While integration of Bergesen is running smoothly, a mountain of rules mean shipping is losing its traditional freedom of the seas, international character and diversity according to World-Wide Shipping Group chairman, Dr Helmut Sohmen
Demands for capital intensive investment and a high level of technical competence have hitherto closed the door to many conventional shipowners looking to break into the LNG market, which is characterised by a few specialist players with great growth potential. But World-Wide Shipping Group chairman, Dr Helmut Sohmen, believes World-Wide’s strategic acquisition of strong gas carrier operator Bergesen will enable the tanker owner to overcome these hurdles by creating a larger and more diversified organisation with greater capital-raising potential and solid technical and operational experience in the gas shipping sector. While the combined company will maintain a foothold in traditional tanker activities, it intends to increase its exposure to businesses that are expected to generate higher returns and more stable earnings, with particular emphasis on LNG.
The Bergesen takeover, finalised this spring, has given World-Wide ownership and commercial control of 84 vessels, of which 71 are tankers (gas, chemical and oil) and 13 are bulk carriers. The inclusion of the Bergesen vessels in the World-Wide fleet (26 VLCCs, with two more on order, and several smaller tankers and bulk carriers) brings balance to the World-Wide organisation and diversifies its cash flow.
Gaining business
Aware of the need to be a heavyweight player to succeed in the LNG sector, Dr Sohmen believes the Bergesen deal strengthens World-Wide's ability to gain more business in the future.
"I am pleased that the transaction and change of control have been smooth, and that, despite the initial surprise of many observers in Norway, the business logic of the deal has by and large been accepted. Both Bergesen and World-Wide Shipping have their origins in strong founding figures, similar operating philosophies and an inclination for solid financials. Both enjoy an excellent brand name in the bulk shipping industry built on the professionalism of our people."
Dr Sohmen continues: "The consolidation of ownership of these two companies should produce synergies as well as an ability to explore new business opportunities together. It has been agreed that the companies will continue to operate from their existing bases and with their own respective management and Board of Directors."
The company is eyeing business opportunities in "several markets", says Dr Sohmen, including China and Japan. China is looking to increase gas consumption to 6% of all fuel used by 2010, up from the current 2%. Its first and second LNG terminals are already under construction. A Bergesen office in Tokyo was set up last year and the plan is to target Japan more, the most important gas-carrier market in the world.
Says Dr Sohmen: "We are working actively on several new LNG projects and the prospects for stepping up the company's involvement in this area are good. The charterers are, to an increasing extent, looking to operators to take total responsibility for oil and gas transportation, which demands a higher level of expertise from the operator."
LNG commitment
Signalling its long-term commitment to the LNG market, Bergesen has recently taken delivery of a second newbuilding and has five more ships currently on order. The company plans to own 15-20 vessels by 2010.
The World-Wide – Bergesen partnership gives clear strategic benefits to both companies. "Bergesen has long experience and a good reputation in the gas sector, in which a high level of technical and operational expertise is essential to compete effectively. The partnership with Bergesen will give us access to extensive competence in the gas-carrier market," says Dr Sohmen. ‡
Bergesen's current deputy managing director, Jan Håkon Pettersen, who will become managing director of the new-look Sohmen-family-controlled version of the company at the end of this year, believes the two companies have complementary areas of competence and fit well together.
"Although the future LNG market will probably feature stiffer competition between players,
the long-term contract market is expected to remain the exclusive preserve of companies above a certain size and with good financing. With this in mind, we believe the Sohmen buy-in gives Bergesen an even more solid capital base and thus strengthens its ability to gain more business with new charterers," says Pettersen.
The protracted nature of the Bergesen deal shows that Dr Sohmen has a long-term, clear strategic vision of how to incorporate the pride of the Norwegian fleet into his expanded empire. He is taking a longer term view of the market and positioning himself for the next 20 years. The environmental issues are close to his mind and pure reliance on oil transport over the longer term "is not particularly sensible".
Roller coaster ride
This view is set against a recent background of boom and bust freight rates in oil transportation. For the bulk shipping industry, the last quarter century has been like "riding a roller coaster" according to Dr Sohmen. The slump in freight rates due to the oil-price rises in the 1970s lasted for 10 years. Then the first Gulf War led to a short-lived rise in rates, followed by another eight years of recession. Rates only started to rise in 2000 and are currently almost at their peak believes Dr Sohmen. "Another slump will come again, especially with the global worries about economic growth, the capacity of the world’s shipyards, and the looming deflation in the developed world," he warns.
Of the performance of other shipping sectors in this same quarter century Dr Sohmen notes an impressive growth in container shipping, in terms of cargo volumes shipped and vessel size. He also alludes to the relatively recent emergence and strong expansion of the floating oil production and storage unit sector which, like the gas carrier sector, Bergesen has brought experience of to World-Wide. On the shipbuilding front he points to the "huge increase" in shipbuilding capacity in South Korea and China in recent years.
Rule mountain
While such developments are far from insignificant, Dr Sohmen believes it is the change in the regulatory environment in the past quarter century that has had most impact on shipping. "Governments' increasing involvement in shipping affairs has been the most important change during the period. This started off due to the perceived need to impose stricter ship construction and operating standards following a few disastrous accidents and environmental pollution cases, and to worldwide calls for greater transparency and accountability in business in general," he says.
"Matters that used to be subject to self-regulation and the standards of classification societies and professional bodies are now subject to a mountain of rules and regulations with which shipowners and operators must comply in order to be able to trade their vessels.
"Shipping's traditional freedom of the seas, international character and diversity, which have historically been viewed as positive characteristics of an extremely competitive and cost-efficient service industry, are now being replaced by rules that are specific to each part of a ship, member of a crew and aspect of a ship's operation at sea and on land.
"Politicians everywhere are now imposing legislation, stringent controls, penalties and higher insurance coverage on shipping in their search for quick and popular solutions."
Leaders required
"Due to the fact that the industry has no leaders and no political influence, flag and port states have easily managed to place new responsibilities on the shoulders of the shipping companies without usually having to share the ensuing costs," continues Dr Sohmen. "Non-governmental organisations view targeting the shipping industry as an easy way to achieve their aims of improving the world. They often conveniently forget the maritime industries' initiatives and contributions aimed at aiding worldwide economic growth and promoting and protecting the well-being of most of the world's population.
"Like other industries, the shipping industry must continue to strive and improve. However, it does not deserve to be treated as a convenient scapegoat or a ready source of funds. Maybe we have not made such a lot of progress over the past 25 years, or managed to make people in general understand shipping and its importance."