Friday, Jun 21, 2024
logo
Update At 14:00    USD/EUR 0,92  ↑+0.0002        USD/JPY 151,69  ↑+0.174        USD/KRW 1.347,35  ↑+6.1        EUR/JPY 164,16  ↑+0.143        Crude Oil 85,49  ↓-0.76        Asia Dow 3.838,83  ↑+1.8        TSE 1.833,50  ↑+4.5        Japan: Nikkei 225 40.846,59  ↑+448.56        S. Korea: KOSPI 2.756,23  ↓-0.86        China: Shanghai Composite 3.015,74  ↓-15.745        Hong Kong: Hang Seng 16.512,92  ↓-105.4        Singapore: Straits Times 3,27  ↑+0.018        DJIA 22,58  ↓-0.23        Nasdaq Composite 16.315,70  ↓-68.769        S&P 500 5.203,58  ↓-14.61        Russell 2000 2.070,16  ↓-4.0003        Stoxx Euro 50 5.064,18  ↑+19.99        Stoxx Europe 600 511,09  ↑+1.23        Germany: DAX 18.384,35  ↑+123.04        UK: FTSE 100 7.930,96  ↑+13.39        Spain: IBEX 35 10.991,50  ↑+39.3        France: CAC 40 8.184,75  ↑+33.15        

Shipping forecast predicts rough seas and mixed fortunes

Interview - February 22, 2012
Mr. Nicholas Fisher, CEO, Oman Shipping Company, delivers a highly realistic appraisal of the Omani shipping industry’s immediate future
OMAN SHIPPING COMPANY
MR. NICHOLAS FISHER | CEO, OMAN SHIPPING COMPANY

What are the latest developments and most important topics in the shipping industry today on a global level?

It has been a terrible year in some sectors, and a bumper year in others. Unfortunately, through our diversified portfolio, Oman Shipping Company has been similarly adversely affected in some activities, but has managed to offset that in others. For us, the most challenging sector has been the crude oil sector, particularly the Very Large Crude Carrier (VLCC) segment, where the market has around 570 VLCCs worldwide. This is surplus to demand in terms of the volume of oil shipments, particularly coming out of the Gulf. There has been a slowdown in terms of oil production with the Libyan crisis, impacts of recession in the global economy, and there is tension right now in the Gulf about the issues surrounding oil exports out of Iran. These have all come into play to make it a very difficult market to operate in, where the industry has a lot of surplus, and expensive tonnage, some of which are idle or operating at below the cost of operating.

Oman Shipping Company have seen a number of pure tanker companies, particularly the New York Stock Exchange listed companies, filing for Chapter 11 during the course of last year, some of whom may be familiar to your readers. This is an indicator of the plight that this part of the industry has been in over the past 12 months, and that is not going to get any better any time soon. When the market has an excess of supply to demand in terms of shipping capacity, one way out of it is scrapping ships, and if a company has older ships, that is may be justified because the value of the ship versus the scrap value that can be derived from it has a financial benefit. But it is a relatively new fleet of supertankers, so that is unlikely to happen. So the industry has to wait until global demand or exports start to pick up again to satisfy that niche. That has been a big challenge, and is something that involves us as a company.

On the flip side of that, what has gone very well from a trade point of view is Liquefied Natural Gas (LNG), which is one of Oman’s primary exports.  The daily charter rate that a vessel can make has more than doubled from around US$60,000 per day at the beginning of last year, up to about US$140,000 per day at the end of the year. That increase in demand was mainly caused by the natural disasters occurring in Japan when the nuclear plants were shut down and subsequently switched to a very high degree of reliance on LNG, leading to a sudden increase in demand. Here there is a very small market of ships and a huge amount of production coming out of Qatar and other countries, and there are not enough ships to go round.  In simple terms, if a cargo owner can get a ship; owners can sit back and take the highest bidder. It is the reverse in the VLCC market – there are plenty of ships around and very few cargos, so the cargo owner can obtain lower prices.

Oman Shipping Company has been affected by both of those and they are both significant factors impacting the shipping market, particularly in the Gulf. The container sector is having another horrible year, but that does not really affect Oman Shipping Company, as we have limited exposure in this market.  As in any shipping market, when things are good, people continue to order or buy assets at the top of the market and the market turns to a free-fall situation where either demand tails off or through the arrival of additional capacity, creating surplus and returns are eroded.

What is your forecast for this 2012?

Oman Shipping Company has taken quite a conservative outlook for this year. For VLCCs, it is just going to be a horrible year and there is very little the company can do about that, and other tanker operators are in the same situation. The choices are to run the vessels at a loss, lay vessels up, or sell and get out of it. Either way, an operator has to make a decision which is going to cost less. That is all one can do, for the time being, in this Segment.

On the other hand, in other segments, many of our contracts are long-term, multi-year contracts (10, 15 and 20 year contracts), so when things are good, the Company lives with the agreed rates and generally cannot benefit from the market upturn, and when the going gets tough, the downside risk is somewhat safeguarded. The Company will continue to balance out the portfolio along those lines,  mitigating the risks by trying to make money during the good times and minimising the losses during the bad times on short term contracts,  and the rest of the business maintains a steady flow of revenues with long term contracts.

Investment in infrastructure is one of the priorities in the Government’s economic diversification strategy and Vision 2020 - US$1 billion has been allocated to the development of Oman’s new sea ports and the expansion of the existing ones. Given your vast international experience in the industry, could you comment on the current state of sea ports infrastructure in Oman, and what on-going projects will significantly impact the shipping industry?

The Government’s strategy is to share the growth across the country. Oman has a very mature development in the Port of Salalah, down in the south, emerging development in Sohar and of course the new Duqm Port project, in the start-up phase. Of course, port activity should exist to support the nation, and of course in Sohar there is logic for that, and there is a future logic for Duqm as well. But it is a little bit of a “chicken and egg” situation right now in Duqm, because there is very little there. There is a fantastic vision for the future, but of course to create that critical mass, and outside interest, to get involved in the port of Duqm, it is going to take time. Oman Shipping Company has supported The Oman Dry Dock Company with two dry dockings in the last six months. It is a good option and they have got a very good team down there, but it is an operation in its infancy, so it will take time for that to gain currency and be truly competitive in what is effectively a global marketplace.

On the other hand, there are very little imports and exports going on in Salalah. It is a shipping hub, so cargos which are exchanged there go up into the Gulf, down to the East African coast, India, or through to Europe and Mediterranean countries. Their import-export volumes account for around 5% of total volumes.

Sohar is very important. It has a huge amount of infrastructure and industrial investment. There is a requirement for a huge capital injection in port assets. It is developing, because these industries are now expanding and growing. Oman Shipping Company is already supporting some of these industries now, and we will be supporting Vale’s Ore Palletizing Plant as well with the new Very Large Ore Carriers being delivered, to Oman Shipping Company, later this year. That infrastructure development is essential, but it is there for a purpose – it feeds into the industry that is being developed. It is a natural add-on. But with Duqm, the port construction is building for the future. The Duqm dry dock has the capacity to handle our largest vessels, at 400,000 deadweight tons, having been built with that future requirement in mind and can logically handle all our Company’s requirements, but vessels ordinarily dry dock only once every five years (unless there is an emergency requirement). So from a business model point of view, Duqm dry dock has a lot of work to do, and Oman Shipping Company will of course work very closely with them to achieve their goals.

Can you give us a breakdown of your activities in the different ports?

In Sohar port, Oman Shipping Company is or will be involved with importing raw materials for two companies, Sohar Aluminium and Vale. Also, the Company is exporting limestone to India. In the LNG facility, in Qalhat, our LNG vessels export LNG to global markets.  Our container business now links Jebel Ali and Salalah, and over time we expect to connect all Omani ports to neighbouring hub ports.

Oman Shipping Company has seen quite an impressive since its inception - from one vessel in 2003 to an objective of 42 vessels by the end of 2012. What conclusions would you share with the international shipping community regarding the company’s growth?

The growth has been very quick; some would perhaps say too quickly. The birth of the company was on the basis of supporting the LNG market, and Oman Shipping Company now has 6 LNG carriers that we are operating. The step into VLCCs was a historical decision and does not exclusively support Omani oil exports. These exports are shipped on a “free on board” basis, meaning the decision to choose the shipping partner is made by the cargo customer, not by the exporter of the oil; hence the Company ships very few Omani oil cargoes. Similarly, the Company’s step into dry bulk shipping was brought about with a combination of government agendas and private investment from overseas companies in Oman, to build their and develop their facilities here, and where Oman Shipping Company can also support that by adding a shipping solution on a long-term basis with the likes of Vale and Sohar Aluminium.

This year alone Oman Shipping Company has delivered four new ships in the month of January, and the Company expects to increase the fleet by a total of 15 vessels this year. These orders were placed some time ago and are now just being delivered.  Oman Shipping Company will be out in the market this year either making new purchases or new charters to support customer requirements, as they develop, which will likely be in all our current industry segments.

You mentioned earlier that most of your contracts are long-term. Could you explain the principles that underpin your charter strategy?

It is a combination of long-term contracts with an asset life of 20 to 25 years. In this structure, our commitments to our customer is to service their requirements over the life of the asset. The other strategies are one, two, or three year charter periods, or even what is called the “spot market” which are on a single or round trip voyage basis. Oil tankers traditionally trade on the spot market. Our strategy is a combination of all of those. There is no one-size-fits-all, and it is about hedging risk. Having long term stability on the one hand, seeking a short term upside opportunity on the other hand and perhaps taking a risk.

What would you identify as your main strengths compared to other companies in the sector, particularly within the region?

Obviously our shareholding is a huge strength; 80% is the Ministry of Finance of the Government of the Sultanate of Oman, and 20% from Oman Oil Company. The Company has strong financial backing, security of capital and/or guarantees towards financial institutions. In terms of our relationship with our shareholder Oman Oil, their activities give us an opportunity to at least be at the table and involved in discussions for shipping solutions in their own projects, or partnerships. Oman Shipping Company has to compete on international terms. Just because Oman Shipping Company has the relationships we have does not automatically guarantee the right to carry the cargo.

Is there a possibility that part of the company will be floated on the stock exchange in the future as part of the Government’s privatization efforts?

Never say never. At the moment, it is not on the radar. But in terms of raising capital etc. maybe there is an opportunity to do that at a later stage. There is no expression from shareholders that they desire to do that right now.

When it comes to the expansion of the fleet, do you rather go for new vessels or do you find that second-hand vessels offer more attractive prospects?

Oman Shipping Company has done both. What the Company does in the future will really depend on what happens on the day of the race. First of all, what are the opportunities, where are revenues going to be generated and how do those revenues compare to the cost exposure. If the Company can jump into a long-term arrangement with a customer and can justify a new vessel building, which has its advantages in certain segments in terms of modern technologies, fuel consumption and environmental-friendliness, as well as complying with future regulation on emissions, ballast water etc., and then that will be the decision base.

If the business is moving dry bulk, iron ore and other dirty bulk products, a ship owner/operator can probably offer the same service with a 10, 15 or 20 year old vessel as can be offered with a brand new vessel. So then it is a question of how you want to offer that product. It is a mix between the two. Obviously in some sectors with an oversupply of assets in the market, the value of the assets are depressed. And then you get to the tipping point where the value of the asset has fallen to such a point where the return you get from scrapping it comes fairly close, then it is a no-brainer to get rid of it, scrap it and cut your losses or sell it onto another party.


How many vessels are joint ventures with other companies and how many are fully owned by Oman Shipping Company?

For operating vessels, Oman Shipping Company has 10 joint ventures with Japanese partners and another eight joint ventures with another Middle Eastern partner. You have got to look at the operating vessels as well as the vessels that are yet to be delivered this year as well. Out of the vessels Oman Shipping Company own outright, the four very large oil carriers will be 100% owned, but they are yet to be delivered. Then the Company will have 13 very large crude carriers when they are eventually delivered, which will be 100% owned as well. The other vessels the Company has are chartered in, either on a time charter basis or a bare boat charter.  On a bareboat charter, the Company charter’s the vessel and is responsible for maintenance and crewing.  All of these models have certain advantages, limited for a period of time, but avoiding the capital outlay for purchase, but taking the risk of operating etc.

In 2010, Oman Shipping Company had almost $20 million of profit. What were the financial results in 2011?

Oman Shipping Company improved its profit by 23% in 2011. When you consider the global shipping markets, it is a good result. During the course of that year, the majority of our contracts, even our VLCC contracts, were in long or fixed term deals. But some of those deals have changed and will see some effect of that in 2012, making it a more difficult year. In 2011, turnover increased up to US$278 million from US$236 million.

One of the reasons behind the establishment of Oman Shipping Company in 2003 was to re-vitalize Oman’s seafaring tradition and create job opportunities for Omanis. Could you discuss the current Omanisation level and the strengths of the Omani workforce, as well as the challenges you are facing in training and developing the human resources?

The Government Omanisation target is 85% (i.e. number of Omani Nationals employed by the Company), and Oman Shipping Company are at 86%. The Company is focused on revitalizing the Omani seafaring tradition. The International Maritime College (IMCO) was established in Sohar a few years ago, and the Company supports that college by providing up to 100 sea training positions a year for students of the college. Students of all nationalities are involved. That is our corporate social responsibility towards developing the training establishment as well as the opportunity for any Omani choosing a seafaring career to at least get their sea training done, even if they do not eventually work in the Omani shipping industry.

From 2012, Oman Shipping Company sponsors an intake of 30 officer cadets a year, and 40 ratings a year, the blue collar staff on board ship. That requires about 6 months’ training for a rating and 3 years for an officer cadet. Aside from sending our Officer Cadets to IMCO, some are also sent to the UK or Australia for their training. They specialize in either marine engineering or as a deck officer. The Company has sponsored 121 officer cadets to date and around 24 ratings, which sounds small; however at present we have two training positions on board each ship. Then of course those people have to graduate up the ladder over time. Oman Shipping Company is looking forward to having our first Masters (Ship’s Captains) and Chief Engineers in around 2016-2017. They will really be the first of a kind to be able to trade internationally with globally recognized certificates.

In our five year manpower plan, Oman Shipping Company would like to be in a position where around 60% of our fleet (based on 48 ships by then) will be Omani crewed. However, that is of course presuming that no one who joins then leaves, and that they all go through the pipeline. Of course seafaring life is not for everybody – it is time away from home and the conditions can be fairly arduous from time to time. Also there is the very real threat of piracy on our doorstep here, with a massive coastline and ships coming in and out of the Gulf, piracy is a daily risk. As a ship and cargo owner, that is just a commercial problem, but when people are involved, it is safety as well as an emotional problem. So that does feature in terms of people deciding on a career in seafaring.

You have an impressive background in the maritime industry and you bring a great wealth of knowledge and experience to your current position. What is your personal ambition with the Oman Shipping Company? What legacy would you like to leave behind one day?

It will be a company that will be well-known, well-respected and will stand by its word and deliver a quality product. It will be reliable. I like to think that if you take off the head of an organization, the organization will keep running. The Company will get there step-by-step. It is still a young company, and the internal experience in running a shipping business is still growing. But the Company is quite diverse as shipping companies go, and we need to be careful of being “a jack of all trades and master of none”.  Oman Shipping Company has set a target – stay with what the Company is good at, divest what it is not so good at, but at the same time maintain a diversified portfolio to spread the commercial risk and give shareholder return. That is why we are here. There is a lot of money being ploughed into infrastructure, capital projects, hospitals and schools. But here the Government wants to get something for its money, and Oman Shipping Company need to do that.

The trajectory the Company is embarking on over the next five years is getting out of what it should not be in, staying in what it should be in and doing more of what it should do, and perhaps jump into something that it has not been involved in to date. There is a natural synergy here with the overall Government agenda and the industrial expansion (i.e. offshore oil and gas exploration, which opens up a whole new chapter in Oman’s maritime industry.)

On a more personal level, as an expat living in Oman, what is it that you like most about the country?

The openness and the sincerity of everyone around, and the ease of doing business and getting decisions. My experience elsewhere in the Middle East has been slightly different, and here it is a lot easier. The Company has managed to achieve a number of things in the short time I have been here, where I struggled to achieve this elsewhere, for whatever reason. We, as expats, are all here to serve a common purpose. In the long run I am here to hand over to an Omani successor, whereas in other places it is about guarding your position. Here you hand over your experience to somebody you are happy can do a good job, if not a better job than you can. As long as people come into this Company with that mentality, I think we are on the right track.

Oman Shipping Company is operating in the international marketplace, whereas a lot of companies here are working only in the Omani marketplace or a regional marketplace. So our competitive landscape is huge, and we have to operate in a cost-efficient and productive manner, at competitive market prices. If we are not as competitive as everyone else, then why are we in this business? Oman Shipping Company is fortunate to have people with the right mentality here.

2011 was a particularly dramatic year for the Middle East and North Africa (MENA) region. The pictures of uprising and bloodshed have been spread around the world. Unfortunately people who do not know the region well tend to think of the Arab world as one and do not differentiate one country from another. What do you think is important for the international audience to know about Oman today?

I would call 2011 the year of awakening. It is a new dawn. His Majesty has the most fantastic vision for the country, and he is a true leader in terms of what he has achieved in a short period of time. In many cases Omanis can do the jobs, but in some cases they are not yet ready because they require training and experience. There is also an expectation of being paid more for the job being done, than the employer may consider the individual is worth. That awakening occurred last year and that has been pushed back across all industries, and also here in this company. It is about managing expectations. When someone can do the job, with the relevant experience and qualifications, then they’re perhaps worth that amount of money, because that is what the market pays. But do not come asking for above market wages for a job that a person cannot even do yet.

So it is a bit of a trade-off between the Government agenda for increasing employment and education levels across the country. Oman Shipping Company do not accept simple certificates of attendance at educational institutions, but demand certificates of competence, and, as a Company, we have to be careful of that, and I think we’re on the right path. Oman is a very stable country generally speaking, but this awakening has brought the whole issue of industrial relations to the forefront. There is no history of industrial relations in Oman, so neither employers nor unions have much experience, and both are learning to co-exist.

Our Company is slightly different of course, because our seafarers are working in an international marketplace and our seafaring contracts are governed by International conventions, and International Transport Federation (ITF) standards. It also means that the Company applies the global standards of compensation, and if the employee can “tick all the boxes”, he/she is worth it. Some may be upset that the Company takes this approach, but in any other country or society we have to put the work in to justify the compensation.  Some people think they can go and get their sponsored degree simply by turning up every day, and not necessarily passing an exam, and then apply for a job and ask for lots of money, without the work ethic.  The Company would rather choose somebody who has had to scrimp and save and put themselves through their own education, or even their parents helping, and have a can-do attitude to self-advancement. These people are hugely ambitious as well as really capable. They are the people that certainly we are looking out for and they are worth something. I say the greatest compliment to me is having a member of my staff headhunted, because it means they are good enough. It means that I have done my job and the organization has done their job.

  0 COMMENTS