In an interview with HANSA, the CEO of Det Norske Veritas (DNV), Hendrik O. Madsen, talks about the progress of the merger with Germanischer Lloyd, the Norwegian-German cultural fit, the crisis of the shipping industry, and the fairness of environmental regulations
Mr. Madsen, what is the status of the merger with Germanischer Lloyd? When will it be finalized?
Henrik O[ds_preview]. Madsen: I hope so this year, but not before the summer, unfortunately. Now, this is the worst period. We are just waiting, while we are planning the merger and still have to compete with each other. It is a little bit awkward. After announcing the merger shortly before Christmas there was a lot of euphoria, but now people ask more and more questions: »What will happen to me? Will I have a new boss? Do I have to move?« It is normal, though, but I am glad when everything is set.
How many cartel authorities are involved in this process?
Madsen: Altogether five: from the United States, the EU, Norway, China and Korea. In other countries we are too small or they have other rules, so that we don’t need to get an approval there.
Will you keep the brands DNV and GL or will it be a combined brand DNV GL?
Madsen: DNV GL will be our main brand. However, with GL Noble Denton, Garrad Hassan and Kema we have other strong brands in their particular markets like offshore or energy. So we’ll see how much we keep of them. We hired some experts on brands and rely on their expertise.
Which business will remain in the former GL headquarters in Hamburg?
Madsen: Well, as you are aware of the Maritime section will be based there. This means there will be an own CEO and CFO for this part of our business, a president, a head of research & development (R&D) and a human resources department. Hamburg will also host one of four approval centers worldwide; the others are based in Oslo, Shanghai and Busan. Furthermore, the certification of wind energy sites will be in Germany.
Will the DNV staff in Hamburg move in the GL building in the HafenCity?
Madsen: Yes, they will.
How many people will you have here in Hamburg after the reorganization?
Madsen: We will have about the same number as before. Some people from Hamburg might go to Oslo for a couple of years, but the total number won’t change. Right now there are 1,200 people at GL in Hamburg, 100 maritime experts from us plus some wind people from DNV.
This merger is about growth and getting stronger. Look, DNV alone hired 1,200 people last year, and GL maybe around 500. Of course some people leave us due to normal fluctuation, but we don’t plan any redundancies of any significant magnitude, that’s not the idea. The only thing we ask our people is to show flexibility, because they are all well educated and they just have to accept that maybe they won’t do exactly the same as they did in the past.
What are the plans of GL CEO Madsen:Do you already have an idea about the structure of the future board of directors?
Madsen: Six members on the board of directors will be appointed by DNV, three by Mayfair and then we also have five employees on the board, which will be split with two from Norway, one from Germany, one from the rest of Europe, and one from a Non-European country.
And everybody can apply?
Madsen: Yes, all employees can vote and are eligible to be elected to the board of directors. There is no democracy in China, but in DNV China there is. We have several groups within the organization who really make an effort in order to become elected. The same with India.
Some of your competitors like ABS and ClassNK are expanding in Hamburg. Do you worry about that?
Madsen: Not at all. We’ve been in Hamburg since 1882 and feel very welcomed in the center of the world’s third largest shipping nation. And actually I am happy to see competitors moving to Hamburg, because then we have to stay focused and provide the best customer service. Also, from a European perspective it is very important to have a strong class society that can stand up to the competition from America and Asia.
When Bureau Veritas (BV) tried to take over GL in 2006, there was uproar within the industry and the media as well. Nothing like this happened now, although you also take over GL more or less. Do you have any explanations for this?
Madsen: First of all, what we do is a true merger, not a takeover. Secondly, the cultural fit between DNV and GL is much better than between Bureau Veritas and GL. There is a lot of respect between people at the two organizations. They are proud of what they do. And they put quality high, work a lot on new technologies, love to serve the customers, and also know how to make money. Actually, I was asked one year ago which class society resembles DNV most and people thought I would say Lloyd’s Register, but I said Germanischer Lloyd, because GL was keeping up in investing in R&D and in people, which not all competitors are doing to this extent.
It wasn’t your first attempt to merge with Germanischer Lloyd, wasn’t it?
Madsen: Right, the first contacts between DNV and GL were already made in 1867, when GL was formed – three years after our foundation. And there were further discussions to combine DNV, GL and BV to form one register in order to become a counterweight to Lloyd’s Register, which was very strong at that time. But it didn’t happen, so we had to wait another 145 years. Along the way there were several other attempts: a very serious one in the year 2000, and also in 2006, when Bureau Veritas wanted to take over GL.
Let’s talk about the customers. After the merger has been finalized you will be the largest classification society worldwide in terms of tonnage. What does this mean for your customers?
Madsen: We will have more people and stations and thus a more condensed network. 17.000 people will be working for us in the future, 80 % of them with a university degree. We have also set a very ambitious target for R&D, investing 5 % of our revenue per year, which is 120 mill. €. I don’t think that any of our competitors is near that number. Also, there will be synergies of course, as we are growing in size. So our cost base will be lower. I am not going to say that we will reduce prices, but at least we might not need to raise them either.
The shipping market is very tough, especially this year. When do you personally expect the shipping crisis to ease?
Madsen: Fortunately, there are some sectors that are doing okay: foremost offshore oil & gas and car carriers, in which we are very strong. But I would also not be surprised to see quite a number of containership orders towards the end of the year. Newbuilding prices are really on the bottom and owners cannot wait forever, otherwise prices will come back. On the other hand there will be many projects to have a next generation ship, which is more energy efficient and satisfies the new requirements of the IMO. We have to do a lot of work on developing new designs and then we will see when the orders pick up.
Regarding bulk carriers, there are still some people with money who like to take a gamble and order capesize bulkers. The market for crude tankers, however, is very much down and will need time to recover.
You’ve just mentioned the oil & gas industry. Regarding your good position at DNV there, do you need GL Noble Denton at all? Won’t there be any redundancies in the organizations?
Madsen: No, both organizations are absolutely complementary to each other. GL Noble Denton is very strong at jack-ups, marine operations, marine warranty and the whole Middle East area, where we are rather weak. Our strengths, for example, are operations in ultra-deep waters, in arctic environments and in high pressure/high temperature fields. This is really a perfect fit.
In the wind industry we see many delays at the moment. Is your order intake already declining?
Madsen: Not really, because there is still growth – maybe only 10 % in contrast to 30 % in the years before. More and more installation and service vessels are being built. The offshore wind industry in the UK, Denmark and Sweden is progressing, whereas the German development has slowed down a little bit.
But then there is also Japan, for example. After the Fukushima incident the Japanese are very keen on offshore wind and want to have floating windmills, because the ocean shelf there is very short. I thought that could never be economic, but I’ve lived in Japan for a while and know what I paid for the kilowatt-hour – somewhat like 30 Euro-Cents, and that was 15 years ago! With such prices everything can be economic, even floating offshore windmills. I am sure Japan will rely a lot on European competence for this technology.
We talked about green shipping before. Many shipowners say it’s not fair to have so many regulations at the same time and in such a harsh industry environment. What is your judgment on this?
Madsen: Well, it is more a coincidence that the regulations come at the same time. But in general, they are fair. For example, there has been a lot of damage through species transported to other regions through ballast water and there is still potential for further damage. Talking about pollution regulation, it is also fair from a health perspective.
But the implementation process doesn’t really go smoothly …
Madsen: Regarding ballast water treatment (BWT) we see a lot of reluctance from flag states and owners who demand a longer transitional period. As long as the BWT convention is not ratified, the technology also won’t be ready. We have even seen technology that has initially been approved and then was pulled back because it didn’t work under all conditions. When the convention is ratified there will be a rush to install BWT systems on ships and we will have missed some years where we could have refined the technology. The whole process of BWT regulation has not been a good one, neither from the regulatory nor the industry side.
You may say the same about SOx, NOx and particle regulation.
Madsen: In a way we are going to repeat the mistakes we’ve done on BWT. The industry is reluctant in deciding whether to install scrubbers, using a LNG engine, or switching to distilled fuel in the emission control areas (ECA). In mid-term we expect the use of LNG engines in newbuilds on a large scale. Already, we see first ships being ordered with two-stroke engines from MAN that can run on LNG. Existing ships, however, might mostly use distilled fuel instead of scrubbers or LNG engines, as our study »Shipping 2020« predicts.
Nikos Späth
