May 2003 / No. 23

Contents

Working with national banks is not easy, especially when foreign banks give out 12 year loans with 3% rates of interest in the blink of an eye.

In today’s world, professional management is a career in itself. Companies caught up in new economic and social conditions feel the need for professional managers more strongly than others. A professional manager is someone who –with his or her strong presence in the company– can take things that threaten that company and turn them into opportunities and profits, and this is the most important principal of management today. The war in the Middle East is a threat to the shipping industry, but a professional manager like Ali Ashraf Afkhami, sees the current situation as an opportunity. In the weeks following the commencement of military operations in Iraq the Islamic Republic of Iran Shipping Lines (IRISL), with Afkhami at its healm, continued all its activities on schedule and unhindered by the war next door, the company appeared so unaffected by its surroundings that it did not even increase its insurance rates.

Privatization: In accordance with Clause 44 of the Constitution of the Islamic Republic of Iran, IRISL was set up as a government company facing no competition. However, Afkhami says that he doesn’t want to be the only player on the field. For years we have been the only ones on the field with no one to play against, so we have no standard to assess our capabilities against. We do, however, compare ourselves with our foreign competitors. The government of Iran will not benefit from having only one company active in the country’s shipping business, especially when that company is itself a government company.

The Time is Right: Establishing a shipping company on a scale comparable to IRISL needs astronomical investment, but accounts show that they will return appropriate profit. Taxes fixed at an average of 25% create an additional incentive for investing in this sector. The government is currently handing out loans –that are appropriate and can compete with international loans– from the currency reserves account. 90% of the company establishment costs can be covered through these loans. Still, the private sector is for some reason reluctant to step into this sector.

Domestic investors can team up with foreign investors to finance their entry into Iran’s shipping market.

It could be the political climate that has cast a shadow of doubt over the security of investments and has put off the private sector. Afkhami declined to comment on this issue but encouraged investors from the private sector to take a courageous step forward. It is the responsibility of the government to support the private sector until it can find its feet. Experience over the past three years has shown that investing in the shipping sector is profitable and would definitely be recommended to the private sector.

National Economy: IRISL is an economic institution on a large scale and thus, the financial, monetary, currency and commercial policies of the country closely affect it. The government’s policy to be strict in its tax collection has been successful in the past years. When companies such as IRISL were forced to pay their taxes, their profit margin slimmed down enough to encourage the entry of other competitors in the shipping sector. There is also the added problem of our banking systems. Our banks, for some reason or another, are far behind the world’s state of the art banking practices. Our banks grant loans at exorbitantly high rates of interest and still demand hard-to-satisfy security requirements. Working with national banks is not easy, especially when foreign banks give out 12 year loans with 3% rates of interest in the blink of an eye.

Joining the Global Economy: Whether we like it or not the rules of the World Trade Organization (WTO) will encompass the global economy sooner or later. When these rules are implemented, competition will become every company’s only hope for survival. IRISL’s policy is to take daily steps in the direction of the WTO. An example of this is IRISL loosening its ties with the national economy. If the rules of the WTO were to become enforceable today, IRISL would not suffer too much damage. However, we could benefit from a younger fleet. Renovating our fleet is a constant activity at IRISL that never stops.

The Iranian Dream: Iranian industrialists dream of producing big ships in Iran, and they have come close to their dream in recent years. Nothing has been done to address this issue for the past 40 years. Before Afkhami’s entry to IRISL three years ago, the preliminary agreements with domestic ship companies had been signed, but they have gained momentum in the last couple of years. We prefer to hire Iranian companies for our ship construction, renovation and repairs and we currently have some significant contracts with our domestic producers. Inking a contract for the construction of six ocean-faring ships –worth $188.5 million– and two catamaran passenger ships –worth $13 million– and five other ships contracted to Farasahel Company –worth $126.5 million– are all examples of domestic contracts currently under implementation.

No Shortcomings: Afkhami boldly asserts that we are no less than the recognized shipbuilding companies of the world. The tireless efforts of our dedicated workers on sea and on land have elevated us towards international standards, and have placed them within our reach; while at the same time, we are not in an ideal position and so we are not fully content with what we have achieved. Our net currency income of $23 million in 2000 has reached $140 million today and IRISL occupies a significant position in the shipping market. Without government recommendations, we have managed to become recognized as a credible shipping company in the world market. We currently have full capacity utilization and to achieve this we have taken significant steps.

We have transformed ourselves from an introvert company to an extrovert one. We are trying to boost our share of foreign transportation from its current 32% to 36% by the end of this year. It is worth mentioning that there was a time when our share was a mere 5%. It may be easy to say, but actually competing with renowned international shipping companies with long track records is in reality, hard work. Expanding or even maintaining our share of the transportation industry is not easy. The most important thing for us at the moment is maintaining and stabilizing our share of the market, and if we lose our market standing, regaining it may be much more easily said than done.