Expanding into Oil and LNG Tanker Operation

STX Pan Ocean to diversify its non-bulk shipping sector by securing LNG, oil tankers and Ro/Ro ships

STX Pan Ocean continued to expand its growth in a daring manner in 2008 by recording the largest performance results in its 44-year long history. Its sales amounted to 8.267 trillion won, operating profit of 745 billion won and net profit of 577.8 billion won. If IFRS is applied, the sales revenue would amount to 10.213 trillion won, entering the 10 trillion won club, a feat previously considered impossible.
But coming into this year, the bulk shipping affiliate of STX Group sustained a loss during the first quarter due mainly to the global economic crisis.
Based on the IFRS accounting method to be applied starting this year, the company's sales fell by 1.1 trillion won and operating profit dropped 40.4 billion won. But compared to the industry norm, the company's records have been considered not that bad, owing to its excellent crisis management and strong competitive bases.
Considering that the results of adverse operating conditions will emerge in two to three months, the poor Q1 results should be an indication that the shipping market trends have hit bottom, as Q4 2008 operating conditions were very rough.
The signs from the shipping market that have emerged lately ― including the BDI hitting 4,000 points ― were taken as very stimulating, an indication that the shipping market is headed for a turnaround. The company draws 90 percent of its revenue from bulk carrier cargoes, which is directly related to the movement of BDI.
STX Pan Ocean is the largest bulk carrier company in Korea and is among the 10 largest bulk carriers in the world. The company's bulk carriers sail 4,000 times in and out of ports in over 70 countries around the world every year. Such a commanding position for the company led to customer loyalty in these difficult times and has been of great help for the company to sail through the rough business waters of late.
Through its Q1 2009 performance results, the company showed to the world its prowess as a global leading bulk carrier firm. The company transported 2,100 tons of bulk cargoes despite the severe downturn in bulk cargo traffic.
The tonnage is comparable to the same quarter last year, when the shipping industry enjoyed one of its highest years. The company's close partner relationship with its customers showed up in its performance during a tough period of business.
The customers's trust in STX Pan Ocean through long years of business ― when many shipping firms went belly-up or failed in their contractual obligations ― helped the company keep its business on the usual levels. Together with employees'hard work to provide its customers in the global shipping cargo market with better services, the company has strengthened its hold on its leading position in the industry.
As a result, the cargo operation's share in the company's profits expanded to 76 percent, overtaking the chartering operation, showing that crisis can be turned into an opportunity. A company official said the cargo shipping market conditions deteriorated due to Chinese cargo owners non-performance of their contracts, but Pan Ocean's cargo shipping business did not suffer much because most of its customers are long-term ones with relationships extending back many years.
The company expects the cargoes are likely to increase in the months ahead, especially among steel products, cement and other construction materials, and it will also try to secure coal cargoes, as its market value has gone up, along with demand.
The company also plans to secure ships on long-term charters at competitive charter rates and strengthen relations with major customers and also increase the number of long-term cargo transport contracts to build a stable profit base.
STX Pan Ocean has always been strengthening its capability to cope with difficult times, not focusing on aggressively expanding its operations during the sunny times. When the Chinese economy started expanding fast, igniting a shipping business boom, the company acted quickly to expand its shipping fleet. When the shipping market soured in 2008, the company focused on securing long-term cargo contracts, shuffling its fleet portfolio.
With the shipping market showing signs of recovery, the company is out to secure cargo carriers for low-charter rates, with 30 to 40 cargo ships to be ready for increased bulk cargoes.
At the base of the company's excellent management of its cargo ship fleet is the STX Pan Ocean Advanced & Integrated Management System, introduced for the first time in the shipping industry in Korea. The system monitors the company's operations including the operation of its fleet, in real time, enabling the company to better handle risk management.
A company official said the system has helped the company get through difficult operating conditions without suffering much of an impact. In the days ahead, the company will build a base through which the company can take advantage of the improving cargo shipping market to maximize its profits.
The company wants to take advantage of the downturn in the shipping industry as an opportunity to expand its share of the global shipping market.
STX Pan Ocean attracted public attention with the announcement of an international deal in early June in the form of a joint venture with foreign partners.
The company entered the grain terminal business jointly with Itochu of Japan and Bungee of the United States. The U.S. company will take a 51 percent stake in the grain terminal venture requiring $200 million in investment, Itochu 29 percent and STX Pan Ocean 20 percent. The projected terminal is expected to handle 8 million tons of grain annually when its storage, pier and railroad facilities are completed in 2011.
STX Pan Ocean expects to transport some of the grains in and out of the new terminal due to the fact that it holds a 20 percent stake in the new terminal.
Company officials said STX Pan Ocean has proved its international business acumen by entering into such a partnership.
In May, the company agreed to set up a joint venture with an Indonesian energy company, Pertamina, which will enable Pan Ocean to secure oil cargoes from the projected joint venture company. All these business activities by the company are part of the STX Group's plan to build a solid base for its operation in the future.
STX Pan Ocean has eight overseas subsidiaries and offices, part of its overseas network in 33 locations and plans to further invigorate its overseas operations to challenge the world market, centered on Brazil and Singapore at the moment.
At the end of 2008, the company elevated its office in Sao Paolo to a wholly-owned subsidiary to strengthen its business in Brazil and made efforts to expand its operations in the Middle East, the Indian Ocean, southwest Asia and Africa, with headquarters in Singapore. Singapore is a strategic center for resources exploration activities and shipping and the company wants to secure its position as a professional shipping company for transporting natural resources.
STX Pan Ocean has relocated its chemical tanker business headquarters to Singapore to strengthen the business section and buttress its tanker business, taking advantage of Singapore being the center of petrochemical products trading as part of the policy to diversify its bulk carrier business.
The company has been taking China seriously as a center for its marketing business and logistics, relocating its China business office to its Chinese subsidiary, which was elevated to a regional center in charge of its China business. The China office operates five logistics companies set up by STX Pan Ocean to expand the logistics network in China including container terminals in such cities as Qingdao, Tianjin and Yeonwoon Harbor.
The company also has an operation in Japan through its subsidiary, taking charge of trading, shipping and logistics businesses.
The company has been working to diversify its revenue sources by expanding the non-bulk shipping sector to the extent that its share of profit contribution to the company would grow to 30 percent from the current 10 percent and it can cope with any changes in market conditions in the bulk shipping industry. A good example of the diversification strategy is the STX KOLT, an LNG tanker, which is transporting some 700,000 tons of LNG for Korea Gas Corp. annually, earning some $400 million per year. The company allocated all nine of the cargo ships delivered in 2008 to the company's non-bulk shipping sector. In 2009, the company plans to secure two Ro/Ro ships big enough to carry 6,700 cars each, in addition to an LNG tanker and other tankers to further diversify its operations. nw

Chmn. Kang Duk-soo shakes hands with Chairwoman Karen Augustiawan of Pertamina after signing a contract to set up a joint venture logistics company in Indonesia between STX PanOcean and PT Pertamina(Persero) on May 6 at STX Group Headquarters in Seoul.

A STX PanOcean cargo vessel sailing with full cargoes in the sea.