Shipping and Chartering – Rudolf Hess, President and CEO – Mexico
The CEO of an increasingly influential offshore logistics, freight forwarding and chartering company speaks out about vessel quality standards in the local offshore oil and gas market and the likely impact of impending reforms. He also recounts his firm’s journey from ship brokerage for the steel sector to transporting land-based oil rigs from the US to Mexico on a port-to-door basis.
R.H. Shipping was founded in 1996 essentially as an international ship brokerage serving the steel industry. Then in the wake of cheap Korean steel flooding the market in the late 1990s you diversified into heavy-lift projects, supply chain, cargo insurance and multimodal transportation. What have been R.H. Shipping’s main achievements and milestones in recent years?
Indeed, we started off highly active in steel trading and, in 1999, sold more than 100,000 tonnes of steel billets from the Ukraine to one of our main clients. We subsequently diversified into logistics, customs clearance, full charter ships for overweight cargos and into various forms of land and air transportation. We also started developing new trade lanes and, as a result, handling imports not only from Europe, but also from Asia. This represented a high growth phase for the company which lasted from around 2003 to the onset of the global financial crash in 2008. Our recovery, however, was swift as we successfully re-orientated the company away from a reliance on Asian imports to engaging more deeply in the Mexican export market. Since 2009, our activity in the export sector has been increasing at a rate of roughly 150 percent year on year and this means that we now enjoy a much more balanced portfolio of projects and a corresponding reduction in risk exposure.
Having smoothly and effectively implemented our initial diversification strategy, R.H. Shipping has continued to expand and branch out into new areas of opportunity. One notable success has been in the niche market of perishable goods. Our current focus is to be much more active in servicing the Mexican oil and gas industry which is why we opened up a Houston office in 2010. We have already notched up some achievements in this area, but intend to do considerably more. To date, R.H. Shipping enjoys the distinction of having transported the largest single shipment of dismantled LPG spheres. That particular project was for a French company called Zeta Gas and entailed deploying a multipurpose cargo vessel to ship 18,000 cubic metres of spheres all the way from Dunkirk to their gas terminal in Ensenada on the west coast of Mexico. We have also built up a decent track record in transporting land-based oil rigs from the US to Mexico on a port-to-door basis. Our next step will be to start bidding for Pemex projects and we have recently registered with Pemex Procurement International (PPI) in Houston so as to be invited to future tenders.
How significant is the oil and gas industry to R.H. Shipping’s overall operations in terms of share of business, revenues, growth potential and strategic priority?
At the moment, the oil and gas sector accounts for only a fraction of our revenues. This is partly because of the breath of R.H. Shipping’s activities which range from non-vessel operating common carrier and international freight forwarding services to cargo insurance consultancy and warehousing. It is also because, up until now, the Mexican oil and gas sector has been a relatively closed shop all too often limited to insiders. This is all set to change with the forthcoming energy reforms. Not only is the sector going to open up to all kinds of new participants, but Pemex, which has in the past been notoriously difficult to work with, is undergoing a full restructuring. The general expectation is that the national oil company will now become much more efficient, much more autonomous and much more willing to engage new partners and suppliers.
Strategically speaking, the oil and gas sector has now become a top priority for R.H. Shipping and the establishment of our Houston subsidiary and frequent visits to Ciudad del Carmen are all testament to that fact. We believe that the reforms are a possible game changer and foresee considerable growth potential for us in the sector providing that the new laws create conditions that are attractive to foreign investors. So long as new companies are willing to enter the market, they will be requiring logistics and transport services for their rigs and industrial equipment. R.H. Shipping meanwhile is perfectly positioned to cater to these needs. We have the capabilities to transport the largest and heaviest rigs in the world and, as brokers, can identify the ship-owners that have the most appropriate vessels for the project, whether that entails semi-submersibles, pulling tugs or any other kind of technology.
We are picking up signals that there are high expectations riding on these energy reforms and that a lot of international companies are seriously readying themselves for market entry. One example would be the number of foreign firms that have approached us in recent months with a view to buying us out. As a well-run company with a proven track record and reputation as a leader in its segment, R.H. Shipping is, no doubt, an attractive prospect for acquisition for multinationals requiring a Mexican entity to be able to do business here. Needless to say, we are not interested in any such proposition at this moment, but it is nonetheless a clear indicator of general investor optimism and intent.
What do you believe is going to be the key to winning Pemex contracts?
If Pemex will be fair in the market, then I see good chances of R.H. Shipping winning bids simply because of the quality of our value offering. In the past, too many procurement decisions would seem to have been made according to criteria other than rational market economics. There have been times when Pemex has hired charter services well below the worldwide average standard and, though this might represent the cheapest option in the short term, it is not an economically sound decision over the long run that is going to enable production gains. Any majoroil company aspiring to become internationally competitive needs to be employing world-class supply vessel operators and that means paying the going market rate for those services. Cutting corners in these areas is certainly not a recipe for success.
In Houston, there is actually a common joke doing the rounds that ‘Mexico is the junkyard of the Texan backyard’. Vessels that can’t get classified anymore are sent to the Mexican market because, even if they are terribly inefficient, they can still return a small profit due to depreciated labour costs and less stringent HSE and quality standards. This is where the liberalizing reforms are going to have a very positive effect because they will expose incumbent firms to international competition and align the Mexican energy market with global norms and standards.
We firmly believe that the new generation of managers tasked with rendering Pemex a competitive productive entity is already bringing about positive change. Emilio Lozoya employs a wholly different approach to past Pemex CEOs and, with his kind of leadership, the company will, in time, realize its full potential and become much more market-orientated and entrepreneurial which, in turn, will translate into many more opportunities for high–end firms such as R.H. Shipping.
How sustainable do you find Pemex’s strategy of owning its own fleet of tanker vessels and how are you responding to this reality?
I read that they have plans to build another 21 vessels in Veracruz though information on the exact specifications and type of vessels has yet to be released. R.H. Shipping does not view these sorts of developments as a threat. The market is going to grow on such a scale that there will be more than enough work to go round. Besides Pemex will be much more competitive chartering ships from an operator than by operating and maintaining them themselves so this might actually present an opportunity for companies like ours. If Pemex wants to hire a reputable ship management company that possesses the real expertise for running such vessels, maintaining them and taking care of the cooling and the insurance, then we have the capabilities to provide all of those functions. That way Pemex can be unleashed to focus on what it does best at.
What specifically is it about RH Shipping’s business model that makes you partner of choice in Mexico and differentiates you from the competition with regard oil and gas sector clients?
Compared to new market entrants, we are a Mexican company that has established a solid positioning in the country over a period of 25 years. Moreover we combine this local know-how and expertise with a worldwide presence be it through our own subsidiary offices in the US, Germany and China, or through our extensive network of agents. Meanwhile we can offer a much more personalized and bespoke service than the multinationals that may have greater financial muscle, but are obliged to treat the clients as a number simply because of the size of their operations. In short, we understand the local market and individual needs, we possess the requisite project expertise and crucially enjoy an excellent track record.
The success of this business is based on the ability to satisfy any requirement that the client may have. Given the magnitude and complexity of the oil and gas industry, diversification is the key to making sure those needs are met on time and at the best possible way in order to channel capital into those areas that deliver greater productivity. We, at R.H. Shipping, have always been attentive to this aspect and are always ready to find innovative solutions to the sometimes very unique needs that our clients may have.
Given these exciting times for Mexico’s energy industry, where will RH Shipping be in three years’ time?
My dream has always been to own ships. Initially I was thinking of cargo ships, but unfortunately that market has been in decline ever since the global financial crash with no recovery in sight. The offshore segment, by contrast, enjoys very good prospects and particularly here in Mexico where abundant deep water hydrocarbon resources have yet to be properly explored and developed. This is going to be an area of focus for us over the coming years. My aspiration would be that when you next interview me in 3 years’ time, I will be taking you to Ciudad del Carmen to show you my fleet and I will be telling you about the success that R.H. Shipping has had in delivering latest generation semi-submersible mega rigs to heavyweight clients.