Monetary and Capital Market Exclusive, March 2004

Monetary and Capital Market in Iran

Our ‘Core Strategy’ is to make the best use of the opportunities hidden in the rapid changes of international market. 

A. A. Afkhami, Chairman and Managing Director of the IRISL

Plowing ahead forcefully with its drive for privatization, the Islamic Republic of Iran Shipping Lines is establishing a recognized name for itself in the international scene. By conforming to the principles of the market and welcoming competition IRISL has gained a very positive professional image at the international level and has raised its container line ranking among world-famous companies to 25th during the past three years.

This mammoth industry with the overall ownership structure comprising of 112 vessels with a capacity of about 3.3 million DWT is truly a heavyweight in Iran’s industry and has a significant presence in the market, controlling significant amount of capital and assets. IRISL is now exploring new horizons and finding its place in the capital market, a market that has been sometimes ignored in the past by other companies.

Since IRISL seeks to provide services and products meeting the quality standards of other world-class ship owners it must actively engage in the capital market to ensure the best possible utilization of its resources. What follows is a detailed view of the company’s activities continued by a statement from A. A. Afkhami Chairman and Managing Director of the Islamic Republic of Iran Shipping Lines where he highlights the company’s position in the capital market and the world market.

The Islamic Republic of Iran Shipping Lines (IRISL) began its activities with two 2500 DWT vessels in 1967. Presently, IRISL is actively involved in international maritime transportation by providing services to worldwide customers, through deploying modern tonnage in major shipping routes for all bulk, break-bulk and container operations. This has been materialized by having full ownership of 84 oceangoing vessels in different sizes and types with a capacity of about 3 million DWT. The group’s overall ownership structure comprises of 112 vessels with a capacity of about 3.3 million DWT.

The IRISL’s international network in the form of three regional and nine independent offices, as well as over 110 reputable local representative offices all around the world provides necessary facilities and services to shippers, consignees and charterers.

Employing 4500 skilled mariners and around 1000 shore personnel to support the above tonnage, has resulted in transportation of over 22 million tons of goods annually on average. IRISL through ownership of its 45 bulk carriers from Panamax to Handy size with a capacity of 2.2 million DWT is able to carry all kinds of dry cargoes from grain, clean cargoes to iron ore, coal and other dirty consignments internationally.

In line with new strategies of management, IRISL endeavors to carry all ranges of bulk products through its two departments, naming Regional Bulk Dept. responsible for export/import of cargoes to and from Persian Gulf for all kinds of Bulk Cargoes, and International Bulk Dept. which is involved in carriage of all kinds of bulk commodities on a cross trading basis and worldwide scale. IRISL also owns three clean product tankers, which are engaged in transport of vegetable oil and other products of similar nature.

To provide our readers with a short profile of the positive steps that have been taken in IRISL, we have interviewed IRISL Chairman and Managing Director A. A. Afkhami who has shed slight on some main topics.

Afkhami believes a better future would be guaranteed through better governance, better service and better business. Excerpts of his remarks follow:

As you know, we have drawn up a midterm fleet upgrading and expansion plan, to comply with the average age of the world fleet and, to increase the company’s service quality and competency power, as well as productivity. The plan covers the building of 46 new and different types, bulk and container carriers and also multipurpose vessels.

The initial phase has already been launched with an investment of about $500 million, on ordering and purchasing 24 new ships. The first and second 2,500 TEU newly built container carrier out of the six German built projects have already joined the fleet and the rest will be delivered by June 2004.

We have also recently ordered 10,000 20’ and 40’ container boxes and also, 5,000 high-cubes, to support our expansion plan in container field, which, will be gradually delivered. This eventually adds up our own container fleet to more than 80,000 units.

To meet the international market requirements as a global shipping company, structural change is part of our strategy which has been implemented in the agency network of IRISL, as well as the company’s main body.

We have therefore created three regional offices; with the aims of expanding IRISL activities, specifically in the marketing aspects, improving quality services, generating revenues, controlling the costs and, timely payments to the company account.

Two of these regional offices, that is; IRISL Europe and IRISL Asia based in Hamburg and Singapore, have already been established, and the third, which is IRISL Middle East, will be soon inaugurated in Dubai.

We have also established our own setup called ‘Irinvestship’ company in London, in order to implement management policies, facilitate our financial and legal issues, as well as focusing on increasing the rate of return of company’s reserve.

Meanwhile, we have established two joint agency companies through IRISL Europe named, IRISL Germany and IRISL Benelux Agencies. The policy will be followed globally, to brand and expand the company’s worldwide network. Recently we signed an agreement for establishment of IRISL Korea, our first joint venture in Asia, which will be followed by IRISL China, IRISL Japan and IRISL India.

With regard to the seaborne trade, we have focused on taking a larger share from the international market by changing our aggressive strategy from an introvert company to an extrovert one. The outcome led to an increase rate of 53% in our cross-trading activities. That means we have achieved 6.6 million tons, from 4.3 million tons, within the last year and, presently 37% of our activities are covered by cross-trading, which is planned to reach the target of 45% soon.

Our ‘Core Strategy’ is to make the best use of the opportunities hidden in the rapid changes of international market. The Persian Gulf neighboring countries in general, and Iran in particular are turning to a vast petrochemical export market, therefore, we were led to establish the joint venture ‘Pars Petrochemical Shipping Company’, to enjoy potential benefits from the opportunities ahead.

To enter the logistic operation, ‘IRISL Port’ is being formed and, we are developing our activities in the terminal operating fields on a joint foreign investment basis in Bandar Abbas, Bandar Imam and, Khorramshahr. This is in line with our policy to position the most accessible route through the so-called North-South Transit Corridor (NOSTRAC). We have therefore started our activities in Khorramshahr. As soon as the projects are completed, we may even follow the policy in the foreign ports. Obviously such developments will transform IRISL from a conventional shipping company to an inter-modal service provider.

I should also mention that, achieving the utmost productivity of our resources, is one of our main concerns, therefore, we are specifically focused on paving the way for a smooth and speedy communication within the IRISL network, decentralizing the whole system and, removing the obstacles and bottlenecks in operational procedures and processes. Consequently, establishment of an integrated information system is also being noticed as our top priority.

IRISL was able to successfully win ‘Iran National Quality Award’ this year, which was the first running round of the competition. However, all these efforts would not come to positive results, unless through sincere cooperation of colleagues all around the world. We owe all these achievements to the supports and encouragements granted to us by our team-members.

“Team work” speaks the first and the last word in success. We are all together, think and work together and, are supposed to try together to implement the most professional procedures, such as, exploring new markets, taking efficient marketing policies, multiplying revenues and, controlling the costs, to reach the objectives.

We, in the Islamic Republic of Iran’s Shipping Lines believed and still believe that our target markets are not solely Iranian and we are aiming at international markets too. During past three years we have acted quite professionally in this regard and increased the then 5% share of transportation in international markets to the current figure of 37% and we expect it to hit 40%.

This is a great achievement and we are planning to boost it to 45-50 percent too. We are developing our fleet to be capable of competing with foreign companies. Another important achievement gained through our efforts was that productivity of our fleet has increased from about 65% to the current figure of 83%. This has been carried out during the same three years.

In fact we have carried more cargo without increasing our ships. We activated latent potentials. On the other hand, we have pursued renovation of our fleet. We have ordered ships in several phases in line with a 10-year plan. We have drawn up two three-year and one four-year plans to order our ships. Apart from that we have tried to build ships inside the country. We have signed as much as $325 million worth of contracts.

During the past three years we as a pioneer, have been working with the Iranian shipyards ISOICO and ARVANDAN and so far, $200 million in credits have been made effective and we are opening about $135 million worth of new credit lines. This has been unprecedented in the past. At present, Iranian shipyards are building ships through the support offered by us. If you go to Abadan or Bandar Abbas, you would see ships that are being built and are in various stages of construction.

Of course, sometimes there is a delay, but since it is their first experience in the field, the delay is understandable. Perhaps, some would say that Iran already enjoyed facilities to build ships. But I ask why those facilities were not used during the past thirty years? We are also active in providing commercial services and our image in the world has greatly improved. We have established regular container lines to Asian and European destinations, which were not present five years ago. We are proud that in 2003 IRISL Asian container line ranked number one among big names operating IRA westbound.

We used break-bulk carriers, but we did not have any regular lines. At present we have regular lines towards the west of the Persian Gulf as well as Europe and the Mediterranean. In line with the method used by us we increased marketing of our brands in the international markets. Design was professional and difficult, but it was done.

We have gained a good name in the world and today our ships are capable of meeting demands. We are adding new ships and container ships, but the orders are so high that the fleet cannot meet the customers’ demands. We are trying to introduce the Islamic Republic of Iran’s ships under the IRISL brand. We want to make the brand internationally recognized. We are forming an international network of our brand which is known in any region by the name of that region.

For example, we have IRISL Germany, IRISL Benelux, IRISL Singapore, IRISL Korea and so on. Some of these brand names have been made ready and others are in the process of becoming ready. We want to learn the rules of the game.

We aim to look upon clients as our partners, not merely as a customer that should be satisfied. We are a global partner of our clients. A good culture is being created in this regard in the shipping lines. We have gained a very positive professional image at the international level. Iran raised its ranking among world-famous countries to 23rd during the past three years. We are planning to rank among the top 20 maritime nations within the next 5 years. The container section is another part that has been very successful. A technique that we have used to achieve our sacred goals was to develop human resources.

This was a core issue for us. We believed that investing on human resources would be more beneficial than hardware investments. We have designed strategic management courses and some of our directors are now passing advanced courses.

In regards to the capital market my opinion is that there was no such thing as a capital market in Iran up to 10 to 12 years ago. We did not pay much attention to developing capital market and ignored its role in the country’s economic development. We were also inattentive to human resources. Since the end of the war, our attitude changed and new policies on privatization were adopted.

Although there is no ambiguity with regard to privatization in the minds of policy makers and top officials, I think that the trend has not been energetic and encouraging enough. Although major steps have been taken during recent years to develop the stock market and we have even presented securities on international markets, but this is not enough. You can compare our country with a country like Germany and study the approach taken by former West Germany toward companies in East Germany.

Whenever, governments have been successful in terms of economic growth, they have adopted professional models. Examples are many including Malaysia, South Korea and Taiwan. Of course, we have been facing major problem, but we could have worked better. We need corporate activities to introduce our capital market at an international level. They are doing the same in Hong Kong, Malaysia and other places.

Why have small regional countries become big markets, while we are lagging behind? The reason is that professional management is the key to many economic achievements. It is through such a management that you can promote the quality of goods, packaging and prices. We need to move in that direction. Capital is liquid and does not know any geographical borders. At present, Chinese or Japanese companies own the stocks of the American firms and vice versa.

Another key is technical know-how and the technology that should be transferred into the country. In addition to underground resources, we would need technical know-how. If we pay attention to these two important key elements many of the current problems would be solved.