Challenges ahead for Norden

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Monday, 16 March 2009

Dampskibsselskabet NORDEN A/S operates globally in the dry cargo and tanker segments with one of the most modern, flexible and competitive fleets in the industry of 170 vessels. The Norden management paints a relatively gloomy picture of prospects for the dry-cargo and tanker markets going forward with rates set to fall.The bottom line for 2009 is expected to come in vastly weaker to last year. Norden is adjusting capacity, activities and costs to the changed market conditions. Meanwhile, NORDEN is also positioning itself to take advantage of any opportunities to strengthen its position in the dry cargo and tanker markets in the long term.
Analysis
NORDEN is one of the oldest listed shipping companies in the world.  They are one of the world’s largest operators of Handymax and Panamax vessels and also have significant activities in the Handysize and Capesize segments as well as Post-Panamax as from 2009.  In tankers, NORDEN is active in the Handysize, MR and LR1 product tanker segments. The Company’s product tankers are commercially operated under the 50%-owned Norient Product Pool, one of the largest product tanker pools in the world.
Unlike most US-listed shipping companies, who are mainly vessel providers; Norden is a major world drybulk cargo operator with direct end user relationships and a large contract book.  Their employment portfolio consists of COA's, time charters, FFA positions and spot employment.  To service this contract base, they maintain a core fleet of owned vessels and vessels on long-term charter supplemented by short-term charters and vessels chartered for individual voyages.  With this fleet mix, they are able to adjust their capacity and costs to changing market conditions.
They have a large number of purchase options for active vessels as well as vessels for delivery. These options contribute to the Company’s flexibility.  By contrast,  many new US-listed companies have expanded by large block vessel purchases.  Nearly all their vessels are chartered out to cargo operators.   Navios is an exception with a cargo book and chartered in units, but this business model preexisted before the present Greek management bought out this, older established company.
The Norden management early worked to reduce capital gearing by selling vessels for which they booked profits of US$ 298.97 mio on disposals in 2008.  They maintain considerable liquidity, going into 2009 with US$ 807 mio in cash plus US$ 22 mio in marketable securities.  In the short term, the Company is adjusting capacity, activities and costs to prevailing market conditions. 
As vessel operators with direct end user relationships, Norden has been feeling the brunt of counter party risk.  In a number of situations in their COA business, Norden has aided customers and business partners by deferring contracted cargoes.  They were hardest hit with two time-chartered out vessels by the bankruptcy of a dry bulk operator in 2008, which cost them US$9 mio and a further US$17-19 mio hit to be felt from the same bankruptcy this year.
Norden's case is indicative of the current state of the industry right now.
Source: Gerson Lehrman Group