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Dubai: Established in 1976, United Arab Shipping Company (UASC) is jointly owned by Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE. The company announced a $1.5-billion order for nine large container ships in June as it tries to establish itself among the top shipping lines globally.
President and chief executive officer Ken Bloch Soerensen, an industry veteran who has been with UASC since May 2005, discusses the company's growth plans, strategic positioning and shipping industry issues in an exclusive interview with Gulf News. Soerensen, 49, has a Bachelor's degree in business languages from Copenhagen Business School and did management courses from London Business School and Insead Business School.
Gulf News: What is the significance of the recent big ship order in your expansion plans?
Ken Bloch Soerensen: The order was the result of a long strategic review that the company embarked on almost four years ago. It is to confirm UASC's position as the Middle East's biggest container liner operator.
It is the largest container ship order ever by a Middle East shipping company. The size of container ships is also significant because at 13,000 TEUs [twenty-foot equivalent unit] these will be some of the largest ships afloat when they get delivered to us in 2010 and 2011.
Why did you choose that particular time for the deal?
We are going through a high now in the shipping business. If you take shipping as a whole, without getting into the details [of specific segments], the last five years have been generally good for the business. For container shipping, the ups and downs are more usual.
We had a good spell in 2004 and 2005, and it was a little bit down in 2006. It was a tough time for shipping in 2007 as the Asia-US business went down. This year the industry is going to face tough times, especially in the second half because of the changes in economies.
We were considering this order for quite a while. The ships that we have ordered were priced below the levels of ships that were ordered about the same time last year. So we were taking the opportunity to strike at a time when the markets were slow. Ship orders have been slowing down, and we felt that the opportunity was there [to secure a good deal].
We have ordered at a time when steel prices are still going up, and the price of fuel has gone up. But all of that suggests that ship prices will continue to go up. There will be a period of downturn next year, but ship prices are unlikely to get back to the levels of 2002 and 2003.
How have the prices increased since those years?
These types [13,000-TEU capacity] of ships were not even on the drawing board then. To give you an example, we paid in early 2005 about $100 million for each of the 7,000-TEU ships that we are getting delivered this year. Today the price of this kind of ship is about $120 million.
The price was about $75 million in 2002 for a similar ship. But at the time these ships came to the ocean a couple of years later, all shipyards were losing heavily on these orders. They are only now in a profitable territory because of the contracts in recent years are more profitable. Lately shipyards have been squeezed by high steel prices. A ship is ordered at a certain time and in a [business] cycle.
When you build a ship, she will probably sail for 30 years and will be going through a lot of cycles in her lifetime. We are going through a soft cycle now. The years 2008 and 2009 could be relatively soft years for the industry because of the slowdown in the economies of US and Europe.
How a slowdown in those places and a drop in manufacturing output in Asia would affect Middle Eastern shipping companies?
You have to differentiate Middle Eastern shipping companies. A lot of them are into dry bulk cargo and tankers; there are not many in container shipping. You are looking at two or three container shipping companies in the Middle East. We are impacted, but the Middle East is still growing, although not as fast as before.
We had growth rates of 25 per cent from Asia into the Middle East in the last seven to eight years. If you look at the growth rate expected this year, it is probably down to 15 per cent, but it is still very healthy. If you look at the US, this year will be flat. The analysts are ranging between minus two and plus two per cent growth. Europe last year and before that was very buoyant. We had about 20 per cent growth in container volumes from Asia to Europe.
Now in that market you are down to nine per cent. The increasing number of ships will reduce utilisation and that has an impact on profitability. There is an estimated oversupply for the second half of this year and for 2009. The estimation is that in 2010 the market will go back to a more healthy state.
Where do you see UASC going once you have the new ships?
We have made a strategic decision to be a [major] player in container shipping. It requires a certain size to be competitive. We have to grow our customers in the Middle East and see that whatever demands they have we can meet them.
We also have to meet their [goods] sourcing patterns. Earlier, people were sourcing from the US and Europe. Over the years, that has changed to Asia, so we have also shifted part of our focus to Asia.
We are still enjoying a lot of business coming from Europe into the Middle East. What we are going through right now is repositioning. In the early 80s, we were one of the 10 largest container shipping lines in the world. We then went through a period of lesser investments.
We are now catching up, not necessarily to go back into top 10 in the short-term or even in the medium term, but certainly reposition our size so that we can compete with major players. Our major competitors are not from the Middle East, they are European and Asian-based carriers.
Please tell us about your other businesses.
We have now hired a CEO for our affiliated company United Arab Chemical Carriers. This company will specialise in liquid chemical cargo. It was established last year in July and UASC holds 40 per cent of it. The investment is about $1.3 billion of which we have already spent $1 billion.
In terms of our general cargo, we still have three ships left. They are coming of age and will be phased out. We have no immediate plan to invest in the general cargo ships. We used to have more than 40 of those ships.
Why has general cargo fallen out of favour?
General cargo was our core business, from Asia, South America and Europe. Those markets were growing fast, so in order to keep up with developments, we had to invest to the tune of 20 per cent annually. We could not do that through the 80s and 90s.
The container business is the focus of our current investments. We see a lot of growth in the liquid products market. A lot of refineries and petrochemical plants are being built in the region. These will bring 50 per cent of refined and liquid chemical products production from the developed world into this part of the world.
Crude is not on the agenda right now. Another thing that we are looking at is the emerging need for dry bulk. There are a lot of small and medium-sized players in the Gulf, but there is no big player to take up the growth on the aluminum side. The plans to build aluminium smelters are not unknown to anybody. We have commissioned a study to look at this business.
Which segments of shipping are growing more than others?
We see major growth in the petrochemicals and refined products business. Their growth rates are driven by global GDP growth. But the concentration [of production] in the Middle East will have the effect that Middle East-based companies will enjoy this growth more than people who are not here. We are expecting that the petrochemical industry will go further downstream to start production of plastic-related products that could also lead to growth in exports on the container side.
The region we are in has the capacity and prospect for growth more than other areas. China will continue to the workshop of the world for the next decade, India will continue to grow more as an import market more than as an export market from the transportation point of view.
Asia will continue to be important. I believe containers will continue to outpace the growth of other segments. If you the take container business for the last three decades, it has seen compounded annual growth of 10 per cent driven by consumer globalisation.
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