Business development

The active fleet and the Company’s order book were both extended substantially in 2007. The Dry Cargo Department’s gross fleet was up by 46% to 262 vessels. During the year, the active fleet was extended by 10 owned vessels and vessels on long-term charters with purchase options and the order book grew as a result of a record number of contracted newbuildings. During 2007, a total of 27 owned newbuildings and long-term charters with purchase options were contracted. The majority of this activity took place in the first two quarters at attractive prices.

 

The continued development of the core fleet contributes to maintaining a competitive cost level for the coming years. The dry cargo fleet’s average costs for the gross capacity from 2011 onwards is below USD 13,000 per day.

 

R.S. Platou has estimated that a total of some 2 billion tons of dry cargo, excluding Capesize and VLOC, was transported in 2007. Of this quantity, NORDEN transported a total of 36 million tons, which means that the Company had an estimated market share in the principal dry cargo segments of approximately 2%.

 

A large proportion of the newbuilding contracts were in the new Handysize segment, which NORDEN established in 2006. At the end of 2007, NORDEN already operated 18 vessels in the segment and had an order book of 22 vessels for delivery in the period 2008-2011. All vessels on order are more than 28,000 dwt, as the Company has decided to focus on this size. Accordingly, the Company stands to realise its plan to also achieve critical mass in this segment within a few years.

 

The other new segment in which NORDEN actively contracted vessels was Post-Panamax. In this segment, the 2 long-term charters entered into in 2006 were followed up with contracts for 4 owned newbuildings and 2 additional long-term charters with purchase option in 2007. The 8 vessels will be delivered in 2009-2012. Post-Panamax is the term used for vessels in the range of 85-120,000 dwt, which will be able to pass through the Panama Canal following its planned expansion in 2015. The Company has chosen to focus on the largest vessels in the segment, and all eight vessels therefore have sizes of 110-116,000 dwt. Post-Panamax vessels have considerably larger loading capacity than traditional Panamax vessels and only draw slightly more water (the vessels are longer and wider than normal Panamax vessels). Therefore, the Company believes that this size of vessel will fill a gap in the dry cargo market between Panamax and Capesize vessels and be commercially attractive for carrying coal, among other things. The Company has high hopes for the Post-Panamax segment in the years to come.

 

The Company was also highly active in selling vessels, profiting from the strong dry cargo market to enter into 11 contracts to sell bulkcarriers. Seven of these contracts will not be recognised until 2008-2010, when the vessels are delivered to their new owners. That so many vessels could be sold without reducing the Company’s business volume in general was due to the Company’s large overall fleet and flexible business model.

 

The Company’s business model again proved its worth in 2007. Despite the fact that 70% of the known capacity for the year was covered at the beginning of the year, the department managed to profit from the advantageous markets to create added value by continuously striving to optimise capacity. An element of this was a very considerable short-term expansion of capacity in the Panamax segment, in which the number of ship days was doubled to 29,909. Panamax is the most liquid of the segments, making it possible to increase capacity and seek coverage within relatively short periods of time. 91% of the known Panamax capacity for 2008 had been covered at the beginning of the year.

 

NORDEN is constantly expanding its core fleet. This ensures growing long-term loading capacity which gives the Company a continuously rising basic business volume, resulting in economies of scale and a competitive cost structure. Moreover, the organisation uses its competences to scale the business volume according to market conditions. In recent years, this has resulted in significantly increased capacity in the Dry Cargo Department.

 

The Dry Cargo Department starts off with a relatively high coverage for 2008 at 78% of known ship days. Throughout most of 2007, the Company held back on covering ship days ahead as prices were not deemed sufficiently attractive. Towards the end of the year this changed, however, as cargo owners’ interest in entering into long-term contracts rose markedly. The Company took advantage of this by securing future coverage at attractive rate levels. Accordingly, in a short period of time NORDEN covered a very large proportion of its known capacity for 2008 in a high market. For example, NORDEN entered into four longterm timecharters in the Capesize and Panamax segments at rate levels of USD 65,000 per day and USD 35,000 per day, respectively. These agreements will contribute significantly to the Company’s ability to generate positive future cash flows.

 

With a large modern fleet at attractive costs and a high degree of coverage for 2008 and the following years, the Dry Cargo Department is deemed better prepared for the future than ever.