Quite horrible. These are the few words Martin Badsted, Executive Vice President of Norden, needs to describe the carrier's results for the 2nd quarter and the first half of 2014.

"The spot market has quite simply gone from bad in the 1st quarter to even worse during the summer, where developments in coal volumes, in particular, have gone in the wrong direction. This hurts imports to China as well as Japan and Europe, the three biggest coal importing countries and regions. So it's been tough," says Martin Badsted, who - like the rest of the carrier's senior management team - will now have to consider whether the strategy implemented in early 2014 to increase exposure to the short-term spot market, at the expense of many years with major coverage through long-term contracts, was the right move in light of the downturn in the bulk market as a whole.

Not the expected returns

"A strategy is several things. We're still pleased with our decision last year to invest a significant amount of capital in new ships set for future delivery. Our broker estimates are still USD 94 million above the book values and purchasing prices of our ships. On the long-term we still believe that 2013 was a very good year for investing in assets."

"But as for the part of the strategy aimed at keeping the book fairly open for 2014, of course we have to say that this did not produce the intended returns. On the other hand, I must say that I'm not sure there was anything much better we could have done. What we could have covered the book with back during last year was certainly not very attractive either," Martin Badsted tells ShippingWatch.

Norden invests in five new eco-design ships

Norden developed an updated strategy back in the fall of 2013, based on factors such as the prospects of improving markets. The strategy was headlined "Capture value in improving markets," as the carrier was hoping to make money in a growing market. But now, after just six months, the carrier is forced to adjust the strategy launched by former CEO Carsten Mortensen. The strategy represented a break from many years in which the major dry bulk and tanker carrier had been well-known for being cautious and focusing on shareholder returns.

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Norden's business model is also - and to a large extent - based on the fact that the carrier continuously charters new vessels on, for instance, 3-5 months charters once it lands a cargo contract.

Negative coverage contribution

"The market we've been through these past six months has been characterized by the fact that a ship on a 3-5 month basis has cost perhaps USD 10,000 per day, while the spot market has been at USD 6,000. In effect, this means pouring a negative coverage contribution of USD 4,000 per day into the transaction. We've stopped doing that and, instead of taking on new ships, we've now returned everything we can in order to get these costs out of our books. We can always gear the activity up again if we believe it can produce a profit," says Martin Badsted.

Norden changes strategy after 6 months deficit

Like most of the dry bulk market, Norden expects the market to improve toward the end of the year.

"In terms of seasonality, we normally see the biggest dry bulk volumes - and tanker volumes, for that matter - at the end of the year. This period typically brings higher volumes from the Brazilian iron ore mines, and there's normally a little stockpiling going on in the coal market. We also believe that some of the negative conditions that have hit the market in the first six months of the year are temporary."

Norden's half-year result, published Wednesday morning, contained a deficit of USD 68 million, and the carrier also lowers its expectations for the full year 2014 to an operating result, EBITDA, of USD -60 to 0 million.

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