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Interview

with Teck Cheng Lim, Chief Executive, Hong Lam Marine

30.09.2010 / Energyboardroom

Thank you for having us today. Since you are the co-founder of Hong Lam Marine, I would like to start with a brief review of the history of the company. You have clearly come a long way since inception, growing from 2 wooden barges for Esso in 1976 to one of the most established and leading bunker craft operators in Singapore with an impressive fleet of 35 tankers. What would you say have been the key success factors, but also challenges, in the company’s history, resulting in the Hong Lam Marine we see today?

I joined my father roughly 35 years ago, chartering two small wooden barges to Esso at that time. In 1981, we secured two contracts with the same client for two steel bunker tankers which were acquired from Japan. Next, we expanded the fleet with second-hand tankers from Japan. In 1989, we decided to go into newbuilding, meeting the requirements of the major oil companies. These initial newbuilds were singe hull 4,000 to 5,000 DWT ships.

The next important milestone was some ten years later when we went into double hull vessels. In 2005, Hong Lam Marine became the first company to deploy the biggest double hull tanker in Asia. Another important milestone was the christening and deployment of 22,000 DWT Spectrum, the world’s largest purpose-built bunker tanker. It was very challenging to build such a big tanker that is also highly maneuverable within Singapore’s congested port.

Going forward, the company will now build diesel-electric vessels of which we have already 3 on order for delivery in 2011. The advantages of diesel-electric vessels are that they are environmentally-friendly and cost-efficient. For these tankers, current calculations estimate 30% less fuel consumption. Hong Lam Marine will be the one starting this trend and will continue to be at the forefront of the industry.

The Maritime and Port Authority of Singapore (MPA) recognizes Hong Lam Marine for its innovativeness and our drive to continuously push the boundaries of the industry. To continue at the leading-edge, it is important to remain very involved in the latest developments, which is why I attend as many trade fairs and conferences as possible. This allows me to keep abreast of new developments in the market. One of the first things I learned back in the 1980s when I went to Rotterdam is the way some other players perform. While our vessels had roughly twelve crewmembers on board, the vessels we saw in Rotterdam only had a crew of four. We were so surprised how this was possible for vessels of the same size. Such elements and events create a window of opportunities to identify areas for improvement.

One of the latest developments is that Hong Lam Marine has been working very closely with MPA on the use of mass meters which will enhance measurement accuracy. MPA is keen to implement this system of measurement in Singapore. This is still at an early stage, but Hong Lam Marine has been the only one so far to install these systems on three of its ships that now operate in the Singapore port, one for Maersk, one each for ExxonMobil and Shell. The company generally wants to be the first mover.

Increasing crew cost and maintenance makes it even more important to maintain a high standard of performance. Controlling these two cost factors and performing at the highest level will ensure Hong Lam’s viability in the future. One of the ways to control these costs is the use of the aforementioned diesel-electric tankers. This will be the way forward!

At the same time we see that one of the most pro-active institutions in Singapore, the MPA, has introduced financial incentives to encourage the building of double-hull tankers, the so-called Gate system. How important is the MPA in enhancing Hong Lam’s competitiveness on an international scale?

The Gate System has been a fantastic idea. Through our shipping associations and bunkering committee, MPA has taken the comments and feedback of the industry in developing the Gate System. At the end of the day, it comes down to what issues and ideas the private sector brings forward. The Gate System provides for an orderly scrapping of vessels based on the age of the vessel. Since building double hull tankers is rather capital-intensive, it takes time for them to come into the market. Hence the Gate System has resulted in an orderly phase-in of double hull vessels.

Bunker tankers within the port of Singapore need to be purpose-built because of the port congestion. There are certain requirements such as the vessel’s ability to turn 360 degrees within four minutes. So you cannot simply take a ready-built vessel and put it into operation in Singapore port. MPA carefully planned policy therefore created a gradual scrapping of older vessels together with a managed influx of new double hull tankers.

When I go abroad for bunker conferences and visit places such as Rotterdam or Hong Kong, I very often hear that the marine departments could be more supportive as what we have in Singapore. This makes you realize that MPA is quite exceptional and that many of the other institutions in Singapore are very business oriented.

When speaking to David Chin of SMF, one of the key aspects he was working on, was to improve the availability of shipping trusts and ship finance banks in Singapore. I’ve understood from your recent interview with David Hughes that you also see this as an issue. To what extent has this limited or restricted your growth in a way, and additionally, what do you think needs to be done in the future?

In 2007, before the global financial crisis hit, many European banks aggressively moved into this market. The debt financing from a shipowners point of view was fantastic at that time. We were able to enjoy very low interest rates until Lehman Brothers went down. That resulted in a withdrawal of support from these European banks. Fortunately, we had the foresight to maintain a healthy balance of both European and Asian banks. In that sense, we were only affected to a limited extent. As the credit crunch came, there was still a lot of liquidity but banks became much more cautious, leading to a complete halt of their willingness to finance the shipping industry in 2009.

Now in 2010, the situation is improving again and we see a gradual increase of funding, with the Asian banks becoming more aggressive in particular. However, since the current market condition is still not as great as it was back in 2007, we need to explore alternative methods of raising debt. Hence it will be very helpful if such alternative funding are more readily available.

As you mentioned already, one of the latest capital-intensive vessels was obviously the Spectrum, the world’s largest purpose-built bunker tanker when launched in 2009. How has this flagship project benefitted you and to what extent did it enhance your reputation?

When talking about Spectrum, it needs to be said that this vessel has been chartered out to Toyota, a company with a very good name. Toyota is a very conservative company and very careful about the partners it chooses to work with. The fact that they endorsed us as a joint-venture partner and contractor to provide a long-term charter, represents a significant recognition of Hong Lam Marine’s reliability and capability. Toyota is a company that is very good to work with. Our association and endorsement by Toyota, has also given Hong Lam Marine more prominence with Japanese companies.

If we take a look at where this state-of-the-art fleet of yours operates, we see that roughly half of your vessels operate internationally, namely in the ME and other Asian markets. What growth potential do you see in these markets?

In the Middle East for example, there have been enquiries to bring Hong Lam’s ships there. The company already has one vessel in the port of Fujairah in the United Arab Emirates. Fujairah and Dubai represent growing markets, so there will be opportunities for Hong Lam Marine to increase our presence there.

Hong Lam Marine currently also has one vessel in Melbourne, Australia. However, we do not see this market growing significantly.

Other than that, Hong Kong is also quite limited where the full infrastructure to encourage bunkering is not really in place yet. Singapore has all the key elements such as a good location, storage tanks, refineries and a very active trading community to make it an attractive bunkering port. The port of Hong Kong is not similarly endorsed and furthermore, it is in a typhoon alley. As such, Hong Kong is a much harder market to operate in.

India represents a market Hong Lam Marine aims to move into. Some enquiries have already been received from the Indian ports. Usually, Hong Lam Marine works together with a fuel supplier such as Chemoil. We are not involved in trading itself and therefore work together with these companies to act as their barge supplier.

Other than India and the UAE, Korea and Taiwan offer potential but are quite difficult to move into. They tend to be rather closed markets with the government maintaining a strong control over who moves into the industry. The same accounts for China, where the market is limited to five operators. Naturally, Hong Lam Marine will persist in trying to enter new markets. In a similar way as we managed to push the diesel-electric propulsion system through, we will remain persistent in expanding our reach geographically.

I have read that passion and integrity are important drivers for you to grow the company. After roughly 35 years of activity, what is left for you to achieve and where do you want to take the company?

There is still a lot potential for further growth. Since I joined my father in the mid seventies, I have always had the intention to grow the company further and further. When my father retired in 1989, I took over and I planned to increase my fleet with new and innovative vessels, and we did that. We actually stopped building new vessels in 2007 just before the downturn came. The contracts for the diesel-electric vessels were the only signed this year, in 2010, so the passion is certainly still there! The bunkering market is still doing very well, and will pick up again.

Going forward, Hong Lam Marine will try to focus on the bunkering market and expand its international operations. In five years from now, we hope to grow the logistics part of the bunkering sector and introduce more environmental-friendly, costs-saving and easier to maintain vessels to keep costs down.

As for the chemical side, we will also keep looking for cost-effective vessels to build to grow our chemical portfolio. Hong Lam Marine is a conservative company by nature, but the passion to drive this business will always be there. Once you enjoy the business, everything comes quite naturally.

Five years ago, you already wanted to implemented diesel-electric solutions, which are now soon to be delivered. Considering the fact that you are such an innovative company, do you have a dream project you would like to accomplish?

The IMO regulation has increasingly driven companies into looking how they can reduce SDX and NOX emissions. A possible way to do this is to use natural gas. Singapore being the biggest bunkering port in the world will need to be able to supply natural gas to the shipping industry. There is potentially a clear need for gas bunker tankers. Hong Lam Marine has realized that this could be the way to go in the next five to ten years. At the end of the day, in ten years from now, all ships will probably need to switch to gas. All these vessels will need to be supplied, so gas bunkering tankers are the way to go! Of course Hong Lam Marine once again wishes to be the first player to do so. Naturally, it will be a very capital-intensive process and crews will need to be specially trained as well. Moreover, it will also be challenging to get the government’s involvement to ensure we have the right safety features and incorporate the latest technology.

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