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18 Provision for Onerous Contracts

US$'000 2016 2015
At 1 January 79,582 100,906
Utilised during the year (Note 22) (27,664) (21,324)
At 31 December 51,918 79,582
Analysis of provisions
Current 20,354 27,664
Non-current 31,564 51,918
51,918 79,582
Provision for onerous contract utilised during the year was credited to other income.

Accounting policy

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.


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