“Actually, Seaspan is performing quite well despite the global recession,” says Gerry Wang, CEO of Seaspan Corp., at the head office located on the 26th floor of an office complex overlooking the harbour of Vancouver, British Columbia in Canada.
"The experience we gained from the Asian financial crisis at the end of the 1990s formed the basis of Seaspan’s conservative and proven operational model. Since its founding more than 10 years ago, Seaspan has been able to thrive in good times as well as challenging ones such as the current financial crisis.
"A critical component of Seaspan’s success is its strategy of entering into long-term charters with well reputed liner operators. Seaspan has established itself as the leading independent containership owner with 6 percent market share. We own a large, modern fleet of 68 vessels with $7 billion of contracted revenue. The Company’s operating fleet of 39 ships has an average age of approximately five years and an average remaining charter period of seven years. The 29 new ships to be delivered over the next three to four years have long-term charters for the next 11 years. Importantly, all of our vessels are secured on long-term contracts with no contract renewals until 2011 at the earliest. We have based our operations on both conservatism and expansion," explains Wang.
For the long haul
"By thinking long term, we remain well positioned to successfully operate in both strong and challenging economic environments," continued Wang. "90% of Seaspan’s portfolio of high quality charters is comprised of leading Chinese and Japanese liner companies. Our long-term customers include COSCO and China Shipping Container Lines. These two major liner companies account for approximately 70 percent of our total revenue. Approximately 20 percent of the revenue is from K Line and MOL, while the remaining 10 percent comes from Maersk; CSAV and Hapag-Lloyd. Seaspan’s success at maintaining strong relationships with the highest credit quality liner companies is directly related to our full-scale ship management capabilities. This provides us with a distinct competitive advantage.
"Another differentiator for Seaspan is that we never speculate. Before entering into newbuilding contracts, we ensure that both long-term charter agreements and financing are in place. We are in it for the long haul, and our banking arrangements and capital structure are equally long-term focused. Notably, we have fully funded our debt requirements and do not have interest rate or market value clause risk. In addition, we have raised over $1.7 billion of equity from six offerings, funding 99 percent of our equity needs. Our largest shareholders, the Washington Family, have also injected approximately $275 million into the company this year and $700 million since 2005," explained Wang. "The Washington’s current ownership stake of 24 percent will increase to 43 percent by 2014. Having a well capitalized and committed sponsor creates significant competitive advantages for Seaspan, added Wang."
No fuel bills, but energy efficiency is important
"By definition, a time charter means that our customers pay for the fuel. But this doesn’t mean that we don’t care about fuel efficiency. After all, fuel efficiency is important for the environment. I feel that the shipping industry is really lagging behind in this area. For instance, the car industry has become dramatically more fuel efficient and the use of new and novel technologies has been implemented. In shipping, the engine manufacturers have some way to go. A ship engine is basically the same now as it has been for the past few decades. The same goes for the basic hull and ship design. New solutions are few and far between but are badly needed," said Gerry Wang.
"The market must achieve a supply/demand equilibrium. Today, there is oversupply in most parts of the industry – output far exceeds demand. An adjustment period is needed, which we are actually currently beginning to see occur. This healthy adjustment will allow the industry to achieve equilibrium in 2012. Already, we can see that the US consumer confidence index is on its way up, and demand for consumer goods has increased. The real purchasing power, however, will not return until the banks begin lending again. The old form of capitalism has vanished and you will see more regulations and more controls – moving towards the middle and creating what I call the new age of ‘middleism’."
Shipping in the new age is at the bottom of the totem pole
"As a result of the global finance crisis, countries will increasingly focus on financing domestic companies. Ship finance will be at the bottom of the totem pole and this will mean that many of the ships due for delivery will never be delivered. The Koreans, in my view, have not really acknowledged this yet, which I believe will become a huge problem for the country’s yards. China will continue to manufacture and the rest of the world will continue to buy, creating further demand for our business – in the long term, after 2012, when there will be a balance between the supply and demand fundamentals.
Living through the tsunami
"What the world is going through is not a financial storm; it is a tsunami. A lot of people will lose their jobs and only five per cent of the normal funding will remain available in the credit markets for ship finance. Access to financing for the majority of companies is extremely limited. Preserving capital is as important as preserving energy. Surviving to win is our strength and strategy. The support Seaspan continues to receive from its principal shareholder, as well as the capital and credit markets, has positioned the Company well for the future. Seapan has a proven history of seizing strategic opportunities and will continue to seek to further our industry leadership over the long term."