Samudera Shipping navigates market volatility with higher productivity, efficiency

Year to date, the average composite index is US$3,443 per 40 ft container, which is US$707 higher than the 10-year average of US$2,736. The 10-year average stood partly higher due to the spike in rates from 2020 to 2022 during the pandemic. Before that, freight rates steadily decreased as they came off from the Covid-19 highs.

During the pandemic, Samudera enjoyed gains from the heightened freight rates during the Covid-19 pandemic. Shipping rates and volumes surged due to pent-up demand, higher commodity prices and a shortage of capacity.

This was evident in FY2021 ended Dec 31, 2021, when the group reported a bottom line of US$130.1 million, nearly 18 times higher than the US$7.3 million reported in the year before. The earnings surge was attributed to a “marked improvement” in freight rates and higher container volume handled.

In FY2022, the group’s earnings more than doubled to US$323.1 million due to higher freight rates and better utilisation rates across all of its business segments.

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However, Samudera’s earnings fell 68.7% y-o-y to US$101 million as the world began to open up and as freight rates fell since the early part of the year.

In 1QFY2024, the group’s container shipping reported an average revenue per twenty-foot equivalent unit (TEU) of US$244, 34.23% lower y-o-y, due to lower freight rates even though volume remained relatively stable compared to 1QFY2023.

To CEO Bani Maulana Mulia, the normalising rates [then] came as no surprise. “I think [the lower freight rates] is something that is expected by all players in the industry. It’s something that somewhat can be predicted in a way because … we all know the ups and downs of the general supply and demand capacity of ships and for boxes,” Bani tells The Edge Singapore in an interview on May 29.

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He adds that most of the industry players understand that after an uptrend, a downtrend will follow. While that may be the case, he also notes that most of the industry players will be adapting to the situation accordingly.

However, Bani is also quick to point out that the group still sees demand for its vessels, which ply the trade routes in Southeast Asia, the Indian subcontinent, and the Far East and Middle East.

“Every ship is almost fully utilised. The load factor is almost always maximum. It’s not as extreme as during Covid-19 when we had to shut out so many cargoes and add on as many ad-hoc ships as we could. But empty services are hardly the case nowadays. Volume is not a problem,” he clarifies.

Strategic moves

Amid the decline in freight rates and market demand in general, the group is always seizing opportunities to place itself in a “better position”, with a focus on constantly achieving more productivity and efficiency in its operations.

One way to achieve this is by introducing new vessels with larger capacities, allowing them to carry more goods per trip.

Samudera, which operates a fleet of mostly feeder class ships, had fleets that averaged around 1,000 TEUs to 1,500 TEUs. Now, the group is looking to have a newer fleet of vessels with an average size of around 2,000 TEUs.

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“We ordered a total of eight of such newbuilds (with new technologies and design) from the same shipyard in Japan this year and will receive the remaining two of these vessels this year as well,” says Bani.

“Those vessels have proven to be one of our key success factors in our performance because they have proven to be more productive and more efficient than the vessels from the previous generation. They consume lesser fuel and have larger capacities. They are more reliable as well,” he adds.

At present, the group has a fleet of between 30 and 35 vessels, with about 25 of them container vessels. “We always keep a mix of owned [vessels] and those that are chartered in for the short- and longer-term.”

Taking a conservative approach

So far, Samudera has taken the more conservative approach by budgeting more than what the group expects to spend and forecasting a little lower than what it expects to earn.

“We always try to estimate a little bit lower than what we expect to earn. So far, that’s generally been the case, that we would perform better from what we forecast. So, that’s why we’re a little bit more prepared when we have a situation where we expect things to be potentially worse off,” says Bani. “It’s not like we’re simply adjusting to the situation as it comes, but these are factors that we plan for and [incorporate in our] calculations.”

However, the CEO adds that he hopes external circumstances — such as the current uncertain geopolitical situation — may work in the group’s favour.

“[These were situations] that were not factored in before. Like the conflicts … those things that affected the flow of cargo, movement, the number of vessels going into, for instance, Singapore … Congestion in the ports … These things are very dynamic. And we know that we need to be agile enough to be able to adapt our operations in that sense,” he says.

Beyond agility, Bani notes that having a strong operations team and a good relationship with partners such as port operators is key. This is especially the case when dealing with situations such as port congestions.

“We have a very close partnership [with the port operators such as PSA]. When a congestion happens — and it does happen from time to time — we are able to pre-plan our operations, so we don’t suffer from that for too long. We need good communication, planning and operations at the working level, especially since we connect our cargoes from smaller ports to the bigger vessels which will carry these goods further,” he says. “You want to be able to make the connection [and] you cannot miss it.”

Keeping flexibility in mind

With the shipping industry being a cyclical one, the group always has to keep the downcycle in mind.

“Flexibility is very important to us. In terms of our total fleet, we own around one-third of the vessels. The rest are chartered. This means we secure the ones we own and we definitely have cargo for them. They will not be underutilised,” says Bani. “[The vessels we own] are also in sizes that are suitable for our main routes and we are confident that we have enough volumes to see a high utilisation rate.”

“But even if we take it to the extremes, we will always have to be able to calculate an exit strategy, if it ever comes to that,” he adds. “[So far], we have never seen it in a way we have to downsize in that kind of situation. We’ve not seen it, [but] we cannot predict that there is suddenly no movement or need for fielding ships in the region, or even the world.”

“There are even demands for us to offer our services in other markets such as Europe, which we have been looking into. But up until today, we have not decided to do so yet, but there’s [an] opportunity there,” he shares.

He also notes that going to Europe can present more challenges such as having to deal with more restrictions, higher cost of operations, and rules for crews to obey.

“[Should we go into Europe], we will [also] have to set up a base there, some vessels will have to concentrate on the Asian route, others on the European route, it’s a next phase kind of situation. I’m just pointing out that the demand for our size is also there,” he adds.

Operating within Indonesian waters

While Europe is not on the cards just yet, Bani has high hopes for a market nearer to home — Indonesia.

“We are at the forefront of a huge opportunity because we come from Indonesia. It is the biggest economy in our region. It is the largest archipelago. But the number of ships serving it is far from what it needs, far from its potential,” he says.

While he also recognises issues such as having to operate under the Indonesian flag, having to manage the finances and operations under the country’s regulations and having to manage the efficiency of ports, Indonesia’s sizeable population of 300 million people cannot be ignored.

“It’s a huge market for consumption and production. So, one day, it may be the right time to shift and operate within Indonesian waters. We’d be lying if we said that we’re not waiting for the right moment to do so. That is a potential market and there is potential growth,” he notes.

For now, Singapore will remain Samudera’s centre of operations, as the country is still proving to be a more efficient maritime centre and shipping hub.

“Indonesia is definitely behind Singapore. But we can learn from the same efficiency that Singapore can offer to the [shipping] industry. It will change a lot of things. It will open up a lot of bottlenecks in that country, it’ll open up a lot of volumes for many players. So we’re also hoping for that,” he says.

“This is the unique thing about Samudera. Everybody knows we come from Indonesia, it’s an Indonesian company, but we are happy with our solid presence in Singapore. I think we’ve proven to our partners and customers that we have standards. To say that we have the Singapore standards of operation, we’re audited [in Singapore] … that’s a different thing based on Indonesian standards,” Bani continues. “We have the reputation and are trusted to provide reliable service. Our partners understand that, and the Indonesian government also sees that.”

With the group’s base in Singapore, Bani is keen for consistent improvement.

“There’s nothing wrong about [being] in a cyclical business, but it’s about knowing when is the right time to do what and to take the right positioning at the right time. That’s what we will always try to do better. We also learn from our past experiences and how we are timing our strategy better in this situation,” he says.

He also points out that the group’s various segments are at different stages within the industry’s cycle.

The group’s logistics distribution business in Indonesia, for instance, is growing fast, with a lot of additional demand for the group to grow its capacity.

For its bulk and tanker segment, Bani sees an opportunity with the Indonesian government’s drive to focus on industrialisation and downstreaming.

“We have seen it being seriously implemented. Some of the biggest mining companies in Indonesia have changed their strategies and are now investing in smelters and changing their flow in exports,” he says. “There’s also an opportunity to transport higher value of export cargoes [in this segment]… [All of these] require a lot of bulk carriers.”

With more global investments going into Indonesia but having their regional head office in Singapore, Bani sees Samudera’s Indonesian roots and Singapore as being a sweet spot for companies looking for partners familiar with both markets.

“When their goods are completed [in Indonesia] and these companies want to export them, they will find shipping partners and logistic partners. When they’re shopping around and are looking for a company with the best of both worlds, we’re happy to be there,” he says.

‘Dynamic year’

Amid the uncertain global situation and declining freight rates, Bani believes that FY2024 will continue to be a “dynamic year”.

“We haven’t seen any significant progress [with the geopolitical factors]. So we need to be ready. But as I said, we think [our] results can be better than what we have forecasted internally [should] these uncertainties remain,” he laughs.

“Even though freight rates may be on the downward trend, there’s always an opportunity for a hike also, or at least, a level of resistance where freight rates may not go too low,” he adds, pointing out that the global freight index was on the rise, as at the time we spoke.

In FY2021, FY2022 and FY2023, thanks to its higher earnings, the group has also been paying out higher dividends of 14 cents, 32 cents and 11 cents respectively. This is compared to the total dividend of 1.05 cents per share paid out in FY2020.

When asked about future dividend payouts, Bani says that the group consistently distributes dividends whenever profitable.

“We will allocate a dividend with a policy where it’s sustainable for the group in terms of operations, in terms of our cashflow for borrowings and our basic needs are met,” he says. “Previously, when our profits were lower, the payout ratio was much higher. When our profits are much higher, our ratio may be down. But what we pay out is significantly higher than before. That is something I believe our board will be consistent with. When we do better as a group, we want to pay our shareholders better dividends. That can be consistent.”

Overall, the shipping industry is one that’s focused on partnership, says Bani. “It might look like a competitive one, but shipping, in a way, is a small world, where we all know each other. We work with everyone, everyone works together.”

“And it’s not a situation where we want to go against each other, but it’s a situation where we will try to grow together. We’d rather be in a situation where we can both benefit. And that’s always been the spirit with our partners,” he adds.

“I believe that if you’re not an optimist, you shouldn’t be in shipping. This is a very dynamic [industry] … it’s not as exciting as being in the F&B or digital industry. One has to have a strong motivation, a strong positive mindset and try to look into opportunities,” he continues. “Having said that, opportunities come with the dynamics and volatility. If things are always going to be stable, there won’t be an opportunity for growth.”