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| Investments
and options |
| C V Subba Rao |
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| Apocryphal though it may sound, it was believed
that Albert Einstein was not easily recognised by many people. Taking
advantage of the situation and noticing that his boss was getting
tired of explaining the Theory of Relativity to various audiences,
his chauffeur, who had attended all the lectures, offered to switch
places with Einstein, with the legend himself impersonating the chauffeur.
After one lecture, a member in the distinguished gathering raised
a doubt. Obviously not thorough with the subject, the quick witted
chauffeur said, “Oh! That is very simple, even my chauffeur sitting
amongst you will be able to respond to that.” Einstein then stood
up and cleared the doubt for the embarrassed member. Obviously, the
chauffeur hedged his bets well and got his option right! |
| Options is a familiar issue. The shipping business
also works on the lines of keeping options open at various points
of time. Most finance managers agree that appraisal of a project on
the basis of the popular NPV, IRR method only, results in a flat yes
or a no. That would virtually kill the options, as no time has been
allowed for fresh information to be keyed in. Information flows in
all directions; to capture it into an investment appraisal often sums
up the strategic intent of the organisation. |
| Sanmar’s foray into the shipping venture itself
was an options approach to investment appraisal. Often in the shipping
business, we venture into what would be a call option. Project appraisal
criteria of NPV, IRR, payback, etc., are employed, while simultaneously
expending on premium, that is, the licence fees for the bid, the money
spent in the exploratory work etc. At times decisions are often delayed
to allow for fresh information to run in, which is then fed into the
appraisal process for decision making. |
| The merchant trade is very diverse. From a self-styled
Greek seafarer turned shipowner piloting his own vessel to the modern
day oil company giants, more renowned for being called the Oil Majors,
such as Exxon-Mobil, Shell, BP, etc., the sea has seen them all. An
Oil Major sets up vertical integration, being the owner of the oil
wells and the ships as well. Sanmar Shipping believes in a value chain
that integrates business with technology. Technological skills, in
navigation and engineering of the shore based seafarers are utilised
in the cost-effective operations of the vessels. Business goals in
keeping the vessels gainfully employed is achieved presently by operating
in pool agreements with reputed charterers. The company gains tremendously
on such trades, as the vessels are benchmarked constantly with other
owners, and have till date been virtually rated the best fleet in
whichever pool they figured in. Secondly, the option of trading them
in the pool insulates the vessels against market lows. Essentially,
a “stable network” is created by a combination of in-house management
and strategic outsourcing, which in turn results in reducing overheads.
Just as in the case of airlines where the Key Success Factor (KSF)
cuffs the spread of variable costs vis-a-vis the passenger carrying
capacity of the aircraft, so is the case with a Shipping Business.
While at times spot trades offer a surge in revenues, these are more
often than not buffeted by low income zones when the ship owner is
left with no option but to scamper for the limited cargoes that are
available for him to position his vessel back in lucrative zones. |
| In these times, with all countries expressing allegiance
to improving the safety of all things alive and kicking, humans and
fish alike, quality remains the buzz word. The division is an active
signatory to the Drug & Alcohol (D & A) and Ship Emergency
Response Service (SERS) procedures of the Lloyd’s Register (LR). While
the former seeks compliance of the ships’ crew towards discipline,
the latter creates procedures for LR to advice the ship, with Sanmar
in conference, for a contingency, such as a grounding, collision,
etc. The annual premium that the company pays to LR on this account
is nominal, and brings in raised brand value and the goodwill in the
world market. |
| The author is Assistant Vice President-Technical,
Sanmar Shipping Limited. |
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