Analyse af BHP Billiton, Rio Tinto og Vales shippingstrategier

Ulrik Oest Iversen

Student thesis: Diploma thesis

Abstract

This thesis provides an analysis and evaluation of the current shipping strategies of the world’s three leading iron ore producers, BHP Billiton, Rio Tinto and Vale, and how these strategies have developed with the commodity- and transporting market. The results of this analysis draw the attention, to which key factors that have played a role on these markets, and ultimately have resulted in different shipping strategies from the iron ore producers. The drastic rise in demand for iron ore, from especially China since they entered the WTO in 2001, gave the iron ore producers good conditions on the commodity market. But with the simultaneous rise in the shipping market rates, their transportation costs grew as well. In 2008 the rates on the shipping market however took a drastic fall. Many shipowners had earlier tried to profit from the good market by ordering new vessels. This meant a sudden oversupply of capacity, at the same time as the world economy took a downfall. The iron ore producers could in this way see their transportation costs lowered significantly, while the demand for iron ore stayed at a good level. This was an ideal situation for the iron ore suppliers. However, certain investment commitments had been made, while the shipping market was high, specifically investments in internal fleets, in order to have more control of the transportation costs of the iron ore. Especially Vale had made strong investment commitments, to build an internal fleet. Compared to BHP Billiton and Rio Tinto that both transport their iron ore from North West Australia to primarily China, Vale has to ship all the way from Brazil. In the high shipping market this meant a freight differential of up to USD 60 per ton, compared to the Australian competitors. The decision to minimise this differential, hence meant that Vale now has a fleet of 35 vessels of up to 400,000 DWT, a size which has about double the capacity of a standard Capesize vessel. On the other hand BHP Billiton decided to focus on the commodity market, and leave the shipping market which means they have a dependence on shipowners willing to transport their iron ore. Rio Tinto decided to build a small fleet, primarily in order to secure their customers a certain amount of flexibility, hence focusing more on customer service. The consequences on the very different shipping chartering strategies between the companies, depends on the future developments of both the iron ore commodity market, and the general shipping market. This analysis concludes that in the case of falling demand, from the leading importing country, China, especially Vale could experience difficulties due to their shipping chartering strategy. The two Australian companies have secured themselves with minimised risks taken on the shipping market. Opposite, Vale has taken measures to drastically take more control of the transportation costs. Vale’s internal fleet is very specifically focused towards the carriage of iron ore from Brazil to China. Hence, in the case of falling demand from China, this leaves them with high risk and low flexibility on the investment made.

EducationsGraduate Diploma in International Business, (Diploma Programme) Final Thesis
LanguageDanish
Publication date2014
Number of pages84