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Interview

with Erik Lewenhaupt, GM & Head of Stena Bulk Singapore, Stena Bulk Singapore

16.08.2010 / Energyboardroom

Thank you for having us today. Here, Stena Bulk Asia Pacific represents around 9% of the Stena Sphere’s overall revenue worldwide. Could you therefore give our readers an idea of the relative importance of your operations here in Singapore to the group as a whole?

Just to give you some background, Stena overall is still a family owned business. Today it is a highly diverse group and it was founded in 1939 by Sten A. Olsson. He was a scrap metals dealer and he transported scrap metal along the coast line of west coast Sweden. Since then, the business has divided into two segments: on the one hand, there is the shipping element and on the other, there is the metal trading and recycling aspect.

The business has grown steadily and more intensively over the past ten years. Today Stena Bulk has around 19,000 employees in various types of shipping including: tankers, ferries, ro-ro and offshore drilling. On land we have business in recycling, metal trading, property; indeed we have a diverse set of investments and companies in which we invest.

Stena Bulk itself was founded in the early 1980s and started out as a tanker and dry-bulk owner with a mixed fleet. In the 1990s the focus was increasingly on tankers rather than dry-bulk. In terms of vessels we were looking towards the VLCCs. In the late 1990s, Stena Bulk established a joint-venture with Texaco: a company called StenTex. This was jointly owned and manned with a Stena Bulk commercial crew and Texaco taking care of the shuttling side. StenTex was a company operating out of four locations worldwide and was responsible for all of Texaco’s tanker chartering. This joint-venture exploited our joint knowledge and personnel and indeed the joint fleets of both Stena and Texaco. It was the first time that a tank owner and oil major had joined forces.

Although this alliance continued afterwards, the actual company lasted six years until Texaco merged with Chevron. Chevron wanted to keep their own chartering in-house, but from that joint-venture we also received a lot of exposure to the product tanker segments so parallel with the VLCCs there was an improvement in the product side. Today we are no longer in VLCCs as we are mainly active in SuezMAX, AfraMAX and MRs, these represent our three main segments.

Stena Bulk is a small company in terms of personnel. We have fifty people worldwide operating from eight offices which comprise our core operating staff. Of course, all our technical issues are handled by Stena Teknik. Naturally, with fifty people spread over eight offices the average office is not particularly large; you could say it is a ‘mean and lean organization’. At Stena Bulk there is little room for staff who are not employed 100%.

With eight locations worldwide, what would you say was the role of the Singapore office within Stena Bulk?

Singapore and Beijing are the two Asian offices of Stena Bulk. Beijing comprises a one-person representative covering China and he is an ambassador for the shipping business. Singapore covers all commercial aspects east of Suez; in fact geographically it covers between Suez and Hawaii. However, the main areas which we cover are of course: Singapore, where all the oil majors are located, Japan, China and India, as well as the other South East Asian countries. We are predominantly a chartering office meaning that our role is to keep our vessels employed as profitably as possible whether that is in the Far East or going out to the Far East from the West. We are also a business development office and a marketing office for our shipping sites in Asia.

We see that last year was a particularly difficult year for the shipping industry. What initiatives have you been able to implement to cope with the downturn?

It is no secret that last year was an extremely difficult year and the tanker industry suffered as a consequence. Last year, the financial figures for Stena Bulk were in fact in the red and we are very grateful that Stena Bulk exists as part of a larger entity. The Stena Sphere group remained profitable last year, in fact the group as a whole has always been profitable and this is quite an achievement. I believe that the secret to the success of the group lies in its diversity. Unfortunately, because the tanker side of the group made a loss we were forced to make some staff cuts last year both in this office and in other offices. We have also implemented a few internal initiatives to try to deal with the downturn in the markets.

I understand that Stena Bulk launched a reorganization programme this year. Could you outline some of the measures taken by the company and how it has altered the way the company operates?

Stena Bulk implemented a small reorganization: we closed one office and opened two new offices. We had a New York representative who left us after receiving an offer he could not refuse and it was sad to see him go. However, we still had a lot of dealings with him on the SuezMAX side. Our Moscow operations were moved to Helsinki where we opened a new office with a focus on Baltic crude oil shipping. We also opened up an office in Rio de Janeiro for our South American business with a focus on Petrobras, Brazil and overall on South American business.

In terms of operations, we redeployed a few ships in the Far East and in some other areas. However, these were not ships which we owned but ships which we had on the charter from other owners. To some extent this reduced our exposure once these charters expired and that was fortunate. I would not say that our office has shifted in the role that we have in the group or in terms of its importance. There is a full understanding in the group that Asia is probably the most profitable region that we are active in, together with South America. We have full backing from the group to try to develop our business and market our ships and the sort of shipping concept that we are strong in. This is a little different to some other owners in Asia. We do not operate purely in the traditional tanker segments with standard tanker quality tonnage just like other owners.

We also develop tailor-made tankers which have specifications and measurements tailored towards a specific client’s needs, whether this involves entering a specific port or engaging in specific trades. Stena Bulk has achieved this with a total of fourteen tankers which we have built and which our technical department has designed. We have chartered these out to various companies. This is something we are trying to promote in Asia: finding areas of trade where the group’s technical knowledge can actually make a difference and provide a service to our clients which no one else can provide.

This was a clear strategy with Stena Teknik, where they came up with the MAX concept with up to 30% more tonnage than traditional tankers. With the industry increasingly price-conscious, how do you remain cost-competitive?

This is a challenge we will always face. You could build tankers that could fly, but as long as it is possible to find standard tonnage which can do the job cheaply this will always be preferred. In our business, ships with the lowest price are always preferred to the charterers provided the minimum requirements are fulfilled there is fierce competition between owners. If you have a hundred ships on the position list and half of them fulfill whatever the oil majors require then everything is determined by price bidding. Trying to develop tankers above the minimum standards is therefore extremely difficult and we need partners who are willing to consider more than what is on their desk today and look slightly further ahead.

The tanker we build naturally has to be cost-competitive in the long run. Naturally, if we build a tanker above the standard specifications with two engines instead of one with increased safety standards and increased stability because of double rudders and so on, it will be more expensive. The challenge is therefore to find a route where this tanker is able to lift more cargo and exploit economies of scale compared to a standard tanker, so that over a period of around three to five years the oil company will actually earn money on using our ship rather than standard tankers.

We accomplished this with the first MAX-concept ship which was shuttling cargo between West Africa and Philadelphia for SUNOCO, the US based refiner. In Philadelphia there is a draft restriction so if you have a ship which is fully loaded you can only enter with the SuezMAX, which carries one million barrels. SUNOCO often used VLCCS which carry two million barrels, but then outside the port they had to transfer cargo onto a smaller tanker which drew alongside allowing the larger ship to float higher and enter the port.

To resolve the problem of entering the Philadelphia port, we designed ships which were wider and shallower so that instead of transferring cargo outside the port, you could in fact go straight into port with two million barrels. At the time this was absolutely revolutionary. Our ships were 70 metre beam, extremely wide and more expensive to build. However, SUNOCO made a few cents on each barrel of oil they transported between West Africa and Philadelphia. They took our ships on a five year charter. That is the challenge for us: to build state-of-the-art tankers and not only make money for ourselves but also for the companies with which we work.

Mr Dan Sten Olsen (red: CEO Stena Group) commented that 2009 was a difficult year and that there was a need to create closer relationships with clients especially in terms of design. To what extent can you contribute to Stena Teknik in terms of the customers’ needs and how can you better provide cost-competitive solutions?

Stena Bulk represents the commercial side, so we would be looking for the commercial opportunities and then go to Stena Teknik, which today has around fifteen naval architects in Gothenburg, and we would explain the problem to them. We would ask if they can build a tanker which can resolve this problem, how realistic this was to achieve and how well it would operate. They would then design the product and we would go back to the client and explain how we could help. Our solutions could be anything from allowing the client to go straight into ports with draft restrictions to better segregating their cargo –or burn less bunkers.

If we have a look your cooperation with other companies you have already mentioned Texaco and we also see that in Asia you have a joint-venture with Asahi which has been in existence over a year. Can you explain what are the main benefits that you have seen so far and how has this contributed to growth in this region?

As a group we have a joint-venture with Sonangol in the West, which is currently the most important for our group. We jointly own a SuezMAX and they are a first-class partner. They also have a Singapore office just opposite us in the neighbouring tower. Asahi are a different type of joint-venture. Asahi is a Japanese owner and we share an office with them here. They are specialised in the coastal trade in Japan and have a hundred tankers operating in Japanese waters. These are very small tankers ranging from 500 dead-weights to 8000 dead-weights; they are often small, family-operated ships.

Asahi was open in finding new areas in which to operate especially overseas and we got in touch with them and talked fairly openly about our respective businesses and they expressed an interest in our SuezMAX. We have a very good track record in segments where they have no real experience. We now have one SuezMAX ship which we jointly own 50-50 which is being delivered soon. We also have an ongoing relationship on the spot chartering side. They are not only owners they also act as charterers because they are linked to some of the big Japanese trading houses so they at times do the chartering on behalf of these trading houses. We have chartered out our ships to Asahi on spot voyages.

In addition, we are in discussions right now on where we could take the joint-venture next and we are looking at other possible product segments where we could charter ships and depending on the size of the ship they would be commercially operated by either Stena or by Asahi depending on who has the most relevant experience.

Are there any particular product segments that you see as having more potential?

Together we cover all the product segments: Asahi is active in dirty MRs, we are active in clean MRs; they are active in clean PANAMAX and we are active in dirty PANAMAX. The only product segment where neither of us are engaged in is actually MR2. We are in continuous discussion on where and when would be a suitable area to use tonnage jointly and it depends on what is available. Right now the market is in miserable condition. All owners including ourselves and Asahi are currently wondering: where is the light at the end of the tunnel? It is very easy to be emotional in the spot market where you have voyages going out every day and to see the market as in trouble.

How do you think your joint-venture with Sonagol can help you to resist these negative market pressures?

Sonangol is a great partner for us. It is a national oil company, an OPEC member and one of the biggest crude oil producers in the world. It is one of the largest suppliers to China, if not the largest. Apart from Asahi in Japan, China is extremely important to us, as is the case for every other tanker owner. We enjoy extremely good relations with some of the Chinese oil companies and together with Sonangol we hope to service these companies more in the future with our ships. Aside from representing a solid partner on the shipping side, as an oil company, Sonangol, can help us to do business with other oil companies. There is a certain relationship which exists between tanker owners and oil companies, but there is a very different type of relationship between oil companies themselves.

Our joint-venture with Sonangol is very different from our joint-venture with Texaco in the late 1990s. However, the basic idea of pooling resources and knowledge remains the same. In essence, it is similar to combining hardware and software. We actually have Sonangol employees being trained in shipping by Stena Bulk, although not the other way round as yet. There have been some discussions about opening an office in Luanda. We are planning to open a Naval academy in Luanda assisted by our crewing company Northern Marine in order to train Angolan Sea farers. Our Rio de Janeiro office is actually just one employee who is a Sonangol representative and handles our relationship with South America.

Looking forward, we see an increasing prevalence of green solutions in the industry. Stena Bulk has been a front runner in this regard and recently won an innovation award. To what extent do you think that you can help the market to create green solutions and how might this contribute to rendering the company more competitive?

The group has put a lot of resources and effort into green technologies. Together with Stena Teknik we are model testing a ship called the Stena AirMAX. The basic concept is to take a tanker and carve out a space under the hull and then fix a compressor which pumps air into this hollow allowing the ship to glide on this pocket of air. Of course, the idea is to reduce friction and bunker consumption. This is a concept we hope to apply on various type of tankers. However, we still have not succeeded in building these ships. Currently, we are trying to finalize the technical details to design a ship for the future. Much of the technology already exists or has been implemented with other ships. Our job is simply to combine this technology.

The model is currently being tested in Sweden and has been since June of this year. The model is fifteen metres in size and is being tested out at sea, firstly without the airMAX concept. Then the second stage will involve carving out an airpocket for full testing. We expect results to be ready by November.

Again the problem is that building more expensive ships presents the challenge of trying to then get a return on that investment. As a ship owner, we are unfortunately not paid for this on the spot markets. As before, if a charterer has two ships and both fulfill the necessary criteria then they will automatically choose the lowest-cost option. Sometimes on time-charter we encounter clients who have a policy of sustainability and being environmentally conscious. In this case they do sometimes opt for the more expensive tankers.

You have a varied career background and before Stena Bulk you worked for a marketing company. Would you say that it has been a significant challenge to make the jump into the tanker industry, how have you adapted and how has your background influenced your managing style?

I joined Stena Bulk in 2004 and before this I was with marketing companies such as Ogilvy. However, previous to my marketing career I was actually involved in tankers. I spent four years in tankers actually in the adjacent building to my current office. This company was bought and I then worked in marketing in order to try something different. In my opinion, having a background in marketing is completely unimportant for around 99% of tanker owners, however I have entered one of the only companies where a marketing background is viewed as an asset. Not just in our offices, but also in the design of our ships, I think you can see that we are not simply in the business of transporting oil, we are in the business of transporting it first class. We want our ships to look as good as they are and we try to market ourselves and our company and ship design is an essential part of that.

Speaking of personal ambitions, if we were to return in five years where would we see Stena Bulk?

Almost every tanker owner now acknowledges that Asia is an expanding region and we are no exception in our approach. We aim to upgrade three or four segments of ships which will operate in this region. China is of course an important factor, however there is a lot more business currently underway with Japan, South East Asia and India. Furthermore, with new sources of crude oil and products coming on-stream in Asia, the amount of shipping in this region is growing rapidly. Just in terms of crude supplies, there are new sources in eastern Russia which has become a significant factor this year. There is new production opening up in Northern Australia with new terminals for crude oil. Equally on the gas side, there are new refineries being built in China, the Persian Gulf and India. This region is growing in importance and we could safely assume that this office will grow in size in the next two years.

If you were to send out a message to the readers of Oil & Gas Financial Journal what would this be?

I would encourage them to raise their eyes and look further into the future in terms of tanker design, particularly in Asia. I believe here it is necessary to improve standards and look at what will be necessary in five or ten year’s time, not just in the next six months.

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