All businesses face defining moments, and for Abu Dhabi’s Khalid Faraj family shipping firm that came as the financial crash began to bite seven years ago.
Since the early 1990s its niche had been shipping a wide variety of goods from European ports to pick-up destinations in the Middle East.
But when that trade came under pressure, the decision facing them was essentially “go big or go home”.
“At that time, the [roll on-roll off, or ro-ro shipping] market was going very bad and we could not survive,” says Mohamed Faraj Al Mehairbi, the firm’s managing director. “They were tough times – we had one of two ro-ro vessels sitting idle for four years, 2008 up to 2011. We had to do something, so the middle brother – we are three brothers – gave us the idea that we had to go into the Abu Dhabi market, and from that point in 2008 we started growing.”
Khalfan Faraj Al Mehairbi, who is now the company’s chairman, told his younger brother Mohamed and elder brother Khalid, who had founded the business while living in France in the 1990s, that the firm had to expand the fleet to include vessels to service the emerging offshore oil sector in their home country or it would not survive the downturn in trade on the Europe-Middle East routes.
There were no Abu Dhabi shipping firms serving that sector, so Khalid Faraj Shipping was able to get both essential government support and bank financing to expand.
The fleet expanded rapidly, and from the initial two ro-ro cargo vessels it has now grown to 45, including tug boats, barges and landing craft serving mainly the offshore oil and gas industry; there are now about 200 employees, including the mainly international contracted crew for the vessels.
But now the sector worldwide is experiencing one of its sharpest downturns in more than a decade, with oil prices at the lowest levels since about 2004. There is little prospect of a turnaround anytime soon, with most forecasts predicting a gradual increase by late next year but only slow progress for sometime thereafter.
What is Khalid Faraj Shipping’s response to this squeeze?
To expand, of course.
“We have 10 vessels under construction in the Far East, orders totalling US$30 million,” says Mohamed Faraj. Once delivered, the fleet will expand to 50 after accounting for vessels that will be retired, with 40 owned by the firm and the others managed under contract for other owners.
But isn’t this a risky time to expand?
“It is a juggling act,” says Mr Faraj. “Of course the oil prices are going down, but still we are trying to provide services and take more tenders, from oil and gas companies, governments, and different sectors. So we are trying to survive.”
There is also a risk in not expanding.
“We are facing a lot of competition from Asia, from Europe and from other GCC countries,” says Mr Faraj. “You cannot compare older vessels with newer ones. Yes, there is competition on price but companies are looking to the quality as well. Winning tenders depends on your price and the services you offer, but they also look to your safety record and reliability.”
In the oil business, it helps to be an Abu Dhabi company at a time when the government has decided to maintain its huge level of spending commitment on projects such as the Zakum fields offshore, where a total of $25bn has been committed to boosting production through 2020.
The government has been looking to push contractors on price – various Adnoc executives have said they are looking for 25 per cent discounts across the board – but the projects remain on track.
“There is a squeeze, but it is not as bad as what we see in the outer markets,” Mr Faraj said. “So I think it needs time only. I know it won’t come to the same as the past, but I hope it will grow a little bit better – I have faith it will do that.”
Meanwhile, the firm is taking on board the lessons of its first couple of decades and seeing a downturn as an opportunity.
“It’s a good time to build and to contract a vessel because prices are still going down. A lot of shipyards are empty and facing tough times. We are shopping around.”
Another lesson has been to diversify as well as expand.
“I am thinking of going back to Europe,” says Mr Faraj. “We sold those [old ro-ro] vessels at that time when the business in Europe was going down, but now it is hiking up like crazy. I wish I still had those vessels.”
Still, it is a long way to come in one generation. The Faraj brothers’ father was a small businessman who became a civil servant, following a path that many of the pre-oil generation had.
The eldest son, Khalid Faraj, had struck out on his own and tried a number of start-up businesses before spotting the shipping opportunity on the Europe-Gulf routes.
Now, says Mohamed Faraj, the next generation has moved into the business as it looks to become a diversified, international operation.
“My brother’s son Moussa is now running the bunkering department in Abu Dhabi,” he says. “My father is the one who kept us all together as a family. We are a growing family and a growing business.”
The company
Khalid Faraj Shipping began in the 1990s, moving a variety of goods from Europe to Middle East destinations using two roll-on, roll-off vessels, which are designed to transport trucks and other wheeled cargo carriers. After the downturn that followed the financial crisis in 2008, the company shifted emphasis to serving the offshore oil industry in Abu Dhabi and wider Arabian Gulf. The fleet expanded to 45, including tugs, barges and landing vessels, and ships being built in Asia will expand that further to 50, including ships managed under contract.
The manager
Mohamed Faraj Al Mehairbi is the youngest of three brothers who founded and built Khalid Faraj Shipping. The eldest brother Khalid was a serial entrepreneur before spotting a shipping opportunity while working in Europe, bringing his two younger brothers, Mohamed and Khalfan, in to help run and expand the fleet.
amcauley@thenational.ae