and contributed to lowering our cost of capital.
As of December 31, 2025, Odfjell’s total nominal debt was USD 950.5 million*, of which 58% was mortgaged loans, 6.5% was financial leases, 10.5% was senior unsecured bonds, and 25% was debt related to long-term time charter and bareboat agreements. The average maturity of the group’s total interest-bearing debt** is just above three years. We have two balloon instalments maturing in the first half of the coming year. These have both been refinanced in a new single bank debt facility.
As of December 31, 2025, we had USD 149 million in cash and cash equivalents on balance, and USD 196 million in undrawn commitments under long-term bank facilities.
*Bonds swapped to USD. Excluding capitalized transaction expenses.
**Interest-bearing debt includes mortgaged loans, financial leases and unsecured bonds
Cash break-even
Odfjell is exposed to the natural cyclicality of the shipping industry, and a key ambition is to have a sustainable cash flow across these cycles. In 2025, our break-even was approximately USD 22,915 per trading day. We are positive about the potential to further improve break-even levels in the short to medium term, through the continued focus on finance costs and the addition of vessels to our fleet.
Tax
The Odfjell Group operates in a number of jurisdictions and tax regimes, though most of our fleet is subject to the Norwegian tonnage tax system. We also operate under the local cabotage tax system in Brazil through a wholly owned subsidiary. Our tank terminal activities are generally subject to ordinary corporate tax rates in the countries where they are located.
