An exclusive interview - In conversation with Fednav
First of all, one should single out a rather remarkable phenomenon: apart from specialists in the marine industry, few people realize that the fledgling enterprise that became the leader in Great Lakes international shipping is owned and managed today by members of the same family that created it 70 years ago in September 1944.
LADI PATHY. It is true that there are not many family shipping companies in North America. In Europe, however, shipping remains a very family-oriented business.
Q Mark and Paul, what eventually led you to join your father in the company?
MARK PATHY. We were never pushed to join the family business. Both of us had prior careers in other industries and only joined the company in our late 20s. Personally, I have found it to be a very dynamic and stimulating industry, dependent on an ever-changing set of variables in the global economy. Now, I can't imagine doing anything else.
PAUL PATHY. The shipping of commodities is a backbone of the world economy. Whatever events make newspaper headlines, from growth in China to drastic weather incidents and conflicts in the Middle East, they directly affect this business. I really like to be involved in a business you can touch and taste.
Q Indeed, Fednav is known for a family culture that is sometimes not as obvious in publicly traded companies.
LADI PATHY. The culture of the company can be summed up as one of total integrity, sound business judgment, and very close interest in the people who work here. It's almost like having a larger family that we, as owners and managers, feel responsible for. We have many long-time employees who have clearly lived their whole business lives with us.
MARK PATHY. A strong sense of loyalty from our employees is reflected in our retention rates. In addition, since Montreal is not one of the world's great shipping centres like London or Singapore, there is a limited available pool of shipping expertise. So, in general, we have to rely on a strategy of hiring bright young men and women and training them to be excellent shipping people. So once you have made that investment, you obviously want to keep them.
Q In recent years, we have seen Fednav invest hundreds of millions of dollars in new vessels to renew its fleet. What is all the more striking is that Fednav has never wavered during this period from its confidence in the future of the Great Lakes/St. Lawrence waterway as a gateway to the industrial heartland of North America despite a decline in Seaway traffic.
MARK PATHY. There's no doubt that Seaway volumes aren't what they used to be, but they have stabilized in recent years. The Seaway will remain a critical gateway for trade with Europe, the Americas and Africa. In addition, we're witnessing a growing need for project cargo associated with the development of energy resources in North America, including the Alberta oil sands and wind farms. There's also a resurgence in manufacturing fuelled in part by the discovery of these energy resources. These are all positive indicators for general cargo imports. At the same time, growing demand in the developing world for coal and in Europe for biomass is creating new export opportunities.
Q Fednav is unquestionably the largest ocean-going user of the Seaway. Amidst rising competition, does Fednav still, as it did a number of years ago, account for one out of every two deep sea vessels transiting the Seaway's system of locks and channels?
MARK PATHY. We are today at about 40 per cent on a volume basis. Heavy-lift project cargo and specialty cargoes like windmills, coming in on smaller (foreign-flag) vessels, have been a factor in reducing our overall share.
Q A decade ago, cargo volumes through the Great Lakes were reported to represent 50 per cent of Fednav's total tonnage compared with up to 75 per cent previously. What has been the geographic evolution of this trade?
MARK PATHY. Great Lakes trade is now about 30 per cent of our business. The drop is a reflection of reduced cargo volumes but also of our expansion into more wide-ranging trading patterns in the Atlantic as well as growth in the Pacific.
Q For many years, Fednav has operated a scheduled service, FALLine, between North European, St. Lawrence and Great Lakes ports. Concentrated on steel-in and grain-out, how is this traffic developing under current conditions?
MARK PATHY. Volumes took a huge dip in 2009 during the worst of the global economic downturn but have been steadily recovering since then. In fact, in 2013 we will have recorded more tonnage and sailings than we've had since 2006. Of course, profitability varies year to year, but the cargo volumes seem to be coming back.
Q Looking to its future, FALLine appears to be well positioned to expand its business under the Canada-European Union free trade agreement concluded on October 18, 2013. How do you see the opportunities?
MARK PATHY. We would expect the agreement to improve the economics of both traditional FALLine cargoes inbound, namely steels and general cargo, as well as agri exports outbound, which in combination could be quite positive for the Seaway. In our business, it may not actually create new trade but will facilitate existing trade between Canada and Europe, resulting in an increase of the volumes we carry. That being said, the deal has to go through a lengthy ratification process that could last two years.
Q Let's look at perspectives for Federal Marine Terminals, which operates stevedoring facilities in 11 ports in the U.S. East Coast, the Gulf Coast and the Great Lakes.
PAUL PATHY. In general, these terminals became an added part of the services that Fednav offers. The terminals on the Great Lakes are not doing as well as they once did, but we are diversified enough so we can spread things out. For example, Florida has been booming with construction materials that helped to offset slower activity elsewhere. Hamilton had a fantastic year a couple of years ago. And the Gulf terminals are presently showing great strength.
MARK PATHY. Ships are movable assets. They can go where business leads them. But terminals are fixed assets. Thus, diversification is a major strategic component.
Q Moving on to Fednav’s very substantial fleet renewal program, please outline some of the highlights and the impact on your operations globally and regionally?
MARK PATHY. There were 10 newbuilding deliveries in 2012. And we have now 16 vessels on order for delivery mainly in 2015-2016. What's significant, too, about this major renewal is that it shifts the balance of our fleet (some 75 ships) from charter-dominant to an owned-based fleet.
This certainly reflects our commitment to the industry and to the Lakes in particular because 12 of the 16 new vessels will be Lake-suitable Handysize bulkers. They will use 28 per cent less fuel (emitting 28 per cent less GHG emissions) and produce 33 per cent less nitrogen oxide emissions than the earlier generation of ships purchased a decade ago from the Oshima Shipyard.
The general design improvements by the Japanese shipyard and by our own naval architects also allow us to build ships that are flexible enough to adapt to the changing global environment. So when the Seaway is closed (in the winter months), these very efficient ships can compete with any of their size anywhere in the world.
LADI PATHY. It's important to note that we don't cut corners. These ships are probably not built as cheaply as they could be if we were short-term players. We are building them to maximum safety and design standards and we are building them to last. We are not looking at ships that we could flip or sell to somebody else in five or ten years. Our approach helps us with shipper/customers who, more and more, are demanding not just good freight services but superior' environmental and safety performance. Another key point I would like to make is that we are in a very fortunate position as a company because we chose not to order new vessels when the shipbuilding market was at its peak. We waited for the opportune time for newbuild prices to decline to rebuild our fleet.
Q What are the elements in the present volatile environment of international shipping that concern you the most -such matters as escalating fuel prices, vessel oversupply, slim profit returns from historically weak freight rates, increasing finance and operating costs, complex regulatory issues, uncertain economic trends or a combination of the above?
MARK PATHY. A lot of those issues are related, but the fundamental factor that concerns me is the oversupply of vessels. In addition to companies like ours that are renewing their fleets, we've seen a trend lately of non-shipping interests jumping into the market - investment funds ordering dozens of ships at a time. I think this development, taking place while the industry is still reeling from the last surge in newbuild orders and the crash in the global economy, is likely to push any kind of sustained recovery even further out.
Q In your view, which shipping firms stand the best chance of surviving in this environment?
MARK PATHY. I think the survivors will be well-managed companies that take a conservative and measured approach and avoid making rash decisions based on short-term market volatility.
Q Last, but not least, we should at least briefly review Fednav's historic pioneering role in Arctic shipping, especially with several new initiatives on the immediate horizon.
PAUL PATHY. We have been moving cargo in and out of the Canadian Arctic for over 50 years, initially in resupplying Northern communities and serving DEW line stations and during the last 25 years in transporting all the bulk ore and concentrates that have moved out of High Arctic mines.
At the present, we own and operate the world's largest and most powerful non-nuclear ice-breaking bulk carriers, the Umiak I and the MV Arctic. These vessels carry base metal concentrates on long-term contracts from Raglan (Quebec) and Voisey's Bay (Labrador), to the Port of Quebec, returning with re-supply materials loaded in St. Lawrence River ports.
2014 will mark a new chapter in Fednav's Arctic operations stemming from an agreement signed a year ago with Canadian Royalties for transporting nickel and copper concentrates from Nunavik in northern Quebec to customers in Europe as well as imported mine supplies from Europe. For this purpose, a dedicated 25,000 DWT Polar Class 4 bulk carrier, the MV Nunavik under construction at a Japanese shipyard, should be making its first winter voyage during the first quarter of 2014.
Of great significance, too, will be the critical role Fednav will be playing in the shipment of iron ore from Milne Inlet on Baffin Island to Europe from the vast Mary River orebody.
Overall, we believe that the experience we have gained and the expertise we have developed in Arctic transportation over the last half century will stand us in good stead as we continue to develop opportunities in the Arctic.
Q Otherwise, how do you respond to mounting reports or speculation that warming temperatures will open up the whole Northwest Passage in the relatively near future to commercial shipping for an extended summer navigation season? Is such a full transit concept realistically viable compared with the more restricted “destination” approach that has long been a Fednav strategy?
PAUL PATHY. We don’t believe the Northwest Passage will become a viable, regularly traveled trade route, despite the apparent shift in climate. The ice conditions remain challenging even in the warmer months, open-water navigation and draft is limited, and there is little ice-breaking or infrastructure support available in the event of an emergency. It might make sense for the occasional cargo under ideal circumstances, but as a general rule, the Northwest Passage is unlikely to become a practical or meaningful transportation artery in the foreseeable future.