Industry Value Chain and Norgas’ value chain

It is important to have a deep understanding of how Norgas either provides additional value to customers through their activities, or how Norgas executes the activities to reduce cost and thereby provide value. Moreover, it is vital to know the general value system surrounding Norgas. The value chain analysis was first developed with industrial companies in mind, and it is far easier to do this analysis on firms operating with products compared to companies like Norgas, which provides services. Nevertheless, we believe it is crucial to know in which activities the firm is creating value or is reducing cost compared to its competitors. In this value chain analysis we have chosen to focus on some selected activities where we believe Norgas is either superior or inferior to its competitors, in other words, we have chosen to omit the activities, which are viewed as equivalent.

Primary activities

Operations are the actual shipping service itself. Norgas is known for their efficiency and quality, and is also investing heavily on improving their SHE&Q program. Moreover, a highly skilled and experienced crew carries out the operations. Being owners of the training facilities, Norgas can more easily monitor and evaluate the performance and proficiency of their crew.

The marketing and sales of Norgas’ services evolves from contact with previous clients and current clients. Unlike many other ship owners, Norgas rely on both incoming sales: waiting on customers to contact them, and outgoing sales. Outgoing sales are conducted through contacting customers and discuss the developments in the market or their current situation.

Through conversations and relationship building, strong ties are created and sales are hopefully likely to follow. It seems like Norgas posses a substantial amount of social capital and we view this as value adding.

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The after sales services in this industry, is divided between hardware (vessels) and software (Employees). Hardware is mostly the same in every company, and there is not really much one can do to be different or superior. Due to this, firms are competing on software. Most of the after sale service is done through relationship management. Norgas manages their contacts and relationships very carefully: they share information with each other and build trust. Norgas has allocated resources to a new CRM system, which could potentially lead to a better after sales service. However, this system is not in use yet. This will be discussed more thoroughly in our recommendation section.

Support activities

Regarding Human resource management, IM Skaugen owns a training center in Wuhan, China.

The Wuhan University provides key training for future and present crewmembers. This university gives the crew a possibility to earn certificates needed as crew when the ship is carrying petrochemicals and gas. In terms of developing executives and managers, IM Skaugen is involved in the Maritime Trainee program in Norway, which intends to give recently graduated students an opportunity to learn and practice their skills in Maritime companies. We believe that HR management is something, which could potentially be one of the activities where Norgas could improve to make this activity superior compared to their competitors.

Concerning the firm infrastructure, the Norgas Vessel System (NSV) gives office employees and coordinators information of the ships’ total contribution per day and also information regarding bunker cost and remaining bunker. The system reports on discrepancies automatically and provides reports to the master or coordinator. This system is developed especially for Norgas, but has also been sold to other companies in the past years. Nevertheless, we believe that because this system was made especially for Norgas, it should suit Norgas best and therefore create greater value for Norgas, and furthermore their customers.

The technological development in the petrochemical shipping industry in general and in Norgas specifically is focused and invested heavily in. IM Skaugen employs Business developers, which

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continuously work with innovation and development of the company’s hardware and thereby their service quality. We strongly believe that the activities that are being carried out in this part of the value chain are superior for Norgas.

Procurement is the activities completed to purchase inputs that are fully consumed during the manufacture of products including fixed assets. Norgas has a new IT system from SISmarine, which has made the cost and time spent on procure to decrease. The procurement for Norgas is providing the ships and the hardware that makes the operations possible. Norgas enjoys value added from the integrated shipbuilding through Skaugen Marine Construction (SMC). SMC has developed an unconventional set-up for new-building projects. The concept is based on shipbuilding by subcontracting, meaning management of qualified subcontractors to build customized and specialized ships more cost effectively compared with the “standard” method of designing, ordering and taking delivering of ships from established shipyards. Thus, their slogan – SMC – Ships More Competitive.

4.2.2.1. Industry value chain

To better be able to analyze Norgas, it is imperative to think through where Norgas actually fits in, in the industry’s value system. Norgas’ Value chain is part of a larger system that includes the value chains of upstream suppliers and downstream channels and customers. To understand where Norgas fits in, we need to explain the petrochemical cycle.

Crude oil has to be altered before it can be used for anything. This happens in an oil refinery. A refinery takes the raw material (crude oil) and transforms it into petrol and several other useful products. A typical large refinery costs billions of dollars to build and millions more to run and upgrade. It runs around the clock, 365 days a year, employs hundreds of people and occupies as much land as several hundred football fields. Petrochemicals are chemicals made from petroleum and natural gas. When transporting gas, you liquefy it first. Liquids occupy several hundred times less space than gases and make transportation feasible. Liquefied petroleum gas carriers are one of the most specialized tankers trading the high seas. These vessels, like the Norgas vessels, have very specific cargo handling and cargo containment systems.

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For most of Norgas’ customers, the shipping service becomes inbound logistics, because the petrochemical company receives the Ethylene or BTX+S chemicals for further processing and refining. On the other hand a Norgas service becomes outbound logistics for a company, which is selling the Ethylene or BTX+S chemicals. This might be the same company and the transportation is just for transporting between downstream plants and upstream plants.