Tim Smith: “We have to make fast moves to respond to current financial crisis.”

Tim Smith: “We have to make fast moves to respond to current financial crisis.”
---Interview with Mr. Tim Smith, the chief executive for the North Asia Region MSK

“Conquer” the Western Market of China

Journalist: How do you evaluate the current economic status in China?
Tim: General speaking, the economy develops very well in China. While many other countries are suffering from the financial crisis, China can still keep the GDP increase rate at 7%-8%. It makes very positive contribution to shipping industry. During past two or three decades, we MSK always see China market as the most important target for our business, and in the coming years, we will increase our revenue portions from China market. Although the export volume of China decreases in 2009, the import volume still increases. As the economy status of China becomes stronger, people’s living standard improves and domestic consumption increases, we can obtain remarkable profits from import industry. We really appreciate the remarkable contributions from PRC government and Chinese population, we wish we could cooperate closer than ever before, and walk through the financial crisis together.

Journalist: For MSK, the business volume in China takes about 25% of the total business volume, and this percentage is increasing. Beyond container liner services, what else does MSK involve in China market?
Tim: One of our group companies DAMCO has formed lots of JV for logistics warehouse facility in China. And APM Terminals has even more investment in many major ports in China, like Dalian, Qingdao, Shanghai, Yantian and so on. MSK also cooperates with China-Mor six years ago, and invests in multi-modal transportation industry. Moreover, MSK also has another container retaining company, which provides repairing services to used containers or vessels. Meanwhile, MSK has two container production plants, one sits in Qingdao, which is the largest FR container producer in Asia. The other one sits in Dongguan, which produces containers for dry cargo. In conclusion, we have many investments in transportation related projects in China, we realize the large potential of China market, and we are going to make more long-term strategic investment in this market.

Journalist: In Oct., 2009, MSK has set up a company in Chengdu as its ‘Information Service Center’ for global operation. Why did MSK choose an inner land city in the western part rather than some coastal city in China?
Tim: Setting up office in Chengdu is one of the most important strategic decisions for MSK. It shocks me when I know the decision, because all MSK offices in coastal cities have relatively good profit with reasonable operation cost. The main reason for setting up office in the western part of China is PRC government’s development strategy. PRC government is going to heavily develop western part of the country, and MSK follows up this trend for many years. Finally, we take our first actual step. More important, Chengdu has provided very favorable policy for setting up business there. I have also checked the place myself, and realize setting up office in Chengdu can have even lower cost and higher efficiency. Of course, DAMCO provides completely different services from MSK, Chengdu should be a better place for DAMCO. We are observing how this strategic step contributes to DAMCO’s core business, and analyzing the advantages and risks of this decision.          　 　

"The Survival, the fittest”
Journalist: Sometimes the government may give subsidies to some ship owners, what do you think of this?
Tim: Frankly speaking, I feel disappointed with this activity, which makes our peers become more competitive with support from government. You know, the shipping industry is highly competitive with only a little profit to make, so a way out for a mature and well-developed company is to adjust their strategies to fit in with the changing situation in front of difficulties. It is to be noted the great challenges faced by the whole shipping industry is greatly due to the reason that we ignored adjusting ourselves to fit in with the changing situation for a continuously sound shipping situation in the past 30 years. We should respect the golden marketing rule “the survival, the fittest”, so that the stronger can be retained while those fail to fit in with the current situation are dropped out.  
 
Journalist: What changes happened to MSK after MSK’s inner reconstruction?

Tim: Our main goal is to make each of our subsidiary companies more fully function. Before reconstruction, all the container services are under MSK group for unified management. Now there are four entities: MSK shipping, MSK logistics (Damco), MSK terminals and MSK Intermodal Company. By this division, all the four entities will give full play to their own functions and concentrate on their own services. And in this way absolutely we will concentrate on MSK shipping service. This division will ensure a wider coverage of market to get more opportunities.     

Journalist: What measures does MSK take to confront the world financial crisis?
Tim: As all of our competitors, we take preempt measures to confront the economy downturn. The first measure we take is to deprive the surplus freight capacity of the daily service. Now 16 large container vessels are not in operation and we plan to blackout more vessels because of fewer services in winter. Further we take the following measures: 1. Adjusting shipping routes; 2. Cooperating with our partners to make efficient use of vessels; 3. We will reduce our cost and we plan to reduce 1 billion RMB this year. Reducing cost can make up for our loss to some extent. In the meantime, we will try to improve the operating efficiency and increase our sales revenues.   　　

Return to TSA for Multi-Party Cooperation
　　
Journalist: As we know, recently MSK will return to “Transpacific Stabilization Agreement” (TSA), why did MSK quit this organization before and why will return to it now?
Tim: You know, currently the transpacific shipping route is quite bad. In the past 6 to 9 months, we have tried all the best, we adjusted our shipping routes, reduce our freight capacity and reduce our cost. However, we failed to achieve a sound effect and we still incur loss on this route. The main reason is that US economy recovered slowly and its purchase power remains weak, which will remain unchanged in the upcoming years. We come back to TSA to cooperate with TSA members to achieve recovery of this shipping route. In the other hand, now the freight rate provided by the shippers are quite low and our daily operation cannot be guaranteed, so we come back to TSA to have more partners. I want to clarify that we are now applying for TSA and are waiting to be approved.
Journalist: We noticed that the freight rate is in its lowest point in the first half of this year and the freight rate did not recover as fast as we expect. Why? 
Tim: This March is the lowest point. After March, we were glad to see some increase, especially in Asia. Frankly speaking, the freight rate still do not recovered as before despite of its continuous increase. I will jokingly say something to our customers: if you want to get the first-class shipping service, please pay more freight rate to MSK.  
I have worked in the shipping industry for 25 years and never met such a bad situation before. Now all the ship owners want to change this situation by lowering cost and improving efficiency, even by withdrawing vessels from shipping routes, which never happened before. With the market turning better and better, the freight rate is recovered gradually and will recover to be a satisfactory degree by 2011. It is hard to say which route will be recovered earlier, but one thing is certain, that is, transpacific route is the worst now and we hope to do something along this route.