Based on NORDEN’s unchanged overall business model and the continued ambition of generating a higher return than that of comparable shipping companies, the strategy has been adjusted in order for the Company to benefit from the changed market conditions.
Market expectations were relatively negative at the beginning of the strategy period 2011-13, which the strategy Long-term Growth in Challenging Times took into account. The outlook is now more positive, and the new strategy has been named Capture value in improving markets. On the basis of an improved outlook for the general market level within both dry cargo and tankers, NORDEN changes focus in a number of areas with its new strategy.
NORDEN will take advantage of the expected upturns in the markets in the short term while improving the Company’s long-term competitive position
In the previous strategy period, the challenging market conditions made it difficult to generate a profit, and focus was very much centered on protecting the Company against and reducing loss. Focus is now directed towards the opportunities of generating returns in improved markets.
Newbuilding prices and ship values are still at a low level in a historical perspective, and it is deemed attractive to continue investing in owned and chartered vessels increasing both short-term and long-term exposure. As at the same time, ship values are expected to increase from the current level, it will only be interesting to a limited extent to sell vessels in the short term.
Prior to the improvement of the product tanker market, NORDEN’s investment focus was on the Tanker segment whereas investments in Dry Cargo were only initiated at the end of 2012. The potential for improvement looks more promising in Dry Cargo than in Tankers, and consequently, NORDEN will place a larger part of the investment activity within Dry Cargo in the coming year.
In markets with low rates, it has been attractive for NORDEN to have a relatively low gearing. It is still deemed appropriate to have solid capital reserves given the volatile markets and NORDEN’s significant T/C fleet, but as the market outlook improves, gearing can be increased. This has already been initiated, and gearing (net) has gone from its lowest level of 0.13 in 2010 to 0.84 at mid-February 2014.
In recent years, a considerable part of the capacity of NORDEN’s Dry Cargo fleet has been covered on cargo contracts. Long-term cargo contracts and close relations to customers will continue to be an integrated part of NORDEN’s dry cargo business, but in an improving market, there is a higher demand for profitability, and NORDEN will thus operate with a lower level of coverage in order to benefit from the expected increasing rates. Furthermore, NORDEN wishes to benefit from the improved tanker market expected in the coming years and will therefore maintain the share of the Tanker fleet’s capacity employed in the spot market.
In the previous strategy period, NORDEN focused on growth in cargo volumes and achieved a growth rate of 20% p.a. At the same time, the number of new customers has increased by more than 130 new customers in 2013 alone. In the coming strategy period, the target of growth in cargoes will be set at 5-10% p.a. with a focus on cargoes providing the greatest positioning gain. The target reflects that NORDEN wishes to maintain the strong customer and cargo focus but will, at the same time, abstain from business which has been priced low.
Low rates and high oil prices have resulted in a great potential for value creation by focusing on fuel efficiency and slower sailing (slow steaming). It is estimated that there is still significant potential for value creation within fuel efficiency, and as markets improve, focus will shift from slow steaming to right steaming. It may, in other words, be profitable to sail at bit faster in order to arrive in time for a new lucrative cargo.
NORDEN has adjusted the implementation of the strategy Longterm Growth in Challenging Times concurrently with the changes in the market outlook. The new strategy Capture value in improving markets has thus overlapped the old strategy in many areas. This is the case e.g. within investments where NORDEN since the beginning of the fourth quarter 2013 has invested in new tonnage – primarily within Dry Cargo – of USD 298 million of which USD 217 million can be ascribed to contracts entered into in 2014. Gearing has simultaneously increased to 0.70 at 31 December 2013, and coverage in Dry Cargo and Tankers at the beginning of 2014 was 17 and 3 percentage points, respectively, lower than at the beginning of 2013. The strategy is generally long-term, but strategic flexibility is a necessity in markets as volatile and unpredictable as dry cargo and product tankers, and NORDEN will continually monitor the development and outlook and act on the basis of these.
More details on NORDEN’s strategy in the pdf Annual Report 2013 pages 10 to 12