The international supplier of support vessels Farstad shipping

FARSTAD Transportation

1 Introduction

1.1 About Farstad Shipping

Farstad Shipping ASA is a major international provider of big, modern offshore support vass.

It has a fleet of 57 vass and presently has one vas under building. It is headquartered in

Aelesun on the North West seashore of Norway. It has offices in all major ports of the universe

including Aberdeen in Scotland, Melbourne in Australia, Singapore and in Macae in Brazil.

Through a joint venture it besides has presence in Angola. In 2008 the freight income was earned in

the undermentioned markets: 16.0 % in Norway, 14.0 % in the UK, 45.0 % in the Far East/ Australia,

19.0 % in Brazil, 6.0 % in West Africa and Mexico. Farstad Shipping has been listed on Oslo

Stock Exchange since 1988 and has over the old ages given the stockholders a competitory return on

their investing. The figure of outstanding portions is 39 million out of which about

46 % is owned by the Farstad household ( Fastard Shipping, 2009 ) .

1.2 Brief History

The transportation company Sverre A. Farstad & A ; Co was established in 1956 by Consul Sverre A.

Farstad and the ship-owners Ole Schroder and Sverre Farstad Junior. The first vas, an ore bearer of

10 500 DWT, was ordered the same twelvemonth from Haugesund Mek. Verksted. In early 1988 Farstad

bought the “ empty ” company Hemes with the intent of being quoted on the Oslo Stock

Exchange. Soon after the acquisition of Hemes, parts of the Farstad ship owning involvements went

public through the debut of Far Shipping A/S to the Oslo Stock Exchange.Far Shipping

A/S subsequently changed name to Farstad Shipping ASA. The company became an integrated transportation

company in the twelvemonth 1993 and in 1997 it established a JV with P & A ; O, which was followed by a

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JV with Petroserve in 1999. In subsequent old ages the company has expanded its operations in the

Indian Ocean and set up offices in Signapore and West Africa.

1.3 Core Valuess

In order to understand the scheme of Farstad transporting it is of import to observe the values which

are imbibed in the employees of the corporation. They are the following

Safety Minded: The company believes that all its employees should be trained in basic safety

steps and drills. It wants to be a responsible employer where the services rendered to the

client are done with compromising the safety of the employees

Value Creative: The Company wants to make value for all its stakeholders including

employees, stockholders, clients and the society in general.

Reliable The Company believes in having up to the determination it has taken and believes in

exerting a high sense of unity

Inclusive The Company wishes to be single focussed taking into account their different demands

through sharing cognition and experience.

Visible and Transparent: The Company wishes to stand with its clients and clients in their

enterprises. It besides wishes to back up the local community.

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1.4 MISSION AND OBJECTIVES

Farstad Shipping ‘s wants to be a long-run, major provider of big, modern offshore supply

vass to the oil industry worldwide. It besides endeavors to accomplish the followers

1.4.1 Core Focus

i‚· Anchor managing tug supply vass ( AHTS ) larger than 10000 BHP and platform supply

vass ( PSV ) larger than 2000 DWT.

1.4.2 New Areas:

i‚· Focus on the supply vas market which is most complex in footings of progress and big

sum of tunnage

i‚· Target subsea and building activities leveraging the experience gained. This would

allow the company to back up its clients plunder into this country

1.5 Financial Overview

The company achieved in 2008 runing grosss of NOK 3,019.7 million, which is the highest

in the company ‘s history. The consequence after revenue enhancement amounted to a net income of NOK 1,225.6 million ( NOK

89.3 million shortage ) after the acknowledgment of NOK 316.3 million in revenue enhancement income, of which NOK

317.8 million came from the reversal of the environmental part associated with the new revenue enhancement

government in 2007.

In Q-2 2009 the company had a had an operating income of NOK 839 manganese as compared to an

income of NOK 662 manganese. The profitableness as measured by EBIDTA besides improved well

to NOK 451 manganese as compared to NOK 346 manganese in the old twelvemonth. The PAT for the one-fourth was

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NOK 366 manganese as compared to NOK 225 manganese in the same one-fourth old twelvemonth ( Fastard Shipping,

2009 ) .

2 Industry Analysis

Due to the planetary economic lag the seaborne trade grew at merely 3.5 % in 2008 as compared

to 4.5 % in 2009. However the past tendencies continue where the development parts offered the

maximal lading accounting for 60 % of the tunnage and developed states had 33.6 % of the

tunnage. The overpowering laterality of Asia was rather start with it commanding about 40 % of

the trade.

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2.1 PEST Analysis

2.2 Economicss

2.2.1 GDP Growth

The planetary GDP growing in 2008 has slowed down to merely 2.0 per centum as compared to 3.7 % last

twelvemonth and below the one-year norm of 3.5 % recorded during the period 1994-2008. World end product

has contracted by 2.7 % in 2009, first clip of all time since 1930. Since the demand for maritime

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conveyance is dependent on planetary growing in production, the maritime industry is besides expected to

endure the autumn out of this autumn in demand.

Developed states are the 1s which have suffered the most in footings of GDP growing with a

lessening in GDP by 4.1 % in 2009. Developing states nevertheless continued to spread out end product

by 5.3 % in 2008 down from 7.3 % in 2007.China continued to take, with its GDP growth by 9.0

per cent. Other major states such as India and South Africa continued on the growing

flight although at a slower rate of growing ( UNCTAD Report 2009 ) .

2.2.2 Impact on Merchandise Trade

The lessening in the planetary end product worldwide has had a material impact on the growing in universe

ware trade. Although the volume in 2008 grew by 2 % this was 4 % points lower than that

in 2007. In most of the old old ages the growing in planetary trade outpaces the growing in GDP,

nevertheless this twelvemonth the same was non noticed.

In 2008, the American export volumes grew by a meager 1.5 % while the European Union

registered the slowest growing of all time. There was a rapid diminution in imports every bit good, with US hitting

-2.5 % and the EU a negative 1 % ( UNCTAD Report 2009 ) .

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2.2.3 Trade Finance

Trade finance is a cardinal influencing factor when it comes to the maritime industry. In fact experts

believe that this unmet demand of trade finance is the cardinal grounds for a rapid diminution in maritime

activity with the coming of the fiscal crisis. Banks have become conservative in publishing letters

of recognition and other instruments which facilitate trade. This has had a considerable impact on the

trade peculiarly amongst developing states. The unmet demand for trade finance is estimated to

be USD 100 bn to USD 300 bn yearly ( UNCTAD Report 2009 ) .

2.3 Political

2.3.1 Attempts by Government to Stimulate Economy

A planetary economic recovery and by extension, a recovery in ware trade and demand for

maritime conveyance services will depend on actions by universe authoritiess to excite investing

and ingestion and therefore promote trade. ( Scott and Jeferrey 2007 )

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Governments separately and as portion of the G-20 have taken action to regenerate the economic system. In

the G-20 meet in April 2009, they agreed on a $ 1.1 trillion support attempt with $ 250 bn out of this

attributed merely to merchandise finance. States such as India and China have lowered involvement rates to

stabilise fiscal sectors and excite the economic system ( Harrigon and Deng 2008 ) .

2.3.2 Security at Sea

A cardinal challenge confronting the maritime industry has besides been the safety of the maritime vass at

sea. This has been challenged by a rush in buccaneering incidents in cardinal strategic theodolite points such as

Gulf of Aden. These incidents of buccaneering have a considerable impact on ships, crew and ladings

and on the maritime industry. It threats planetary seaborne trade ( over 80 % of trade traveling through

the Gulf of Aden is In add-on to the direct impact on ships, crews and ladings, and on the

maritime industry and authoritiess, buccaneering threatens planetary seaborne trade ( over 80 per cent of

seaborne trading traveling through Gulf of Aden goes to Europe ) . This jet in buccaneering has led to

high insurance costs for the ships go throughing through the Gulf of Aden with the war insurance

premium mounting to USD 20000 per ship from USD 500 bn twelvemonth ago. ( Clark 2007 )

2.3.3 Climate Change

The issue of clime alteration has been going progressively of import. There has been

obliging scientific grounds about the earnestness of the menace which has moved the issue to

the head of the international docket. The impact has been more important in the more

vulnerable states. Maritime conveyance as a major transit industry besides has a function to

play given the fact that by volume it carries over 80 per cent of planetary trade, has a function to play in

turn toing this formidable challenge.

International maritime conveyance faces a double challenge. As a transit sector it ‘s a

subscriber to the nursery gas emanations and therefore faces anger of conservationists. It is besides

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straight impacted by the clime alteration factors such as lifting sea degrees, extreme conditions events

and lifting temperature. The broad runing impact clime alteration is likely to hold on maritime

conveyance and the deduction for trade growing and development demand to be addressed by

incorporating this in the scheme planning procedure for a maritime conveyance company ( UNCTAD

2009 ) .

2.4 Technology

2.4.1 Dependence on Oil

Maritime conveyance industry relies on oil, in peculiar on heavy class fuel oil for propulsion.

Although there is a possibility of utilizing alternate energy beginnings such as air current and solar power

for giving extra power to the ship. LNG may be used as an alternate fuel in transportation ;

nevertheless it besides faces the challenge of being stored aboard.

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2.4.2 Emergence of Green Ships

Evergreen Line a company which runs transporting operations worldwide has introduced green ships

which are much more fuel efficient and engineering advanced to run into the challenges posed by

clime alteration. These include following distinguishable characteristics

1. Alternate Nautical Power: Connects to alternate power from shore to cut down air

pollution during loading/unloading

2. Superior Hull Design: This improves velocity and reduces fuel ingestion to do the

ship more efficient.

3. Waste Storage Chambers: Treats refuse to keep first-class healthful status.

4. Low Sulfur Fuel System: Reduces emanation of SOx gasses to forestall air pollution

( Clark et al 2005 )

2.5 Social and Cultural Factors

2.5.1 Demographic Change:

It is to be noted that the ingestion goaded economic systems of Europe and North America have

shown mark of decelerating down. Although the issue in North America is chiefly due to the after

effects of the fiscal crisis, the state of affairs in Europe possibly even more complex. This is

chiefly due to the quickly ageing population. A quickly ageing population normally points

towards a displacement off from a ingestion driven economic system and a stable or worsening population

growing rate. This is in contrast to the population composing in China and India which is chiefly

immature, with about 50 % being under the age of 30 old ages. This demographic displacement in population is

edge to act upon maritime trade which is likely to acquire a encouragement in these states.

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3 Analysis of Farstad Shipping

3.1 Strengths

3.1.1 Strong Order Book

1. The company has been awarded a four twelvemonth contract with Petrobras in Brazil. Startup of

the contract was terminal of January

2. The company has been hired to supply charter services for a period of 12-15 months to

support boring operations in New Zealand and Australia.

3. Shell Australia has besides contracted the company to back up the operations in western

Australia for oil boring and geographic expedition

4. Shell has awarded a contract to the company for geographic expedition around the Irish shelf.

( Fastard Shipping 2009 )

3.1.2 Induction of New Technology Ships

The company has started using platform supply vas which is designed for transit

of supplies/equipment to and from seaward installings. Transporting single points chiefly in

containers on deck, in add-on to a assortment of different merchandises ( dry and moisture ) in separate armored combat vehicles.

3.1.3 Strong Financial Condition

The company is strong in footings of its fiscal status. The undermentioned fiscal parametric quantities

point out that the company is under leveraged, has fund raising ability and has been steadily hard currency

positive in the last few old ages

1. Debt/Equity Ratio: The company has a debt equity ratio of ~0.8 i.e. & lt ; 1. This implies

that the company is well under leveraged as compared to its equals. The company

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has considerable debt elevation capacity which when done in Norway and other developed

states would be available cheaply. This can be used to fund the chances which

exist for the company in emerging market and new countries of involvement.

2. EBIDTA: The hard currency coevals ability of the company as measured by the Net incomes

Before Interest Depreciation and Taxes is rather strong. The EBIDTA for twelvemonth 2009 was

1736 NOK manganese as compared to 1729 NOK manganese in 2008 and much higher than 1376 NOK

manganese in 2007. Thus in malice of the planetary fiscal crisis the hard currency bring forthing ability of the

company has non been impacted.

3. Cash and Cash Equivalents: The hard currency and hard currency equivalents of the company were 1544

manganese NOK in the twelvemonth 2009 as compared to 1189 NOK manganese in the old fiscal twelvemonth.

Therefore the company ‘s hard currency militias have increased well in the last twelvemonth owing to

superior profitableness

( Fastard Shipping 2009 )

3.2 Failing

3.2.1 Cost of Human Capital

Since the company is chiefly based out of Norway, the strength of its human capital comes from

the developed states. Therefore given the pay derived function between developed states and

developing states the company operates at a high cost of human capital. It is likely to confront

challenge from bearers runing from developing states such as India and China.

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3.3 Menaces

3.3.1 Foreign Exchange Risks

Due to the company ‘s planetary operations it carries a foreign exchange hazards on its grosss,

net incomes every bit good as beginnings of financess. The company has a negative impact of 273 manganese NOK due to

the unfulfilled foreign currency loss. Thus it is of import for the company to fudge against the

foreign currency hazards ( Fastard Shipping 2009 )

3.3.2 European Crisis

By the terminal of twelvemonth 2009, the fiscal crisis was looking to be over with the autumn in idle claims

in the United States. However the impact of a free Wheeling pecuniary policy unleashed in the

aftermath of the fiscal crisis has started stating on European states. States such as Greece and

Italy which were ever fighting with the financial shortage seem to be fighting with their

burgeoning financial shortage. If the tendency continues and the crisis spreads to the human dynamos of

European economic system i.e. France and Germany, we might be in for a unsmooth drive out of the recession.

This would intend a period of stagnated growing for another twelvemonth and a half. This combined with

an ageing population is likely to ensue in autumn in demand in the European mainland and therefore a autumn

in trade ( UNCTAD Report 2009 ) .

3.3.3 Climate Change

The issue of clime alteration has been highlighted above and is a turning and garnering menace to

the company in the long tally. Since the company has been runing its fleet for a long clip it has

many aged vehicles in the fleet. There is ever a fright that given the fact that the clime alteration

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has taken international Centre phase, a statute law enforcing more rigorous emanation norms on the

maritime industry is non far off.

4 Opportunities

4.1 Asia

The economic systems of China and India even in the worst times of the fiscal crisis have shown

resiliency, although have n’t been wholly untouched by it.

4.1.1 High Growth Rate

The states continue to turn above a growing rate of 7-7.5 % . This is chiefly on history of the

strong domestic demand supported by a favourable demographic profile. Given the fact that a

bulk of the population is under the age of 30 year, the working population in these states is

really strong

4.1.2 Rise in Imports:

The turning demand in developing states for white goods, luxury goods and trade goods is

all set to increase in the coming old ages given the increasing proportion of the in-between category. In

India entirely the population of the in-between category is likely to be 250 manganese in another five old ages, this is

approximately equal to the full population of the United States. Hence the addition in trade to and

from these geographicss is all set to increase exponentially.

4.1.3 Better substructure

Developing states such as Brazil, China and India have well increased their

outgo on substructure undertakings such as development of ports etc. This is likely to cut down

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the turnaround clip for the ships which use these ports frequently therefore diminishing the overall cost of

trip. This would be a positive development for Farstad Shipping.

( Harrigon and Deng 2008 )

4.2 Increase in Oil Monetary values

The oil monetary values which were on a downward spiral in the twelvemonth 2009 have stabilized and are all set

to lift as the Chinese growing engine gets into the fast cogwheel. An addition in all monetary values is likely to

rejuvenate the oil geographic expedition market and therefore supply chances for nautical support. A

higher oil monetary value means that the oil companies are ready to research countries where the chance of

happening oil may non be really high, since the chance cost of non researching the country is really high.

This translates into better and higher sum of concern for the maritime industry ( Berthelon

and Freund 2008 ) .

5 Competitor Analysis

The Norse transportation industry is composed of about 85 transportation companies which operate

in one or other niche. However there are merely four other bigger participants which challenge Farstad

in its sphere of AHTS and PSV. They are as follows:

1. Deep Sea Supply: he Group ‘s chief activities are ship owning and operating of several

Anchor Handling Tug Supply vass ( AHTS vass ) and Platform Supply Vessel ( PSV ) . The

Group operates in two sections AHTS and PSV. The Group operates in the followers

geographical countries: North Sea, Mediterranean, Africa, Australia/Far East and North & A ; South

America. It does non hold presence in the sub-sea class in which Farstad now operates giving

Farstad a unequivocal border in the market.

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2. DOF ASA: The group operates around 67 vehicles out of which 23 are owned by the group

and the remainder are leased. These include 23 PSV ‘s, 21 AHTS and about 23 Multi Purpose Vehicles.

This group has an extended presence in the bomber sea section and therefore poses a direct challenge to

Farstad ‘s domination in this sphere. The group is the largest Norse participant, following merely to

Farstad.

3. Havila Transportation: The company operates 10 supply vass and another 12 new edifices.

These include a sum of eight PSV ‘s, 9 AHTSV and three subsea building vass. The

company ‘s spread outing operations in the moneymaking bomber sea market threatens Farstad ‘s grosss

from the same.

( Fastard Shipping 2009 )

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6 Analysis of Farstad ‘s Scheme

Farstad ‘s scheme can be summarized as three pronged. The first two trade with its conventional

strengths in back uping the demands of the oil industry and transporting advanced tunnage while the

3rd one is the new country of focal point i.e. subsea activities.

a. Oil Focused: Farstad ‘s chief focal point has been to be a long term provider of big, modern

offshore supply vass to the oil industry worldwide. However this scheme comes with

hazards as it would do the company dependant on the lucks of the oil industry. In instance

of a dip in the oil monetary values it would set force per unit area on the company ‘s revenus and borders.

B. Supply Vessel Market: The company besides endeavours to fosu on the supply vas

market which demands the most advanced tunnage. Thus it besides belives that it can provide

to ware trade. In this class the company is amongst the top 5 service provides

with a planetary market portion of 5 % .

c. Subsea Activities: The company ‘s new are of focal point is leveraing the experience gainsed

from the conventional offshore activities to beef up its presence in the bomber sea

acitivites to back up client demands.

Farstad ‘s Fleet

a. AHTS ( Anchor Handling Tug Supply Vehicle ) Anchor Handling Tug Supply

Vessel – They are offshore supply vass specially designed to supply ground tackle

handling and towage services for semi submersibles, platform jackets, flatboats and

production modules/vessels. Certain AHTS in the fleet are equipped for fire

combat, deliverance operations and oil recovery

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b. PSV ( Platform Supply Vehicles ) : These vass are designed for transit

of supplies and equipment to and from seaward installings.

c. Subsea: These are customize for operations and building work on the ocean floor,

and support for subsea operations.

d. CSV ( Construction Support Vessel ) . Vessel particularly designed for operations

and installings at great ocean deepnesss. MPSV ( Multipurpose Supply Vessel ) big

supply vass equipped for support, care and installing of equipment

on the ocean floor.

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7 Critical Success Factors

Critical success factors for the company will be determined by the company ‘s internal strengths

every bit good as the chances which exist in the market. The critical success factors for the

company based on the above are as follows:

1. Meet the Challenge of Climate Change: Climate alteration issue as discussed earlier is

probably to hold a major impact on the nautical conveyance industry. Hence it is of import to

tackle this issue through a combination of efficient ships and smarter tonss. Therefore Farstad

transporting demands to accomplish this to remain competitory and be a leader in the industry.

2. Exploit Emerging Markets: Emerging markets such as India and China are likely to be

key to the success of Farstad. As they are the growing markets for any new company, so

farther add-on to the company ‘s top line would be dependent on its attempts to work the

trade paths emanating from these states.

3. Target Oil Operationss: Oil is a critical resource and given the recent tendencies, the monetary value of

oil is likely to lift as the universe recovers from the fiscal crisis. Therefore given the high

borders on oil it is likely that deep sea oil geographic expedition is likely to be a major growing country.

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26 FARSTAD Transportation

2. Merchandise Development: Given the altering kineticss of the transportation industry, there is a

demand to develop new merchandises which are faster and more fuel efficient. This would

distinguish the service offering in the market and therefore pull more clients.

3. Market Development: In this instance the company can leverage its bing strengths in

transportation and spread out its markets to the two major untapped countries i.e. North America and

South Asia.

4. Diversification: The company should go on to concentrate on its core countries of operations and

non venture into unrelated variegation given the volatility of the external environment.

To enable this the followers should be the cardinal pillars of company ‘s scheme traveling forward:

Market Development

1. Target Emerging Economies: The Company has non as yet exploited the rapid

growing in the emerging economic systems of China and India. It is critical traveling frontward

that it is able to capture some of the demand emanating from these states. The

states are dependent on imported oil and are confronting terrible resource restraints

in happening vass for the import of such oil. China is come ining into long term

strategic partnerships with Africa to acquire oil.

i. Farstad should work its presence in Angola to provide to the concern

which this strategic partnership is likely to bring forth.

two. Farstad should besides set up a presence in the major ports in the part

particularly Shanghai and Mumbai which are the new fiscal hubs of the

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E. The company ‘s concern development attempts in these metropoliss can

exponentially turn its grosss.

2. Transporting Operationss to North America: It is indispensable that the company takes

advantage of the resuscitating U.S. economic system and expands its concern to the U.S. and

beyond. As the company expands its presence in U.S. and China it can capitalise

on the immense sum of trade which happens between these two states and therefore

addition grosss every bit good as profitableness

Product/Service Development

1. Deep Sea Oil Exploration: Given the highs touched by Crude oil monetary values it is

obvious that one time the universe economic system recovers the oil monetary values are likely to head

North with a demand supply mismatch given the production cuts by OPEC. In an

epoch of high oil monetary values deep sea oil blocks which were earlier non really profitable to

explore are likely to go profitable marks for geographic expedition. Therefore if the

company is able to take a measure frontward from its strengths in sub sea building

and supply vass for Deep sea oil geographic expedition it will be capitalize on a new

beginning of gross.

2. Ship Procurement and Development: It is of import to recognize that the

challenge of clime alteration is merely traveling to acquire bigger with clip and there is

traveling to be considerable force per unit area on the maritime industry to cut down on

emanations. Therefore this needs to be reflected in the ship edifice and development

attempt of the company so that more fuel efficient vehicles can be built. It might be

prudent to analyse the development attempts of the Greenline transportation company to

understand how these attempts can be made more fruitful.

28 FARSTAD Transportation