During 2013, NORDEN formulated an updated strategy, which built on expectations for improved market conditions in both dry cargo and tankers in 2014. The strategy was to ensure that NORDEN would make the most out of the improvement, but during the year, it became evident that the expected improvement was not going to materialise.
NORDEN took the consequence of the disappointing market development and implemented a number of initiatives in order to improve its positioning towards the difficult markets:
- NORDEN made use of the flexibility of the business model and reduced the chartered fleet and thus the activity level in Dry Cargo significantly.
- The investment programme was halted in the first quarter of 2014, and no new investments in the core fleet have been made subsequently.
- 4 vessels were sold in 2014 and 1 in 2015 with total proceeds in 2014 and 2015 of USD 112 million.
- Working capital was improved by USD 34 million.
- Coverage in Dry Cargo for 2015 was significantly increased to 55% in the fourth quarter of 2014.
- USD 221 million in new credit facilities secured to cover newbuilding programme.
- Cost saving programme focusing on vessel operating costs and voyage costs such as port charges, charges for tugboat services, etc. was initiated with the target of saving USD 20 million per year within 3 years.
- Dry Cargo Department was reorganised in order for NORDEN to make use of its flexibility and position in the market.
- Additional fuel saving initiatives were launched in the core fleet with the target of a 3% reduction in 2015.
- Hire savings of USD 10.5 million over 4 years on 9 chartered vessels.
As described under ”Outlook for 2015” ( pdf Annual Report 2014 pages 6 to 7), there are no prospects of improving market conditions in NORDEN's 2 markets. Especially the dry cargo market will be negatively affected by weaker Chinese demand and general excess capacity of vessels. Like previous years, the market is expected to be volatile. Periods with higher rates will therefore appear, but they are expected to be short-lived and of limited magnitude.
Compared to the 2 elements in NORDEN's business model, focus in 2015 will thus to a greater extent be on ”value creation throughout the cycle” rather than ”exploiting the cycle”. This implies:
Flexibility and prompt actions will be vital in order to make use of the market fluctuations. The opportunity to do so may be limited if the coverage in Dry Cargo is only sought in the form of long-term COAs. To a greater extent than in recent years, NORDEN will therefore make use of short-term chartering out to other operators and FFAs in order to be able to act promptly and generate as much value as possible. In addition, the Company expects to increase the activities within sale and purchase of vessels.
In weak markets, the daily focus on optimising the completion of each individual voyage becomes particularly important. Even though this has always been a focus area, NORDEN has decided to give these efforts extra priority by implementing a special cost saving programme to reduce vessel-related voyage costs. To this should be added continuation of the efforts to improve the vessels' fuel efficiency. Even after the drop in oil prices, it is still value creating to improve both vessel performance and operations.
In periods with low earnings, cost improvements are visible. As NORDEN has grown the number of owned vessels, costs related to the technical operations are of greater importance. In 2014, the structure and processes of the Technical Department underwent a thorough analysis for the purpose of future-proofing the department and ensuring competitive performance also within this field. In addition, the analysis also formed the basis for the intensified focus on vessel-related costs initiated by the Company in 2015.
More details on NORDEN’s strategy in the pdf Annual Report 2014 pages 10 to 11