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Below is the transcript of an interview with PIL's Executive Chairman, SS Teo and Founder, YC Chang. The interview will play out in CNBC's latest episode of Managing Asia on 16 November 2018, 6.30PM SG/HK (in APAC) and 11.00PM BST time (in EMEA). If you choose to use anything, please attribute to CNBC and Christine Tan.
Christine Tan: So Mr. Teo your father founded PIL in 1967. Earlier this year you finally succeeded your father in heading up the family's shipping business. How does it feel like to be talking over at a time when there's so much volatility on the global trade front?
SS Teo: First of all, I am very happy and honored that he handed over the chairmanship to me. He still remains as chairman emeritus, he still is on the board, and he will always be my chairman. There's never a thing as good time, best time or worst time to take over, but he believes I am prepared to take over the shipping group amongst all this volatility. And he's always there to guide me, and I can take comfort that he has actually put the company on a very solid foundation for me to take over.
Christine Tan: Mr. Teo, your family was one of the first shipping lines to really break into China. You yourself at the age of 16 made your first voyage to China in 1970. What are some of your memories doing business in China before the country opened up for economic reforms?
SS Teo: Well, my father started dealing with China, in fact, (even) before he formed PIL. He was the part of the business delegation that went to China in 1956 under Mr David Marshall. During that time, we were called the Singapore-Malaysia Federation. So when he formed PIL, his first so-called long haul sailing was from China to the Middle East. So since then, we have been talking about China over the dinner table whenever he travels to China, so there was a lot of mystery. So when I finished my "O levels" in December of 1970, he said, "Do you want to see China?" I said yes. At that time if you're Singaporean below 55, you cannot go to China until the early '80s. So the only way to go was as a sailor. So I sailed on a ship at the end of December 1970 to China for the first time. I went again in 1971, and again in 1977. So, the memory was that China was a very poor country.
Christine Tan: How much has changed since he started doing business in China? What were some of the changes you saw and felt?
SS Teo: Since then, the country had gone through tremendous changes. Now people are very commercial, competition is very fierce. 40 years ago they learn from us, I think now we learn from them.
Christine Tan: PIL was also an early mover into Africa. But you know doing business in a war-torn conflict-stricken continent was always very challenging. Even one of your vessels was hijacked off the coast of East Africa. Why stick with Africa after all these years?
SS Teo: Well, when my father first started PIL in 1967, we were a small private capital (firm), not much... You know, we don't really have the means to compete with the big boys in the Europe or the U.S. trade. So, we picked places like Africa and the Middle East and, in particular, the Red Sea. At the time, China needed to export goods to Africa, both East and West. They couldn't find a shipping line to carry their goods because many of them were barter trade project cargo. So, PIL became the natural choice.
Christine Tan: So you are getting the cargo, you are getting the money that rewards you for the risk you're taking?
SS Teo: Risk and also the determination, and persistency.
Christine Tan: Do you remember the time your vessel was hijacked off the coast of East Africa?
SS Teo: Yes, I'd never forget it. It was in 2009, in the middle of October.
Christine Tan: Just how traumatic was it?
SS Teo: When it happened, I got a phone call and before that, you always thought it would never happen to you, right? My ops manager called me and said pirates had boarded one of our ships, they were now escorting the ship back to Somalia. So my first reaction was: Life goes on, don't let this hijack affect the operation of the company. So the instruction was that, "Life goes on, let's form a disaster action team to actually try to get the ship back." So, the first thing that came to my mind was actually the safety of the men on board. So, we had to make sure that the family was informed, made sure that no media would go and disturb them, and we negotiated with the pirates. We told them that the safety of our men was number one. If you do any harm to them, then forget about the….
Christine Tan: So how long was the whole negotiation process?
SS Teo: 75 Days.
Christine Tan: So how did you manage in the end to free the vessels and your crew?
SS Teo: In the end, we had to pay an amount we cannot disclose. Then when they were freed, the ship sailed to a nearby port. In fact, I wanted to go to receive the ship but my father said no. He said "Your deputy better go". So he went, but the next thing we did was to make sure that all the crew had a psychiatrist to actually give them a check and we made sure that they were sent back to their home. We made sure that when they arrive at their home port, we have actually our manager in the local office to accompany the family to receive them. So I think that the post release, how to give them the treatment and all that, is very important.
Christine Tan: So, what important lessons have you learnt as a result? What precautions are you now taking?
SS Teo: We now try to avoid those, what we call, "high-risk areas". But if we have to go through (these areas), then we carry armed guards.
Christine Tan: Last year, the shipping industry bounced back from a deep downturn we saw in the industry itself. Both PIL and your Hong Kong-listed container manufacturer Singamas returned to profitability. How do you expect to do this year?
SS Teo: The trade war at the moment doesn't affect the cargo flow. If anything, the trans-Pacific volume is very strong. That could also be, what we call, "upfront loading": people bringing goods in, in advance of tariff increase. But we think in the medium-term, as long as America continues to consume, the supply chain will be altered. So we are seeing now, in fact, increasing amount of enquiries of factories relocating from China to nearby Vietnam, Cambodia, even Malaysia, Indonesia and Bangladesh. So, we think there will be disruption if a sudden tariff is imposed, but overall, as long as consumption is there, Americans continue to have their hand phones, shoes and clothes, in fact, the whole supply chain will be dragged longer and there will be new locations of production. Their logistics are not as efficient as China so in fact, the turnaround of ships will be longer. So in the medium and long term, as long as trade volume remains on growth, the ship utilization will go up. For this year, in the first half, most of us did badly. One of the reasons was that during Chinese New Year, the cargo rate did not go down. So I think all of us, most of us, got carried away. We thought that the cargo would come back off at the end of March this year. Some lines chartered more ships in preparation for the pickup, but the pickup did not happen at the end of March. It only came around in May. So, rates went down in the second quarter which should have gone up. But more importantly, the fuel price went up, bunker price went up. So, it was a double whammy. So by May, many lines were already calling for emergency bunkers surcharge. Lines came out to make statements to say that they would not have any sailing if they were not making money. So coming to the second half, I think the result will be much better. One is that rates have continued to recover to partly offset the fuel price increase. More importantly, shipping lines realize the importance of maintaining a stable service is to have a reasonable return. So rates are still firming up, as we speak, this month.
Christine Tan: Are you still fighting for market share?
SS Teo: I don't think so. We don't see anybody aggressively grabbing market share because we understand among the many lines is that they want to see in lay man words, "money on the table". We have to, because of the trading results in the last few years, plus many lines have gone through M&A. A lot of money has been spent, and money is getting more expensive. So, I think common sense is returning. And most lines are now more conscious about the bottom line. In fact, because of the higher fuel price, we see now many shipping lines, once the schedule slips because of typhoons and bad weather, we don't speed up the ship (any more) because when you speed up, you consume more fuel. So in a way, the vessel utilization actually has gone up.
Christine Tan: So, this recovery we're seeing in the shipping industry, it's still on track in your view?
SS Teo: Yes, yes. And I think after we see the painful lesson in the first half, and the positive result last year, I think most shipping lines will want to make sure that they run a more sensible operation.
Christine Tan: So in terms of earning, how do you see PIL doing?
SS Teo: PIL should be doing better, much better than first half. Yes.
Christine Tan: The massive consolidation in the shipping industry, has seen the bankruptcy of South Korea's Hanjin Shipping, not to mention the sale of Hong Kong's OOCL to China's Cosco Shipping as well, there is talk that PIL is the next to be taken over. What are your thoughts on that? Are you fighting to stay independent?
SS Teo: First of all, the rumor about it started as far back as 2016. One, I think it's because we are a very prized shipping line. Because today after all the M&A you mentioned, we are number nine. We are very well spread in many of the emerging markets in Southeast Asia, South Asia, even the Western Pacific. We are also very well established in the Middle East and Africa. These are markets that can only grow. They have a very low base, they have large population and young population. In fact, I think the Sino-U.S. trade tension will result in more factories being relocated to this area that I mentioned already, Vietnam, Cambodia, Bangladesh, and Sri Lanka. So in a way, PIL is a very prized shipping line. Some lines have actually approached us to say "Would you like to be part of a big family?"
Christine Tan: And what did you say?
SS Teo: No.
Christine Tan: Why "no"?
SS Teo: Yes because one, my father founded this 51 years ago. Two, more importantly, I owe it to my staff. You know, we went through a very difficult time in 2017. We are not the strongest of the lines around, but I think that people matter a lot. And many customers tell us, "Please, you have to stay around because after being used to dealing with maybe five carriers, now we're down to three". Two are very big, and one is someone like us who is medium-sized but we have a very personal service and we are very flexible and nimble. We are very proud to say that, in all modesty, we are the flag bearers of Singapore across the seven seas. So after our national line was sold, PIL is the only remaining Singapore container liner company that spans the seven seas. So I think you can say this little red dot still needs a little red shipping line.
Christine Tan: Let's talk about your relationship with China's Cosco shipping line. It has been very close and it has grown even closer over the years. You've been chartering ships; you've been operating joint services. How much have you benefitted from doing business with China's state owned shipping and logistics giant over the years?
SS Teo: Well first of all, as you say, we have known each other for a long time, as far back as my father's time. Number two, they have grown tremendously but more importantly, China has become the most important market for liner shipping companies. Most of what we call the ocean-going carrier, 40 to 50 percent of cargo actually comes from Greater China. So, having a good relationship with the state-owned line is important.
Christine Tan: How did you and Cosco managed to hit it off so well all these years?
SS Teo: Well, it takes time. To me it has always been give and take. I think some people look at China Costco as a giant but even a giant have a spirit. How do you understand them? How do you get along with them on all levels, not only the top level, but the working level and the management level? I think so far, we have all spent a lot of effort get to know each other better. And I think so far that relationship and cooperation has been mutually beneficial. In fact, someone told me that China's Cosco has more joint services with PIL than their own consortium member.
Christine Tan: Your relationship has been so close that there were rumors swirling in the market last year that they were studying the possibility of acquiring PIL. Did they approach you? Did they talk about it with you? Are you opened to the idea?
SS Teo: You know Christine, I must emphasize this point that there is a difference between the West and the East. They can have lunch with you, in the afternoon the banker can call you, "Are you for sale?" Then, they say "I can give you X dollars, how much do you want?" That is the way I think the West does. The Eastern way is to get to know each other, to be comfortable and then they will say, "If you want to sell, why not consider us?" You know, they're not saying "I will buy you". So again, this is not impossible, in fact if you look from a third party viewpoint, we match very well because we work with them in Africa and we are going to have more cooperation.
Christine Tan: And you are actually sitting on the board of Cosco as well.
SS Teo: Yes, and we are going to have more cooperation which we will announce soon. But so far, I think the relationship and cooperation is better when we are separate. Sometimes, when you're friends, you worked together better, sometimes, when you are family, you may not work together so well.
Christine Tan: So the understanding is, you told them on the phone that it's okay to be friends for now, that you don't need to come together?
SS Teo: On the phone, over drinks.
Christine Tan: What do you tell them? What do you say?
SS Teo: We tell them we still treasure our independence and I think we can go back to being separate.
Christine Tan: What did they say?
SS Teo: Yes it's a fact. They respect you. So that's why I say, it's a very different way of doing things. Of course there are other ways they can grow. You know they can grow organically. They bought OOCL. They are looking at acquiring new things and even with some of the new things they've acquired, we can work together. Why not right?
Christine Tan: Let's talk about this great opportunity arising from China's "One Belt One Road". You're focusing on projects linking Western China and Southeast Asia. What are your plans there?
SS Teo: Well, the Belt and Road Initiative proposed by President Xi Jinping five years ago is a grand vision. In fact, when he was first proposed it, it really hit a note with us because my father came on a boat. He sailed on a boat from Xiamen to Singapore in 1937. So, the proposed new Maritime Silk Road really struck a chord with us because this is just a repeat of what my father did, almost exactly the route that we sailed from China to Southeast Asia, to South Asia to Africa. I think half of the countries on the Belt and Road sit on our trading lane. So, we think it's a great vision. But later on we got involved in Chongqing for the third Singapore government-to-government project, the Chongqing Connectivity Initiative. So, we look at how to develop more cargo from Chongqing, whether you go by the Yangtze, or you go by the rail to Europe, or you go by the traditional trucks and rail to Guangdong. So when we actually bring it down to Guangxi, Guangxi's port is called Qinzhou, the travel distance down from Guangxi down from Chongqing is 1200 km less than from Chongqing back by the Yangtze. So the wise leaders of the two countries, China and Singapore, came up with this idea called the Southern Transport Corridor. That means to link the whole western part of China to Guangxi, as well as to the sea and the sea outlet. Guangxi is very unique because it is the only province with a district that has a sea outlet and also it's bordering Vietnam. Definitely Guangxi is the place to be. We know that it is a very important "jie dian". We call it the focal point for the whole Southern Corridor. And the southern corridor is now being identified as a key project by China. Singapore is very active in this Southern Corridor as well. In fact, the Southern Corridor, the new definition is called the "lu hai mao yi xing dong dao". "Lu" is the train. "hai" is the sea. So this is going to be the new "logistics channel" to develop the western part. So I think we are benefiting from it already. We have two sailings a week from Guangxi to Southeast Asia and we're going to have a third sailing very soon.
Christine Tan: How many sailings could you ultimately have in the Southern Transport Corridor?
SS Teo: Ideally, it's daily sailing. Because one of the disadvantages of Guangxi at the moment is that it doesn't have as much sailing frequency as compared to Shanghai. Definitely for cargo from the western part to Southeast Asia it makes sense to come down. But the other way is imports, for example, now we are carrying durian and longan from Bangkok to Guangxi. From there, we go by train to Szechuan. It's only seven days. Compared if you go by the Shanghai side, it takes 20 fewer days. We are carrying coffee beans, from Vietnam to Guangxi in two days, by train to Chengdu in five days. One week and your goods are there. Previously, it would take you three weeks. But it would take time because people are so used to running that route. We are not saying that we would take away anything from Shanghai or Guangdong. I am looking at new growth and I think this new growth will bring prosperity to the western part of China which has partly been affected because of high logistics costs. So I think it's a great initiative, and PIL is very happy to be one of the first movers in the Southern Transport Corridor.
Christine Tan: PIL was founded 51 years ago in 1967, how much has technology changed this industry? What changes have you seen?
SS Teo: Well, the changes we see at the moment are mainly for the vessels. We can track our vessels' consumption 24/7 using mass flow meters and satellites. Electronic data has actually changed. Now we're using electronic BLs, we can have immediate transfers of information. But the way we do the business is still the same. But I believe that blockchain will be a revolution in the way that we process our information and the way the customer interacts with us. So I think blockchain is something that we need to embrace. But the most important is to make sure that everybody buys into it, not only the stakeholders, but more importantly, our staff.
Christine Tan: I understand you just completed your block chain trial that tracks and traces the cargo movements from Chongqing, to Guangzhou, to Southeast Asia. Are you happy with the results?
SS Teo: We're happy because it shows how blockchain can work - to track and trace this cargo movement and also how documentation can be simplified. Besides that, we have also just finished a trial with MPA Singapore, IMDA on the electronic bill of ladings. So really I think this is all going towards a paperless, safer way to transmit the information.
Christine Tan: There's just so much paperwork and documents involved in shipping, how much cost savings and time are we talking about?
SS Teo: For cost savings, we can't really tell, of course we'll be saving on man power, but that has to be balanced with the investment in the hardware and the software. So definitely I think we'll be saving on the overhead costs, but more important is that it'll be the safest transmission of information. People will take ownership of the information that they upload, whether to the shipper, the banks and all that. But most important is that you can literally book cargo anytime you want, 24/7. So it'll be more efficient way of doing things, but of course it will mean that there will be some loss of jobs, and we have to see how we can redefine a job for them.
Christine Tan: So, that's a big concern of yours? To what extent are you looking to deploy blockchain throughout the entire operations of PIL?
SS Teo: We will look at deploying it in areas where infrastructure is poorer, so it could be in certain parts of Southeast Asia, it could be South Asia, and we are looking actually at Africa. Africa doesn't have the infrastructure, but there's a lot of paperwork involved and there has been possible fraud. So, having this blockchain technology will ensure that we leapfrog in the documentation process, and even in improving the logistic efficiency.
Christine Tan: Mr. Chang, earlier this year, you put your son, Mr. Teo here, in-charge of the company.
YC Chang: Because I'm getting old already
Christine Tan: You're getting old, but you still come to work every day. Why?
YC Chang: It's my habit. I cannot stay at home.
Christine Tan: You cannot stay at home?
YC Chang: Very, very bored.
Christine Tan: What do you do when you come to work every day?
YC Chang: Every day, I write down all my activities in my diary, everything. Every department comes to see me.
Christine Tan: They still come to see you every day?
YC Chang: Yeah.
SS Teo: Yeah, all the division heads, department heads, will see him before they travel. He will have everybody's travel schedules. So, all the seniors before they leave they will see him, and they will see him again after they come back. So in a way he will brief them, also they will report back to him the outcome of the trip. So in a way, he still gets updated.
Christine Tan: So Mr. Chang it sounds like you're still in-charge. Yes?
YC Chang: No. Not really. I'm getting old, so I should step down. He is the successor.
SS Teo: No, he's still in charge, ultimate in-charge.
Christine Tan: So, ultimately now that he's passed on the reigns to you, how often do you consult your father on a day-to-day basis? How often do you talk to your father about business matters?
SS Teo: Maybe twice a day. I will see him every morning after my daily meeting. I just update him on whether there are any visitors in town, whether I am travelling or if I just came back. For example, now we have a big logistics project in Guangxi, so I update my father almost every day about Guangxi. He will ask about Guangxi, he will ask about our new ships being deployed, where they are going and all that. So I would consult him, I would say, twice a day, once in the morning after my morning meeting, and once will be after lunch before he goes home.
Christine Tan: Mr. Chang, do you like talking to your son every day about the company?
YC Chang: Yes, of course. Yeah. He likes to talk to me every day.
Christine Tan: The other way around?
SS Teo: I call him once a day when I'm overseas.
Christine Tan: Mr. Teo, what is the most valuable lesson you've picked up from your father about doing business?
SS Teo: I think, staying calm, that's very important. Because in any business, especially shipping, there's a lot of unknown. There can be political (issues), there can be technical issues, there can be accidents. Like the hijack of ships by pirates, ships get into trouble. So I think what he's taught me is to stay calm. It doesn't help losing your temper and getting all worked up. So staying calm is something that I learnt from him and I'm still learning from him.
YC Chang: I never lose my temper
Christine Tan: You never lose your temper, not once?
YC Chang: Very hard. Cannot. When you lose your temper, you just cannot control yourself.
Christine Tan: What advice are you giving your son, now that he's taking over the family business?
YC Chang: Hardworking. Humble.
Christine Tan: To be hardworking and humble?
YC Chang: Yeah.
Christine Tan: What do you worry about most for the family business? What do you worry about?
YC Chang: I worry about our cash flow. You cannot go too fast if your financials can't support you. So that's what my worry. We built 12 ships in Shanghai, they are very huge ships, and they cost a lot of money, so I'm a bit worried about our cash flow. (points to son) But he's so confident about that.
SS Teo: Well, that's the ship that you were on board, the P-class. So, we built 12 of them, it's the biggest investment we have, but he's worried about these big investments, but I would explain that without these 12 ships, we would not be in a competitive position, but at the same time, we need to watch our cash flow and our finances carefully.
Christine Tan: Mr. Chang, all these years growing PIL, the company has stayed private. Why?
YC Chang: It's easy to control.
Christine Tan: You don't want the company to go public?
YC Chang: Shipping very competitive, if you go public, you have to list out information about all your activities to the outside. But being private, we get to keep it in our company.
Christine Tan: So you've heard what your father wants, will that change under your leadership in the future?
SS Teo: That will be a major consideration, to bear in mind the pros and cons, of staying private, or rather, the pros and cons of going public. So, that will be a major consideration when we consider going forward.
Christine Tan: In terms of leadership style, Mr. Teo, how different are you from your father? You say your father is very calm, something you're trying to learn from him, but how different are you in terms of leadership style? What are you like as the boss?
SS Teo: When I was younger, I was more bad-tempered, so I was more (of) a hard leader. But my father taught me one thing, in Chinese, it's "yi de fu ren", that means you want people to obey you, not because of your authority, not because of your power, or because you are fierce, but more because of your integrity, your quality, that people actually respect you and listen to you. So, "yi de fu ren" is a very difficult thing to do, but I think I'm slowly learning it. So, these are the things that I have to learn; how to really be able to command respect, not because of my authority or my position, but more because of the contribution I'm doing and working together with my colleagues.
Christine Tan: Mr Chang, you're 100 years old. You are the world's oldest billionaire. Are you happy about what you've built so far at PIL?
YC Chang: Yes, I am. I am. Last time, Singapore had 15 (shipping companies). Now, only one, PIL can survive. Shipping is a very tough business. Very, very tough.
Christine Tan: And finally, Mr. Teo, you know you've got big shoes to fill. How does it feel like to carry on your father's legacy?
SS Teo: They are big shoes, and he had always reminded me at the year-end that next year is going to be very tough. I've been hearing it for 39 years already. But recently, we did a survey. We actually listed the shipping companies that were around when he started PIL. So we actually counted 15 of them but the 15 of them are no longer around. So that is actually, both a warning and an encouragement. The warning to say that look, you also can be one of them on the list. Encouragement is that we're still around despite all the ups and downs including that major consolidation we saw two years back. So, I think it's really to make sure that the legacy carries on. So, last year we celebrated 50 years, so my commitment to him and to my family, and to my colleagues is that we will celebrate 100 years.
Christine Tan: Your son has made a promise that the company will be around for the next 50 years.
YC Chang: He's getting old already. I stepped down because I'm getting old. Let the young man take over.
SS Teo: So to him, 60 years is considered a young man.
Christine Tan: Thank you, Mr. Chang, thank you so much, Mr. Teo.
YC Chang and SS Teo: Thank you.
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