From shipping and logistics to maritime services and mechanical engineering and beyond -- the year 2004 saw industry consolidation, fresh beginnings and dramatic change in the Faroe Islands.

WINDS OF CHANGE swept through Faroese industries during 2004, marking dramatic events in the shipping and logistics sector as well as in shipbuilding and mechanical engineering. Whether labeled as financial consolidation on the corporate level or market consolidation on the industry level, it seems clear, as Jan Mortensen, executive director of the House of Industry, said: “The reality of globalization has eventually caught up with the Faroes.”

The formation of Faroe Islands’ first private venture company, NOTIO, in 2002, represented a new business climate that has materialized over the past five years or so. Much inspired by developments in Iceland since the 1990s, the very notion of venture capital as a present possibility in spite of the country’s unlikely size, also came to fruition through the formation of the VMF, the Faroese Securities Market. Likewise, the oil and gas exploration activities that commenced at the turn of the millennium and currently continue in a second round of licences, have had some impact on the atmosphere, bringing in fresh international oil business connections. Still, it’s the Faroese maritime cluster along with the fishing industry that sets the agenda for almost everything there is on the islands: fishing and merchant vessels, shipyards, mechanical workshops, processing facilities, commercial and social services.

“Besides fishing and aquaculture, our commercial bastions are maritime services including mechanical and electrical engineering, metal works and repairs,” Mr Mortensen said. “A lot of Faroese maritime ships officers are working abroad, but we nonetheless have many of them here, which is important for the Faroese maritime cluster. But because of the overwhelming scope of the fishing and aquaculture industry, other industries have not so easily sprung up; however, this may be changing. For instance, it’s going to be interesting to see whether the FAS [the Faroese international ship registry] will succeed in attracting significant numbers of ships. Likewise, our ICT sector is growing seriously, with several companies gaining international ground.

FIRST VENTURE FIRM: In June 2004, NOTIO acquired Tórshavnar Skipasmiðja (Faroe Yard). Included in the purchase were the shipyards in Tórshavn, Vestmanna and Skála, a mechanical workshop in Runavík, an offshore services subsidiary and all assets including shipbuilding, repairs, purchase and sales and agencies. A half-year later, the Tórshavn-based Faroe Yard took over FJM, Runavík, a leading mechanical workshop specializing in the manufacture and servicing of stainless steel processing lines and factory components for the fishing industry.

NOTIO’s acquisition of Faroe Yard was loaded with symbolism, not just because the shipyard was a family business, deeply anchored in the community of Tórshavn. The deal signaled major change; with a larger-than-life public image represented by the charismatic Poul Mohr, this was a major employer that hadn’t changed ownership since the company’s formation in 1936. It had been operated under the management of founder Kjartan Mohr for more than forty years, until his son Poul Mohr took charge in the late 1970s, to be joined by his son Gunnar Mohr 30 years later. The company had long been one of the strongest private enterprises in the Faroe Islands and was considered one of the overall top players in the industry. All of a sudden, even the ownership of Faroe Yard has changed hands.

After the acquisition, Wilhelm Petersen, chairman of the board of NOTIO said the venture firm will only initially be the sole owner of Faroe Yard, that the aim is to limit the share to one-third of the company. “The intention is to quote the company P/F Tórshavnar Skipasmiðja on the Faroese Stock Exchange to allow interested investors to become shareholders,” Mr Petersen was quoted.

Concurrent with NOTIO’s purchase of the assets of Faroe Yard, the former owners of Faroe Yard increased their share capital in NOTIO from 1.2 percent to around 25 percent of the venture company, allowing for continued influence on Faroese shipbuilding and repairs.

Two months before the acquisition of Faroe Yard, NOTIO bought a 30 percent share in wholesaler Poul Michelsen (PM Group). In addition to PM Group, as of early 2005, NOTIO’s portfolio encompasses the following: a one-third stake in Kollafjord Pelagic, an advanced pelagic fish processing plant in Kollafjørður; a one-third stake in Set, a risk capital company and business consultancy specializing in start-ups; a 17.3 percent stake in Kall, an aggressive telecom company founded in 1999, Faroese Telecom’s main competitor in the domestic telco business and consumer markets; and an 18.75 percent stake in Auxilior Technology, a software developer specializing in software for disabled people.

ICELANDERS MOVING IN: In October 2004, a major news event surprised the islands: domestic market leader and national icon Faroe Ship had merged with Icelandic rival Eimskip, forming a new and strong North Atlantic shipping and logistics company with a strong international network. The news had some people reacting with resentment to see a national object of pride, in their view, handed over to a foreign competitor. Others were not so alarmed, perhaps quite the contrary, eyeing an opportunity for much needed growth in the increasingly globalized shipping and logistics markets. The merger, according to a press release “(…) creates the largest transportation group in the North Atlantic (…). It will lay the groundwork for improved operation, increased efficiency and enhanced service to customers.

“Faroe Ship and Eimskip have been leaders in their respective markets for decades, Eimskip for 90 years and Faroe Ship for 85 years. Faroe Ship was established in 1919, and is among the oldest companies in the Faroe Islands, with more than 200 employees. The company currently operates three vessels sailing between the Faroes, Scotland and Denmark. Its yearly turnover exceeds DKK 260 [EUR 35 / USD 46] million. The combined total turnover of Faroe Ship and Eimskip in the Faroes after the merger is estimated at DKK 345 to 430 [EUR 46 / USD 61 to EUR 58 / USD 76] million.”

A few months later, Eimskip and Faroe Ship in Denmark decided to merge their subsidiaries there under the name of Eimskip - Faroe Ship Denmark, forming  “a company able to provide further enhanced service to its clients in the Faroe Islands, Denmark and Iceland.”

In another development in the same sector, Eimskip’s contender from Iceland, Samskip, made an entry into the Faroes, linking the Faroes into its existing Iceland-UK cargo service.

Whether Samskip’s attempt will prove successful remains to be seen. As suggested by their newly opened offices in Tórshavn, they are in it for the long haul. The fact that they have registered two of their newest vessels under the Faroese international ship registry, the FAS, also sends a signal as to the way the want to position themselves.

Meanwhile, on a European level, Samskip is growing fast. In March 2005, the company announced its merger with the Dutch operator Geest North Sea Line. A joint press release noted: “The Icelandic shipping-to-logistics company Samskip is set to acquire full control of the Dutch intermodal operator Geest North Sea Line in a deal that will create Europe’s largest intra-European intermodal/shortsea container shipping network. Including charter vessels, the combined operation will deploy a fleet of over 20 vessels ranging in size from 200 TEU to over 900 TEU.”

In fact, as many people view it, the wildcard in the business was already played by Smyril Line in 2003 with the arrival of the superferry ‘Norröna’. A very capable vessel for cargo as well as passenger transport, it was clear from day one that the shipping and logistics sector was flanked by a strong contender that already had digged in years before, using an older ferry which, like the new and much bigger one, employed the roll-on/roll-off principle for easy and convenient handling of reefer trucks and other vehicles.

SHETLAND CONNECTING: Smyril Line’s huge investment required considerable amounts of capital and money and was placed by both domestic and foreign sources, most notably the Shetland Islands Council. Desiring to secure the transport connections that the Norröna provides, the Council has invested millions of pounds in Smyril Line, which for a period has been struggling to make ends meet. A strategic alliance with Fjord Line, of Norway, may prove necessary and seems to be underway, according to the two companies.

Just as the offshore oil and gas exploration on the Faroese shelf is viewed by industry insiders as an extension of the West of Shetland area, business connections between the Faroes and Shetland have increased considerably through Smyril Line.

And just as much as Smyril Line is likely to appreciate the commitment of the Shetland Islands Council, the Shetlanders without a doubt see much value in the fact that their capital Lerwick is included in Norröna’s sailing schedules.

According to a survey by AB Associates, a Shetland consultancy, Norröna during 2004 helped keep 56 jobs in Shetland, directly injecting almost 6 (EUR 8.5 / USD 11.2) million pounds into the community there.

A conference held in Reykjavik in February 2004, saw Nova Scotia and Scotland invited to participate more fully in NORA (North Atlantic Cooperation) a Nordic trans-national cooperation between Iceland, Norway, Faroe Islands and Greenland, funded by the Nordic Council of Ministers. The Shetland Islands Council, the Scottish Executive and the Government of Nova Scotia were invited to present at the conference and discuss their vision of the challenges and opportunities they face and how greater cooperation could bring benefits to those within the North Atlantic region. Wrote the Shetland Island Council’s Information Bulletin: “The conference highlighted the similarities in the economies of these regions.  Each region is pursuing greater economic and sustainable benefit from the limited but rich resources they have access to.  Issues in common include dependence on marine resources and the need for research and development to sustain and improve the economic value of these resources, a shared heritage, a rich arts sector based around traditional music and crafts, a desire to increase tourism and the need to develop sustainable energy sources and methods.  The regions also share common difficulties and concerns caused by peripherally and the need to protect both the culture and rich natural environment.” Councillor Jim Irvine, who attended the conference, said “it was a breath of fresh air to be discussing our challenges and opportunities with government representatives who clearly understood what we are facing. (…)”

The Information Bulletin added: “The next step will see NORA agree on how best to take forward cooperation with Nova Scotia and how it will approach Scotland and Shetland to become involved.”