Taipei Times (TT): The container shipping industry, including Wan Hai Lines Ltd (萬海航運), showed strong revenues and profits last year, but analysts have recently expressed concerns over the growth of the container shipping industry for this year. How do you view this?
Davis Kao (高國隆): I think some analysts have an overly narrow view of the industry this year. From my perspective, the industry will see a return to normal, possibly with single-digit growth from a year earlier.
Indeed, the pace of growth will not be as strong as last year, but we all know that last year was the first year coming back from the global financial crisis, which further drove the highly expanding revenues and profits, creating an extraordinarily high comparison base for this year’s growth.
Photo: Ou Shu-mei, Taipei Times
Therefore, single-digit growth of between 4 percent and 6 percent for this year would be an acceptable result and a goal for Wan Hai. Thus far, I think the company has done a good job of meeting the goal. [Note: The company posted revenue of NT$26.72 billion (US$928.6 million) in the first five months of the year, up 11.82 percent from a year earlier.]
TT: How about next year?
Kao: Amid uncertainty over shipping capacity in the third quarter, it is hard to forecast how the industry will be next year until the end of this year. Up until the the end of last month, there were still about 71 ships worldwide that were not running and these ships may all come back to the market by the end of this month, which would drive global capacity to a new high since 2008.
Currently, the industry is like a person who is just recovering from a severe illness, so we do not know what the situation will be until after the overall capacity surges in the third quarter. But I believe the whole picture will be clearer in the fourth quarter.
TT: What are the major challenges facing the industry this year?
Kao: The rising oil price remains the biggest challenge for us, making the bunker surcharge more important this year. However, Maersk Line, a major international container shipping firm, has decided to delay hiking the bunker surcharge from this month to July, further raising our concerns.
Undoubtedly, we hope Maersk can successfully increase the surcharge, as that will make it easier for other companies, including us, to hike the surcharge, offsetting the pressure of high oil prices this year.
Basically, container shippers who focus more on long-haul lines can better control fuel costs than those who mainly depend on inter-Asia lines, such as Wan Hai. This is because long-haul ships can choose to refuel at Rotterdam Port, where the price would be cheaper than at the Port of Singapore, a major port for inter-Asia ships to refuel.
The rising New Taiwan dollar will be another difficulty for us. Since the company valuates received payments in US dollars, the surging NT dollar versus the US dollar has led to some exchange losses this year.
TT: Some of the latest research reports showed that the industry’s freight rates have bottomed out. Do you agree?
Kao: I’m not sure if freight rates have hit the bottom, but I am sure that almost all industries, including the container shipping sector, are experiencing a time of low margins. So I do not feel that there would be a chance for us to adjust freight rates up. We only hope the rates can maintain last year’s level.
TT: What has Wan Hai done to control costs and reduce losses?
Kao: Flexibility is the company’s primary principle and is also the key to making cost and loss control successful.
Being a container shipper mainly offering inter-Asia lines, which are relatively short routes compared with long-haul lines, we try to keep a close relationship with customers by expanding the coverage regions and offering a flexible service.
I always make a joke that a Wan Hai ship is like a cab. When customers need a ship today, the ship is always ready to offer the service right away.
This kind of relationship helps us learn all the market’s changes and disturbances as soon as possible, giving us enough time to make the correct decision on how to adjust and deploy the lines and ships, helping us to make savings and avoid losses.
Taking the global financial crisis in 2008 as example, the company made the quick decision to withdraw from routes to Europe and the US in the second half of the year, so we beat our competitors by observing trouble in advance. The decision proved to be the right one, which helped Wan Hai see fewer losses in 2009 and we were able to make a quick comeback last year.
TT: It is important for a shipping firm to manage and deploy its lines and ships appropriately. How does Wan Hai conduct its management in this regard?
Kao: Controlling the ownership rates of both the ships and the containers is important for Wan Hai. Currently, we have 86 ships in operation and we own 59 and charter 27. This is an ownership rate of over 60 percent for the ships.
For containers, the ownership rate is also about 60 percent. We choose to charter 30 to 40 percent of ships and containers in a bid to reduce costs appropriately. Also, we think these rates best fit Wan Hai’s needs, based on our long-term observation of the market’s supply and demand conditions.
The other important thing for container shippers is increasing the number of ports where we rent space. When we rent in more ports, our ships can officially anchor in more terminals. This helps to save some costs.
Currently, the company rents port space in Kaohsiung, Taichung and Tokyo. We also formed a joint venture with Evergreen Marine Corp (長榮海運) and Yangming Marine Transport Corp (陽明海運) at the Taipei Port, while we are setting up another joint venture with Mitsui OSK Lines Ltd, Japan’s major shipper, in Vietnam’s Cai Mep International Terminal.
TT: What are your expansion plans, either in routes or ships, in near future?
Kao: From October, CSBC Corp, Taiwan (台灣國際造船) will start delivering the container vessels we ordered. Until June, 2013, CSBC will deliver a total of 14 vessels to us, with six 4,250-TEU vessels, four for 1,800 TEU and four for 1,000 TEU. The reason why the company sold a total of NT$10.4 billion in bonds in March was to pay for these new ships.
Basically, these new ships will boost the company’s total number of container vessels to 100, from the current 86 ships, and will possibly help run the company’s new routes in the future. But the company may also replace some of the chartered boats with these new ships, which means we might pay back some chartered boats. We haven’t made a final decision.
TT: Wan Hai is a container shipping company which focuses more on inter-Asia lines. Will you change the focus to long-haul lines?
Kao: The inter-Asia lines accounted for 82 percent of our total revenue last year, while routes to the US, Europe, South America and East Africa accounted for the other 18 percent.
We may maintain this proportion in the short term, because the company is still learning in terms of long-haul lines. Nonetheless, we will not rule out the possibility of opening new long-haul lines that present earning opportunities. To increase the company’s experience, the priority is to cooperate with other experienced container shippers in these long-haul lines.
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