Business Times Feature – Keeping Things Shipshape
Featured on Business Times Weekend on May 12th, 2018.
(For full story, head to https://www.businesstimes.com.sg/brunch/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) and Equatorial Marine Fuel Management Services – are now in the second generation of their family-run businesses.
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.
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.
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.