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Arab Shipping Repair Yard buoyed by its diversification

Interview - January 15, 2014
Founded in 1977 in Bahrain, ASRY (Arab Shipping Repair Yard) has over 35 years of experience in marine asset optimisation and is the Arabian Gulf’s most experienced ship and rig repair yard. After rebounding from economic crisis that rocked the country's maritime industry, ASRY's Chief Executive Nils Kristian Berge explains how the company is successfully diverisifying its operations and expanding its business
Bahrain’s Economic Vision 2030 focuses on shaping the vision of the government, society and the economy, based around three guiding principles; sustainability, fairness and competitiveness. What role does the industrial sector have in the future diversification of Bahrain and how does ASRY fit into its Vision 2030?
35 years ago, ASRY started as an initiative amongst the Gulf Cooperation Council (GCC) plus Iraq and Libya to capitalise on the growing ship traffic of the time in the region. Since then we have gradually developed the yard to become a maritime hub. With the Vision 2030 we will further grow industry in this region and Bahrain, and the strategy of ASRY fits well with the Vision. 
Over time we’ve grown steadily - shipping enjoyed a strong upturn from 2002-2003, when there was a continuous boom in activity worldwide, with the new buildings and growing freight trades, the owners invested heavily. The ship repair sector benefited from that. We grew significantly in that period, specifically from 2005-2008, which is why we had an increase in revenue. That also helped to further expand the yard and make decisions to grow our facilities by investing in more space, which we opened in 2011 when we inaugurated the new Quay wall expansion. 
Then came the downturn in 2007-8-9 worldwide, which had a huge impact on the maritime industry, including ASRY. That is when the current board and management saw the need to look at the future of ASRY and diversify instead of relying only on the ship repair side. We saw that the offshore sector and specifically the rigs in this region were increasing. Therefore we moved into that area by forming ASRY Offshore Services as a business unit. Specifically targeting the rig repairs, which is very closely related to ship repair, the facility, workforce, equipment, all our resources overlap with that business model. That has been very successful. 
Together with the development of all the facilities, that put us in a situation to have more than one revenue stream. Our income sources are multiplying. We also complete industrial work in Bahrain outside the yard, supporting navy vessels. In the future we will be focusing more on the Saudi Arabian market - we have established an office there to pursue that market, more land-based industrial projects and land rigs, giving support in terms of expanding the business. All this is in line with Vision 2030 to further develop the business in Bahrain.

That coincides well with the strategy of this company. We enjoy good support from our shareholders, Bahrain being a major shareholder locally and also Mumtalakat. The vision of 2030 and the vision to further develop and grow ASRY are pretty much in line.
What is the trend for recovery that we have seen in the market in the first quarter this year? Is it a solid trend or shall we still expect fluctuations in the demand?
The ship repair business is very dynamic, as is the rig repair business. In recent years we saw two new yards emerge in the Gulf, there are now four major yards in the region, whereas before there was just two – ourselves and Dubai Drydocks. The new yards have added capacity to an already crowded market. If you combine this with the tough market for the ship owners who are still not making much money and their dry-docking budgets being kept to a minimum, the situation is very competitive. Although there is a small recovery in the freight weights but still many owners are struggling and not making large profits. 
We have a very good customer base that we have developed relations with over the years. We also have a lot of repeat business, which is the key of our success; establishing and maintaining long-term relations with the customers and generating repeat business over time. This year we have had continuous improvement from prior years with a further increase in revenue in 2010, 2011, 2012 and 2013. I still see 2014 as a tough year for the owners. There are no signs of huge improvements in the freight market. The fuel bunker prices remain high, that consumes a lot of the costs for the owners.

Even though the freight weights are showing improvement, there are still high costs. 2014 will be a challenging year for many.
Concerning the prices, what are some of the advantages of being in Bahrain as opposed to all the other shipyards that are in the region? We know that East Asia is growing a lot in terms of repairs as well. What are the advantages of being here?
Firstly, one advantage is that international owners are not paying any tax on their repairs here (except a few US flag vessels). Even US owners who pay tax have the advantage of the free trade agreement that benefits ASRY as there are a lot of US vessels in the region and we do quite a lot of work with them. It is a huge benefit for us to have the free trade agreement with them. The second benefit with ASRY in Bahrain is that we have a very good location; there is a lot of vessel traffic in and out of the region. We complete dry-dock repairs when the ship is open and there is no cargo. In the region there are a lot of ships discharging and reloading, or they come empty and go into load.

The location of ASRY is very good and that was taken into account when they did the preliminary study on where to place the shipyard 40 years ago. Bahrain has the best strategic location. It has become a very good hub for transportation to get a connection worldwide; you can get in equipment and people. We have a visa on arrival system which means for the majority it is easy to bring people in. 
We have found that Bahrain has really adopted its tagline ‘Business Friendly Bahrain’ – the island is very business-friendly for customers in terms of importing spare parts and labourers. It is a much easier place compared to other places in the region to bring in those resources and get things done quicker. Thirdly, at ASRY we have over 25 specialist contractors in the yard, providing us and clients with specialist services. Now we are covering more or less every single service for owner’s ship repair.

This is one of our clients primary reasons for using us.  The whole set-up of ASRY and Bahrain is impressive. I have been on the other side of the table for 16 years (when working as a Ship Manager). The efficiency we offer is extremely important to the owners. Waiting is very expensive.
Before we talk about the business expansion and the diversification of business, we can talk about the physical expansion of the yard both in terms of technology and space. What is the progress that has been made in the 5-year plan after investing more than 190 million USD. What are the upcoming plans?
The latest one that we recently completed is for $188m project to further expand our facilities and land area. The north part of the yard was completed, including the 1.2km quay wall. We also have new workshop facilities for our contractors. Some of our specialist contractors have built their own large workshops, we provide them with the land and building and they do the outfitting of the workshops.

That allows us for more fabrication area for new construction modules. We also built 4 new tugs as part of the expansion project since we are a port and we do all our own maritime shifting. When a vessel comes to the inner anchorage, it is ASRY’s crew and docks that take the vessel alongside, remove it from the berth into the docks and back to the berth and back to the anchorage, which is also another strength of ASRY because then we control all the phases.

In regards to the company’s diversification scheme after the global crisis, and taking into account your expansion in consultancy and investment, what have been the most successful diversification strategies taken?
We have expanded the business vertically into a greater variety of services but which are related to our core business. We mentioned the focus on rig repairs with the ASRY offshore services. We have also expanded the engineering capacity and formed a Consultancy Division to have more resources in that area, to support the in-house requirements for engineering services. 
Also, to be in a position to offer engineering services to our clients is a strategic move because there are a few major new IMO regulations coming up which are requirements for installing water balance treatment systems on board of the ships and the new emission regulations which will require retrofits of emission and fuel treatment systems on board of the vessels. Both of these have quite a big impact on the vessel investment, money-wise, for the owner but also the physical installations of these kinds of equipment need modifications.

This is why engineering services will be of the utmost importance - owners will need to look at the impact and at the installation requirements. These are the services we have targeted and we are working with the owners in a system so that we can make the evaluation of systems available and their impact. Therefore Consultancy is one diversification that will come into prominence in the future. 
Another one is that we will be focusing on new buildings and construction. We have built smaller vessels in the past and we look forward to use the facilities to target smaller vessel construction for owners operating in the region. We cannot compete with the larger new-building prices in China but we can compete with smaller units built and operated locally. Engineering support is necessary to design the vessel and construction.

An example of engineering and construction services is a design for the floating power plant units, which is a power plant on a barge that we can manoeuvre into areas which have more restricted access. This is a design we have developed here, which we are developing in a joint venture with the UK company Centrax, providing the power plant and gas package generators. 
All of our diversification are derivatives of our core capabilities; we can use the facilities that we have developed with the land space, equipment, and 35 years of experience. These are the main areas we are targeting: ship repair business, rig repair business, engineering support business in future and construction work for the local region. 
What is your evaluation of the Bahraini workforce both in terms of high skilled management and engineering as well as competitive lower skilled workforce?
We have a mix of expats and Bahraini workforce here, and as such we have programs in place to take in and train Bahrainis to develop them for different positions.

We started an apprenticeship program last year. We also do on-the-job trainings where we select people and put them on a training scheme internally to further educate them and place them in jobs. Bahrainization is about 32%. It is an active strategy to further source and develop. The initiative on the apprenticeship program is to identify good candidates from universities and schools and take them into higher levels of education combined with the practice.

We have 2 batches out now; we will start with the third one shortly. We are working closely with ECBIT, which is a UK-based company for that purpose. We are also tied up with Tamkeen and the National Institute of Industrial training, the NIIT, for which we have an on-going program for 4 years now. 
Given the economic trends of the past year and given what is going on this year there are signs of recovery. You said 2014 will still be tough but it will be a year for growth. How do the next 5 years look like for the company? 
We will further expand and develop the company along the lines of businesses that we have identified with highest-margin growth potential. Globally, we see the ship market and fleet is increasing in size; it has never been as big as it is today. The requirements for docking will increase over the years, and 2016, 2017, and 2018 will have high numbers of vessels that need to be docked.
I see that in 4-5 years time we will have bigger share of the rig business in Saudi Arabia, we will be regularly completing independent engineering jobs through the Consultancy division, we will have a multiple small new-build projects underway, and both ship and rig repair will be the pillars of our business.