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. Last Updated: 07/27/2016

Tide Turns for Novoship

n Soviet times, Captain Sergei Teryokhin sometimes watched his company's ships transport sand from Novorossiisk to nowhere.

It was not profitable, but they had to fulfill government quotas, and sand was easy to find in the southern Russian port.

Today, as financial planning director of the Novorossiisk Shipping Company, or Novoship, Teryokhin only signs a freight agreement if a vessel will bring in at least $14,000 a day.

"This is the market," he said as he gazed through the window at his company's vessels stationed in the port. "Today we cannot work with a fixed price list, as it was before."

Novoship has 90 vessels and is considered the world's seventh largest shipping company by its total tonnage of about 4 million tons.

Last year, the company made a profit of $67 million, and seems to have enough money to spend on reinvestment: Novoship recently placed an order for 12 new Croatian-built tankers, each of which Teryokhin said will cost about $30 million.

"You just need to control your finances to be profitable," Teryokhin said.

Novoship became a joint-stock company in 1992 under Russia's privatization program, giving its workers 25 percent of non-voting shares and 15 percent of voting shares. The remaining stock has been retained by the government.

Teryokhin said that Novoship's directors had managed to avoid an auction of the company's shares for privatization vouchers, and were glad to have done so since vouchers do not bring in any capital.

"A voucher auction would not have done any good for the company," he said.

Novoship managers have already asked for permission from the State Property Committee to hold an investment tender, and are now awaiting a response.

In contrast to most Russian enterprises, which seldom release any financial data and view investors as unwanted guests, Novoship has hired consultants Coopers & Lybrand to renovate its accounting system, provide advice on financial management and generally make the company more attractive for investment.

"This is a very forward-looking company," said Peter Howes, the head of the Coopers & Lybrand Novorossiisk.

So far, the bottom line has not forced Novoship to cut into the benefits it offers its employees. The company pays its sailors about $500 a month -- about half of what foreign shippers pay but much more than most Russian workers earn -- and spends another $20 million every year to build employee housing and maintain kindergartens for workers' children.

Teryokhin expects that an audit by a recognized Western firm will give the company better access to capital markets, both Russian and foreign.

"Our business is international and we want our financial statements to comply with international requirements -- this is simple," he said.

Novoship began seeking its own international customers three years ago, when the Soviet system of planned shipping fell apart.

"Before, when it was a centralized export-import system, everything would be shipped only through us," Teryokhin recalled. "Now, companies that buy something from Russia can choose any shipper they want."

As Sovfrakht, the Soviet worldwide shipping brokerage system, broke into dozens of small independent firms, Novoship obtained an effective network of brokers that has brought in a steady stream of international shipping orders.

International freight presently accounts for about 75 percent of Novoship's income, Teryokhin said. He said that most Russian companies are exporting under so-called "free-on-board" arrangements, in which the buyer is responsible for shipping costs.

Novoship prefers to ship outside of the Commonwealth of Independent States, since CIS ports tend to charge excessive fees and CIS countries constantly change their regulations, Teryokhin said.

"Once upon a time we were loading diesel fuel in Feodosiya," on the Crimea peninsula, "and that very day" Ukrainian President Leonid "Kravchuk signed a decree banning exports of oil products," he said. "We lost quite a lot of money."