The Norwegian live fish carrier fleet: Is there a mismatch between capacity, utilization & investments?

2016

The Live Fish Carrier Industry is a specialized shipping segment in Norway, transporting

and processing live salmon. The underlying driver for the segment is the production of

salmon in aquaculture. With an absence of academic research on the topic, this thesis will

try to fuse the attention from the academic society.

By modeling the supply and demand of LFC operations, we observe a surplus on the demand

side of the market. A turning point occurred in 2013 when the supply increased more than

the demand. New, large and expensive vessels entered the market, and substantial capacity

will enter in 2017. This will eliminate the demand surplus, and create a movement towards

market balance.

The operations of the vessels are managed by the salmon producers. Our positional tracking

analysis indicates that the vessels are not utilized efficiently. The vessels are operating across

a large range of regions, within a six-month period. The analysis provides grounds for an

argument that large vessels, individually, are covering fewer regions than the smaller vessels.

The smaller vessels are unlikely to capture long charter contracts, and consequently have to

move more between regions. This operational pattern is a reason for concern, when the risk

of spreading diseases is high.

There are several reasons to operate in the LFC industry. From a salmon producer’s

perspective, we believe that the supplied services can be looked upon as an insurance from

random shocks of lice and diseases on the biomass. The value of an average cage has

increased with 400% the last ten years, which consequently will increase the value of having

excess LFC-capacity. From our analysis based on the Return on Shipping Investments

model, the average financial return is 12.6%. We conducted a freight rate sensitivity analysis

to assess the effect on NPV of a new LFC investments. The findings show that LFC owners

are investing in a profitable asset, despite considerable changes in the market