As the shipping industry begins to indicate some sign of economic recovery, Dubai-based United Arab Chemical Carriers has a game-plan in mind to capture its share of the market. Nadia Khan reports.
Although some industry experts continue to predict yet another sluggish year for the chemical shipping market, others suggest that the increasing levels of investment into this niche sector are an indicator that a sustained recovery may finally be on the cards.
In the Middle East, Dubai-based United Arab Chemical Carriers (UACC) has hit the headlines for its recent purchase of five product and chemical tankers earlier this year.
Headed up by their new CEO Per Wistoft, and backed by a boardroom of influential regional maritime players, the company believes that the time is right to invest.
But as weak market conditions continue to place shipping companies under pressure to benefit from slim profit margins, will UACC’s forward-thinking strategy pay off?
A relatively young company by shipping standards, UACC was established back in 2007 –shortly before the economic recession pulled down the global maritime sector. In terms of markets, the company adopts a more of a localised approach – one that capitalises on the prime geographical location of its home base in the United Arab Emirates.
As the fastest growing exporters for refined oil products and petrochemicals in the world, the Gulf region and Indian West coast are at the company’s doorstep.
“We try to be a little bit different to our competitors as our geographical base in Dubai gives us a natural home market covering the Arabian Gulf, the Red sea, the Indian sub-continent, East Africa and South Africa,” explains Per Wistoft, CEO of UACC.
“The majority of our fleet on the product tanker side is employed in this region, whereas our chemical carriers and larger product tankers are utilised in a much larger worldwide trade.”
As the world’s largest oil exporter, Saudi Arabia is a huge customer market for the company. UACC’s biggest customer to date is Saudi Aramco, and Wistoft is keen to develop more links with companies in the Kingdom, including the one of the world’s leading chemical manufacturers, SABIC.
This is just one of the many plans the ambitious CEO has to spearhead the growth of UACC over the next decade. Wistoft only joined the company at its helm in September 2013, but the year itself portended a turn-around in fortunes for the company.
The global maritime industry has been looking forward to some tentative growth for the first time since it endured the aftereffects of global recession. Confidence in maritime business is slowly emerging after so many years of market stagnation.
For UACC itself, the year marked the opportunity to shrug off its own baggage from the recession and move forward in its expansion plans.
In previous interviews, Wistoft has complained about UACC being stuck in ‘limbo’ for years due to an outstanding ship order from Korea’s SLS Shipbuilding (rebranded as ShibaSB in 2011).
The shipyard’s own struggle to deliver on its huge backlog of new vessels led to severe delays in the delivery of a 10-strong chemical tanker order placed by UACC back in 2007.
“The shipyard had put too much food in its mouth and couldn’t chew, and so all the contracts were delayed,” describes Wistoft in his own matter-of-fact manner.
“Under English law, we had to continue paying as per our contracts until the shipyard was willing to acknowledge that it wouldn’t be able to deliver the ships on time.”
He sayd the end result cost the young UACC two to three years in waiting.
“After the shipbuilders admitted that they could not deliver on time, there was a whole new round of negotiations and we ended up buying four of the original ten ships at a much reduced price.”
“But this meant we had to wait for the shipyard to repay all the pre-instalments we had made, giving us no access to our money which was just sitting in the shipyard in Korea.”
The situation was finally resolved in July last year, and since then Wistoft says UACC has only been looking forward.
“When it comes to buying assets, it is important to recognise that shipping is a very cyclical industry,” he explains.
This means that for each economic downside affecting the industry, there will inevitably be an upside.
“When our original contract for the first four chemical carriers was done in 2008, their price was US$60 million.”
“But when we repurchased them, they only cost $35m. This gives you an idea of how much ship prices can fluctuate.” In this respect, he maintains, timing is everything.
“It’s very rare that you will be able to make all your acquisitions at the bottom of the market, and very rare that you can sell everything at the top of the market,” Wistoft explains.
“You need to buy at the bottom 20-30 per cent and sell at the top 20-30 per cent to be successful.”
Today, UACC’s impressive 21-strong fleet comprises of eight chemical carriers, nine MR product tankers and four LR1 tankers. The most recent acquisitions include the UACC Doha, Manama, Riyadh and Shamiya– each chemical carrier with a deadweight of over 45,000DWT.
The tankers themselves are second-hand but almost identical to the four ships completed in the delayed handover from ShinaSB shipyard.
“We are working our way to the original strategy of the company of having ten of that particular type of ship,” says Wistoft.
“Owning a homogeneous fleet is important for the company’s future growth.”
Over the next 12-18 months, the company plans to add another 5-10 ships. There are other strategic plans in the pipeline to further grow UACC’s profit margins. New vessel purchases mean additional management costs, but UACC continues to be a very lean organisation when it comes to staff numbers. The present team comprises of only 16 staff members, with two more due to join over summer.
“For every five ships we add, we hire another two people – but this still represents a very lean organisation compared to some of our competitors,” says Wistoft.
“We try to keep our administration costs at a level where we can measure ourselves as world-class against our competitors – and we are almost there.”
The company has also undertaken a clever strategy to meet the financial demands of its future growth. In May this year, UACC signed a $300 million credit facility agreement with a consortium of six international banks.
As well as refinancing existing syndicated facilities, the loan has been used to finance the additional product and chemical tankers joining the company’s fleet in the first half of this year.
However Wistoft is quick to point out that the facility was not only for the purchase of the ships.
“The international financial market has improved, so interest rates are a lot lower,” he says.
“We refinanced all the existing ships and by doing that, we freed up additional cash to continue our expansion. The margin we pay on that facility is substantially lower than what we paid previously, which means our financial costs are lowered.”
The move reflects Wistoft’s cautious confidence of the slow recovery of the chemical markets to pre-crisis levels. He believes that the company is in a prime position to benefit from regional market growth, buoyed by its experience and insider knowledge of the industry. Wistoft maintains that the strongest asset of the company lies within the walls of its boardroom, which houses some of the most influential players of the Middle East’s maritime industry.
“Our boardroom members understand that shipping is a cyclical business with good and bad years,” he reiterates.
“They have a long-term view, not all boardrooms have that.” The company’s major shareholders include industry names such as Kanoo Holding, Milaha/Qatar Navigation (Doha), Gulf International Bank and United Arab Shipping Company (UASC) – the largest container operator in the region and UACC’s biggest shareholder.
“The combination of an effective, professional management team doing the day-to-day business and a strong boardroom with good regional contacts has been and will continue to be the reason why this company will progress,” stresses Wistoft.
This admiration appears to be mutual and it is clear that the board expect great things from the Danish CEO. Upon Wistoft’s appointment last year, Waleed Al Dawood, chairman of UACC’s board of directors described him as the “the type of leader and character that we need in UACC to ensure continuity and continued growth.”
Wistoft’s whole career has reflected his passion for the maritime industry.
“I am born and bred from the AP Moeller Maersk system, having spent the first ten years of my career with the company,” he says, with a smile.
After a two-year stint working as an oil trader, Wistoft moved to the tanker division of one of Denmark’s oldest internationally operating shipping companies, DS Norden in Copenhagen.
“Those were good years,” he reminisces. “But in my early days, it was quite important for me to put managing director on my business card before I turned 40.”
Leaving DS Norden, Wistoft served as director for the Port of Esbjerg in Denmark, before joining Transpetrol as managing director in Brussels. A string of CEO positions followed, including with Belgium’s Transpetrol, Dubai’s Gulf Navigation Holding, and Singapore’s Brightoil Shipping.
Compared to Singapore, Wistoft perceives the UAE as a more favourable market for shipping companies.
“Singapore is on the way to pricing itself out of the market. the price of doing business there can be more than double that of Dubai.”
However, UAE legislation remains an obstacle for maritime companies from setting up businesses in the region.
“Many shipping companies are worried about bringing assets and establishing themselves here on a more permanent basis as the legislation is so different from the English law that the shipping world normally operates under,” says Wistoft.
“But the good news is that there is a clear commitment in the region to find a solution to this.”
UACC itself has clearly benefited from being based in the UAE. But in terms of the future, how does the CEO envisage the UACC’s place in the region’s steadily recovering maritime industry?
The company’s official strategy involves increasing market share through leveraging its two key strengths – the ideally-located geographical base and its shareholders strong ties with the regional governments and petrochemical manufacturers and exporters.
Wistoft is confident that in ten years’ time, UACC will be substantially bigger, having grown to more than double its present size. He is aiming for a bottom line which enables the company to pay out dividends to its shareholders, something it has not yet been able to deliver.
“This is a huge focus for our management team as our shareholders have continued to be very supportive through the difficult times,” he stresses.
Although the first years of the company’s operations were profitable, the recession, combined with the delays in ship orders, took its toll.
“Many of our ships were bought quite expensively at the peak and it will take some time before we can even out our fleet price with those bought at a cheaper price,” says Wistoft.
“That’s part of the strategy we are going through now. Once we merge everything into the same pot, we have an average ship price which is more in line with what it should be for UACC to be profitable. That’s happening now, and we should be profitable this year.”