Nature of Business Nature of Business
horesen Thai Agencies Public Company Limited (“TTA”) acts as the holding company for all Thoresen group companies around the world. TTA is incorporated in Thailand and has been listed on the Stock Exchange of Thailand since 1995. Through its various subsidiaries and associate companies, TTA owns and operates a fleet of forty-eight (48) general cargo, Handysize, and Handymax dry bulk vessels and provides a wide range of shipping services, including ship agencies, stevedoring, warehouse rentals, ship brokerage, and offshore marine services. The following chart depicts the current business structure of TTA. Chart 1 : TTA Structure
THORESEN GROUP
SHIPPING OPERATIONS SHIPPING SERVICES
Liner Services Ship Agencies
Tramp Services Stevedoring
Vessel Chartering Services Ship Brokerage
Ship Maintenance & Repairs
P&I Club Representation
Port Operations
Offshore Related Services Shipping Operations
TTA is one of the largest Thai-based owners of general cargo, Handysize, and Handymax dry bulk vessels. Our vessels range in size from 15,240 dwt to 52,375 dwt and are able to carry a broad range of major and minor bulk cargoes, including grain, cement, and fertiliser, and container cargoes. TTA has rapidly expanded the fleet since 2002, and six more vessel acquisitions were completed in 2005. Our 48-vessel fleet has a combined carrying capacity of 1,286,466 dwt and a dwt weighted average age of 17.31 years as of 30 September 2005. The following chart summarises our fleet development from 1995-2005. Chart 2 : Fleet Development
Number of Vessels DWT
50 48 1,400,000
45 43 1,200,000 1,286,466 40 1,107,981 1,000,000 35 33
30 800,000 25 25 24 24 25 23 22 757,482 19 600,000 20 18
512,900 15 400,000 418,958 437,408 415,347 399,544 382,118 10 311,448 331,644 200,000 5
0 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
No. of Vessels DWT
16 Thoresen Thai Agencies Plc Nature of Business Nature of Business
Our Competitive Strengths
TTA has a number of strengths that provide us with a competitive advantage in the dry bulk shipping industry, including:
A diverse, flexible, and multi-size fleet of 48 dry bulk vessels. We believe that the Handysize and Handymax sectors are very attractive relative to the larger vessel sectors for various reasons, including lower volatility in charter rates, higher operating flexibility and ability to access more ports, ability to carry a more diverse range of cargoes, and a broader customer base.
Operating a fleet of sister and similar vessels. Our fleet includes eight sets of sister vessels (total of thirty- seven vessels) plus eleven individual but similar vessels. A fleet of sister and similar vessels allows us to use many of the same parts and equipment, creates scheduling flexibility, and improves efficiencies in employee training and ship maintenance. Over time this should allow us to increase revenue and lower operating costs.
A well-balanced and diversified charter programme. We operate one-way liner services from Southeast Asia and China to the Middle East and the Mediterranean Sea. Growth from Southeast Asia and China has been exceptionally strong over the past three years. Under contracts of affreightment and through the spot, or tramp, market, the liner vessels return to Southeast Asia and China to proceed with their next scheduled voyages. We also enter into time charter contracts for a large number of our vessels. Our time charters range in length from one to three years and provide for fixed semi-monthly payments in advance. We believe that time charters provide significant visibility to our future financial results and create stable cash flows over time.
An experienced management team. Our Bangkok based team of senior executives has an average of twenty years of experience each in the shipping industry, primarily in the Handymax and Handysize sectors. Our management team has developed good relationships with leading charterers, shipbuilders, ship repairers, insurance underwriters, protection and indemnity associations and financial institutions. We also have good experience in managing an ever increasing number of both sea and shore staff.
A strong balance sheet with a low level of indebtedness. As of 30 September 2005, TTA’s debt to equity ratio was 0.95 x. Over the next four years, we are scheduled to repay more than 60% of our existing debt, which will strengthen our balance sheet and increase the amount of available funds for future vessel acquisitions and/or diversification moves.
Our Business Strategy
Our stated Mission is to not only meet but also exceed our customer expectations in the maritime industry. To meet our Mission, we need to manage our business in a way that enables us to continually renew or expand the fleet and meet scheduled principal repayments. Therefore, we intend to:
Operate a younger, specialised, and high quality fleet of dry bulk vessels. Our ability to maintain and increase our client base will depend largely on the quality of our fleet. We believe that owning a younger, specialised, and high quality fleet at the right price maximises our vessel employment options, reduces operating costs, and improves safety. Specialised vessels typically earn premium charter hire rates, especially in falling freight markets.
Pursue medium to long-term charters with the flexibility to pursue short-term charters in the future. Presently, eighteen of our vessels have been chartered out for one to three-year periods, with an average duration of approximately one and a half years. For the years 2006 and 2007, 39% and 21%, respectively, of our fleet’s available capacity are committed on time charters. Based on market conditions, we may consider taking advantage of short-term rates in the future.
Thoresen Thai Agencies Plc 17 Nature of Business Nature of Business
Maintain low cost, highly efficient operations. We are a cost-efficient and reliable owner and operator of dry bulk vessels due to our fleet of sister and similar vessels. We actively monitor and control vessel operating expenses and maintain the high quality of our fleet through regular inspection and maintenance programmes. We intend to take further advantage of the economies of scale from our relatively large fleet with respect to bulk purchases of supplies, parts, and services, and our work with engineers and port captains.
Expand our fleet through selective acquisitions. We intend to renew and expand our fleet through timely and selective acquisitions of vessels. We specialise in the Handysize and Handymax sectors and have no intention to acquire Capesize and Panamax vessels. Within the Handysize and Handymax sectors, we intend to acquire more specialised vessels, such as open hatch box-shaped and multi-purpose designs.
Maintain a strong balance sheet with low leverage. We intend to repay our loans per their principal repayment schedules. Under certain events, we may prepay some loans early. While our leverage will vary according to our fleet expansion programme and future earnings, we intend to limit the amount of outstanding loans to relatively low levels. This conservative strategy should provide us with strong financial flexibility in the coming years.
Our Fleet
The TTA fleet consists of tween-deckers and open hatch box-shaped and conventional bulk vessels. Although such vessels are often inter-changeable and influenced by the same overall market forces, each design does have its own advantages, as noted in the following table and diagrams.
Table 1 : Fleet Design Characteristics
Design Type Description
Tween - deckers Such vessels have a middle, or tween, deck in their cargo holds, making them very suitable for bagged, unitised, or non-stackable cargoes. A tween-decker can be used to carry conventional bulk cargoes. The jumbo derricks and tandem cranes also allow these vessels to lift and carry heavy project cargoes. Open Hatch/Box-Shaped Bulk Vessels The open hatch/box-shaped bulk vessels have much wider hatch openings than conventional bulk vessels, making them more efficient in carrying unitised cargoes, such as steel and forest products. These vessels can also be used to carry conventional bulk cargoes. Standard Bulk Vessels The standard bulker is, as the name implies, the most suitable design to carry conventional bulk cargoes.
18 Thoresen Thai Agencies Plc Nature of Business Nature of Business
Diagram 1 : Tween - deckers
Diagram 2 : Open Hatch / Box-Shaped Bulk Vessels
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Diagram 3 : Standard Bulk Vessels
The following tables present summary information about our fleet as of 30 September 2005.
Table 2 : Fleet Summary
B
20Thoresen Thai Agencies Plc Nature of Business Nature of Business
Table 3 : Fleet List TWEEN DECKERS BULK CARRIERS
Vessel Name Year Built DWT Age Design Vessel Name Year Built DWT Age Design
1 Hermes 01/10/1977 15,240 28.02 SD-14 23 Thor Pilot 22/05/1986 33,400 19.37 Bulk 2 Helios II 01/03/1977 20,949 28.60 24 Thor Orchid 27/09/1985 34,800 20.02 Standard < 40,000 dwt 3 Herakles 25/11/1976 21,068 28.87 Santa Fe 25 Thor Lotus 18/02/1985 35,458 20.63
4 Heron 01/02/1977 20,712 28.68 26 Thor Alliance 27/06/1984 40,940 21.27
5 Thor Sailor 21/03/1986 16,248 19.54 27 Thor Venture 14/06/1986 41,824 19.31 Bulk Standard > 40,000 dwt 6 Thor Sea 28/04/1986 16,248 19.44 28 Thor Dynamic 30/04/1991 43,497 14.43
7 Thor Skipper 04/11/1986 16,211 18.92 29 Thor Integrity 02/04/2001 52,375 4.50
8 Thor Sky 18/12/1986 16,225 18.80 TD-15A 30 Thor Jasmine 22/08/1985 36,633 20.12 Box Shape 9 Thor Spirit 11/06/1986 16,248 19.32 31 Thor Jupiter 18/08/1986 36,992 19.13 Bulk (Box) < 40,000 dwt 10 Thor Star 22/11/1985 16,248 19.87 32 Thor Wave 30/07/1998 39,042 7.18 Open Hatch / Box Shape 11 Thor Sun 04/07/1986 16,223 19.25 33 Thor Wind 18/11/1998 39,087 6.87
12 Thor Mariner 18/01/1983 17,298 22.72 34 Thor Guardian 29/05/1985 41,876 20.35 Box Shape
13 Thor Master 02/08/1982 17,298 23.18 35 Thor Energy 16/11/1994 42,529 10.88 Multi-Purpose Bulk (Box) 14 Thor Merchant 01/11/1982 17,326 22.93 36 Thor Endeavour 11/04/1995 42,529 10.48 Open Hatch > 40,000 dwt / Box Shape 15 Thor Mercury 03/07/1984 17,322 21.26 37 Thor Enterprise 28/07/1995 42,529 10.18
16 Thor Navigator 29/03/1987 18,110 18.52 38 Thor Harmony 21/03/2002 42,978 3.53
17 Thor Nautica 09/12/1988 18,235 16.82 39 Thor Champion 01/12/1982 25,150 22.85
18 Thor Neptune 01/03/1989 20,377 16.59 40 Thor Captain 01/05/1983 25,085 22.43 Open Hatch Con-Bulkers / Box Shape (Box) 19 Thor Nexus 01/01/1989 20,377 16.76 Passat 41 Thor Confidence 24/06/1983 24,900 22.28
20 Thor Nautilus 06/05/1988 18,235 17.41 42 Thor Commander 01/05/1984 26,140 21.43
21 Thor Nectar 01/01/1990 20,433 15.76 43 Thor Tribute 03/01/1985 23,224 20.75
22 Thor Nereus 01/01/1988 20,380 17.76 44 Thor Trader 20/11/1985 24,126 19.87
45 Thor Traveller 30/11/1985 24,126 19.85 Open Hatch Wismar (Box) / Box Shape 46 Thor Transporter 08/08/1986 23,930 19.16
47 Thor Transit 01/12/1986 23,042 18.84
48 Thor Triumph 30/09/1987 23,245 18.01 TOTAL THORESEN FLEET 1,286,466 DWT
All of our vessels sail under the Thai flag, and we own each vessel through a separate wholly owned subsidiary of TTA. Our vessel employment strategy has always been to achieve a highly diversified mix of clients and cargoes. We want to achieve a balanced book between our liner operations, chartered out tonnage, and fixing cargoes or short employment periods in the spot market. This strategy allows reduced volumes from one client or product type to be readily compensated by others.
Chart 3 : Fleet Employment By Vessel Days
23% 30% Liner Service
Tramp - Time Charter
Tramp - Voyage Charter 47%
Thoresen Thai Agencies Plc 21 Nature of Business Nature of Business
During 2005, TTA carried a total of 13.11 million revenue tons of cargoes, an increase of 69% over 2004, of which 49%, or 6.47 million revenue tons, consisted of fertilisers, minerals/concentrates, and forest products. The following chart demonstrates our rapid cargo volume growth over the past 5 years.
Chart 4 : Cargo Volumes Carried By Our Fleet
Cargo Volumes DWT Capacity (Million Revenue Tons) 14.00 1,500,000
13.11 12.00 1,286,466 1,200,000 1,107,981 10.00
900,000 8.00
757,482 7.74
6.00 600,000 512,900 437,408 4.79 4.00 418,958 3.56 300,000 2.95 3.03 2.00
0.00 0 2000 2001 2002 2003 2004 2005
Cargo Volumes DWT
The following charts demonstrate our balanced fleet employment strategy during 2005. Chart 5 : Cargo By Product Type
24% Minerals / Concentrates 17% Fertilizer 5% Wood Products
Steel Products 8% Agri-products 17% Cement 14%
Others 15%
Chart 6 : Cargo By Type of Service
6% 4% 8% 20% Tramp - Voyage Charter
Tramp - Time Charter
Liner - Persian Gulf
Liner - Red Sea
Liner - East Med.
62%
22Thoresen Thai Agencies Plc Nature of Business Nature of Business
Liner Services
Historically, TTA has primarily been a liner services operator. However, as a result of the rapid fleet growth over the last few years, the portion of the fleet utilised in liner trades has, despite having introduced additional services, gradually declined. We currently use around one third of our total available dwt capacity in such trades.
In our liner services, vessels call regularly at pre-announced ports. Shippers pay a fixed freight rate per revenue ton of cargo, while we pay for all voyage related expenses, including loading and discharge expenses, fuel oil, port expenses, and agency fees. The number and variety of clients and cargoes tend to be high for the liner services. Spot rates fluctuate in line with current dry bulk shipping conditions, while liner rates usually lag behind current dry bulk shipping conditions, both on the upward and downward legs, because liner bookings cover a certain period, usually 2 - 4 months, in advance.
Current liner trades include regular services between Southeast Asia and China into the Persian Gulf, the Arabian Sea, the Red Sea, and the Mediterranean Sea, with a large share of return cargoes being contract based. One of the advantages of liner trades is that they tend to deliver more stable earnings as compared to the general tramp market. The following diagram depicts our current liner services. Diagram 4 : Liner Trades
We operate the liner services with our own and some chartered-in tonnage to serve regular customers. By operating these liner services, we feel that we are more involved in the logistics and shipping chain rather than just being a tonnage provider.
Other Charter Services
Besides the liner services, our other voyage revenues are derived from:
Voyage, or spot, charters, which are charters based on the current market rate;
Time charters, whereby vessels are chartered to clients for a fixed period of time at rates that are generally fixed, but may contain a variable component, such as an inflation adjustment or a current market rate component; and
Contracts of affreightment, where we carry an agreed quantity of cargo for a client over a specified trade route within a given period of time.
Thoresen Thai Agencies Plc 23 Nature of Business Nature of Business
The table below illustrates the primary distinctions among the main types of charters and contracts within our industry.
Table 4 : Types of Charters
Contract of Type of Charter Voyage Charter Time Charter Bareboat Charter Affreightment Typical Contract Single voyage One year or more One year or more One year or more Length
Hire rate basis Varies Daily Daily Typically daily
Voyage expenses We pay Customer pays Customer pays We pay
Vessel operating We pay We pay Customer pays We pay expenses Off-hire Customer does Varies Customer typically Customer typically not pay pays does not pay
A time charter transaction involves the hiring of a vessel for a fixed period of time under which we place our vessel, including crew and equipment, at the service of the charterer. Under a typical time charter, the charterer pays us a fixed daily charter hire rate twice a month and bears all voyage expenses, including the cost of fuel and port and canal charges. The charterer generally determines the type and quantity of cargo to be carried and the loading and discharging ports. The operation of the vessel remains our responsibility, as well as vessel operating expenses, such as the cost of crewing, insuring, maintaining and repairing the vessel, and costs of spare parts and supplies.
As noted earlier, 39% of our available capacity is on time charter in 2006. The alternative to chartering out vessels is to operate them against forward cargo bookings and cargo contracts. In the spot market, it is possible to take advantage of sudden upturns in the market, but we are also exposed to sudden downturns. The number of vessels operated in the spot market will vary according to our time charter and liner services.
In connection with the charter of each of our vessels, we pay commissions ranging from 1.25% to 6.25% of the total daily charter hire rate to ship brokers who were associated with the charter.
24Thoresen Thai Agencies Plc Nature of Business Nature of Business
Our Clients
Since we manage a balanced mix of liner and tramp services, time charters, and contracts of affreightment, our clients include a wide range of leading international traders and vessel operators. Some of our top clients include traders like Yara, Cargill, and Mitsubishi and vessel operators like Norden Copenhagen and Sanko Line. Our assessment of a charterer’s financial condition and reliability is an important factor in negotiating employment for our vessels. Our strategy is to charter our vessels to major trading houses (including commodities traders), reputable vessel owners and operators, major producers and government-owned entities rather than speculative companies. In line with our diversified vessel employment approach, we have more than 500 regular clients, and our top ten clients account for only 27% of our freight revenue in 2005 as highlighted in the following chart.
Chart 7 : Client Breakdown By Revenue
10 Largest Clients 13% > US$ 4,000,000 11%
US$ 3-4,000,000 27%
US$ 2-3,000,000 15%
US$ 1-2,000,000
US$ 0.5-1,000,000 11% 16% < US$ 500,000 7%
Our Competition
Our business will fluctuate in line with the supply and demand of dry bulk cargoes. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an owner and operator. We compete with other owners of dry bulk vessels in the Handymax and Handysize sectors. Ownership of general cargo and dry bulk vessels from 15,000 dwt to 50,000 dwt is highly fragmented and is divided among approximately 1,100 independent owners, with 4,517 vessels, as demonstrated in the below chart.
Chart 8 : Fleet Distribution Among General Cargo and Dry Bulk Vessels (15,000 - 50,000 dwt)
3%
> 20 Vessels
32% 15 - 19 Vessels
33% 10 - 14 Vessels
5 - 9 Vessels
1 - 4 Vessels 3% Undisclosed Interests 9% 20%
Source : Fairplay World Shipping Encyclopedia (October - 2005)
Thoresen Thai Agencies Plc 25 Nature of Business Nature of Business
Management of Our Fleet
Our Bangkok based senior management team consists of five long experienced shipping executives, and we undertake all of the commercial, technical, and strategic management of our fleet. We currently have a total of 464 shore-based personnel and 1,353 sea-based personnel.
Commercial and Strategic Management
We perform all of the commercial and strategic management of our fleet, including:
Obtaining employment for our vessels and maintaining relationships with charterers. Because our management team has an average of twenty years experience each in operating Handymax and Handysize dry bulk vessels, we have a reputation that allows access to a broad range of charterers, which results in high utilisation rates.
Identifying, purchasing, and selling vessels. Our management team’s longstanding relationships in the industry give us access to an extensive network of shipbrokers and vessel owners, from whom we source our potential acquisition targets.
Obtaining insurance coverage for our vessels. We have well-established relationships with reputable marine underwriters in all the major insurance markets around the world that helps insure our fleet at competitive rates. Additionally, our protection and indemnity insurance is directly placed with the underwriter, thereby eliminating broker expenses.
Technical Management
Technical management includes overseeing day-to-day vessel operations, performing vessel maintenance, ensuring regulatory and classification society compliance, hiring qualified experienced officers and crew, arranging and supervising dry-docking and repairs, and purchasing supplies, spare parts and new equipment for vessels.
We crew our vessels primarily with Thai officers and seamen recruited by our shore-based staff. These officers and seamen are employees of our wholly owned vessel owning subsidiaries while aboard our vessels. We currently employ a total of 1,353 officers and seamen for our fleet and are proud of our tradition of employing Thai seafarers from the maritime colleges, with around 100 new cadet appointments every year. We work to ensure that all our seamen have the qualifications and licenses required to comply with international regulations and shipping conventions. We invest over US$ 500,000 per year in sea staff training above and beyond that is required by law to ensure development of sea staff skill. Additionally, our sea staff assists in supervising work at shipyards and dry-dock facilities. We typically man our vessels with more crewmembers than are required to perform routine maintenance duties, which should reduce the expected dry-docking time.
Technical management is based on the strategy that the majority of our vessels will be operated until their normal scrapping age of twenty-five years. Therefore, we strive to supply, maintain, and repair our vessels to a high standard as this proves to be the most cost economical approach over the life of the vessel and generally results in reduced machinery downtime.
Environmental and Other Regulations
Government regulations significantly affect the ownership and operation of our vessels. We are subject to international conventions and various laws and regulations in the countries in which our vessels may operate. We are operating our vessels in substantial compliance with all government regulations and laws applicable to us.
26Thoresen Thai Agencies Plc Nature of Business Nature of Business
A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (harbour master or equivalent), classification societies, and terminal operators. Certain of these entities require us to obtain permits, licenses and certificates for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend the operation of one or more of our vessels.
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and charterers is leading to greater inspection and safety requirements on all vessels and may accelerate the scrapping of older vessels throughout the industry. Therefore, our vessel operating strategy emphasises operational safety, quality maintenance, continuous training of our officers and crews and compliance with international regulations.
We run active loss prevention programs covering crew awareness and skill development, vessel maintenance, cargo care awareness and practice, management system audits and updates, and supply standards control.
International Maritime Organization
The International Maritime Organization (“IMO”) has negotiated international conventions that impose liability for oil pollution in both international and territorial waters. The IMO adopted Annex VI to the International Convention for the Prevention of Pollution from Ships to address air pollution from vessels, which became effective in May 2005. Annex VI set limits on sulfur oxide and nitrogen oxide emissions from vessel exhausts. Annex VI also includes a global cap on the sulfur content of fuel oil. We confirm that each of our vessels is in compliance with Annex VI.
The operation of our vessels is also affected by the requirements set forth in the IMO’s Management Code for the Safe Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code requires vessel owners and bareboat charterers to develop and maintain an extensive “Safety Management System” that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. We confirm that each of our vessels is in compliance with the ISM Code and that our system has been fully certified since 1996.
Inspection by Classification Societies
Every vessel must be “classed” by a classification society. The classification society certifies that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel’s country of registry.
For maintenance of the class, regular and extraordinary surveys of hull, machinery, and any special equipment classed are required to be performed as follows:
Annual Surveys. Annual surveys are conducted at intervals of twelve months from the commencement of the class period indicated in the certificate.
Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of the second or third annual survey.
Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out at the intervals indicated by the character of classification for the hull. At the special survey, our vessel is thoroughly examined, including ultrasonic gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every five years, an owner has the option to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five-year cycle. At an owner’s application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal.
Thoresen Thai Agencies Plc 27 Nature of Business Nature of Business
All areas subject to survey are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. Vessels under five years can waive dry-docking in order to increase available days and decrease capital expenditures, provided that the vessel is approved for and inspected underwater.
Most vessels are also dry-docked every thirty to thirty six months for inspection of the underwater parts and for repairs related to inspections. If any defects are found, the classification surveyor will issue a recommendation which must be rectified by the owner within prescribed time limits.
Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as “in class” by a classification society, which is a member of the International Association of Classification Societies (“IACS”). We confirm that each of our vessels is classed with a member of IACS.
Risk of Loss and Liability Insurance
The operation of any vessel includes risks such as mechanical failure, collision, property loss, cargo loss or damage, and business interruption. In addition, there is always an inherent possibility of marine accidents, including oil spills and other environmental mishaps, and the liabilities arising from owning and operating vessels in international trade. The United States Oil Pollution Act (1990) (“OPA”), which imposes virtually unlimited liability upon owners, operators and charterers of vessel for certain oil pollution accidents in the United States, has made liability insurance more expensive for vessel owners and operators trading in the United States market.
We intend to maintain hull and machinery insurance, war risks insurance, protection and indemnity cover, and freight, demurrage and defense cover for our operating fleet in amounts that we believe to be prudent to cover normal risks in our operations. We do not at present carry business interruption insurance as only limited cover is available and it appears more economical to self-insure. All insurance programmes are reviewed on an annual basis.
Hull and Machinery and War Risks Insurance. We maintain marine hull and machinery and war risks insurance, which covers the risk of actual or constructive total loss, for all of our vessels. Our vessels will each be covered up to at least fair market value with deductibles of US$ 100,000 per vessel per incident. We confirm that each of our vessels is insured with a panel of major underwriters with the majority being A-rated.
Protection and Indemnity Insurance. Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Clubs, which insure our third party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Our vessels will be covered for third-part liability up to US$ 2 billion, except for oil pollution, which is covered up to US$ 1 billion. Our deductible for these insured liabilities is US$ 10,000 per incident.
The thirteen P&I Clubs that comprise the International Group insure approximately 90% of the world’s fleet and have entered into a pooling agreement to reinsure each association’s liabilities. As a member of a P&I Club, we are subject to calls payable to the association based on the association’s claim records as well as the International Group’s claim records. We confirm that each of our vessels is insured with a member of the International Group.
28Thoresen Thai Agencies Plc Nature of Business Nature of Business
Vessel Acquisitions
Most vessels are sold under a standard agreement, which, among other things, provides the buyer with the right to inspect the vessel and the vessel’s classification society records. Otherwise, there is no historical financial due diligence process when we acquire vessels.
The standard agreement does not give the buyer the right to inspect, or receive copies of, the historical operating data of the vessel. Prior to the delivery of a purchased vessel, the seller typically removes from the vessel all records, including past financial records and accounts related to the vessel. In addition, the vessel’s trading certificates are revoked following a change in ownership.
All vessels that we will purchase must be certified as being “in class” prior to their delivery under the standard agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel.
We treat the acquisition of a vessel as the acquisition of an asset rather than a business. Although vessels are generally acquired free of charter, we have acquired some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is usually delivered to the buyer free of charter. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer’s consent and the entry of a separate direct agreement with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter, because it is a separate service agreement between the vessel owner and the charterer.
When we purchase a vessel and assume an existing time charter, we must take the following steps before the vessel will be ready to commence operations:
Obtain the charterer’s consent for us to be the new owner and vessel manager; Arrange a new crew for the vessel; Replace all hired equipment on board; Negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; Register the vessel under Thai flag and perform the related inspections in order to obtain new trading certificates from the Thai authorities; and Implement a new planned maintenance programme for the vessel.
Non Dry Bulk Shipping Businesses
Over 100 years ago in Hong Kong, TTA started its corporate life as a provider of shipping services to the maritime industry and later expanded into shipping operations. TTA has provided ship agency services in Thailand since 1926. Our non-shipping operations have expanded over the years to include stevedoring, ship brokerage, ship maintenance and repairs, port operations, and offshore related activities.
Our continued growth in businesses other than dry bulk shipping has followed a strategy that they must create synergies with other TTA owned companies. It is our intention to increase the scale of the non dry bulk shipping operations significantly to create another one to two key business segments. This strategy will help diversify our revenues and net profits, which are at this time heavily dependent on dry bulk shipping.
Thoresen Thai Agencies Plc 29 Nature of Business Nature of Business
Ship Agency
TTA is the largest ship agency group in Thailand handling all types of vessels. Two separate companies carry out the agency business in Thailand. The first company, ISS Thoresen Agencies Ltd., is a wholly owned subsidiary of TTA and is marketed as part of the Inchcape Shipping Services (“ISS”) global network, the world’s largest ship agency group.
The second company, Gulf Agency Company (Thailand) Ltd., is a joint venture between TTA (51%) and Gulf Agency Company (“GAC”) (49%). GAC is the world’s leading provider of shipping, logistics, and marine services.
Our third ship agency company is Thoresen (Indochina) S.A., of which TTA owns 50%. With 12 years of experience in Vietnam, Thoresen (Indochina) S.A. provides agency services in both Vietnam and Cambodia. It is one of the largest agency companies in the Ho Chi Minh City - Vung Tau area and represents both GAC and ISS in Vietnam. The company is actively developing new logistics projects in Vietnam for its shareholders.
All three companies provide traditional ships’ agency services: port clearance, berthing, loading and discharging, cargo booking, supplying fuel, water, stores, vessel repairs, and crew changes. Additionally, Gulf Agency Company (Thailand) Ltd. specialises in a comprehensive range of supply chain and logistics solutions. These include air and sea freight, warehousing and distribution, door-to-door transportation, project logistics, international moving, and courier services.
P&I Club Representation
Thai P&I Services International Ltd. was formally incorporated in February 2000. Prior to its establishment, it was a division of TTA, and today TTA owns 90% of Thai P&I Services International Ltd. The company acts as the local correspondent for P&I Clubs and hull and machinery insurers.
In this capacity, it offers a wide range of services to vessels calling Thailand like arranging cargo damage surveys for quick but precise first hand assessments, collision investigations, stowaway repatriation, surveys on damage to fixed and floating objects, dispute resolution, and legal representation.
Our claim handling team strives to provide the best possible technical and legal assistance available for any casualty followed by a thorough review of each matter in accordance with local regulations, laws, and marine insurance practices, resulting in prompt and cost effective claim settlement.
Ship Stevedoring & Transportation
Chidlom Transport and Services Co., Ltd, a wholly owned subsidiary of TTA, undertakes ship stevedoring and transportation services, including cargo loading and unloading, cargo handling and transportation.
30Thoresen Thai Agencies Plc Nature of Business Nature of Business
Ship Supplies & Logistics Provider
Chidlom Marine Services & Supplies Ltd., a wholly owned subsidiary of TTA, provides ship supplies and logistics services, including supply of ship stores, cargo dunnage materials, cargo lashing & securing equipment, cargo handling equipment, tally & checker services, forklift rental/services, warehouses & storage spaces for rental, material procurement, management and distribution.
Ship Brokerage
Fearnleys (Thailand) Ltd. is a joint venture between TTA (51%) and Fearnleys A/S of Norway (49%). The Fearnleys Group is one of the largest ship broking companies in the world with activities in dry cargo, sale & purchase, tanker, gas, offshore and consultancy. Fearnleys (Thailand) Ltd. also has a wholly owned subsidiary, PT Fearnleys Indonesia, which provides dry cargo broking services in Indonesia.
In addition to the marketing of TTA’s own fleet, Fearnleys (Thailand) Ltd. engages in competitive ship broking business with different vessel owners and cargo charterers not only in Southeast Asia, but also worldwide. Even though we deal in every kind of dry cargo, there is an emphasis on commodities such as coal, cement, steel, fertilisers, rice and other agricultural products.
The Fearnleys Group issues weekly, monthly, quarterly and annual reports, which enable clients to get a precise update or forecast about their respective trading areas.
Ship Repairs and Maintenance
T.S.C. Maritime Ltd., a wholly owned subsidiary of TTA, is an ISO 9001 company certified by Lloyds Register of Shipping. T.S.C. Maritime Ltd. was established to perform maintenance and repairs afloat on Thoresen vessels calling in Thailand. The skills and expertise developed led to the formation of the company offering these services to all owners calling in Thailand.
Offshore-Related Services
Mermaid Maritime Ltd. has been operating in Thailand since 1983, with TTA becoming a shareholder in 1995. During this period, Mermaid Maritime Ltd. progressed to become a leading marine related service business with a focus on safety and a particular emphasis on the maintenance and servicing of life rafts and the provision of SOLAS equipment. Today, Mermaid Safety Services Ltd., a wholly owned subsidiary of Mermaid Maritime Ltd., is still the only company in Thailand accredited and authorised by all the major classification societies in the world to undertake such work.
In the late 1990’s, Mermaid Maritime Ltd. expanded its range of services to include underwater non-destructive testing and some shallow water diving and remote-operated vehicle activities. With a growing reputation for quality amongst its major oil & gas clients, the company decided a year ago to embark on an aggressive programme to further expand its operations in sub-sea service work and develop a regional contract drilling business for the offshore oil and gas industry. To facilitate this expansion, TTA subscribed in full to a capital increase along with inviting in two major institutional shareholders.
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Mermaid Maritime Ltd. is now firmly established as one of a select few companies providing specialist services for the oil and gas industry in the region. Its two drilling rigs, the MTR-1 and the MTR-2, were acquired in April and July 2005, respectively and have been fully booked by oil companies through 2006 and beyond.
The company’s offshore sub-sea operations have acquired three more vessels to compliment the Mermaid Supporter with the largest, the Mermaid Commander, set to provide an asset almost unique to Southeast Asia in its ability to offer a 16-man saturation diving capability through a twin-bell system. The Mermaid Commander allows divers to operate at depths up to 300 metres for the installation, repair and/or maintenance of almost any item between the surface and the seabed.
Port Operations
Sharjah Port Services LLC, which is a joint venture between Sharjah Ports Authority in the United Arab Emirates (51%) and TTA (49%), has a concession covering all stevedoring, cargo handling, cargo storage, cargo delivery, marketing and accounting for all general cargo, ro-ro, and reefer break bulk cargoes for Port Khalid, Hamriyah, and Sharjah Creek ports, for a period of ten years, with options for renewals.
The company came into existence in June 2002, as part of a port privatisation programme. All existing employees of the port, about 500 in total, and all existing equipment, were taken over by the new company.
Port Khalid is the largest of the three ports covered under the contract and is located some 16 kilometres south of Dubai. Together, the three ports currently handle in excess of five million tons per year, with significant available capacity for increases.
Other Middle East Operations
Due to the strong growth of our liner business, Thoresen Shipping FZE, a wholly owned subsidiary of TTA, was established to act as our regional office in the Middle East. Thoresen Shipping FZE promotes our liner services and provides cost effective cargo operations on vessels calling in the United Arab Emirates and other ports in the Persian Gulf.
Thoresen Shipping FZE attends to more than 70 vessels in the United Arab Emirates per year and coordinates the operation of a similar number of vessels in other Persian Gulf ports. The company has developed a special expertise in customs and cargo clearance and has executed over 2,000 cargo delivery jobs to receivers in the United Arab Emirates, Oman, and other nearby destinations.
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