As the growing slump in new car sales worldwide due to slowing demand continues to create uneasiness among major car carriers globally, operators are yet to figure out what the year 2009 has in stock for them in terms of business sustenance.
Jan Eyvin Wang, President and CEO of Seoul headquartered, Eukor Car Carriers, spoke to Emirates Business about the company's performance in 2008 and the strategies being laid out to help it ride the financial storm.
The PCTC (Pure Car/ Truck Carrier) sector of the shipping industry has not been spared by the financial crunch, how has Eukor been affected?
The entire shipping industry is currently facing challenges, especially trying to create a balance between supply and demand. We see that the order book of car carriers is at a record high while at the same time demand is under pressure. Eukor has also been affected, but we continue to remain focused to our core markets and clients, and this has helped us survive the current economic conditions. Our performance in 2008 was better compared to 2007. We were able to transport 3.6 million CEUs (Car Equivalent Units) in 2008 compared to 3.4 million CEUs in 2007.
With the current tightening of credit, demand for vehicles globally is dropping, where will this place car carrier companies such as Eukor?
The entire car carrier segment will be put under pressure and be challenged by adjusting the fleet capacity according to falling export volumes caused by a drop in car sales. Eukor is well-positioned as we have some flexibility in our fleet through a large portion of time charter vessels. In case of falling volumes, we will use this flexibility to our advantage.
What are your growth projections for 2009?
We forecast a drop in volumes in 2009 compared to 2008, especially in the first half of the year. We might see some recovery in the second half of next year, but everything is now highly uncertain and nobody in the industry actually knows what is likely to happen. Hopefully, the global stimulation packages and falling interest rates will soon improve economies. Also the restructuring programmes to be implemented in the US auto industry could resuscitate the global auto market.
Would you consider slow steaming as a cost-cutting measure and how would you address the problem of delays associated with this method?
Our first priority is to satisfy our customers and we are in constant dialogue with them on how to cope with the changing market environment. We have implemented slowsteaming wherever possible and have made some changes in our sailing patterns without hurting our services. We also conduct operational cost saving initiatives such as fuel saving programmes that also have an environmental incentive.
Has there been a drop in the shipping rates on some routes?
Our segment is characterised by longer contracts compared to other commodity-based shipping segments; hence we have less exposure for rate adjustments both upwards and downwards. However, we do adjust our rates in order to reflect changes in the bunker prices because each contract has a bunker adjustment clause.
Which markets continue to post strong performance for the company?
We see car sales in the US drop the most; hence volumes to the US have taken the biggest hit. Secondly, the European market is also facing a slowdown. We have a strong position in emerging markets such as South America, Middle East, Africa and China, which are holding up somewhat more than mature markets.
What is your foothold in the Middle East?
The Middle East is important to Eukor both as an import and export hub, and we have an excellent service product into Middle East both from Europe and from the Far East. We believe that the Middle East will continue to be a growth market for our customers as well as Eukor. We also have strong and successful relationships in the region with our partners such as Sharaf Group and GAC. This allows us to continuously service our customers with superior performance.
Dubai is a major hub for second hand Japanese vehicles targeting especially the Africa market. We believe we have the best service in the market for second hand vehicles to the Middle East and Africa, and we will continue to serve our customers with a high quality product in this trade.
Do you have any immediate plans to expand services for this market?
As part of our strategy to be a leading operator in emerging markets, we will maintain our strong position and we are closely pursuing opportunities in this area. We currently operate different sizes of vessels in this market in the range of 3,000-6,000 CEUs capacity. In total we have a fleet of 92 specialised car carries.
What expansion programmes have you embarked on to boost your current fleet?
We have pursued an extensive newbuilding programme through which 11 tailor-made vessels were delivered in 2008. Another 15 new vessels with state-of-the-art technology will join our fleet up in the coming months until 2012. We will not make any order cancellations regardless of the current economic situation. We have plans of replacing our old tonnage that has become less efficient. This fleet renewal enables us to modernise our fleet and optimise according to our cargo base and customers' needs.
The car carrier sector has not been so attractive to shipping players compared to other sectors such as the tanker and dry bulk, is there an explanation to that?
I believe there are high barriers for entry. Our customers want top quality global services that is both stable and reliable. This requires a high level of competence and large fleet size. The level of competence required to succeed in this sector of shipping takes a long time to build, so some players might find that unattractive. It also requires a high amount of capital, which most players in the industry cannot easily rise. Our luck is that Eukor has a huge capital base through its shareholders Wilhemsen and Wallenius, who were pioneers in the development of the Roro (Roll On Roll Off) concept as well as Hyundai and KIA. It has also built experience from many years of operation. Our large fleet and vast network of agents across the globe helps us to create the kind of synergies required to be successful in this sector of the shipping industry.
Do you foresee a situation where car carriers begin to operate in losses as the financial situation worsens?
Like any other sector, we will face challenges along the way and we will not be immune to the effects of the current crisis. We will see a drop in volumes and a continued drop in demand for vehicles globally. No one knows how much the sector will be affected, but Eukor is well-positioned through its solid cargo base as well as fleet flexibility. As such we are confident that we will weather this storm and continue to perform well.
Does the current crisis present you with any sort of opportunities?
Recent years have been characterised by a strong market with lack of tonnage. This has caused sub optimalities in terms of scheduling, keeping inefficent vessels and expensive charter solutions. In addition, we have not been able to fully explore new markets. Our job is to deliver the best shipping product for our customers, which include having sufficient capacity to lift their cargo. The current market slowdown creates more flexibility and represent opportunities for us to optimise our operations and fleet composition as well as exploring the potential in new markets.
PROFILE: Jan Eyvin Wang President and CEO of Eukor Car Carriers
Wang, 52, holds a degree in business and economics from Herriott Watt University in Edinburgh, Scotland, and has completed advanced management programme at Harvard Business School in the US. His career embraces various management positions in Europe, the US and Asia for companies such as Wilhelmsen Lines, Nosac and Wallenius Wilhelmsen.
He joined Eukor in 2007 from his position as Managing Director of United European Car Carriers, a company jointly owned by Wallenius Lines and Nippon Yusen Kaisha.
Eukor – the facts
Eukor is one of the world's largest shipping companies specialised in tailor-made ocean transportation and logistics services to the global automotive industry and other rolling cargo.
Its base is the export of Hyundai Motor and Kia Motors from their plants in Korea and around the world, but also serves most of the other global automotive leaders including BMW, Caterpillar, Daimler Benz, Chrysler, Ford, General Motors, Mazda, Mitsubishi, Scania, Suzuki, Volkswagen and Volvo.
Eukor directly operates above 90 specialised vessels, and has 11-23 further ships on short-term arrangements at any given point of time – annually transporting 3.4 million cars to 220 different ports in 150 countries, utilising a global network of offices and agents.
Eukor Car Carriers provides its services from Asia to Europe, Asia to North America, Asia to South and Central America, Asia to Middle East and Africa, Asia to Pacific Area, and Intra Asia, as well as Europe to Middle East and Europe to East Asia.
Eukor, formerly known as R0-Ro – Korea Inc, was established in 2002, following the acquisition of the car carrier division of Hyundai Merchant Marine and is owned by Swedish shipping giant, Wilh Wilhelmsen (40 per cent), Norwegian shipping group, Wallenius Lines (40 per cent), Hyundai and Kia (20 per cent).
Last year, Eukor got an extension to its freight contract with the Korean car makers Hyundai Motor Company and Kia Motors Corporation.
The agreement is valid until 2016 and can be extended by a further four years. Under the deal, Eukor will handle 100 per cent of Hyundai's and Kia's outward freight volume until 2010, after which it will continue to transport a majority of the volume.