Conversation with Herbjorn Hansson, chairman and CEO, Nordic American Tankers on – the importance of having a solid financial structure – value creation – alternative business opportunities
Here is the transcript of the video.
1. Liquidity key to business vitality
Emmanuel Daniel (ED): The tanker business is a very volatile business. How have you been able to sustain your business, especially throughout the economic crisis?
Herbjorn Hansson (HH): It is a question of risk management. In this business, there is a large amount of volatility. Therefore, it is important to have a high degree of equity and minimise borrowing. That has been our objective for many years. We are listed on the New York Stock Exchange, and we own 20 large tankers that can each carry one million barrels. Conditions are not very good at the moment, but we are in a very good situation because we have very little debt.
ED: When you say equity, you mean cash, not borrowing. Therefore, you grow on the back of your own cash flow?
HH: We have a homogenous fleet; and growth is important. If you increase your fleet from ten ships to 20 ships, that’s 100% growth. We’ve also enjoyed good development, relatively speaking, on the stock exchange. Another point is we are on the spot market only. Over time, the spot market gives better returns. We also have a strong balance sheet, but our financial structure, to a large degree, has to do with the fact that we give out dividends to shareholders.
ED: Are your shareholders mostly long-term holders?
HH: They’re a mixed bunch.
ED: Is the business liquid?
HH: Yes, we’re very liquid. We buy and sell. I’m a very large shareholder, myself, until recently.
ED: How do you manage cost? I’m sure that yours is a very cost-driven business.
HH: We only administer to site. We don’t have a public relations department. We don’t have a legal department. We don’t have all of these people that are costly.
I’m a member of Northern Shipowners Defence Club. They have 20 of the top maritime lawyers in the world. We pay around $8,000 per year for their services, and when we ask them for legal assistance, it doesn’t cost anything.
ED: How do you configure yourself relative to this thing called competition? Or do you have a lion’s market share?
HH: We deal with the big oil companies. We have a large contract with Shell, Exxon, Mobil and we carry their oil all around the world. We also do business with British Petroleum. It is a question, the same as your business, of reputation. You must have good people as your friends and business partners. Reputation is essential. Without exception. We have managed to keep costs down due to the cost-saving measures mentioned earlier.
ED: But what if demand starts to shift and you find that you need to evolve your business?
HH: There’s a saying in the US, “Lets cross the bridge when we come to it”. But everybody needs energy. Everybody needs oil. People like to drive cars. They like to increase their welfare, and, when they increase their welfare, they consume more energy.
ED: Tell us a bit more about yourself. For you to have this level of discipline in this business means that you probably have it in your DNA. Does it come from being exposed to it at a certain point in your life?
HH: My father was an entrepreneur and I have, in a way, combined academia and business. I was a research manager during the 70s at INTERTANKO, a club of tanker owners. During the ‘80s, I was CFO of one of the largest groups in Norway, a position I assumed when I was 32 years of age, with 6,000 employees. I started my own business in 1989 to become my own boss. Nobody can tell me what to do, and nobody can point at me and say, “You do this, and you do that.” I like to be a free man.
ED: Has being a CFO contributed to you being very cost-driven?
HH: You could say that. But essentially, you must understand value creation, as I call it. That is essential.
ED: What’s value creation in the tanker business?
HH: For us, it’s the stock price. If the stock price is 30% above steel value, that means that we can buy ships for 30% cheaper. That is value creation. Over the years, we have been able to make the US capital market work in our favour.
ED: How do you manage human resources in the shipping business?
HH: We have crews on our ships from the Philippines and Russia. There is a general saying, in business, that one must have two thoughts in mind at any one time. But in our business, you must have ten thoughts at the same time!
I’m always trying to better understand the needs of the world, and where the company stands in terms of operating in the world. That is essential. It is not only a question of one specialised skillset, but also one of having insight into a variety of disciplines, if you wish. For instance, understanding socio-democratic conditions is also important in this business.
ED: So you need to be hypersensitive to the nuances between people and the different markets.
HH: Yes. You must understand the various markets. I was in this part of the world in 1975 for the first time – in Japan, Korea and China. I have seen how technology is migrating from one place to another, and how it is a continuous, perpetual form of development.
ED: Coming back to the tanker business, once you gain a certain critical mass and you’re a big player in the market place, are there places that you can’t go?
HH: It depends on the sizes of your ships. We have the so-called Suezmax tanker, which is a very versatile ship. They can load one million barrels of oil and load as well as discharge at most ports. The bigger ships are the VLCCs, “Very Large Crude Carrier.” These ships can carry two million barrels. However, there are not many places where they can load and discharge.
2. Staying true to one’s business strategy
ED: Is there a temptation to start another company that deals with opportunities that are missing you because of size?
HH: No. The advice from our big shareholders and good friends is to stay the course. That’s important. We are staying the course in a very focused way. What we could look at is alternative businesses. But whatever we do, it must be within the realm of our competence. We should do what we are good at. We should not do what we are not good at. We’re looking at opportunities that are complimentary to the tanker business.
In the changing world, elements are forever changing. At this moment in time, the market is down quite a lot. Then, when the market is up, there is no need to talk about alternatives because we are making tons of money. But it is more relevant to talk about complimentary businesses when the market is down, and we look at that from a rich management point of view.
ED: Do you believe in the partnership model?
HH: No. Well, in a way, I regard our bank as a partner. I regard you and your firm, The Asian Banker as a partner, and, lastly but not least, our shareholders and clients as our partners.
Occasionally, we do have partners because of the shipping pool that we’re now a part of. We operate our ships together. But there are two things in life which in my view are very important; firstly, we should have good people as our friends, and secondly, we should have good people as our business partners. I don’t wish to do business with everybody, no.
3. Leadership qualities
ED: How would you describe your governance model? The idea is to be responsible to shareholders on dividends and cash payout, but in terms of the shareholders, the whole process must be transparent to them.
Interviewee: Yes, transparency and management, by exception, is important. I don’t wish to micromanage, but, of course, I have a good understanding of my business, and I believe that the top people in an organisation should know every little detail. But that doesn’t mean they should intervene in every single detail. Of course, we must also plan for the future.
You need passion in this business. You need stay on your toes and lean forward.
ED: The leadership part of your story doesn’t come up very much outside of the fact that you own one of the most successful tanker lines.
HH: I am, in my heart, an academician, but I hide it.
ED: And an ideas man.
HH: Yes. You must have innovation. You must think differently today than you did yesterday.
ED: But then, in your business, you’re keeping to your call.
HH: Yes. But that’s a different story. You can manage your business in many different ways even as you keep the course. To keep the course means to be faithful to a number of dimensions.
ED: What was the hardest point in your life that made you who you are, who you’ve become?
HH: That’s a difficult question. Firstly, when I was a young CFO of a large corporation, the number two man in charge of 6,000 people, then I thought I was a world champion in all disciplines. As I got older, I realised that we don’t really know too much. The second point has more to do with hard work. I’ve always been a hard worker. A friend of mine, – he’s a very well-known investment banker. He used to joke, “You and I, we are 20% more stupid than the others. In order to get the same result, we must work 20% more.” Hard work is important.
