|At 1 January
|Utilised during the year (Note 22)
|At 31 December
|Analysis of provisions
Provision for onerous contract utilised during the year was
credited to other income.
A provision for onerous contracts is recognised where
the unavoidable costs of meeting the obligations under
the contracts exceed the economic benefits expected
to be received under them.
Critical accounting estimates and judgements – Provision for onerous contracts
The Group estimates the provision for its noncancellable
operating chartered-in contracts in relation
to the Group’s chartered-in vessels on a fleet basis
for each type of vessel by calculating the difference
between the total charter revenue and freight expected
to be earned and the total value of future charter
payments the Group is obligated to make for the
remaining term of the chartered-in contracts.
The expected charter revenue and freight is derived
from the aggregate of (a) the amount of revenue cover
provided by existing contracts of affreightment, and
(b) management estimates of rates for the uncovered
period by reference to current physical market rates,
current trades of forward freight agreements and other
relevant market information at the reporting date.
With all other variables held constant, if the expected
freight rates for the uncovered chartered-in contracts
increase/decrease by 5% from management estimates
over the next 5 years, the provision for onerous
contracts would decrease/increase by US$14 million.