Heavylift / Breakbulk
«A high-altitude marathon»
Shipping lines not only have to be tenacious, they also need innovative strategies to survive in the tough market conditions ruling this capital-intensive business. Taking things as they come has not been an adequate approach for a long time. Ignace Van Meenen, CEO of Rickmers Holding, and Ulrich Ulrichs, CEO of Rickmers-Linie, explain how the firm manages to post successes in this environment.
Mr Van Meenen, although the shipping market has not improved significantly since last year, the Rickmers Group’s figures for the first six months of 2015 are rather impressive. How did you manage that?
Ignace Van Meenen: We boosted our revenues by 6.6% in the first six months of the year, to about EUR 290 million, despite the tense market situation and the fact that some charter agreements came up for renewal. We even managed to raise our consolidated operating earnings before taxes, interest and depreciation by more than 35%, to about EUR 137 million. That is a considerable leap.
We achieved this above all by consistently implementing our cost management processes, in particular at Rickmers-Linie. The appreciation of the US dollar also provided us with a boost. But we have not achieved enough yet.
What is holding you back?
VM: Our objective is to grow in a scalable manner. This requires an improved performance. There is still a lot of work to be done before we reach a stage where we can really start pushing ahead. However, we must take into account where we come from; where German lines in general come from.
Are you referring to the financial crisis and the collapse of the KG system?
VM: The conditions to raise money in our capital-intensive industry have changed fundamentally. Two aspects are particularly relevant in order to attract funds to our company. On the one hand an excellent team and good customer retention levels are indispensable. For clients to believe in our firm, we have to offer very good quality and outstanding services, and also have to communicate that. We are doing so successfully in every segment.
On the other hand, we also need to be competitive on the capital side. Most German shipping lines have not yet achieved what they ought to in order to continue to compete internationally. To a certain degree we include our own firm in this group at the moment too. Stock exchange-listed companies have already progressed a lot further in this respect.
German shipping firms have also not had to keep up in this field in the past, because money was available to them at very favourable rates.
VM: This capital was virtually falling like manna from heaven and supplied lines with sufficient oxygen to survive. That is no longer the case. The situation in the market has resembled a high-altitude marathon for some time now – a marathon run without an oxygen mask to boot.
Such an intensive effort can only be maintained for a limited time. What is Rickmers’ strategy?
VM: We need to invest our energy sensibly and have managed to do so. For instance, we shrunk Rickmers-Linie to a healthy size. We observe our load margins closely and have communicated this to our customers very consistently. Our success is shown in our half-yearly figures: Rickmers-Linie is operating profitably again. Although this is still only a delicate little green shoot, it is nevertheless a very good start on which we can build.
What about your other segments?
VM: It is important that we have expanded our fleet, both within our partnerships and also at a group level. This year we purchased three 9,300 teu vessels, and chartered them out to CMA CGM.
In the maritime services field we recently concluded an agreement with Masterbulk for all technical services for 16 vessels. We are successfully developing this sector. But the same applies here: our growth should be scalable. That means that the organisation needs to be able to absorb the increase. We have to be able to guarantee our quality and service targets in the long term – and communicate them.
What is the focus at Rickmers-Linie?
Ulrich Ulrichs: We focus consistently on our customers, in other words on the very foundation of our business. In addition to that, our Round-the-World Pearl String service (RTW) is another central aspect of our approach. We not only keep our eyes on sales and tonnes of freight carried, but also make sure we monitor the marginal return of these journeys.
In the past, we predominantly operated with long-term tonnage, and therefore came under pressure to fill it too. We continue to work with our core fleet. Rickmers still offers its RTW option unchanged, and this will stay that way. What is more, we are also developing possibilities to add tonnage. It is important to cater more to individual needs too. This includes offering solutions that were not previously included in our portfolio.
Do you have any examples?
UU: They could include transhipment solutions or post-carriage services, for instance. If a customer is having difficulties in a certain country, we can often help. Loyal clients are sometimes willing to pay a little more for outstanding services. In this context we can rely on good partnerships. We are happy to go the extra mile and offer more than usual for such relationships – even if the deal is perhaps not as lucrative as it could be, such liaisons are important.
How does this benefit clients?
UU: There are many companies in the industry today that consider the overall package. This does not only consider a rate from port to port to be relevant, but follow-up costs are also taken into consideration. What happens if the cargo is damaged, or if it arrives three weeks late, for instance? In this area, clients distinguish between so-called pirates, and respectable lines. Enterprises increasingly use project managers to analyse the entire shipping process. Only if a customer informs us of his requirements can we provide him with what he wants.
More communication, greater flexibility and value-adding services. Is that the summary of Rickmers-Linie’s strategy?
UU: Yes. But we will also reach a point at some stage when we will need to deal with the structure of our fleet. Overall, the structure and augmentation in the market for multipurpose vessels is relatively healthy. However, it is likely that the life expectancy of new units will be a lot shorter in the future.
Why is that?
UU: Shipping lines and vessel operators are investing less in their fleets than in the past. As recently as 2007 we had vessels in our fleet that were 30 years old. In the past few years, companies have been cutting costs. I doubt whether such vessels will live to see their 30th anniversary. However, the situation we are currently seeing on the supply side will also occur on the demand side at some stage. When that time comes it will not be possible to order a series of ten newbuildings at short notice. This is why we take precautionary measures.
What is your slogan for 2015?
VM: Sustainability, both for the group and for the line. One of our priorities is to attain sustainable profitability. We will simultaneously continue to pursue our aim of getting the corporation in a good position for growth. However, it should be driven by profitability and not take place for the mere sake of growth. We want to achieve a stable year on which we can build, so that we can think about the long term of the segment from 2016 / 2017.
How can we develop our group further? How is our customer base structured? Because one thing is certain: we can only be a sustainable business and services partner if we generate income. We have been operating successfully for a very long time, and will make sure that this continues in future as well.