Foresight's Ravi Mehrotra on the Global Shipping Industry and Working Through a RevolutionPublished: June 29, 2011 in India Knowledge@Wharton
Ravi Kumar Mehrotra has lived and breathed shipping for more than four decades, working in India, Iran and now Europe. A first-generation entrepreneur, Mehrotra, 70, founded and still manages the London-based shipping-to-retailing Foresight Group. While in Iran, where he worked for almost a decade, Mehrotra weathered the Islamic Revolution 1979 and in the process, became perhaps the only foreigner to have worked closely with both Mohammad Reza Shah Pahlavi (better known as the Shah of Iran) and Ayatollah Khomeini.
Awarded a CBE (Commander of the Order of the British Empire) for his "contributions to international shipping", Mehrotra currently divides his time between managing his business and lecturing at Cambridge and industry forums. Mehrotra spoke to India Knowledge@Wharton about his varied experiences.
Below is an edited version of the interview.
India Knowledge@Wharton: You began your career with the then newly-established Shipping Corporation of India (SCI), and spent a decade there. How was the working culture in this government-owned company?
Ravi Kumar Mehrotra: After passing out as a marine engineer in 1964, I joined SCI. In its early days, SCI was managed by a private shipping company -- The Scindia Steam Navigation Company (SSNC). Hence, the operations at SCI were not much different from any private shipping company. I was part of the initial team, which took SCI from just a few vessels to 150 ships by 1974. In 1971, I became a technical manager. The small size of the technical team and a spurt of ship acquisitions helped me to learn the technical operations of ships hands-on.
India Knowledge@Wharton: You were a founding member and later managing director of Iran-o-Hind Shipping Company, a joint venture between India and Iran set up in 1975. Why was this venture conceived and by whom?
Mehrotra: Iran-o-Hind was set up in March 1975 by the governments of Iran -- which owned 51% -- and India (49%) at the behest of Mohammad Reza Shah Pahlavi, also known as Shah of Iran, and Indian Prime Minister Indira Gandhi. Its main purpose was to ship iron ore from India to Iran, after Iran financed India's Kudremukh iron ore mines near Bangalore. Since mining operations were headquartered in India, the Shah of Iran insisted that the shipping company be based in Tehran. While the iron ore mine did not materialize until the Iranian Revolution in 1979 [when the Shah was deposed], the shipping company became operational in June 1975. It is still running smoothly and profitably. I was a founder member and remained with it till August 1984. During my tenure, Iran-o-Hind acquired 25 ships and made consistent profits.
India Knowledge@Wharton: What were the challenges in setting up Iran-o-Hind? Did you ever interact with the Shah of Iran directly?
Mehrotra: Between 1975 and 1978, the Iranian economy was on a roll. Though there was no shortage of cargo, port congestion was a major problem. Iran had very few ports, and ships had to wait six months to get a berth. Meanwhile, we at Iran-o-Hind chartered a ship to try out shipping operations and build our own cash flows. This was also to free ourselves from day-to-day governmental regulations. To beat port congestion, we used to carry some perishable goods on our ship to avail of berthing out of turn. Then we would offer bonuses to our own ship crew, enticing them to offload other cargoes in the shortest possible time without using port labor. Once Iran-o-Hind became cash-flow positive, we began to get noticed by the Shah's palace and were invited for a few functions. The Shah recognized us, as we were the only Indian company and he had heard about us beating the port congestion. But his main focus then was to raise Iran's oil production from 4 million barrels a day (mbd) to 6 mbd. Incidentally, that was the only period when Iranian oil output reached 6 mbd. Since the Iranian Revolution of 1979, it has never breached the 3.5 mbd level.
India Knowledge@Wharton: Did you feel threatened when the Shah was overthrown by Ayatollah Khomeini's Islamic Revolution?
Mehrotra: Throughout 1978 and in early 1979, every foreigner in Iran felt threatened. It was the time when the world witnessed one of the largest exoduses of foreigners from Iran. I, too, would have left. But as we were running a company controlled by two governments, we could not abandon operations. So, I remained in Iran. Ayatollah Khomeini came to Iran from Paris in February 1979, a few months after the Shah's overthrow in October 1978. In these four months, power changed hands from generals to democrats and eventually to the religious class.
India Knowledge@Wharton: Tell us about your interaction with Khomeini. What kind of man and administrator was he? What was it like being the shipping advisor in his government?
Mehrotra: I never imagined I would be Khomeini's advisor on shipping. During the revolution, oil production totally stopped, leading to a spike in global prices. Oil shot up from US$3 a barrel ... to US$13 a barrel. Meanwhile, Iran's finances were deteriorating, since oil accounted for 95% of the country's earnings. Ayatollah Khomeini was quick to realize that his revolution would not go far without oil. So, he placed trusted professionals in charge of the National Iranian Oil Company, which till today controls Iran's oilfields.
Iran has no oil pipeline to export its crude. All of its oil is exported by ship, especially from Kharg Island near the mouth of the Shatt-al-Arab and very close to the coast of Iraq. Khomeini knew that he would need his own ships to ensure smooth inflow of oil earnings. So, he decided to appoint a shipping advisor, a young professional, non-Iranian, non-Muslim and non-Western.
I was selected and asked to write my own employment terms. But I asked the revolutionary council to take formal permission from the Indian government. They did so and Prime Minister Morarji Desai asked to me join as "principal advisor on shipping matters" to the government of Iran. At 36, I was the senior-most foreigner in Iran. At that time, Iran had 22 foreign-going ships. By the time I left in August 1984, Iran possessed 103 ships and had ordered another 22. As I was involved in every aspect of shipping in those years, Iran during the Islamic Revolution became my training ground for a future in the shipping business.
I met Ayatollah Khomeini a few times, but he left me largely to myself. I found him to be an extremely intelligent person, who realized that shipping was crucial to ensure the continuous flow of petrodollars. Hence, I was allowed a free hand.
India Knowledge@Wharton: What is your experience in terms of doing business in the Middle East?
Mehrotra: As regards ease of commercial activities, doing business in the Middle East as a whole is always challenging, even under normal circumstances.
India Knowledge@Wharton: What do you think about the situation across the Arab world today?
Mehrotra: I was quite happy to see what has happened in Tunisia and Egypt. They will lead the Arab world and the rest of the Middle East to some sort of democracy -- definitely far better than what they have had. However, this transition is going to be a long-drawn process as Islam permits some sort of benevolent dictatorship or kinghood.
India Knowledge@Wharton: Why did you decide to leave Iran in the mid-1980s and move to the U.K.?
Mehrotra: Iran after the revolution had no English-medium schools. Even today, there are no English-speaking schools. I was concerned about my children's [Mehrotra has a son and a daughter] education. Moreover, though I had the option of re-joining SCI, I was keen to do something on my own. I wanted to be a "shipowner". I decided to move to London, where my friends from the shipping industry helped me start Foresight.
India Knowledge@Wharton: How difficult was it to set up a business in a country that was foreign to you?
Mehrotra: Though establishing a company in London was easy, the initial months were very difficult. Foresight could survive only as a shipping broker on commission basis. In 1984, even as shipping was going through a rough patch, I managed to persuade a German Bank to lend me US$1.5 million, the maximum they could without security. I used it to buy a 10-year-old, 15,000 dwt ship in a Spanish government auction in Madrid. Though I was a shipowner, I had to work on my ship-broking assignments to enhance my earnings and repay installments.
My major breakthrough came when the French sold Exocet missiles to Saddam Hussein in Iraq. These targeted tankers were coming to Iran's Kharg Island for oil loading. War insurance skyrocketed and foreign ships refused to sail to Iran. It was then that the Iranian administration sought my help. I insisted they hire Foresight rather than me. After much deliberation, Foresight was awarded the contract to manage and supervise the Tanker Shuttle Service, which ensured daily loading of oil from Kharg Island and transfer to floating tanker terminals outside the reach of Saddam's missiles. Foresight had chartered, on behalf of the Iranian government, five of world's largest tankers, each with 500,000 tons carrying capacity, to work as floating terminals and 22 very large tankers of 250,000 tons capacity to transport oil. This operation began towards the end of 1985 and lasted until the end of the Iran-Iraq war in 1989. This was my finest hour as a professional and a great breakthrough for Foresight.
India Knowledge@Wharton: Today, Foresight is a diversified group. Can you talk a little about your group's various businesses?
Mehrotra: I realized that shipping is an extremely cyclical industry and capital intensive, too. You either need other legs to stand on, or a government's backing. Soon after the Iran-Iraq war, Foresight ventured into oil drilling. We are in the jack-up drilling industry and not into deepwater drilling. Most of our other diversifications are in low capital-intensive industries.
Today, Foresight is into shipping; oil drilling and exploration; the hospitality and dining business in India and China and a joint venture with U.K.'s Pavers England Footprints to market the Pavers brand in India. Shipping and oil drilling account for 85% of our US$100 million or so turnover. Foresight employs close to 1,300 people across its offices in London, Cyprus, Dubai, China and India.
Foresight is expanding, but we have given up diversifying in totally unknown fields and are focusing on shipping and offshore industry-related activities. At the moment, the group assets are around US$600 million. Out target is to reach US$5 billion in assets by 2021, when I turn 80.
India Knowledge@Wharton: Has the shipping industry come out of the global economic downturn of past few years?
Mehrotra: Unlike in the past, when a downturn in the world economy usually impacted the industry, the current crisis is more to do with the shipping industry itself. Today, despite the 2008-2009 financial crisis, countries are expanding, albeit at different pace. The global shipbuilding industry was dominated by Japan and South Korea until a decade ago, when their supremacy was challenged by China. So while Japan and South Korea have not curtailed shipbuilding activities, China has flooded the industry, which I feel is the root cause of the crisis. I think the situation will improve only after India joins in, with large quantities of raw material imports. But this may not happen before 2016.
India Knowledge@Wharton: You also teach at Cambridge University. What does that position entail?
Mehrotra: Cambridge University conducts a professional course every year tailored for bank managers keen to learn and practice shipping finance. I am a regular teacher there and my subject is "Anatomy of Ship Finance". I have also written two books. The first is, How to Achieve What You Planned to Achieve in Your Life in 10 Steps in 40 Days, meant for teenagers to help them achieve their dreams. My second book, What's in it for You?, is autobiographical and is being published soon by McMillan India.
India Knowledge@Wharton: Finally, we have heard about your high-profile winter BBQ party in London every year.
Mehrotra: Yes, Foresight is famous for its Winter BBQ Party held on the third Friday of every January, hosting shipping and oil drilling industry executives from all over the world. It is held in the garden of my London house. The party has no agenda and has become a must in the calendar of several VVIPs in the past few years.