IIR LONDON SHIPPING FINANCE CONFERENCE, 27th-28th September 2000 Mr. TED PETROPOULOS, MANAGING DIRECTOR PETROFIN S.A.
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
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
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• 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
impacting on outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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• 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
impacting on outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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• Internet revolution:
Use of the WEB offering:
– direct access to market information
– direct access to other users
– direct access to service providers
Recent developments
impacting on outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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• 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
impacting on outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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• 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
impacting on outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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.
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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
Assessing which areas to
outsource
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
Assessing which areas to
outsource
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
Assessing which areas to
outsource
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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– Crewing – Operations
– Chartering – Technical
– Finance – Supply
– Accounting – Legal
– IT – Claims
The need to develop one’s own outsourcing profile and
strategy
Assessing which areas to
outsource
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
Pros and Cons of Outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
Pros and Cons of Outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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.
Pros and Cons of Outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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)
Pros and Cons of Outsourcing
?
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
Pros and Cons of Outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
Pros and Cons of Outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
Pros and Cons of Outsourcing
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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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
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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Pros and Cons of outsourcing the shipfinance
factor to finance intermediaries
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
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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Pros and Cons of outsourcing the shipfinance
factor to finance intermediaries
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
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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• 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’?
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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• 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
Outsourcing: ‘a blessing or a curse’?
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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• 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
Outsourcing: ‘a blessing or a curse’?
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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
Outsourcing: ‘a blessing or a curse’?
IIR Shipping Conference, London, September 2000 Mr. Ted Petropoulos, MD, PETROFIN SA
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