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The Company's main business is the maritime transportation of liquid bulk cargo. The types of cargo carried by the Company's fleet include:
* Crude oil and petroleum products;
* Lubricating Oil (Base Oil and additives);
* Liquid Chemical (organic and non-organic);
* Liquified gas (LPG, propylene, propane, ethylene, LNG and others);
* Vegetable oil and animal fats.
The Company offers a range of maritime transportation and related services, including the following:
The Company charters out its vessels to third parties on a range of terms, including Short-Term Time Charter; Medium-Term Time Charter; and Long-Term Time Charter basis.
The Company charters out cargo space in its vessels to the third parties. The vessels used to provide these services include vessels owned by the Company and chartered-in vessels. Cargo is carried according to a range of terms, including spot market contracts and Contract Of Affreightment (COA). COA is a contract for the transportation of a certain volume of cargo within a specified period of time.
Vessel Agency Service
Foreign vessels calling at Indonesian ports are required to appoint an Indonesian company or companies to act as their general agent. As a registered Indonesian company, the Company acts as the general agent for many foreign vessels. Foreign shipping companies whose vessels enter into Indonesian waters contract a range of agency services from the Company, including the arrangement of permits, the arrangement of port facilities, and the provision of supplies such as fuels, freshwater, spare-parts, repair services, and others. Besides contributing directly to the Company's revenues and profits, the agency business facilitates the expansion of the Company's network with foreign shipping companies.
Shore Storage Rental
Liquid cargo must be stored in the appropriate facilities in ports before being transported by oil tankers or distributed to processing plants. The Company owns and operates shore storage facilities which it rents to the owners of liquid cargo.
CAPACITY AND COMPOSITION OF THE COMPANY'S FLEET
In the world of maritime transportation, the number of vessels can be seen as one important factor to describe a company's performance and operational capability. As the number of vessels in the Company's fleet has increased, both revenues and operating costs have risen accordingly, although the increase in the former has greatly outstripped the increase in the latter. With the increase in vessel's size in its fleet, the Company's tonnage capacity has also increased correspondingly.
In addition to the size and shipping capacity, another important consideration for the Company is the composition of this fleet; for what purpose the individual ship is utilized. The Company fleet includes chemical tankers, crude oil tankers, oil product tankers, an FPSO and two LNG carriers now still under construction. These vessels vary in terms of size and tonnage capacity; age; functionality; reliability; nautical reach and usage; as well as their technical equipment.
The Company has been trying to maintain these portfolio of different purpose cargo vessels in a good balance, in order to be able to meet specific demands coming from each of the four different operating segments. This allows the Company to better service a wide range of geographical and markets and product types, and to maintain profi table margins across different segments.
As of 31 December 2008, the Company is recognized as one of the largest shipping companies in the world in terms of the tonnage capacity for liquid chemical transportation, which in total has reached 980.086 DWT. In average, the age of the Company's vessels used for transportation of the chemical liquids is 7,7 years old, a lot younger compared to the industry's average age of 11,7 years. By 31 December 2008, the Company had placed orders to acquire 12 more new chemical liquids tankers with total capacity of 230.380 DWT. The new vessels will be delivered between 2009 and 2011.
Each of the Company's chemical tankers is registered to one of several classification organizations. For the Company's chemical tankers, these organizations include Lloyds Register, Nippon Kaji Kyokai, Bureau Veritas and Det Norske Veritas.
As of 31 December 2008, the Company operated 14 oil tankers with a total combined tonnage capacity of 929.723 DWT. The Company's fleet of oil tankers consisted of two Suezmax units, four Aframax units, five Handysize units and three other small range tankers. The Company's fleet of oil tankers has an average age of 15,3 years, compared to the industry average of 12,3 years.
As of 31 December 2008, the Company operated eleven gas tankers, of which the majority were designed for the transportation of LPG/petrochemical, and one LNG carrier with a total combined capacity of 210.626 CBM (132.800 DWT). The average age of the gas tankers in the Company's fleet is 7,9 years, a lot younger compared to the industry average of 15,5 years.
The Company currently have four tankers under construction for the transportation of ethylene and gas, and one for the transportation of LNG, with total shipping capacity of 17.000 CBM (36.500 DWT) and
155.000 CBM (76.700 DWT) respectively. The new vessels will be put under operation between 2008 and 2012. For the LNG carrier to be delivered, the Company has a 30 percent share. With the new addition to the fleet, the Company aims to increase its market share in the transportation of LPG and petrochemical gases in the Far East Asian region. The Company also intends to increase its shipping capacity for LNG domestic transportation, depending on the growth of such demand for LNG within Indonesia.
An FPSO tanker is a tanker used as a floating production, storage and offloading facility. As of 31 December 2008, the Company had one single FPSO tanker in its fleet. The Company bought this tanker as an oil tanker in December 2005 and converted it to its current purpose as an FPSO tanker. The conversion was completed in August 2006. The tanker has a shipping capacity of 60,874 DWT.
The following bar chart demonstrates the growth in the Company's fleet in terms of deadweight tonnage and number of vessels over the past 10 years.
SALES AND MARKETING
The Company's sales and marketing activities are well supported by an extensive global network of offices that enables the Company to market and sell transshipment services to customers in the geographical areas across the globe. The Company conducts all the marketing activities on its own, as it is considered crucial to be in full control of this aspect.
The marketing and operations team consists of 170 people working in the Company's offices in Jakarta, Singapore, Hong Kong, Bangkok, Taiwan, Shanghai, Beijing, Xiamen, Dubai, Mumbai, Glasgow, Rotterdam, Brazil, and Westport - Connecticut. The Company's offices in Jakarta, Singapore, Hong Kong, and Westport - Connecticut, handle and oversee all major aspects of the operations, from marketing and vessel management to bidding and closing of contracts, allocation of shipping resources, acquisition of new vessels and other general management issues. Other offices are primarily dealing with local ship management and marketing activities only. To support the operation of the Company's fleet in the western hemisphere, the Company opened a marketing office in Glasgow in 2004, and Rotterdam in 2007 through acquisition of Chembulk Tankers LLC, in addition to Dubai office in 2005 and Mumbai in 2007. In order to support its operations in Far East Asia, the Company has opened a marketing office in Shanghai in 2007, and another in Brazil for operational in South America in 2008.
The Company competes for business through established channels of sales commonly used in the maritime transportation industry. COAs (Contract Of Affreightment) are normally tendered in the open market, and the Company participates in bidding through the normal tender process for those COA that covered some geographic areas in which or near which the Company's vessels are operating.
Spot contracts are usually offered on the open market. The Company's marketing and sales team maintains contact with charterers and brokers to market vessel space according to the position and timing of particular vessels. The marketing department also continually updates charterers on the availability of space on the Company's vessels and their geographic location.
The Company caters primarily to the liquid cargo segment in the shipping industry, as the Company's tankers are transshipping for both domestic and foreign trade. Competition in this segment of the industry can be extremely intense, where operators compete on the basis of the availability of vessels in a particular region or for a particular route and price as they rely everything on their proven reliability and reputation in the industry.
Within the domestic market, the number of operators in this market segment is considerably fewer than in the international arena. In terms of transportation services within the Indonesian waters, the Company competes primarily with some potential shipping companies.
In terms of international chemical transportation services, the Company has a number of different competitors, primarily shipping groups based in Japan and elsewhere in Europe.
In the area of the international oil transshipment, the Company's competitors are major players who specialists in their fields.
The Company has in general established long-term relationships with the majority of its customers, to include some major international oil and chemical companies such as Pertamina,
Celanese Corporation, Exxon Mobil Corporation, Shell, BASF, SABIC, IPCC, and Dow Chemical, etc. In particular, the Company has an established long-term mutual & strategic business relationship
with Pertamina, the Indonesian state-owned oil company, which currently controls the distribution of Indonesian oil and other refinery products within Indonesian waters. All long-term contracts are with Pertamina.
Aside from Pertamina as one of the Company's most valuable customers, with contribution up to 6% of revenue, none of other customers have individual contribution to revenue of more than 5% to the Company 2008 revenue. In this sense, the Company has no dependability risk on any single customer.
The Company establishes contact with customers and receives orders for shipping transportation services through brokers and direct contacts with the Company's marketing and sales team. Customers choose the Company's services over those of competitors on the basis of the Company's established reputation for safety and reliability; competitive prices; and the availability of various type and size of vessels. Within its marketing and sales teams, the Company employs designated customer service representatives who focus exclusively on one or more major customer accounts in order to address the needs of valued customers. In this way, the Company can always anticipate any particular, specific needs of the customer in terms of shipping capacity and geographical destination, allowing the Company to deploy its fleet effectively to meet these needs. In order to fulfill the needs of customers for transshipment services in a particular area or at a particular time, the Company occasionally charters vessels from other, reputable shipping companies on a short term charter basis. This allows the Company to maintain long-term relationships with its customers and to build on the Company's reputation to win new contracts.
Areas of Operation
The Company divides the operation of its chemical tanker fleet into four geographical zones, one zone for oil tanker fleet, and another for its gas tankers. In the chemical tanker segment, Section 1 includes the area within Southeast Asia, between ports in Indonesia, Thailand, Malaysia and Singapore. Section 2 includes the area from Southeast Asia to/within Northern Asia, as well as the backhaul from the region, with primary destination ports located in China, Korea, Taiwan and Japan. Section 3 includes the area from Southeast Asia to the west; to India, Middle East countries and Europe as well as trade within these areas and backhaul from these areas. Primary destination ports for Section 3 are located in India, Iran, Saudi, Kuwait, Qatar, Egypt, Italy, Spain, Netherlands and England. Section 4 covers trade to/between North and South America, from America to Europe through the Atlantic Ocean, and from America to Asia through the Pacific Ocean.
The Company deploys its vessels throughout its area of operations on the basis of market conditions and customer requirements. It's part of the Company's strategy to anticipate where the load of demand for next transportation services will be needed, while at the same time maintaining a broadly diversified position by spreading its vessels across a range of different geographic areas.
Shipping industry is competitive in nature and one of the most notorious ones compare to many industries in general. However, the Company possesses a number of competitive strengths that will enable it to achieve its vision of becoming the preferred multinational shipping company in domestic and international trade. These strengths include the following:
Large, flexible, modern, high quality ships operated and managed by skilled crew and staff
The Company expects that the chemical and petroleum industries will continue to grow over the next several years and with this growth, the demand for shipping services will continue to increase. With its extensive and diverse fleet, comprised of 88 vessels, the Company is extremely well positioned to service the widely varying transportation needs of even the largest multinational companies and regional trading companies and for a wide range of different products and product groups.
The Company's fleet of modern chemical, oil and gas tankers is superbly maintained and operated by highly qualified crew, facilitating its ability to develop and maintain long-term relationships with its clients by providing consistently high-quality and cost efficient service. The Company's fleet is demonstrably more recently constructed than that of the majority of its competitors: as of 31 December 2008, the average age of the Company's chemical, oil and gas tankers was approximately 7,7 15,4 and 7,9 years respectively, compared to industry averages of approximately 11,7 12,3 and 15,5 years respectively.
The quality of the Company's crew has been demonstrated by the fact that it has been granted ISO 9001:2000 certifi cation from Nippon Kaiji Kyokai for the crew management and manning division and for shipping and agency business.
The Company enjoys the use of modern and high classification fleet of vessels in which almost all of our vessels are double hulled and almost all of our chemical tankers have IMO type II/III class notation. IMO Type II/III class notation means that we can carry highly sophisticated and specialized grade of liquid chemicals and this creates flexibility to transport the various types of oil and chemical products. In addition, almost all of the cargo tanks of our chemical ships are made of high grade stainless steel which has even greater flexibility to carry high value cargoes. Being able to provide transportation for specialized products presents us with better margins.
The quality of the fleet, and the crew manning the fleet, have won a high level of acceptance from charterers, demonstrated by the Company's vessel utilization rate of above 90 per cent.
Consistent profitability and steady, ongoing increases in net revenues
Since its listing on the Jakarta Stock Exchange in 1990, the Company has recorded net profits every year. In the period between 1990 and 2008 (on the basis on Indonesian GAAP), the Company's EBITDA has increased at a compound annual growth rates of 38,8 per cent, while profit has increased at compound annual growth rate of 37,2 per cent.
The Company has achieved this excellent financial performance by adopting a strategy of a balanced business mix between the chemical, oil, and gas sectors. Similarly, it has adopted a strategy of a balanced mix of contract and spot charters. These strategies enable the Company to maintain its profitability through business cycles.
In the midst of current crisis, the Company continued to deliver results and has shown its strong performance by recording a net profit of Rp1.567.811 million as has been shown in the profit and loss statement.
Building on proven ability to provide dependable, secure and efficient transportation services
The Company has worked to develop strong, long standing relationships with its clients, who include major international oil and chemical companies such as PT Pertamina (Persero), Exxon Mobil, Shell, BASF, Celanese, Dow, IPCC, SABIC and many other clients. The basis for these strong customer relationships is the Company's proven ability to provide dependable, safe and efficient transportation services.
With the ongoing expansion of the Company's fleet, it expects to be able to build on these existing relationships to win the trust of new clients by providing them with a greater geographical reach, following the acquisition of Chembulk and to deepen our presence in important market around the world.
By leveraging on the strong relationship with our customers, the Company has continued to expand our presence and position ourselves with a strong foothold in principal markets in our segments and has continued to increase our market shares in those regions.
Marketing and Operating Network
Leveraging from our global networks
The Company has developed an extensive international sales and marketing network, both to serve existing clients and to enable it to identify new business opportunities. The Company maintains an integrated marketing presence in the customers'key Asian markets by setting up offices in Jakarta, Singapore, Hong Kong, Bangkok, Taiwan, Shanghai and Beijing. In addition, the Company has established a presence in the Middle East through marketing offices in Dubai; in Europe through offices in Glasgow and Rotterdam; in South Asia through offices in Mumbai; and in North America and South America through offices in Westport - Connecticut and Sao Paolo - Brasil.
Commitment to Extensive Training Culture
Systematic and Rigorous Training Programs for Onshore and Offshore Staff
The Company's greatest assets are its people who work both onshore and off-shore (on board its vessels) hence the Company has invested heavily on them and this policy will continue to be so.
We have extensive training programs for all employees at all levels both for onshore staff as well as for those who work offshore. The trainings ranging from motivation programs to specific industry knowledge are designed systematically such that they meet the level of rigor and thoroughness to ensure all employees continue to be updated with recent changes and provide development in the area of their expertise and/or functions. The Company believes that good training and good training programs are investments in nature and are important for the personal development for the employees as much as it is important for the future growth of the Company which can determine future success of our organization. For seafarers or crews trainings purposes, the Company invested heavily on the in-house bridge or engine room simulator and cargo pump mock up as well as other investments such as English language laboratory to ensure the offshore crews continue to get upgrading of their skills and the sharpening of the expertise for our seasoned seamen.
In general, we have onshore and offshore staff who are not only highly skilled, promoting best practices, continuously improve our performance but also have shown their strong commitment to the growth of the Company.
High-quality and cost competitive services through wholly owned subsidiaries
The Company provides all of the vessel management services required to operate the fleet, including operations support, tanker maintenance and technical support, crewing, shipyard supervision and commercial management, through wholly owned subsidiaries. The Company believes that by performing
these services through wholly owned subsidiaries, the Company is able to ensure quality and to achieve a greater level of cost efficiency.
Experienced Management Team
Extensive experience in the shipping industry and loyalty and commitment to the Company
The Company's senior executives and key employees have extensive experience in the international shipping industry, with an average of 20 years of experience. In addition, members of the senior management team's loyalty and commitment to the Company are demonstrated by the fact that they have on average been employed by the Company for almost 18 years. With their long experience, Company's management team has expertise in all areas of the shipping business, including commercial and technical management. This long experience provides the basis for a focused marketing effort, rigorous quality and costs controls, effective operations and safety monitoring.
In order to maintain and increase its market share and to achieve a consistently strong financial performance through economic and shipping cycles, the Company plans to pursue the following strategic initiatives:
A Balanced Portfolio
Reducing volatility by maintaining a balance between the chemical, oil, and gas sectors
It is a fact that the chemical, oil, and gas sectors are subject to cyclical patterns of expansion and contraction, and that this will impact the demand for shipping services in each of these respective sectors. However, it is also clear that each of these three sectors is governed by cycles that are not directly correlated. Thus, by diversifying its focus across the oil, chemical and gas markets, the Company can reduce its exposure to volatilities in any one particular sector. In order to manage risk and achieve consistent growth, the Company intends to maintain a balance between these three main segments of its business.
Utilize contractual arrangements to grow and maintain stable operating cash flow
The Company seeks to ensure greater cash flow stability through the use of contracts and time charters for a significant portion of our fleet, while maintaining the flexibility to benefit from spot market rate improvements. The Company constantly monitors the market and seeks to anticipate clients' transportation needs and to respond quickly to attractive chartering opportunities.
Consistently growing the fleet while prudently managing the capital structure.
Since January 2005, the Company has acquired 32 new and second-hand ships with a total capacity of 1.455.984 DWT for an aggregate cost of approximately US$1.130,0 million. The Company intends to continue to expand its fleet, with 23 vessel new builds, representing a total capacity of 477.780 DWT, on order for delivery over the next four years. Furthermore, the Company may consider acquisitions of other shipping companies to achieve its strategic objectives.
Penetrating New Markets
Expand the geographic presence in customers' key markets
Since 1998, the Company has pursued a strategy of expanding into new geographical markets from its established operational centre in Southeast Asia. In 1998, the Company acquired a subsidiary in Hong Kong as a means to penetrate North Asian markets. In 2001, the Company extended its area of trading and operations into the Middle East and India. In 2004, the Company established a marketing office in Glasgow, Scotland. In 2007 the Company acquired a shipping company in America to penetrate North
and South America.
The Company intends to continue to focus on its core business in Asia while also striving to extend and expand its operations into Europe, North and South America and to place greater emphasis on meeting the needs of European and American customers. The management of the Company believes that the European and American market offers substantial opportunities, as many of the largest existing customers do business in Europe and America and have a demand for reliable, efficient and cost effective shipping services throughout this region.
The Company intends to build on established relationships with existing customers in order to facilitate expansion and gain a greater share of their European and American shipping business. At the same time, the Company also plans to take advantage of the cost efficiencies it has achieved through its established presence in Asia to offer competitive pricing to customers in European, North American as well as Latin American markets. In addition, the Company recognizes that new Indonesian shipping regulations that stipulate that intra-Indonesian shipping services may only be provided by domestic ship owners using Indonesian-flagged vessels, to the extent such vessels are available, provides an opportunity to expand its operations in the domestic market.
FSO and FPSO Markets
Expanding operations into areas with high growth potential
The Company believes that the FSO and FPSO markets for offshore services have high growth potential. Thus, the Company will seek to expand its involvement in this area by entering into long-term agreements with operators of oil exploration and production facilities to manage storage, off-loading and other offshore services. The Company has converted one of its existing tankers to serve as an FPSO in 2006 as the first entry into this market.
BUSINESS PROSPECTS AND MARKET CONDITIONS
The liquid cargo shipping industry is easily affected by market conditions that are often outside the control of shipping companies. Thus, the Company's operational and financial performance may fluctuate significantly due to external factors including global economic conditions; supply and demand for liquid shipping transportation services; and business cycles affecting the liquid cargo maritime shipping industry itself.
The majority of the Company's revenue comes from shipping operation of chemicals, oil and gas. Demand for these services is known historically to be always volatile, as global demand for these three products fluctuates from time to time. Demand for oil, chemicals and gas is closely interrelated with global patterns of economic development, growth and activity. Fluctuations in the demand for services involving the transportation of these commodities are influenced by a number of factors, including changes in oil and gas production level and demand for oil and gas related to changes in the prices of these commodities; export and import levels in the global energy market; the level of global demand for energy products and particularly petroleum and other refinery products; fluctuations in global and regional trade; in currency exchange rates; in the oil and gas inventory levels, particularly in importing countries; and changes in the regulatory regimes governing the shipping industry.
During the last several years, the global demand for transportation services involving the shipping of oil, chemicals and gas has risen steadily. The volume of liquid chemicals transported by sea has risen by approximately 30,15 per cent since 2001, from 133 million tons to 173,1 million tons in 2008; whereas the volume of petroleum transported by sea has increased from approximately 249,9 million DWT in 2003 to approximately 308,2 million DWT in 2008; and the volume of LPG, ammonia and petrochemical gas altogether has risen from 67,5 million tons in 2002 to 83,3 million tons in 2008.
Over the past several years, supply of liquid cargo maritime transshipment services has increased in response to the growth of demand. According to Drewry Shipping Consultants Ltd, since 2002, the total combined capacity of the world chemical tankers has grown from approximately 40,6 million DWT to 65,94 million DWT by end of 2007 (including vessels with a limited chemical rating but are primarily used for transporting oil products). The total combined capacity of the world's oil tankers has expanded from approximately 265,5 million DWT in 2003 to approximately 323,8 million DWT at the end of 2007, while the combined capacity of the world's gas tankers has grown from 14,4 million CBM in 2003 to approximately 18,32 million CBM by end of 2008.
The specific cycles of each of the three main products transported by the Company's vessels, namely the chemical liquids, oil and gas, do not necessarily relate to each other. The various shipping routes on which the vessels operate and the various products to which the Company provides its transshipment services are subject to varying degrees of exposure to this volatility affecting freight rates. The Company's strategy is always trying to control the impact this volatility has on its performance by maintaining a balance between various proportion of business involving each of the main product markets; also a balance between long-term and spot contracts; and by relocating its ships to geographic regions where demand is both high and relatively stable.