Norden says it cannot change the poor markets – the dry cargo market in particular – but what it can do is a lot of things to get the best out of the current market conditions. And that is precisely the aim of the updated strategy and what everyone at the company will be focusing on in 2015.
”At the end of 2013, we expected that the markets would gradually improve in 2014. Therefore, Norden formulated an updated strategy based on the expectations for improved market conditions in both dry cargo and tankers in 2014. Halfway through 2014, it became evident that the expected improvement was not going to materialise, and we have reacted to this,” says interim CEO Klaus Nyborg.
Chinese growth plummeting
Norden believes that the dry cargo market will continue to be badly hit as low growth in Chinese imports continues and as the large excess capacity of vessels together with the option of increasing the speed of vessels reduces the chances of lasting improvements of the ratio between demand for transportation and the supply of vessels. As in previous years, the market in 2015 is expected to be volatile.
Taking the initiative
In order to improve its positioning towards the difficult markets, the company has implemented a number of initiatives:
• The investment programme was halted in the first quarter of 2014, and no additional vessels were ordered in 2014
• Five vessels were sold in 2014 and at the beginning of 2015, including two newbuildings, worth $112 million
• The company made use of its flexible business model and reduced the chartered fleet and thus the activity level in dry cargo significantly
• Working capital was improved by $34 million
• Coverage for 2015 was increased significantly
• The company secured $221 million in new credit facilities to cover the newbuilding programme
• It implemented a cost saving programme focusing on vessel operating costs and voyage costs such as port charges, tug boat services, etc. is to generate savings of USD 20 million per year within a 3-year period
• The dry cargo department was reorganised with focus on greater flexibility and better use of NORDEN’s fleet size and position in the market
• Continued sharp focus on fuel savings
• Advance payment of chartering agreements resulting in savings
The 2-element business model
Norden’s business model is based on two elements: Exploiting the cycle and value creation throughout the cycle.
Exploiting the cycle is about assessing the market conditions and then adjusting the exposure to the market by means of owned vessels, long-term chartered vessels, long-term contracts and financial gearing.
Value creation throughout the cycle is about creating more value than the competitors – regardless of the market conditions. This is done through optimisation of cargo contracts (dry cargo), short-term chartering in and out of vessels, optimisation of trade composition and positioning, exploitation of seasonality and volatility and vessel selection. Other important elements of value creation throughout the cycle are voyage execution, including fuel optimisation, and cost efficiency.
”In 2015, focus will to a greater extent be on value creation throughout the cycle rather than exploiting the cycle” says Klaus Nyborg.
3 ways to create value in a poor market
Value creation throughout the cycle has been given three main headlines, which all of the departments at Norden's head office in Hellerup are now working with and which all departments have contributed to in the form of concrete and measurable targets for 2015. The headlines are:
• Commercial agility
• Cost drive
• Performance culture
”Commercial agility and quick actions will be crucial in order to exploit fluctuations in the market. This can be difficult to do in the dry cargo market if we have too many long-term cargo contracts. In 2015, Norden will thus to a greater extent than in recent years make use of short contracts, etc. We will also increase activities within sale and purchase of vessels,” says Nyborg.
This article originally appeared in Norden's News Magazine Spring 2015.