Interim CEO's editorial - NORDEN NEWS Magazine Winter 2014

Another challenging year

In many ways, 2014 became far more challenging than expected at the beginning of the year. Instead of a gradual improvement of the dry cargo market, we experienced the exact opposite. After a good start to the year in January, rates were at very low levels for most of the year, and the end of the year also did not live up to the seasonal improvement that we usually see.

It was not a stand-alone factor that ruined the dry cargo market in 2014. A number of events pulled in the wrong direction resulting in a significant worsening of the market. The Indonesian export ban on a number of raw materials resulted in a large number of unemployed vessels entering a market which was already strained by too much capacity. At the same time, coal transports suffered under weather conditions decreasing the demand for coal and political actions limiting the import of coal into the very important Chinese market. In addition, financial instability in South America has also impacted the market and pushed rates downwards.

The result was a very poor market, which also hit NORDEN hard. Right before this magazine was printed, NORDEN took the consequence of the reduced markets and established that a number of the contracts we concluded on chartered vessels 3-6 years ago will probably not be profitable in their duration. We have calculated the future loss on these contracts to amount to a total of USD 230 million, and we make a provision for this amount now. This means that we take the whole loss here and now instead of spreading the loss over the coming 3-4 years.

The provision thus gives a fairer presentation of coming years’ results, which have now been cleared of old unprofitable contracts entered into when the market and expectations were more positive.

Today, we can establish that the long awaited improvement is taking its time, and therefore, we make sure to do everything we can to achieve operating cost savings and optimise earnings.

In addition to maintaining and expanding our customer base, we have e.g. increased our focus on fuel efficiency, introduced a new and advanced shipping system and restructured the technical department to ensure that the knowledge and competences held in the department will get even closer to the business and be utilised best possibly.

At the same time, we are strengthening our close ties to our customers. One of the means is global reach with offices on soon 5 of the world’s 7 continents. Hence, in the first quarter of 2015, we are opening a new office on the Australian continent, and on pages 4-9, you can read more about the background of and the potential in this move.

At time of writing, we can be pleased that it seems like 2014 will end with a good tanker market. Rates within MR and Handysize, which are the two vessel types owned by NORDEN in product tankers, are at their highest level since the financial crisis. The upturn has come swiftly and with great strength, which emphasises the importance of NORDEN being geared as an organisation for taking advantage of the opportunities arising.

This is what we will be focusing on in the year to come.

I wish you all a merry Christmas and a happy New Year.

Enjoy your reading.

Klaus Nyborg, Interim CEO

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