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To Invest or Not -- Renewal of the Norwegian Bottom Trawler Fleet

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  • In order to survive and prosper fishing companies have to balance the need for continuity and change. Investment strategy is a good indicator on the direction companies are headed in terms of capacity, onboard production, and the financial risks they are willing to take. However, the success of an investment does not only depend on company decision and timing, but also how companies tackle unpredicted changes in the competitive environment. Cash flow rise and fall with the quota. Accordingly, successful investment strategies in such settings are often linked to timing and capacity decisions. In this paper we propose a framework that explains the investment strategy behind fishing vessel renewal. The hypothesis that cash flow and profitability impact the decision on when to replace an old vessel with a new is tested by studying the pattern of renewal of Norwegian bottom trawlers in a closed fishery. Results suggest that the decision of renewal is taken on rising quota, just before it peaks. Due to long planning and construction time new vessels are operational under conditions very different than predicted. Declining quota and revenues provides challenging conditions, especially for companies building new vessels. However, companies building new vessels have better economic performance than companies not renewing. And vessels being renewed have more fishing licenses than other vessels. An important observation is that the ITQ system has prolonged renewal, as companies buy licenses rather than new vessels. On rising quotas, owners of fully licensed vessels renew 25% of the Norwegian fleet in 2012-2014.
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  • Larsen, T.A., B. Dreyer and Ø. Hermansen. To Invest or Not -- Renewal of the Norwegian Bottom Trawler Fleet. In: Visible Possibilities: The Economics of Sustainable Fisheries, Aquaculture and Seafood Trade: Proceedings of the Sixteenth Biennial Conference of the International Institute of Fisheries Economics and Trade, July 16-20, Dar es Salaam, Tanzania. Edited by Ann L. Shriver. International Institute of Fisheries Economics and Trade (IIFET), Corvallis, 2012.
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  • AQUAFISH, USAID, NEPAD Planning and Coordination Agency, Norad, The World Bank, Hyatt Regency Dar es Salaam, NAAFE, World Wildlife Fund, United Nations University Fisheries Training Programme, ICEIDA, JICA, JIFRS, The European Association of Fisheries Economists, International Seafood Sustainability Foundation
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