Shipping still has opportunities

Dubai: Abdullah Al Shuraim, chairman of Gulf Navigation Holding, has spent many years in the shipping industry.

Prior to taking up his current position in 2006, Al Shuraim held top executive posts in Saudi Arabia.

These included posts as chief executive officer of the National Shipping Company for six years and a three-year stint as CEO of National Chemical Carriers. He was deputy CEO of the Saudi Arabian Public Transport Company for four years and regional manager of Saudi Telecom, where he spent eight years.

He has an engineering degree from Purdue University in the US.

In an exclusive interview with Gulf News, Al Shuraim talks about how his company, which owns oil and chemical tankers, wants to seize growth opportunities in these difficult times for the shipping business.

Gulf News: The shipping sector has slowed down. How has the current financial crisis affected your company?

Abdullah Al Shuraim: We delivered good financial results for the first nine months of this year. Our shareholders are happy. The company is showing continuous growth. We continue to grow in size with new ships coming on schedule. In total we have 19 ships [in operation and on order], five of them will be delivered next year and in 2010.

Now that cargo volumes are falling, are you worried about revenues?

We see the slowdown hitting the dry cargo business the most. It is the type of business that does not require the same sophistication and technical operational requirements as the chemical and oil transportation business. We will see a reduction in petrochemicals pricing, and supply and demand will be affected.

We have done research about the future of the shipping market and what has been projected for 2009 and 2010. There is going to be an impact on rates. It will affect owners who have their [entire] fleet, or a good part of it, on the spot market.

Looking at Gulf navigation, we have a good percentage of our fleet on short, medium and long-term charter, where the rate has already been agreed. We have a 15-year charter contract with the Saudi Basic Industries Corporation (Sabic), so it is not going to be affected by a drop in rates. We have guaranteed business.

There is a positive side [to the downturn] as well. Gulf Navigation went for an IPO to raise cash to support its future projects, to acquire seven VLCCs (very large crude carriers) and six chemical tankers. That was the plan during the IPO, but because of the increase in prices of new ships we felt that the timing was not right. It was not economically good to buy those ships.

Now the company is sitting on good liquidity, which is held in the local Islamic banks here. We feel the price of new ships will drop because of many factors. One of them is that owners are going to be facing problems finding financing for their projects. There is a credit crunch.

Shipyards will be facing problems with refund guarantees. Also, steel prices have gone down. These factors will have an impact on the price of building new ships and will give us an opportunity to acquire ships.

So the crisis actually helps you in expanding your fleet?

As ship owners, we are a long-term player. This company was established with long-term objectives, so the decision that we are making must be based on proper economics.

We felt that the prices of newly built and second-hand ships during the last two years were not justified, and we decided that we would keep an eye on the market in the future.

One of the opportunities is to buy from owners who have contracted with shipyards and their ships are ready but they cannot get financing. There are also shipyards facing problems with owners and if they have available space and are desperate for new projects then we can negotiate and give them new ship orders that can be finished in two to three years.

The third option is to acquire companies with a fleet that is compatible with the business we are in.

Are you saying that you would be looking for companies in distress?

Yes, that is one of the strategies. If there are such companies and the numbers work right for us, we will take up such an opportunity. There will be opportunities for second hand VLCCs and chemical and product tankers. Their prices in the last couple of years were not justified, but because the prices of newly built ships were high, owners of old vessels were also asking for much higher prices. Now they might be reasonable because there may more ships available for sale.

How much ready cash do you have?

We have about Dh700 million. In addition to that, we have built good relationships with international and local banks. They will be there to support the company in its growth.

In the current difficult conditions, you present a good picture of your company. What do you have in mind in terms of fleet size and the company's geographical presence?

We are a Gulf company, but we are an international player. We will continue to seek business in the oil and chemical sectors with international companies in the Gulf. With our joint venture with Stolt Nielsen, our ships will be moving internationally.

Going forward, where do you see ship prices and charter rates?

The price of VLCCs went up 30-40 per cent in two years since 2006. Time charter went up accordingly but now it is coming down. In the future, we will not see high time charter rates like before. We will see them adjusting but that is okay as long as the prices of building new ships and second-hand ships are adjusted.

When do you think there will be a new ship order from Gulf Navigation?

I cannot predict that decision. We are monitoring shipbuilding contracts and second-hand prices. We are monitoring the companies that might be having problems with financing. We have been seeking this information from brokers, industry reports and from banks. We have done our home work, we are just waiting for an opportunity. We have an advantage that a lot of other companies may not have. We have access to liquidity and excellent relationship with banks.

Do you see an overcapacity building in the business you are in?

We did predict that there could be an overcapacity. When transportation rates go very high, a lot of owners and speculators enter the market.

With all the orders that drove the prices of new shipbuilding high in all sectors, whether in bulk, containers, oil, chemical, or products, shipyards did not have the capacity to handle [the volumes]. It led to very high prices, in addition to the high cost of steel. That would have caused an over-capacity. This time what we are going to see is that the orders that we have seen in the past will end in cancellations, there will be defaults, there will be owners not able to bring financing and shipyards not being able to bring refund guarantees.

Owners will not exercise options on orders. You will see more ships being phased out because the rates will drop and it would not be economical to maintain old ships. Because of the economic slowdown, there will be a reduction in production and that will reduce goods to be transported.

Would you consider diversifying your business?

We made a decision to concentrate on the liquid transportation business. Gas is something that we are considering, but mainly we are into the oil products and chemicals business.

We are not interested in dry cargo and containers. It was a smart decision from the beginning. We are in an area in which it is not going to be easy for people to compete with us; it needs liquidity, experience and technical expertise. Once you are specialised and focused, you are in a much better position even if the market is affected by a slowdown. You will be less impacted than easier businesses like bulk cargo.

Shipping is a long-term business. It is a very important business for the region. Oil, gas and chemicals are important. We are a company that is close to the market. We have relationships with clients and are in touch with their future expansion.