Despite Russian competition, Caspian Shipping management is confident
Major investments being made to upgrade both vessels and crews

Azerbaijan's independence has given new impulse for the development of the country's 140-year-old state-owned shipping enterprise, Caspian Shipping Company. It is prospering while meeting several challenges simultaneously.

The increasing in oil production, however, simultaneously presents the company with opportunities for greater growth and the prospect of increasing competition. More countries are now interested in the lucrative transportation of the Caspian region's oil, and the goods and equipment needed to support exploration and production.

According to one of Baku's leading English-language newspapers, Caspian Business News, Russia, Iran and Kazakhstan all want to operate fleets in the Caspian Sea.

Iran seeks to move oil from Kazakhstan and Turkmenistan to its Caspian port of Neka. The large fleets of two Russian companies, Volgotanker and BEST-Samara, could also move significant amounts of oil to the Black Seaports on Russia's inland waterways.

Yet another challenge stems from Russia's stranglehold on Caspian access. Access from other oceans through the Black Sea to the Caspian Sea is only possible through Russia's Volga River and its associated canals. The Russians are not afraid to remind the Azeris of that.

"What is problematic for Caspian Shipping is Russia's refusal to grant blanket authorization for Azerbaijan flag vessels to operate in Russian's inland waterways," says Captain Elshad Khalykov, Caspian Shipping Vice President.

"Both sides are suffering losses in this case. But sooner or later this issue will be solved with mutually beneficial results. We are not afraid of it, as we are optimistic. We are the regional leaders, and our current plans for privatization and modernization will keep us competitive."

That confident attitude and the vision of the company's leaders have brought the company through many challenges since Azerbaijan's independence. Khalykov attributes the company's success to the support of President Heydar Aliyev, and the strong leadership of company president Aydin Bashirov, as well as a sound business strategy, good partners, and perseverance.

The company's first challenge was to make the transition from a command economy base to a market economy. After the company survived the first few chaotic years after independence, it began to prosper when President Aliyev, being well aware of the problems of marine transportation, appointed Bashirov as president of Caspian Shipping. Time proved the appropriateness of this decision. Bashirov hammered out a strategy that differed significantly from the other 16 shipping companies in former Soviet Union that faced similar challenges. "Most of the other shipping companies opted for other paths," Khalykov says.

Instead, Caspian Shipping carefully looked at its fleet of 69 ships, evenly split between oil tankers and dry cargo vessels. The company gave preference to its oil tankers as the engine of its business strategy, while it worked to restore the dry cargo half to profitability.

By teaming up with Caspian TransCo, the region's largest integrated petroleum transportation firm, Caspian Shipping obtained significant market share for petroleum shipping across the Caspian.

In the mid-1990s, when this strategy was set in place, the dry cargo half of Caspian Shipping's fleet was not profitable, Khalykov recalls. The 35 dry cargo ships included, among the total, eight ferries and two ships of "roll on/roll off" design.

Today 24 dry-cargo ships are being operated in the basins of the Black, Azo and Mediterranean Seas.

Thanks in part to European Union regional transportation projects (TACIS and TRACECA), Caspian Shipping's remaining dry cargo ships and its eight ferries are now earning good revenue as they ply the Caspian Sea between Baku and ports in Kazakhstan and Turkmenistan.

The company has met its transition challenge with stunning results. Throughput in the year 2000 was three times the 1994 level, reaching nearly nine million tons. In the first nine months of 2001, Caspian Shipping has transported 7,635 million tons, and expects to surpass last's year's results. Despite a company decision to retain some unprofitable subsidiaries, Caspian Shipping's profit level was 16 percent higher than forecast in 2000.

Caspian Shipping has approximately 8,000 employees, including some in its unprofitable subsidiaries. "Despite economic problems in Azerbaijan after independence, we did not cut the number of our personnel. That would only have added to the social problems. We still hold those employees, and we are proud that we have been able to provide our people with jobs," Khalykov says.

The company has no debt to either the national budget or the social security fund, salaries are paid on time, and Caspian Shipping is proud of its success in retaining capable people who can deal with difficult issues.

Moreover, the company has won international awards and recognition in the process. In 1999, the Jury of the Fourth International Competition named Bashirov ‘International Man of the Year in Transportation.’

More significantly, the International Marine Organization voted to include Azerbaijan on its ‘White List’ – an global register of countries where marine education meets international standards. This recognition means that the graduates of the Marine Academy in Azerbaijan can work on any vessels operating in any of 157 countries.

While savoring these successes, however, the company continues to grapple with the problems of modernization. The company has an aging fleet. However, due to proper maintenance service, all the company’s ships meet international requirements.

Today, the company has preferred to try to modernize and upgrade its ships using its own four shipyards, and is taking active steps to fully modernize its vessels

For example, this year Caspian Shipping has made a $2 million investment to install global positioning systems in all its ships.

"We have also made our ships ecologically clean," Khalykov points out with pride. The issue of new ship construction in Baku is also under consideration. At the same time, negotiations to purchase new ships from abroad are in progress.

The government's privatization program also has had an impact. Caspian Shipping is on the president's list of companies that must be privatized. The company will begin by selling off some subsidiary organizations that have not been profitable. The transportation part of the company will be privatized last. Caspian Shipping has a shareholder program for privatization already in place.