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Keeping things shipshape
SINGAPORE'S raison d'etrewas its port, as Minister Mentor Lee Kuan Yew said in the inaugural Singapore Maritime Lecture in 2007. From its earliest days in 1820 as a hub for entrepot trade, when it started as an exchange for products ranging from opium to British manufactured wares, the Port of Singapore is now the world's busiest transhipment hub, handling over 33.6 million TEUs (20-foot equivalent units) in 2017.
Yet Singapore's maritime heritage is more than just its port. This red dot hosts a buoyant maritime ecosystem - an intricate web of yards, ship finance, insurance and legal firms and infrastructure, to name a few.
Two torchbearers of Singapore's maritime legacy - Pacific International Lines (PIL) andEquatorial Marine Fuel Management Services - are now in the second generation of their family-run businesses.
PIL, founded in 1967 by YC Chang (also known as Teo Woon Tiong), has outsurvived over a dozen other home-grown shipping names. Others including the likes of Kie Hock - where Mr Chang was general manager before starting up PIL - either folded or downsized their businesses in the 1970s.
The journey for PIL has been fraught with challenges beyond its early struggles. Not long after it was formed, it was thrown into the storm of the 1973 oil crisis. It pulled through, and went on to containerise its fleet from the 1980s. PIL launched its first service connecting China with East Africa in the 1990s.
PIL is not the only family-run company to have thrived in container shipping. Alphaliner's executive consultant Tan Hua Joo points to five others that ranked alongside PIL among the top 10 - Switzerland-headquartered Mediterranean Shipping Co, France's CMA CGM, Taiwan's Evergreen and Wan Hai, and Hong Kong's Orient Overseas Container Line.
As it turns out, family businesses that are backed by a consistent and stable management team can be better-placed to thrive in the cyclical container shipping industry, compared to listed companies held accountable to shareholders, Mr Tan remarks.
Family businesses have also held up well in Singapore's marine fuel or bunkering industry. Bunkering in Singapore took off in the late 1980s after authorities here moved to deregulate the industry that was once serviced only by the oil majors, says IBIA regional manager Simon Neo.
Family-run independents that previously operated barges then emerged as new bunker suppliers and began delivering marine fuels directly to shipowners. It was at this juncture when Choong Kien Siong, now in his 60s, ventured into the marine fuel business.
Equatorial Marine, set up in the 1990s, ranked No 5 here by bunkering volumes in 2017. Two other family-run firms - Sentek Marine and Hin Leong's Ocean Bunkering - also made Singapore's top 10 suppliers. Singapore is today the world's top bunkering port.
Still, margins are very thin, and industry players have had to cope with a rapidly changing regulatory landscape and new requirements to curb corrupt practices. Yet, this is where young blood with fresh perspectives could make a difference for Equatorial Marine and other family-run businesses.
While others have exited the trade here, the Choongs made use of the window to expand Equatorial Marine's fleet. That has paid off handsomely: the firm raked in millions of US dollars in profit last year, and profitability is on the rise as bunkering volumes continue to expand in Singapore.
Alphaliner's Mr Tan notes that in shipping, the more quick-footed family businesses have also proved they can be more effective at controlling costs and taking advantage of asset play opportunities.
Succession planning, however, will be crucial to secure a future in the third generation.
At PIL, SS Teo has succeeded his father as executive chairman. Two of his siblings are Teo Choo Wee, 55, who is head of fleet, and Lisa Teo, 44, who is head of corporate development. But there has been no clear indication as yet who will take over from SS Teo, 63, Mr Tan says. SS Teo's deputy, Tan Chor Kee, is also in his 60s.
Similarly, for Equatorial Marine, family control does not guarantee continued success in the marine fuel trade. As IBIA's Mr Neo notes, beyond the low margins for the trade, bunker supply is a 24 by 7 job with "lots of trading and operational stress".
"It will not be easy for physical bunkering business to attract the young," he adds, noting that besides Equatorial Marine, "next-generation" successors are seen in only a handful of other players including Hin Leong, Sentek Marine, Sirius Marine and Victory Petroleum.
At the end of the day, businesses - family-owned or not - can only thrive if they are professionally run.
As Wilson Chew, PwC Singapore's partner for entrepreneurial and private clients (strategy), points out, it is important to avoid the one blind spot when it comes to succession planning for family businesses, that is "blood may not be always better than water".
Holding its own, despite the many challenges
IN the 1990s, Pacific International Lines (PIL) launched its first service connecting China with East Africa, competing head-on with the bigger boys in container shipping. That ruffled some feathers - one executive of a leading European shipping line issued PIL scion SS Teo this direct challenge: "How dare you enter my trade?"
Today, that European shipping line is no more. And PIL is now the only Singapore-owned shipping line in the Alphaliner Top 100 list, compiled by container shipping consultancy and market intelligence provider Alphaliner.
Private-owned PIL has also turned a corner, posting US$85.37 million in net profit for FY17, reversing from a net loss of US$224.9 million for FY16.
Today, it ranks among the world's 10 largest box operators by capacity, the only Singapore company in the top 10. Founder YC Chang has also emerged as Singapore's oldest billionaire on the latest Forbes List.
The second-generation Teos took over the reins in April, after Mr Chang stepped down as chairman just four months before he turns 100.
BT speaks to three of his seven children, who sit on the PIL board: executive chairman and managing director SS Teo (SS); executive director (fleet) Teo Choo Wee (CW); and executive director (corporate development) Lisa Teo (L). SS is the reigning chairman of Singapore Business Federation. Choo Wee sits on the board of the Maritime and Port Authority of Singapore (MPA). Lisa is vice-president and honorary secretary of the Singapore Shipping Association.
Q: Why should the Teo family keep running the business that the founding father started 51 years ago?
SS: My father and his peers worked very hard. Many of the businesses pioneered by my father's peers are no longer around but PIL has gone through many crises, the last one being the 2015 and 2016 downturn.
After all the hard work, we should preserve the business and make sure it continues to grow. Our colleagues, some of them have been with PIL for 30-40 years, also feel strongly that we should do so. I would even consider PIL as Singapore's flag-bearer after NOL was sold to CMA CGM.
L: We should do something we know well. A family-owned European group has recently sold out on shipping because it is less risky to continue with its traditional food-processing business. For us, it makes sense to continue with the shipping business we know well.
Q: Why does it make sense to keep PIL or any shipping business family-owned?
CW: Shipping is a long-term business - a ship has 25 years of life. Your vision has to be long term. I was the last one in the family to have joined PIL in 2002. Since then, together with my family, we have weathered the cycles of the shipping industry, with my father and SS serving as the key stabilising factor.
L: If I am a hired professional, I may not think of 20-30 years ahead. As a family business, we will think of years ahead of us, not just immediate short-term goals.
SS: The cycles in this business tend to be shorter and sharper now partly because it takes a shorter time to build and deliver ships nowadays. You must have the stamina to weather the cycles. We have seen, for instance, private equities entering the market during the last down cycle to build ships. But, instead of taking the long-term view, they were investing mainly because ships can be built cheaply and that should provide for attractive returns. The undesirable consequence is vast overcapacity that brought on a collapse in rates.
Q: What motivates you and your colleagues to stay on?
CW: When I joined, I didn't know how long I would stay. Now, I don't think I will ever leave. The dynamism of the maritime industry and emotional attachment to shipping grows on you.
L: At PIL, we are a big family. When the company was not doing well during down cycles, our staff offered to take pay cuts because they felt they were on the same boat.
SS: Many on the PIL management team have stayed committed to the company. They worked hard with the company through the difficult patch during 2015 and 2016.
Q: How far can a family-owned business like PIL be professionally run?
SS: I always say we are family-owned but professionally managed. You have to make sure people in the positions are competent, whether they are a member of the family or not. We have to be fair with promotions and salary reviews. We are fairly transparent in assessment of staff, which is based on meritocracy.
Q: To what extent is everyone on board with second-generation succession, with SS taking over as executive chairman on his own merits, rather than reaping benefits from being born with a silver spoon?
CW: There has never been a doubt that SS would succeed my father at the helm. It is not just because we are from the same family. He has proven himself and led by example.
L: SS has certainly been on board longer than most of us at PIL. But it's not just because of seniority as there are some who have served longer tenure with the company.
SS: People would say that you are given opportunity because you are the son. But you still have to prove yourself in a difficult business such as shipping. I like to think I have proven my mettle, having faced stakeholders with my staff during both the good and bad times.
As part of the founding family, we don't hide behind others. If you don't lead by example, people will not work for you. And if the ship goes down under my watch, I have to bear the responsibility.
Q: How far have local players come to hold their own in international shipping, which was historically dominated by European companies?
L: Asian shipowners now own and/or control over 50 per cent of the world's fleet today. The "traditional maritime powerhouses from Europe" have taken notice and that's why they are setting up offices in Asia. Unlike the Europeans, Asians are not vocal as we tend to generally keep a low profile and prefer to let the actions speak for themselves.
CW: In the months following the recent shipping down cycle, the Chinese and Japanese leasing companies have taken over the lead in extending ship finance. Comparatively, the German KG system has vanished while the Norwegians have turned very quiet.
SS: European shipping lines, being part of the "old-boys' network", still dominate in certain trades. They were also better compared to their peers in Asia.
But the younger generation maritime leaders in Asia have surely stepped up their game. We need to drop this inferiority complex that builds on the perception that international shipping is a trade controlled by the West.
CW: Westerners still lead in certain sub-sectors such as in maritime law and insurance. This is somewhat inevitable with the English law being the common denominator among maritime nations previously under colonial rule. But things are changing.
For instance, shipowners here now have the option of using Singapore ship sales form, which was launched in 2011. Before that, shipowners, brokers and lawyers mostly turned to to the Norwegian Sale Form.
MPA is also taking the lead in introducing the first mass flow meter (MFM) mandate. Singapore is now in a good position to export the technical standard drawn up to guide and regulate the use of MFM, more than one year now into rolling out the MFM mandate.
Q: How can Singapore stay relevant to the global maritime industry?
CW: For instance, MPA has extended favourable tax policies that have encouraged many shipping companies to relocate to Singapore. Singapore also comes up tops in terms of the ease of doing business. More recently, ONE - the merger of three Japanese lines, namely K Line, Mitsui Orient Lines and NYK Line - has chosen Singapore over Hong Kong as its regional headquarters.
SS: We should be confident about our business ecosystem here. I think foreigners understand our strength as a maritime centre better than we do ourselves. They know the maritime hub for shipping is moving to Asia and look to tap Singapore, with its good government backing and its private sector, as a pivot to Asia. By contrast, we Singaporeans do not realise how important Singapore is as a maritime centre.
Many ship brokers want to come to Singapore, but many of our young do not want to enter into ship brokering because they lack the patience to learn the ropes.
Q: How can Singapore-owned shipping businesses stay relevant?
SS: When PIL started out 51 years ago, we bought and traded second-hand coastal vessels in South-South and North-South trades. Those were the days when we could afford to deploy ships for months to service just one trade. The cost of doing business was very cheap.
Today, costs have increased and we can no longer compete in coastal trades. Instead, we containerised from the 1980s but still differentiate ourselves by actively plying trades serving emerging economies including those in Africa - the continent offers tremendous opportunities.
Singapore has a good name in many emerging economies that private sector players can lean on. It boils down to how we can leverage on our country's good reputation, tap our limited resources and extend ourselves overseas. Also, to get there with these geographies, you need to make sacrifices.
CW: Opportunities co-exist with risks. The Europeans emerged as colonial powers because they took risks. Singapore companies may feel too comfortable now to take risks by doing business with emerging economies. That mentality has to change.
Millennial sons take on their parents' age-old trade
THE Choong brothers - accountancy graduate Zhen Mao and trained lawyer Sheen Mao - have chosen to take the road less-travelled for young Singaporeans. Right after graduation in 2010, Zhen Mao decided to join bunkering firm Equatorial Marine Fuel Management Services Pte Ltd,which is run by his parents. Six years later, he pulled in his brother, Sheen Mao, who was then practising law with Rajah & Tann.
To be clear, Equatorial Marine is no small fry in bunkering, the industry term commonly used to refer to the marine fuel industry. It ranked as Singapore's fifth largest bunker player by volume traded in 2017. Most bunker suppliers in Singapore have been around for over 20 years, with the bulk of them run by families or partnerships between close friends.
Yet bunkering is not a thriving or a lucrative industry. For years now, industry margins have run in single digits - just US$1 to US$2 per tonne of fuel delivered. And the trade demands high initial investments - each bunker tanker costs US$3 million to US$5 million while the purchase of one 5,000-tonne of marine fuel oil calls for another US$1.8 million.
It is not a business for the faint-hearted - new investors are hard to come by in the physical supply market and most bunker firms have stayed private-owned, explains IBIA regional manager Simon Neo.
With professional degrees under their belts, Zhen Mao and Sheen Mao could have forged their own paths in the financial or legal sectors. Why did these young adults turn from other promising careers to follow their parents' footsteps?
Zhen Mao readily admits that bunkering is not exactly a business that appeals to his cohort. He jokes that among his peers, "bunker" at best conjures up bunk beds in army camps.
Nor did Equatorial Marine's owners Mr and Mrs Choong Kien Siong "force" the family business upon their sons. What clearly left an imprint on the Gen Y successors, however, were their close encounters with the growing bunkering business through their formative years.
Now in his 60s, Mr Choong senior first struck out as a trader in the 1980s, and soon earned the trust of his boss who subsequently appointed him as managing director of Chinese firm Sunly. After Sunly exited Singapore, Mr Choong founded, in 1993, the private firm Grandeur Trading & Services to supply and trade in petrochemicals and marine fuel, just when the bunker trade here took off in a big way after a relaxation of licensing rules.
Seven years later, Mr Choong set up Equatorial Marine, which first started with just one bunkering barge on its fleet. The family subsequently took advantage of a window of opportunity to scale up the business, while others were downsizing or exiting the industry.
The move proved astute. Equatorial climbed the ranks quickly, riding on a rapid fleet-expansion exercise. Over the last two to three years, it doubled up its fleet size to 14 vessels. The family's standing in the banking sector eased access to funding.
"Bankers knew us from day one," Mr Choong explains. The Choongs have also refrained from over-stretching the balance sheet, electing instead to tap distressed asset opportunities for its fleet expansion. In 2017, it emerged as the second-largest Singapore-owned bunker supplier by volume and ranked fourth overall just behind another prominent local name, Sentek Marine, and three international players, PetroChina, Chemoil and Shell.
As Zhen Mao puts it: "Bunkering still holds value as a trade for the front-runners." He sees Equatorial Marine's capacity building as a step to gain the required clout in order to build a profitable business. He also argues that the bunker industry deserves far more credit it is accorded with. "The industry is integral to international shipping, which answers for transporting the bulk of goods traded between nations."
Yet, it's no secret that the bunker industry has faced an over-drawn battle in combating corrupt practices. While heavy penalties had been meted out, the recurrence of such incidents has hurt the standing of the industry at large. In response, Singapore moved to mandate the use of mass flow meters (MFMs) from 2017, to bolster transparency in measuring traded bunkers. Prior to the MFM mandate, the use of the conventional sounding method to measure bunker volumes being transferred had opened up room for some suppliers to gain by short-changing the buyers.
In his current job, Sheen Mao says he derives great satisfaction from being able to apply his knowledge of maritime law, to help the family business comply with the multiple regulatory updates and resolve any disputes with counter-parties in bunkering transactions.
Beyond that, he relishes the opportunity to partake in the implementation of the MFM mandate here. He sees the working knowledge he has picked up of the technicalities of the MFM rule as going a long way when it comes to refuting what "self-proclaimed experts'" may paint as facts.
While the MFM mandate looks set to clean up the trade, it has presented a new challenge for Equatorial Marine and others which have established their standings as having played by the books. Zhen Mao notes that the differentiating advantage that "reputable" bunker players enjoy has narrowed after the MFM mandate.
If Singapore's record bunkering volume in 2017 is anything to go by, the market value of the industry as a whole looks set to expand with the MFM mandate in place.
In the years to come, bunker players here will also have to overcome the challenge of trading in a more varied marine fuel mix. A global cap on sulphur content in marine fuels, due to kick in by 2020, is forcing both ship owners and bunker players to rethink the types of fuel they will be trading in future.
Mrs Choong, however, considers the challenge in coping with the regulatory updates as an impetus to inject young blood into the business. She harbours the hope that the second generation may eventually go beyond earning its keep with the family business and make its mark in the larger industry.
The mother of two has been working alongside her husband for decades now and has, in fact, pulled her daughter-in-law into the fray. Zhen Mao's wife, Jerlene Li, is currently on board as a human resource manager. For now, the second generation appears to have thrived on living up to their mother's expectations.