UASC: Shaping up, shipping out

There are few better examples of a pan-Gulf company than the Kuwait-headquartered United Arab Shipping Company (UASC). Since its creation in 1976 as a joint stock shareholding company by six Gulf states Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the UAE the shipping line has flown the Gulf flag through the good times and the bad.

So more than a few eyebrows were raised in the summer of 2005, when Ken Bloch Soerensen was announced as the company's first non-Arab president and chief executive officer (CEO). The decision to bring in Soerensen, a veteran of the European shipping and rail industries, was seen as a tacit admission that the company required an injection of some outside expertise.

'It's a truly global company, so I didn't feel like a foreigner when I came in,' says Soerensen. 'My initial perception was that it is a unique company with a proud heritage. It's a financially sound company, but has traditionally not been very aggressive in investing and growing at the same pace as the industry.'

Soerensen's appointment came on the back of a lengthy study on the future of the company by an external consulting firm. The study presented two options to the UASC board: either sell the

business or develop it by committing new investment.

By choosing the latter option, the company has committed itself to investing in new shipping capacity. Historically, UASC made investment spurts every decade or so, restricting the company's growth. This has meant the firm has found it hard to compete with the newer, larger and more efficient global shipping lines.

All this is now changing. The company recently bought eight post-Panamax container ships. Each with capacity of 6,800 containers, the new ships will almost double its total capacity to 130,000 containers and expand its fleet to 41 vessels by the time they are delivered in 2008.

They are set to be the first of many ship orders made by UASC over the coming years as it seeks to transform itself into a truly global shipping line.

'We've drawn up a growth plan,' says Soerensen. 'We plan to buy more vessels. We want to grow by 30 per cent this year and by 60 per cent when the ships arrive. In this industry these days, if you don't grow in double digits, you don't keep up.

'After all, it's a volatile business. Making ship orders now will take three years to deliver and then 25-30 years of operations. You can't store and reduce your capacity like other industries. You always have to invest with the long term in mind, so it is very tactical.'

Reaching the objective will not be easy, especially given the notoriously cyclical nature of the industry. The sector is currently entering a down phase. Shipping rates have been gradually declining since late 2005, and are set to drop more sharply over the coming two years as more capacity comes onto the market.

'Our business is very vulnerable, and the downturn is hitting us already,' says Soerensen. 'Our earnings will be lower, but if you look at other companies it will be the same. With East Asia booming, you would think that business would be good, but there are simply too many ships coming in.'

As container rates, and thus earnings, slide, shipping firms have to focus on customer relationships. UASC is no exception. With customers having a large choice, containers being standard equipment across the industry, and schedules generally the same, the one differentiation that lines can work on is ensuring that they provide the best service to their clients.

'The only difference you can really make is to keep your promises to your customers, informing them of rerouting, schedules etc,' says Soerensen. 'The other thing is to maintain your commitment to the region, staying during the good times and the bad. We're not getting into the game of

consolidating away from the customer.'

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