How does a relatively young, Indian-run, Thailand shipping company become one of the world's largest owners of small, dry bulk cargo vessels plying routes from the Middle East to Latin America and Australia? By staying nimble, thinking big, and leveraging global trade growth.
Bangkok-listed Precious Shipping, the top entry on this year’s list of Asia's Hot Growth Companies, has produced some of the highest returns on equity and invested capital for any company in Asia over the past four years. "We invested for the future and we always figured we could get fairly close to where we are now," says Chief Executive Officer Khalid Hashim.
Hashim, 53, comes from a long line of professionals who have been engaged in the dry cargo tramp markets for some five generations. "I knew I'd end up in the shipping business in some way or the other," he says. Hashim started his own career with a small Indian company in Mumbai. He then worked in Singapore for a Maldivian shipping outfit.
The Birth of Precious
In 1984, Hashim moved to Thailand to set up a shipping division for an Indian-owned trading conglomerate, GP Group. GP acquired the first of many ships in 1987, and owning and running ships became part of the group's business.
Precious Shipping, an independent shipping group majority-owned by GP, was born soon after. Since then the company has grown and is today one of the largest owners of ships classified in the "handy" category, which are half the size of the giant Panamax carriers. The line's ships carry rice, sugar, fertilizers, cement, and iron ore around the world.
Precious has grown by leaps and bounds over the past four years of the shipping upturn. Return on equity was 31% in the last fiscal year ending June. "In 2003 we had 28 ships. Now we have 54," says Hashim. "In 2003 our total debt load was about $265 million. We have used our cash flow to get out of debt, and we are accumulating cash so that we can replace our fleet, strengthen our balance sheets."
No Collapse in Sight
The bull run in commodities and the red-hot economies in Asia have helped shippers enjoy a dream season in recent years. Yet Hashim says it wasn't just the global commodities boom. Countries are buying more from each other, and the growth in free trade has helped the shipping industry in general and companies like Precious in particular.
But the shipping cycle is turning down again, with higher fuel costs and increasing capacity squeezing margins. Precious' costs rose 11% last year, and margins are falling.Precious' ships, all of them bought secondhand, have an average age of 19 years. The cost of replacing old ships at a time when vessel prices are high could hurt margins further. Yet Hashim says as fleets age, older ships are scrapped—which will actually reduce capacity. A collapse in the dry bulk market is "simply not going to happen unless the entire global trading system collapses."