Samudera spies opportunities for growth in Indonesia

MAINBOARD-LISTED Samudera Shipping Line sees opportunities for growth in Indonesia as the country's new Omnibus Law paves the way for increased foreign investment.

Chief executive officer Bani Mulia, who assumed the role in September last year, noted that the new law will create an environment that is friendlier to investors and foreign investment alike.

"This new policy in Indonesia will attract a lot of investment there, and we're talking to partners (on) opportunities to secure logistics contracts, including shipping contracts," said Mr Mulia. In time to come, he hopes that Indonesia will become a bigger contributor to Samudera's business.

The regulatory changes will also throw up the opportunity to invest in Indonesian ports. While this would be venturing into new territory for Samudera, it views the prospects as promising. Presently, Indonesia's ports struggle with bottlenecks but tackling those issues will ultimately translate to a growth in volumes, he pointed out.

In addition, Mr Mulia expects that Samudera should be able to benefit from the presence of its parent company, PT Samudera Indonesia.

"Our strength is being part of Samudera Indonesia," he said. "We believe there're strong opportunities in Indonesia. At the moment, we have set up a joint venture subsidiary between ourselves and our parent company for us to be able to enter the Indonesian market for longer-term contract opportunities, including for bulkers and tankers."

Samudera transports containerised cargo in Asia, largely on trade routes linking ports in South-east Asia, the Indian subcontinent, the Far East and the Middle East. Aside from container shipping, Samudera also has a bulk & tanker business and a logistics business.

2020 was a year of two halves for container shipping, which accounts for the lion's share of revenue for Samudera.

As the pandemic spread last year, "the shipping (industry) reacted very quickly to adjust capacity", he said, adding that companies in the container shipping industry were able to adjust to the decline in cargo volumes through industry means such as blank sailing (or a cancelled sailing).

Thanks to its mix of owned and chartered vessels, Samudera had the flexibilty to rationalise its services to react to the changes in volume as its fleet comprises a higher proportion of charter-in vessels, he highlighted.

However, things took a turn for the better in the second half of 2020 with a big turnaround in container shipping activity. As a result of pent- up demand, freight rates surged - by as much as 200-300 per cent on some routes - due to a shortage of container boxes and vessel capacity as well as bottlenecks at ports, given the manpower shortage amid the pandemic. This is in stark contrast to the pre-pandemic container shipping market, where an oversupply of vessels was forcing container shipping firms to reduce freight rates, which in turn put pressure on earnings.

Customers with better margins and higher value cargo are now willing to pay a premium. Said Mr Mulia: "It became a seller's market for us, a very rare seller's market. It's always been cyclical, but at the moment it's a seller's market."

In FY2020, in terms of container volume, Samudera handled 1.3 million twenty-foot equivalent units (TEUs), up from 1.2 million TEUs in FY2019.

The company announced recently that it is divesting two of its 24 container vessels to rejuvenate its fleet, with the aim of eventually replacing them with bigger and more fuel-efficient vessels. Rising freight rates have boosted the prices of containerships, making this a suitable time for divestment, Mr Mulia reckons.

Samudera also owns two chemical tankers and has a 25 per cent stake in an LNG vessel.

With recovery underway, Mr Mulia is cautiously optimistic about the prospects for 2021, which come on the heels of a tumultuous year when Samudera - like many other companies - had to scramble to implement remote working and contactless operations. "We're confident we can face 2021 with better results because the opportunities are better, (even though) there might not be a higher jump in freight rates," he added.

Industry research puts the growth for the global box trade at 5-6 per cent this year.

Recovery in the oil & gas sector as well as growth in e-commerce, which has accelerated as a result of the pandemic, could also serve as tailwinds.

Commenting on the vessel Ever Given, which remains lodged in the Suez Canal, Mr Mulia expects it will impact the global supply chain and operations in the shipping industry. He said: "The incident will have a direct impact on oil prices and other operational costs for the shipping industry, but some of the cost increase will be passed on to customers in the form of surcharges. The situation is also likely to drive up freight rates in the foreseeable future, even as the industry is expected to face a challenging operational environment."

Mr Mulia went on to add that the blockage of what is a strategic waterway will force ship operators to look for alternative supply chain solutions. Amid the crisis, Samudera "hopes to find opportunities to tap into", he added.

Other areas that Samudera will be focusing on going forward is digitalisation, Mr Mulia told The Business Times. Samudera plans to invest in technology to improve its processes, systems and services. In particular, it is looking at how it can analyse, and possibly monetise, the data that it has on cargo volumes.

Meanwhile, share buybacks is another area it is considering. In a research note dated Feb 23, Lim & Tan Securities noted that Samudera's stock price performance had lagged some of its peers - despite being relatively undervalued - as the recovery in the container shipping industry gave rival counters a lift.

Mr Mulia said: "We were given the mandate to do some (share) buybacks, and we haven't done so. This is something we're exploring. We don't want to be too impulsive and (adopt) the wrong strategy, but we know we have the capability to do so. At the moment, we're sitting on a strong cash position."

For FY2020, Samudera's net profit surged nearly 85 per cent year-on-year to US$7.23 million, while revenue shrank about 7 per cent to US$347.9 million. Gross profit was about 65 per cent higher at US$29.6 million on the back of a reduction in the cost of sales.

As at end FY2020, Samudera had cash and cash equivalents of US$76.76 million.