A more aggressive approach in short-term deals in the multipurpose market all the way down to single trips, and considerable caution in longer contracts with a large and variable fleet that can be adjusted up and down with very short notice.
This roughly constitutes the recipe from Thorco Shipping's CEO and co-owner Thomas Mikkelsen regarding the operating plan that will run the Stadil-controlled multipurpose carrier through the almost perfect storm in a market that, according to the most critical analysts, could last for years and maybe the rest of this decade, just as in the collapsed and historically weak dry bulk market that project vessels typically are connected to.
Thorco took the loss
In 2014, Thorco Shipping took some economic blows after taking super heavy lift vessels - with a lift-capacity up to 800 tons - into the fleet in order to be able to offer a wider range. In Thomas Mikkelsen's words, it cost a lot of money to move in this direction with big exposure in a lot of equipment that the market would not reward.
These super heavy lift vessels as well as other smaller vessels - about 15 within the last six months - are now sent back to the owners without renegotiations of the contracts. Thorco Shipping took the loss, made an exit and returned the the company's core business which has typically been in general cargo and project cargo, while at the same time Thorco Shipping can continue to service the market with heavy lift vessels up to 500 tons.
"Even though, we have downgraded the fleet and even though we have had some poor economic results, we have chosen to maintain the global platform and our staff of employees worldwide. The extra time and extra capacity that is created in our respective offices and among our employees, because we currently do not have the same fleet on longer contracts, needs to be transformed into a more aggressive approach to the short fleet that we have ahead of us. This is a transition that we need to adapt to and get better at. We believe that we have one of the world's best global platforms with the widest network of our own," says Thomas Mikkelsen.
Thorco Shipping has currently downgraded the fleet from about 100 to around 75 ships, but the company continues to be one of the world's three largest carriers measured in the number of ships and the amount of cargo in the multipurpose segment, which includes big players such as German BBC Chartering, US-based Intermarine and Hansa Heavy Lift.
In spite of the difficult market conditions, Thomas Mikkelsen can not imagine Thorco's fleet becoming smaller in the basis fleet, than it is today.
"A large portion of our ships are our own and many of them are in pools and in commercial cooperations with important partners for Thorco. We're not ready to cut these vessels loose and based on this, I don't believe that we can tighten much more," Thomas Mikkelsen says.
In 2014, Thorco Shipping suffered a net deficit of USD 19.5 million, when the otherwise favorable oil price also hit the company in the shape of fluctuating activities in the transport of equipment in the oil and gas industry. Thorco Shipping is part of the Stadil family's conglomerate of companies in Thornico, which provides capital for the loss-giving shipping activities. In 2014, Thornico granted a three-year loan of USD 38 million to Thorco.
Part of the rough conditions in multipurpose is that other carriers go for more of the same cargo, especially the dry bulk vessels in the segment handysize and container ships.
"Like the last couple of years, 2014 was generally a difficult year for international shipping characterized by keen competition within the multi-purpose segment in which Thorco Shipping operates, but also by increased — and unprecedentedly keen - competition from other shipping segments, primarily handy-size bulk," said Thorco Shipping in its 2014 annual report.
According to Thomas Mikkelsen, what is taking place is a severe cannibalization, and he is generally cautious in assessing when the multipurpose market may begin to recover.
"Multipurpose is dependent on a strong bulk market, which in recent years has been somewhat of a catastrophe with historically low levels. For us, we are in multipurpose and general cargo also hit by the arrival from other segments on ordinary cargo. This has a huge effect in our market where we are also impacted by container shipowners taking simple project cargo."
"We believe that we have a good strategic and well-positioned platform, but we need to see some real signs of improvement in the market before we get involved in longer and more risky projects. There is a lot pointing to an improvement in the market being far off in the future," says Thomas Mikkelsen.
Asia and North America
A large portion of Thorco's fleet is employed with cargo out of Asia towards Europe, South America and Australia. About 45 percent of the total shipping days are East of the Suez.
Meanwhile in recent years, Thorco has worked with a focus on strengthening the North American market from its office in Houston, and where US customers are among the most important for Thorco Shipping, says Thomas Mikkelsen and highlights that Thorco's greater aggressiveness in the market is supported by the owner Thornico controlled by the Stadil family.
"This shows, that we have strong support from our owner and that we have the backing to do some things in an otherwise struggling shipping market."