iir london shipping finance conference, …...iir london shipping finance conference, 27th-28th...

IIR LONDON

SHIPPING FINANCE CONFERENCE,

27th-28th September 2000

Mr. TED PETROPOULOS, MANAGING DIRECTOR

PETROFIN S.A.

Benefits from applying an

effective outsourcing

strategy in shipping

finance and management

IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA

1

Defining Outsourcing

Outsourcing by a shipping firm refers to the

use of services provided by a separate

entity with different:

legal status,

ownership,

office location and personnel


2

Recent developments

impacting on outsourcing

• Traditional model:everything under one

roof

• Variations in the 80’s and 90’s:

limited outsourcing in: · crewing

· chartering

· financialIIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA

3

• IT revolution: benefits:

– instant voice, visual and data tranfer

– multi-location contact made possible and

efficient

– physical proximity no longer essential

– development of the paperless office

– instant knowledge and information

Recent developments



4

• Computer revolution:

– widespread use of computers at the office,

home, ship and during travel

– rapidly expanding computer technology makes

for easy data storage, processing and retrieval

possible

Recent developments



5

• Internet revolution:

Use of the WEB offering:

– direct access to market information

– direct access to other users

– direct access to service providers

Recent developments



6

• E-commerce

Definition: the use of IT to do business

Some key questions

– elimination of middlemen?

– party credibility issues

– legal issues

– who will guarantee the transaction?

Recent developments



7

• Services revolution:

– rapid development of the services industry worldwide

– development of specialised, tailor-made, services

• Other developments:

– Increased regulatory environment

– inability to keep abreast of all developments in-house

– ISM

– evolution of management techniques

Recent developments



8

Assessing which areas to

outsourceShipping firms will only outsource if they can derive added

value from such outsourcing

In order to outsource successfully, a shipping firm must:

a) Segment the firm’s departments/functions into

separate functions or clusters

b) Analyse the costs, benefits, differences, threats and

opportunities of outsourcing a specific function, and

c) Treat the outsourcing relationship not only as a

contract but as a relationship.


9

Outsourcing makes sense if:

a) the shipping company has no corporate

advantage for providing a specific function in-house.

b) Substantial human and cost resources are tied upin the in-house function

c) Outsourcing brings in substantially moretangible know-how, sophistication and productivitythrough specialisation


outsource


10

d) The function in question is run on a regular

rather than urgent basis

e) Outsourcing a function does not strip the

shipping company of critical know-how, access to

future innovation development and growth

f) When the function in question is a drag on the

shipping company’s management resources


outsource


11

g) failure of the outsourcing services provider does

not endanger the smooth working/survival of the

whole company

h) Reliance on outsourcing does not weaken the

independence of a shipping firm by making it

vulnerable to competitors


outsource


12

Partial and/or complete

outsourcing ?– Defining partial and/or complete outsourcing

– Commencing with partial outsourcing of each

function before developing to full outsourcing

– Defining strategic/core functions

– Outsource only non-core activities

– Defining long-term effects of outsourcing

– Commence with non-core activities and build up an

outsourcing strategy step by step


13

– Crewing – Operations

– Chartering – Technical

– Finance – Supply

– Accounting – Legal

– IT – Claims

The need to develop one’s own outsourcing profile and

strategy


outsource


14

Outsourcing by functionThe outsource choice: The cross dependency factor versus

control requirement

Accounting

Chartering

Crewing

SupplyTechnical

Claims Finance

LegalIT

Operations

Low

High

HighCro

ss D

epen

den

cy o

n o

ther

fu

nct

ion

s

Need for effective control


15

Outsourcing by functionThe outsource choice: reward versus penalty

Accounting

Chartering

Crewing

Supply

Technical

Claims

Finance

Legal

IT

Operations

Low

High

High

Reward for excellence


16

Pros and Cons of Outsourcing

Pros

• Obtaining a highly specialised service at a fraction of its

development cost

• Outsourcing cost can be substantially lower

• Outsourcing provider is more experienced/network connected

• More financial leverage over outsourcing supplier

• Quantifiable and assessable goals and targets

• Success oriented reward structure


17

Pros cont.

• Contract eliminates uncertainty; everything is defined

• Hire/fire decision made easier, i.e. more flexibility

• Can increase size of fleet without associated capacity

problems

• Makes fixed costs (office costs, labour, etc.) into variable costs

• Frees up human resources in-house



18

Pros cont.

• Reduces time encroachment by various functions into senior

management time

• Frees up financial capital

• Allows for assessment of multiple competing providers over

time in order to select best outsourcing supplier

• Allows for sequential outsourcing



19

Pros cont.

• Allows management to focus on key criteria for success,

namely: investment/disinvesting decisions and timing, vessel

selection and S&P strategy, capital markets, stock markets,

PR, outsourcing contracts and building up banking

relationships.



20

Cons

• Who pays the ferryman? Losses directly impact shipping

firm and not the outsourcing supplier

• Need to structure comprehensive and detailed contract, which

will provide the right legal and operating framework for

successful outsourcing

• Changing outsourcing supplier can be disruptive and costly

• Loss of effective control (supplier less responsible than

employees)


?


21

Cons cont.

• Need to ensure that cross departmental information flow is

adequate and efficient

• Need to co-ordinate the relationships, information flow, as

well as co-operation of outsourcing suppliers in dealing with

each other

• Unsuccessful outsourcing may increase operating costs

• Unsuccessful outsourcing may reduce operating efficiency



22

Cons cont.

• Need to assess banks’ and shareholders’ attitude to

outsourcing

• Potential breaches of confidentiality

• Extensive outsourcing may encourage predators who claim in-

house efficiency and differentiated services

• Total outsourcing may threaten viability of a shipping firm,

i.e. «absentee landlord» problems



23

Cons cont.

• It may be difficult to determine how problems arose

• It may be more difficult to be informed of problems until it is

«too late»

• Disputes between outsourcing suppliers may affect operating

efficiency and/or increase costs

• Outsourcing supplier may lack the uniform culture of a single

organisation, thus making contact problematic



24

Pros and Cons of outsourcing the shipfinance

factor to finance intermediaries

Pros

• Enjoying specialised knowledge and advice on financial

structuring and presentations

• Taking advantage of suppliers’ extensive networks

• Benefitting from suppliers’ negotiating skills and knowledge

of optimum terms achievable in respect of each bank

• Obtain benefits of immediacy


25



Pros cont.

• Select from competing bank offers

• Provide controlled but adequate financial information flow to

lenders

• Use of a highly reputable and respected financial inermediary

enhances quality signalling and the probability of success


26



Cons

• Use of financial intermediaries may send the wrong signals to

the banks

• In their efforts to succeed, financial intermediaries may

approach too many lenders, thereby prejudicing future

approaches

• Some financial intermediaries insist on being the sole conduit

in communications and dealings between owner and bank

post-finance


27

• Outsourcing not for everyone

• Each shipping firm must determine its own profile strategy on

outsourcing

• Outsourcing matrices (reward versus penalty and cross

dependency versus control requirement) must be constructed

by each firm based on its own assessment for each function

• Outsourcing must reduce system complexity in order to

succeed

• Strategic competitive advantage and focus must not be lost

• Shipping firms should outsource functions where the rewards

outweigh the drawbacks

Outsourcing: ‘a blessing or a curse’?


28

• Emphasis must be given on effective contact management

• Management time must be freed if outsourcing can claim to

work

• Management should review the outcome of outsourcing

decisions critically and make changes if necessary

• Outsourcing risk must be mitigated by careful pre-planning

and effective control of all outsourcing contracts

• Outsourcing supplier should be rewarded based primarily on

success

• Penalties for breaches must be contained in the contract



29

• Confidentiality of data and relationships must be assured

• Regular meetings should be held between management and

outsourcing suppliers as well as group co-ordinating meeting

in which outsourcing suppliers should improve their ability to

work with each other

• Where possible, more than one outsourcing supplier should be

used for each function so as to gauge competitive performance

• Both quantitative and qualitative targets should be set for

each outsourcing supplier



30

• Shipping firms should not outsource core functions upon

which the survival and success of the firm depend

• Final question: To outsource or not to outsource?

– The answer differs from firm to firm and function

to function. However, in the world of rapid

changes in information technology, e-commerce

and services, one cannot simply ignore the

benefits of selective and successfully outsourcing



31

iir london shipping finance conference, …...iir london shipping finance conference, 27th-28th...

Documents