Operating Oil Tankers Shipping The value The benefits

Introduction           

The carriage of oil by sea dates back to the late 19th century, through the world’s first effective oil tanker called Nobel’s Zoroaster, which was built at Gothenburg, Sweden. The industry since then has witnessed landfall developments & about 100 years later, the biggest ever tanker was designed with the proficiency of carrying about 560,000 metric tons deadweight of crude oil. With the amplifying reliance of the modern world on crude oil, this industry has been regarded quite critical & dynamic in many ways.

Over the last few decades, ship owners with small fleet size had started finding it uneconomical & difficult to trade their assets worldwide. With globalization, aspect of worldwide trading is warranted for sustenance in the shipping market. Hence, this is when evolution of tanker pools took place. “Tanker Pool” is a marketing strategy for small fleet size ship owners to capture the worldwide marketing opportunities, by giving the commercial responsibility of their assets to such a “Tanker pool” & allowing the pool to trade, with various customers & continuously develop new relationships simultaneously. Asset providers, i.e. oil tankers to such tanker pools are referred as “pool partners” & the customers for such tanker pools, such as oil majors, oil traders, big oil consumers, etc., only deal with “Tanker Pool managers” whenever services of pool partners assets are necessary.

“Tanker pools” to be successful, require to have large & diversified fleet size, worldwide trading capability, transparency, intense networking & strong relationships with pool customers, extensive infrastructure, etc., Nevertheless, since “Pool Operations” is a service industry, hence the emphasis on human resource is phenomenally high.

Introduction of Heidmar Tankers Inc. (referred to as Heidmar in the rest of my report) (Heidmar, 2010)

Heidmar is such a tanker pool company, which is actively marketing & commercially operating pools for last 25 years or so, whereby “Marketing” as defined by Kotler,” is a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products or services and value with others. Marketing is the process by which companies create value for customers and build strong customer relationships in order to capture value from customers in return” (Kotler, Armstrong, Wong, & Saunders, 2008)

Heidmar is one of the world’s foremost commercial operators of Suezmax, Aframax, Panamax tankers and product having a team of more than 125 personnel, with offices in Singapore, the United Kingdom, and the United States. Heidmar brands the various tankers into pools to be more specialized in pool management services and Heidmar pools include:

-Blue Fin Tankers Inc. (Suezmax)

-Dorado Tankers Pool Inc. (Product)  

-Seawolf Tankers Inc. (VLCC)

-Sigma Tankers Inc. (Aframax)

-Star Tankers Inc. (Panamax)          

1.2. “Customer or client” who views services or buys the services of “Tanker Pools” are Oil major companies such as B.P., Shell, Chevron, etc. or Oil traders such as Vitol, Trafigura, Marubeni, ITOCHU, etc. or big oil consumers as Taiyo Power Station, Reliance Refineries, etc.

Although, the “Pool partners” are the revenue providers which come as a commercial management fee to Heidmar, in return for optimizing & enhancing the financial returns on their assets, i.e. oil tankers. However, still the clients are regarded as the users of such tankers.

Heidmar was established with the core values of providing secure competent transportation and high-quality service. As a result of its superior standards, Heidmar takes possession of the transportation requirements of many major oil companies and oil traders, covered part under agreement, with planned vessels.

As Ballantyne states, “Relationship Marketing is an emergent disciplinary framework for creating, developing and sustaining exchanges of value between the parties involved, whereby exchange relationships evolve to provide continuous and stable links in the supply chain” (Ballantyne1994, Pg.), which Heidmar has been building up since its inception in year 1984.

Since, pooling oil tankers together makes the organization fairly large & this gives the company a global identity. This visibility does not only assist in attracting customers, but encourages economies of scale when interfacing with vendors, suppliers, micro service providers, etc.

2.0. Identification of Customer Perceived Value

“Customer perceived value is the ratio of Perceived Benefits to Perceived Sacrifice.

Benefits would be attributes of core product/service and supporting services, perceived quality and price. Sacrifice would be customer costs involved in purchasing, such as time, travel, repairing faulty work, etc., not only limited to price. ” (Gronroos, 1996 )

“Perceived value is the consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given. Though what is received varies across consumers (i.e., some may want volume, others high quality, still others convenience) and what is given varies (i.e., some are concerned only with money expended, others with time and effort), value represents a trade-off of the salient give and get components.” (Zeithaml, July 1998)

In this part of the report we will identify, highlight & scrutinize, Customer perceived values of for the organisation Heidmar. Such key values which we will identify in this section of the report are perceived by “Pool Partners” & users or clients of the assets. For avoidance of any doubt, it will be highlighted who is the perceiver.

2.1. Strategic Marketing – Higher Returns of the voyage charter compared to lower returns of the time charter market.

“Pool Partners” who want to seek the benefit of higher freight returns from voyage Charter market rather employing the ships on lower time charter rates with directly to clients are potential members for a “Tanker Pool”. Spot tanker market or voyage tanker charter is defined as “voyage charter that consigns a vessel to a specified transport of commodities between ports or regions”. Whereas a time charter hire is defined as, “that consigns a vessel for a definitive period of time at an agreed rate per day”. In the voyage charter the financial return is the lump sum freight as agreed thru contract of carriage, whereas time charter its daily hire rate as agreed thru a time charter party. If oil tankers are traded on voyage charter market methodically, then the financial returns are far greater than time charter market, which has been proven by past statics. This value perception & faith in voyage charter market drives the “Tanker Pools” industry.

2.2. Brand management – Different types of oil Tankers, so different pools have been established.

“Brand management, which has been defined as the application of marketing techniques to a specific product , product line, or brand. It seeks to increase a product’s perceived value to the customer and thereby increase brand franchise and brand equity”. (Brand Management and Expanding Customer Bases)

Since there are principally broadly five types of oil tankers hence Heidmar categorizes them as five different pools. This ensures that the pool partner gets a fair financial return basis the value of investment put on the disposal of the “Tanker Pool”. For instance a medium range tanker (Dorado Pool) may approximately cost about 35 million dollars; whereas very large crude carrier (Sea Wolf Pool) would have approximately cost about 110 million dollars. Pool partner perceive this branding as value, since it introduces clarity & eradicates any confusion, with respect to financial returns.

This branding also makes it less complex for pool partners to compare bench marks & satisfy them if Heidmar provides better value compared to other players.

2.3. Delivering Customer Value & Customer intimacy – Round the clock services, shipping expertise, Multi-lingual staff

Customer value as per Woodruff is a “customer’s perceived preference for and evaluation of those products attributes, attribute performances, and consequences arising from use that facilitate (or block) achieving the customer’s goals and purposes in use situations” (Woodruff, 1997) & Heidmar commits in providing such values by extending around the clock services worldwide, with seventeen different languages spoken by employees, decades of cumulative shipping expertise combined together under one roof, etc. to its pool partners & clients.

Language familiarity is a vital foundation for customer relationships. This theory of having many different nationalities in the organisation has been identified as one of the key values for the outfit.

Around the clock services in a high risk market as oil tanker shipping “Provides customers with reliable services at competitive prices and delivered with minimal difficulty or inconvenience”.

Additionally this helps a centralized operation team provide Customer intimacy, which as stated by Treacy is “Segmenting and targeting markets precisely and then tailoring offerings to match exactly the demands of those niches. Companies combine detailed customer knowledge with operational flexibility – can respond quickly to almost any need and creates customer loyalty.” (Treacy & Wiersema, Customer Intimacy and Other Value Disciplines , 1993)

2.4. Strong Fundamental supporters, collaborator relationship & value enhancement

The major stake holders of Heidmar are one the world’s prevalent oil commodity traders named Morgan Stanley Inc. & one of the principal shipping companies of Greece, called Dry Ships. Morgan Stanley use Heidmar pool ships on a consistent basis for commodity transactions basis C.I.F., Therefore, pool partners perceive this as a value enhancement. With dry ships as the other big stake holder of Heidmar, this brings in a fleet of very state-of-the-art ultra-modern vessels to the pool, hence drastically reducing the age of the pool & making them a part of the elite contemporary along with being a diversified entity, in the oil tanker market.

2.5. Key Relationships –

As Berry affirms, “Relationship Marketing differs from other forms of marketing in that it recognizes the long term value of customer relationships and extends communication beyond intrusive advertising and sales promotional messages”. (Berry, 1983).

Dealing consistently & frequently with clients due to a large oil tanker fleet size helps long term strategic relationships & networks. Gradually Heidmar has been able to develop Key relationships with whom various ‘”contract of affreightment”, have been gradually developed.

2.6. Value by virtue of historical performance:-

Star & Sigma pools of Heidmar have always outperformed publicly listed peers, since their creation. This is regarded as a customer perceived value by “Pool Partners” as a proven track record.

Conclusion & analysis of customer perceived value –

Pool partner gets the benefit of higher financial returns, when they become pool members with Heidmar. Trading in voyage charter market may be more laborious; however Heidmar takes that burden.

Branding of oil tankers as per the investment value is critical for ‘Pool partners”

Clients prefer dealing with one such large outfit as Heidmar, rather than numerous small fleet size ship owners.

Creditability & financial depth of Heidmar, as it is partly owned by large corporations brings psychological relief to asset providers, which are the “Pool Partners”

3.0. Value proposition –

Value Proposition in simple words has been put as “Set of benefits promised to consumers to satisfy wants or needs”.

Perceived value in Zeithaml’s (1988, p 14) opinion is a “consumer’s overall assessment of the utility of a product based on perceptions of what is received and what is given. In this definition, even though the concept is measured at the product-level, it includes the quality of the physical product itself together with the additional services delivered, in contrast with its relative price. Most of all, it refers to the value for money consumers receive.”

A well-defined value proposition attracts customers, away from the competitors and produce faster, more profitable sales. To stay ahead of the competitors, a company must incessantly evolve its consumer value proposition since competitors are expected to follow suit. This means a company must be creative and continually seek ways to offer more value to consumers.

3.1. Basic Value proposition of Heidmar –

Value proposition describes the unique offering (companies) make to the customer, with all its hard and soft dimensions, and how (it) will differentiate itself from the rest in its target market segments (Piercy 2009 p 336)

Unswervingly Higher Earnings versus the Market

Access to Heidmar ‘s Extensive Worldwide Marketing, Operational, Seagoing and Pool Management Expertise

Participation in pool strategy

Economies of Scale in Purchasing (Bunkers, Agencies, Tugs, Etc.)

eFleetwatch website provides competitive advantage

Comprehensive In-House Vetting Program for Servicing Oil Majors

Total Transparency

(Heidmar, 2010)

3.2. Market Analysis & Reporting, Customer Relationship Management –

Heidmar is regarded the information technology leader in the oil tanker shipping industry. The research & development in this area for the organization is far higher compared to any of the peers, who are still relying on conventional means to coordinate some aspects of the tanker pool business.

The technology employed by the company provides the best transparency to all pool partners, as well as clients. Financial returns can be monitored real time & worldwide tracking of the fleet is available on a touch of a mouse, by the unique work site of Heidmar called the “efleetwatch”. Transparency & market accountability is a value proposition that only Heidmar offers. Other peers of Heidmar are mostly reporting financial returns on a monthly or quarterly basis, hence generating dis-connect for the pool partner, on his financial perceptive.      

Strategic pricing, i.e. management fees, address commissions & pool partner’s working capital, etc. are all open to review for the “Pool partner” hence creating an image of trust & confidence.

Heidmar is the creator of Q88, the biggest oil tanker database with all the technical information on a single site, updated by ship owners & viewed by various customers or service providers to the oil tanker industry.

Customer relationship management records & data are easily available, through Heidmar systematic database since inception, which is over 25 years old now. By virtue of the data collected, certain strategic traits & relationships can be easily exhibited, such as –

– Biggest clients of Heidmar pools, at any given time

– Pattern of Outstanding receivables or doubtful debt from any clients

-Biggest contributor to “pool earnings”, in terms of the systematic display of revenue earned by any oil tanker

-Most profitable trading patterns

Hence the relevance of customer relationship management cannot be underestimated, as also highlighted by Anderson & Kerr who state, “Customer relationship management is a both strategy & a tool, a weapon, if you will. In your hands, and in the hands of your employees, it comes to life, keeping you and your team on course and able to anticipate the changing landscape of marketplace. With Customer relationship management, you have the tips for ultimate advantage – customer advantage, data turned into information & information turned into a satisfied customer.” (Anderson & Kerr, 2002)

3.3. Market Research, Market positioning, Market Mapping & service-customer matrix –

Heidmar has created a unique wing unlike peers, named the Freight & research assessment group, who are constantly analysing trading patterns, using statistical analysis to predict market curves, futurology, market mapping, New build inventory tracking, etc. This wing is dedicated to research only & does not involve in any day to day trading activities of the pool, hence maintain its dedicated focus on information gathering, processing & promulgating as tools.

This wing deploys the service-customer matrix & tracks the global development, to assist the freight traders position the assets to capture “Market Spikes”, which is defined in oil tanker trading business as an unforeseen or unpredictable event which may exponentially increase the freight, due to sudden surge in demand of oil product.

Examples of Market Spikes, earth quake of Chile in 2010 which surged the demand of diesel to the country & therefore tripled the freight levels, shutting down of Caribbean refineries in 2009 due to Hurricane for an extended period in conclusion creating an increase demand for clean petroleum products for north America & put upward pressure on such type of oil tankers.

3.4. Transactional Marketing

Due to large volume of trade preferential service from ship brokers, cargo interest, etc.

3.5. Seasonal Marketing –

Heidmar maintains an overview on the re-occurring seasonal phenomena which would directly help in increasing the revenue of the pools. Such value proposition requires global coordination & networking, for which Heidmar possess the correct technology, infrastructure and market knowledge.

For Example: Capitalizing on the winter oil stock piling freights by Japan around the months of October to December.

Another Example; Keep ice trading class oil tankers in right position to capitalize on any premium cargoes, trading out the ice region of Baltic Sea.

3.6. Leverage due to large volume of business; Transformation into savings & better financial returns on assets

Due to large scale of business volumes, as a result of working as combined entity, helps Heidmar negotiate contracts worldwide hence providing services like port agencies, towage, pilots, mooring charges, cargo equipment charges, etc. at discounted rates. This value proposition is initiated by disbursement specialists employed by Heidmar; this brings great savings to “Pool Partners”, thus increasing their financial returns by becoming a pool member.

 3.7. Value through Peripheral Business –

Core business – targets with a good fit and where a company can do well, in case Heidmar: which would be trading oil tankers.

Value proposition is achieved by systematically trading freight futures & hedging financial risk exposure for certain trade routes. Similarly, fuel trading for oil tankers which is the biggest overhead cost for this business, is hedged & organisation exposure is minimised, to any large market fluctuations. Such Peripheral activities, has assisted “Pool Partners: in further optimizing the financial returns.

Peripheral business – market is less attractive to us but we will take a strong position.

Prahalad and Hamel: successful companies understand, exploit, invest to create and sustain their core competences

3.8. Bringing Value Proposition by understanding the Derivates market

Heidmar by virtue of having a diversified fleet takes benefit of the market by understanding the theory of Swaps & futures for “Oil cargo”. Hence, when the Cotango market is predicted there is a better freight value for vessels, by storing such oil cargoes for long periods. “Contango is a term used in the futures market to describe an upward sloping forward curve (as in the normal yield curve). Such a forward curve is said to be “in contango” (or sometimes “contangoed”).Formally, it is the situation where, and the amount by which, the price of a commodity for future delivery is higher than the spot price, or a far future delivery price higher than a nearer future delivery. This is a normal situation for equity markets.” (Morrissey, January 2009) The opposite market condition to contango is known as backwardation (Fekete, 2008)

3.9. Market segmentation –

-Dividing market into groups of buyers who make coherent targets, e.g., by demographics for consumers to industry type for comp

Example; Branding of “Tanker Pools’ as per tanker types & usage

-aims to develop consistent marketing programmes for segments with potentially different approaches for each

Example; Preparing for Seasonal Marketing

 3.10. Strategic Thinking –

Radical innovation

Disruptive innovation

Cannibalization Example; Derivate Freight Futures

value innovation (blue ocean strategy)

big ideas

innovation networks

3.10.1. Treacy and Wiersema- Value Disciplines

Operational Excellence

Dependable products or services, being provided to customers, at competitive prices and being conveyed with minimal difficulty or inconvenience.

Customer intimacy

Segmenting and targeting markets accurately and then customizing offerings to match unerringly the demands of those niches

Exhaustive customer knowledge needs to be combined with operational flexibility, so as to be able to respond to any need, thereby creating customer loyalty.

Product Leadership

Offering leading-edge products and services that augment and develop the customer’s handling or treatment of the product

Make rivals goods obsolete

(Treacy & Wiersema, Customer Intimacy and Other Value Disciplines, January- February 1993)

3.10.2. Customer Referrals

Conclusion on Value Proposition –

Heidmar value proposition starts with customer relationship management

Leader in shipping IT. development

Benefits from transactional analysis

Believes in specialized research & management

Economies of scale, provide more leverage to pool partners & better financial returns

 4.0. Competitor analysis

Competitor, market leader & their value proposition –

In March 2007, the former Management of FR8 Navig8 launched the Navig8 Group, which controls a sizable fleet of Product Tankers. The Navig8 Group has its offices advantageously located in S.E. Asia as in Seoul, Shanghai, Singapore, India (Mumbai), Middle East (Dubai), Europe (London) and USA.

Navig8’s fundamental proficiency as a shipping company lies in the oil products sector. They actively own and invest in tonnage, trade a time-charter fleet, commercially and technically manage vessels for third parties and for our own account, act as exclusive cargo broker for oil traders and trade in the freight derivatives market. One of the bases of Navig8’s business is Risk management and it actively shapes their decision making process. (Welcome to Navig8, 2008-2010)

Since its commencement in 2007, Navig8 has flourished and has expanded itself by effectively attracting Joint Venture partners into an array of deals (Vessel Acquisitions, Charter-Ins, and Bareboats.) (Welcome to Navig8, 2008-2010)

“Understanding your competitor is prudent”, as Piercy Describes, “the unique offering (companies) make to the customer, with all its hard and soft dimensions, and how (it) will differentiate itself from the rest in its target market segments”. (Piercy 2009 p 336)

The theory of competitor analysis as devised by Michael E. Porter, states that “the competitor needs to be categorized as per following criteria –

Competitor goals – To engage in all related possible related activities of oil products sector

Competitor’s strategy – To increase the fleet size, by whatever means possible i.e. Bare boats, charter-ins, etc.

Competitor’s strategic Assumptions – Growth factor of Asian Market & core business should not be only restricted to trading oil tankers, but to additionally be a leader in peripheral business

Competitor’s Capabilities – Strong Presence is growing markets such as Asia” (Porter, 1980)

4.1. Value Proposition Strengths & differences

a. Collaborator relationships – Heavily invested & expanding in fuel supply business to oil tankers. Such business can thrive on their own “Tanker Pools”.

b. Focus on emerging markets & developing markets

 “Leaders must move from red oceans of bloody competition to blue oceans of profitable growth value innovation & profitable growth – traditionally all the big commercial tanker pools had their primary base at united states. Our primary competitor identified Far East market as Blue Ocean & head quartered themselves in this niche market. Hence setting themselves at Singapore the gateway to the Far East market has given them a strategic presence.” (Kim & Mauborgne, January-February 1997)

c. Trading not impeded by U.N. sanctions, hence can traded freely in countries such like Iran; therefore have a larger market coverage

5.0. New Value Proposition

5.1. Marketing assets aggressively in growing markets & developing –

differentiating capabilities

customer relationships

channel power

market information

corporate reputation

brands

5.2. Market positioning & creating new market space –

looking across substitute industries

looking across strategic groups within the industry

redefining the buyer group

look across to complementary products/services

re-think the functional/emotional orientation of the industry

participate in shaping external trends

5.3. Publicly Listed

5.4. Lack of contracts in the Far East due to western origin of the company

6.0. Implementation Plan

6.1. Plan

6.1.1. Vision Statement & training in corporate values, to expand in new markets

“It’s a dirty little secret: Most executives cannot articulate the objective, scope and advantage of their business in a simple statement. If they can’t, neither can anyone else.” Collis and Rukstad, 2008

Good communication is key

upward communication from the front line

allows management to understand problems & needs of the employees

Employees must understand the implementation timetable

specific activities to be performed, time required, sequence, & who is responsible

6.2. Steps to Implementation

1. Fundamental level

job

managers need to concentrate on the benefits of the product rather than its features

employees perspective and benefits they seek

consider:

training needs,

level of accountability and participation in decision making,

career development opportunities,

working environment

facilitate hiring retention and motivation of employees

2. Continuous training

Market research

identifying needs and wants of employees

monitoring the impact of HRM policies on employees

long history in HRM in form of employee attitude surveys

Conscientious recruitment, selection & training of employees

Top managers must be completely committed to the marketing strategy & overall plan

Employee compensation must be linked to marketing strategy implementation

Open communication must exist at all levels

Organizational structure, processes & policies must match the marketing strategy

4.3 Problems/Resistance in Implementation

Recognising the implementation problem and preparing for change

Market segmentation

process of grouping employees with similar characteristics and needs and wants

include types of benefits that employees want, and roles and functions that they perform

need to be segmented along motivational lines rather than departmental or other lines traditionally used in HRM

Marketing strategy is inappropriate or unrealistic

Implementation was inappropriate for the strategy or was simply mismanaged

Internal &/or external environment changed significantly between the development of the marketing strategy & its implementation