Golden Ocean Group Limted - Essay Example

Golden Ocean Group Limited Golden Ocean Group Limited Introduction Golden Ocean Group Limited has been in operation for only eight years, a period that the company has established a footing as one of the leaders in the shipping industry. The company came into existence towards the end of 2004, and subsequently traded on the Oslo Stock Exchange on 15 December the same year following its successful listing after demerging from Frontline Limited (Golden Ocean, 2010). Since its inception, the company has managed to achieve numerous milestones in the shipping industry. In this regard, the company’s mission statement has become the leading principle that aims at achieving customer satisfaction through offering flexible and reliable services while ensuring high return on investments to the company’s shareholders. While using its mission statement as a guiding principle, the strategy of the company aims at achieving low overheads in their daily shipping operations, which ensures maximum profitability while at the same time delivering reliable and essential services to its customers (Golden Ocean, 2010). This expose analyses Golden Ocean Group in order to understand its operational framework and outlook. The analysis starts with an elucidation of the business profile of Golden Ocean. Thereafter, the expose will discuss the company’s fleet while focusing on the sizes, categories, and the technology used in constructing the vessels. Next, it is important to discuss the management strategy in order to understand its financial position and outlook for the future. Golden Ocean Business Profile Golden Ocean deals with shipping of dry bulk. Primarily, this was the reason that the company demerged from Frontline Limited with the company’s key area of specialization being a spin-off of the dry bulk operations of Frontline Limited, the original company. By dry bulk, the company is in the business of shipping coal, iron ore, ingredients of steel or finished steel, gravel, sand, grain, or any other similar material. Using its own or chartered ships, Golden Ocean Limited delivers the dry bulk based upon the needs of its customers (Golden Ocean, 2010). Each year, the quantity of dry-bulk and customers increases in the shipping industry. Case in point, shipping companies registered a combined increment in shipment of iron ore imports, coal imports, grains, and steel products by more than 250million tons signifying growth (Golden Ocean, 2010). Indeed, these four examples of dry bulk products denote the operations of the company in the dry-bulk shipping industry. Golden Ocean started its operations with three vessels. However, the company’s operations have astronomically grown for the period it has been in operation and more so along the lines of its Capesize and Panamax vessels. On one hand, Capesize vessels are the largest vessels-in terms of capacity-operated by the company with the capacity to carry 110,000-190,000 tons of dead weight. In effect, there are a few seaports, in the world, that can accommodate these vessels due to the infrastructure required to accommodate vessels of this size (Ariston, 2012). For this reason, Golden Ocean’s Capesize vessels use selected routes when making their voyages deliver their customer’s goods. In this case, Capesize vessels cannot be able to pass through the Panama and Suez Canals due to their size. In effect, these vessels use South Africa’s Cape of Good Hope while making their voyages with shipments. It is important to point out that, due to their size, Capesize vessels primarily ship iron ore. In addition, these vessels can also ship coal, which is used to provide energy that is crucial for steel production. In effect, the vessels make their voyages to the traditional destination of iron ore with China being the traditional destination while other nations in Europe, Japan, and South Korea also depend on the companys vessels to import iron ore for their consumption. On the other hand, the vessels also use the major cape ports of coal in nations like South Africa, Colombia, and Japan. These vessels deliver coal for steel production to traditional coal importing nations of Japan, European nations, South Korea, and China (Golden Ocean, 2011). Conversely, the Panamax vessels can carry a capacity of 60,000-79,999 tons of dead weight. Like Capesize vessels, the Panamax vessels can carry iron ore and coal. In addition, these vessels can carry grain and other minor bulk such as fertilizer, steel products, and cement. In contrast to Capesize vessels, Panamax vessels are smaller and are able to pass through the Panama Canal. In effect, this ensures that these vessels are able to access various routes to deliver and obtain shipments for export to their destination unlike Capesize vessels that are limited in size and capacity (Ariston, 2012). The Panamax vessels in Golden Ocean access the traditional voyage routes for iron ore and coal. In addition, they also access other routes that are inaccessible by the company’s Capesize vessels in order to import and export dry bulk such as grain and steel products. Figure 1: This figure is an example of a Capesize vessel operated by Golden Ocean Group Figure 2: This figure is an example of a Panamax vessel operated by Golden Ocean Group The Company’s Fleet As earlier indicated, the company specializes in Panamax and Capesize vessels. However, the company operates other vessels although their specialty is in the Panamax and Capesize categories of vessels. For a company that started with three vessels, the company’s fleet has astronomically grown over the last eight years of its operation. In this case, the company operates fleet divided into the categories of owned fleet, chartered fleet, bareboat fleet, and commercial management fleet. Under the first category of owned fleet, Golden Ocean has seventeen ships, which fall under three categories of ships. In the Capesize category vessels, the company owns six vessels in this class. In fact, this is the category that the company operates its oldest vessel called the Channel Alliance that was built in 1996 with a capacity to carry 171,978 metric tons of dry weight. In addition, another vessel in this class is the Channel Navigator, which has the capacity to carry 172,058 metric tons of dry weight. The Channel Alliance and the Channel Navigator were among the three first vessels that the company used when it launched its operations. In addition, other vessels in this class include Golden Beijing, Golden Feng, Golden Shui, and Golden Zhoushan (Golden Ocean, 2012a). These four ships are new with their construction having taken place between 2009 and 2011. The second class of owned vessels is the Kamsarmax class of vessels, which have a higher capacity than the Panamax vessels although their capacity is lower than that of Capesize vessels. The company owns five vessels in this class with three of the vessels namely Golden Eminence, Golden Empress, and Golden Enterprise having the capacity to carry 79,463 metric tons of dry weight. Of the three vessels, only the Golden Enterprise was constructed in 2010 with the other two vessels acquired by the company last year. The other vessel in this class is the Golden Endeavour that the company acquired in 2010 with a capacity to carry 79,454 metric tons of dry weight. The final company owned vessel in this category, acquired in 2011, is the Golden Endurer whose capacity is 79,474 metric tons of dry weight (Golden Ocean, 2012a). Finally, the last category of company owned vessels is the Panamax class of vessels. The company owns six vessels in this category constructed between 2008 and 2011. Four vessels in this class namely Golden Strength, Golden opportunity, Golden Sagueny, and Golden Ice have the capacity to carry 75,000 metric tons of dry weight. Incidentally, these are the oldest vessels in this category since the company acquired the Golden Strength in 2009 with the other vessels in this category acquired in 2008. The other two vessels are the Golden Bull and the Golden Seuk. The company acquired the Golden Bull this year, and the ship has the capacity to carry 75,000 metric tons of dry weight. On the other hand, the company acquired the Golden Seuk in 2011, which has the capacity to carry 74,849 metric tons of dry weight (Golden Ocean, 2012a). The company runs chartered vessels, which are known as bareboat in the shipping industry. A bareboat is a ship or vessel that a customer can charter without the charter company providing for a captain, crew, or any other provisions necessary to use the vessel. In effect, the customer has to cater for these provisions by themselves to use the vessel. In this category, the company has two ships namely the Golden Eclipse, which is in the Kamsarmax category of ships, and the Golden Lyderhorn, which belongs to the Panamax category of ships. It is crucial to point out that, Golden Lyderhorn is the other initial vessel that Golden Ocean was using when it started its operations with the vessels capacity being 74,242 metric tons of dry weight. On the other hand, the Golden Ocean carries 79,000 metric tons of dry weight and the company acquired the vessel in 2011 (Golden Ocean, 2012a). The company has four chartered vessels from its parent company, Frontline Limited. In this case, chartered vessels are vessels that the company holds under a lease or rental agreement. Interestingly, all these four vessels belong to the Panamax class of vessels and they were constructed in the same year with equal capacity. In this case, the vessels called Golden Heiwa, Golden Kiji, Golden Sakura, and Golden Minerva have the capacity to carry 76,596 metric tons and their construction was in 2007 (Golden Ocean, 2012a). In terms of technology, the company has invested heavily to ensure integration of advanced technology that ensured that customers benefitted from the services that the company offered even in the harshest of environments. In this regard, the company’s Panamax vessels that were acquired beyond 2006 have Ice class technology that gives the vessels the capability to follow icebreakers. In effect, the capability to follow icebreakers makes the vessels fit to visit most trading ports and deal with major cargoes in the world (Golden Ocean, 2011). On the other hand, the Kamsarmax’s new design and beam distance improves its intake of cargo. Finally, the Capesize vessels utilize a technology that reinforces its tank tops, which enables the vessels to carry heavy cargos (Golden Ocean, 2011). Company’s Organization Golden Ocean Group’s fleet is managed by a subsidiary that it totally owns known as the Golden Ocean Group Management (Bermuda) Ltd (Ocean Group, 2011). In turn, the subsidiary has subcontracted its services to two other groups. The first of this group is Golden Ocean Group AS, which is in Oslo, Norway. The second subcontracted group is Golden Ocean Management Pte Ltd, which is in Singapore and the company uses it to run its Asia operations (Ocean Group, 2011). It is important to point that Golden Ocean is listed in the Oslo Stock Exchange and the Singapore Exchange, which emphasizes the important role that the subcontracted groups play in the overall management of the firm. For management of its ships, Golden Ocean Management AS has collaborated with four other companies. It is important to point out that the services offered in ship management include the technical management of the company’s fleet, crewing, and the overall management of the company’s fleet. The first company is Bernhard Schulte Shipmanagement, which has a global infrastructure with expertise in the management of vessels. This company is also responsible for offering technical management services to Golden Ocean Group’s fleet. On the other hand, Golden Ocean collaborates with Thome Shipmanagement Pte. Ltd., a Singapore based fleet management company. In effect, this company is crucial in running fleet management services for Golden Ocean in Singapore and the entire Asian region. In addition, Golden Ocean collaborates with Sea Team Management, another fleet management company based in Singapore and it offers crewing, fleet management and shipping operations services. Finally, another company from the United Kingdom called V. Ships Management Ltd offers similar services to Golden Ocean (Golden Ocean, 2012b). Volume of Trade Golden Ocean Limited provides scanty details regarding the volume of trade in the company. In line with this, the company offers the public information regarding the volume of dry bulk that shipping companies shipped across the world without offering a lot of information related to the company’s volume of trade. Case in point, the company’s 2010 financial reports offered the global dry bulk demand by comparing the year 2009 and 2010 as shown in the table below. Table 1 Key Figures related to global dry bulk In million tons 2009 2010 Iron ore imports 906 983 Coal Imports 875 1011 Grain/Soya Beans 310 317 Steel Products 160 184 Total 2251 2405 These figures do not give Golden Ocean’s volume of trade. However, the company indicated that it utilized 85% of its fleet in 2011. In addition, the company reported a 10% increase in ton-mile demand and a 6% increase in volume shipped (Golden Ocean Group, 2011). The same year, the company expected the volume of trade to be lower in 2012 than in comparison to 2011. Nonetheless, this was not the case since the company reported a 5.2% increase in dry bulk during the second quarter of 2012 (Golden Ocean, 2012c). Company’s Financial Position In 2009, the company’s consolidated revenues were $355.9 million. The year after, the company recorded an increase in consolidated revenues by $29 million to register $384.9 million in consolidated revenues. However, while the consolidated revenues increased from 2009 to 2010, the company registered a decline in profits by recording a profit of $127.4 million compared to the previous year’s profits recorded of about $133.1million. Nonetheless, the company attributes this drop in profits to the gains the company realized on selling assets worth $51.3 million in 2009, and $3million in 2010. Overall, the company’s net profit was $108million in 2010 as compared to $218million that the company registered in 2009, which is more than double the net profit realized in 2010 (Golden Ocean, 2010). On the other hand, the consolidated revenues for 2011 were $317.1 million, which indicates a decline from the revenues that the company earned in 2010. In effect, the company attributed this decline in profits to low charter rates in 2011 (Golden Globe, 2011). Further, the company experienced a slip in gross profit by recording $46.6million consolidated profits. Conversely, the net profit declined to $14.3 million. On the other hand, the company’s total assets in 2011 were $1.2billion in comparison to $1.1 billion at the beginning of the same year (Golden Globe, 2011). In effect, this indicates that the asset base in the company increased due to investments made, which had a role in the declined profits. Nonetheless, the company considers its financial position as healthy in the current dry bulk industry characterized by increasing customer demands and competition. Company’s Challenges and Possibilities Towards 2020 As earlier indicated, the company considers its position as financially healthy in the current environment. However, the principal challenge currently facing the company is the weakened global economy. As a result, the company witnessed a decline in growth, in its US market (Golden Ocean, 2012c). In addition, the Euro-zone crisis that recently hit Europe affected the company’s growth in the region, which also had an effect on its Asian market (Golden Ocean, 2012c). Nonetheless, the company’s Chinese market keeps on rising with the company expecting more exports to China to fulfill its energy requirements. In addition to the Chinese market, the company expects its Indian market to register growth due to the increase in energy consumption for this nation (Golden Ocean, 2012c). Another possibility regards the increased reduction in prices of coal and iron ore. In this case, the company recognizes that the traditional iron and coal market of China will demand more iron ore and coal in order to fuel its growth (Golden Ocean, 2012c). For this reason, the company has made it a strategy to ensure that it did not operate any vessel that was more than three years old in order to ensure that it fulfilled its customer’s demands and remained competitive in the industry (Golden Ocean, 2011). Conclusion Based on the foregoing, it is evident that while Golden Ocean might have faced challenges that have had an effect on its profits, which have been on the decline since 2009, the company’s outlook for the future remains solid. As the company aims to own vessels that were less than three years old, the company is getting ready to position itself in the dry bulk industry that is characterized by increased competition and growing customer demands. Hence, the company’s strategy in the future will help it achieve this objective and ensure that shareholders benefitted from their investments. The company realizes the importance of the Asian market, more so in the key markets of China and India, whose growth and development requires energy. For this reason, it is evident that the company’s Asia operations under the subcontracted company in Singapore are crucial to the company’s growth an overall strategy. In effect, the company has been able to list its stock in the Asian and European markets as it positions itself for future operations. References Ariston. 2012. Dry Bulk Vessels Categories. Retrieved from http://www.aristonshipping.gr/index.php?option=com_content&view=article&id=16&Itemid=21&lang=en Golden Ocean. 2010. Consolidated financial statement 2010: Annual Report 2010. Retrieved from http://hugin.info/135378/R/1510787/445947.pdf Golden Ocean. 2011. Annual Report and Consolidated Financial Statements 2011. Retrieved from http://project.vbook.no/project.asp?version_id=959 Golden Ocean. 2012a. Fleet. Retrieved from http://www.goldenocean.no/?menu=7 Golden Ocean. 2012b. Ship Management. Retrieved from http://www.goldenocean.no/?menu=44 Golden Ocean. 2012c. Interim Financial Information: Second Quarter 2012. Retrieved from http://hugin.info/135378/R/1635156/525951.pdf Read More