Riding shipping's new wave

VANCOUVER Gerry Wang likes to take his clothes apart. Not literally; the 46-year-old shipping magnate and chief executive officer of Seaspan Corp. wears a conservative dark suit and sports the white collar and cuffs of the ship's captain he once aspired to be.

He uses the suit as a symbol.

The buttons might be from India, he says during an interview in his Vancouver office, which provides a view of container ships in Burrard Inlet. The wool might be Australian, the fabric might cut and sewn in Quebec. His suit, like a staggering amount of what the world uses, wears and buys, would not exist in its current form without those ships he can see from his window.

"Through globalization, through taking advantage of comparative advantages of different places in the world, we are making the whole thing work," Mr. Wang says.

That "thing" is the movement of everything from DVD players to lawn chairs to toothbrushes around the world in metal containers, a system that's transformed global trade over the past 50 years, and that Mr. Wang considers the underpinnings of an empire.

Seaspan is a brash new player on the global shipping scene, where it's sailed from nowhere to a multibillion-dollar operation that counts some of the biggest shipping lines in the world as its customers.

Borrowing from an airline industry model, Seaspan leases container ships to shipping lines, generating steady cash flow through long-term leasing deals while insulating itself from nasty headaches like rising fuel costs. It's focused on standardizing container ship design, ensuring that the mechanical systems and fixtures are consistent in ships, regardless of size.

That makes it more feasible for shipping lines to forge alliances like those in the airline sector, because ships become interchangeable.

Mr. Wang wants to build a fleet of more than 100 ships, collectively worth between $7-billion and $10-billion (U.S.), by 2010.

Seaspan is incorporated in the Marshall Islands and has executive offices in Hong Kong and Vancouver.

The only North American-listed company to turn a container-ship leasing business into a publicly traded, dividend-paying vehicle, Seaspan has shown a nearly piratical talent for finance, raising about $5-billion in debt and equity since going public in 2005.

The company, which is scheduled to release first-quarter results today, this month launched a nearly $200-million public offering, the proceeds of which will pay down debt and fuel its expansion plan. That foray comes as several would-be competitors, including Seacastle Inc., a division of New York-based Fortress Investment Group LLC, have cancelled or delayed financings as a result of market conditions.

Mr. Wang sees the rough financial seas as an opportunity for Seaspan to make "opportunistic" acquisitions when competitors start taking on water.

Similar to a real estate or other income trust, Seaspan focuses on cash flow and dividends, generating income through long-term lease agreements with shipping lines.

Parts such as engines, boilers and even door fixtures are uniform on each ship, allowing Seaspan to wring discounts from its suppliers through bulk purchases and making it easier for crews to be swapped from one route to another.

As Seaspan has built its fleet - it now has 29 ships on the water with another 39 on order for delivery over the next four years - sales have grown, but some of the company's financial engineering has made for choppy results.

In 2007, citing interest rate swap agreements that went the wrong direction, Seaspan reported a loss of $10.4-million or 20 cents a share on sales of $199.2-million. That compared with a profit of $37-million or 98 cents a share on sales of $118.5-million the previous year.

The company reported "normalized" earnings (excluding the swap agreements but not other items), of $62.6-million or $1.18 a share for 2007, compared with $38-million or $1.01 in 2006.

Seaspan Corp. is the product of an unlikely match between the shipping savvy and connections of Mr. Wang - who was born in China and was a rising star in its shipping sector before moving to Vancouver in 1990 -and the financial muscle of Montana billionaire Dennis Washington, who has interests in mining, real estate and aviation.

Mr. Wang was working for Seaspan International Ltd. - an unrelated company controlled by the Washington family - and was a consultant to Chinese clients when the Asian financial crisis hit in the late 1990s.

One of Mr. Wang's clients, a state-owned Chinese shipping line, wanted to snap up some South Korean ships being sold at fire-sale prices. But financing for such a deal was not readily available.

Mr. Wang came up with the notion of buying the ships and then leasing them to the client, using capital put up by Mr. Washington. An IPO followed in 2005.

A whirlwind of ship orders last year has raised worries of a possible glut.

Such questions have loomed even larger as financial woes in the United States have worsened.

There may be bumps, even crashes, Mr. Wang concedes. But he argues that the demand for more, bigger, container ships is not going away.

Consumers still want their cheap shoes. And Seaspan is poised to help deliver them.

"I believe globalization will not stop. I use the expression - you're used to watching HDTV - and someone wants to bring you black and white. You'd say no. We will have ups and downs.

"But the overall trend of globalization is unstoppable."

Ship shapes

Leasing is becoming more common in the shipping sector, in part because new ships are getting bigger, and cost upward of $150-million to build.

Post-Panamax ships - those too big to fit through the Panama Canal - have become commonplace on many routes. And those ships, which have a capacity of 6,000-plus TEUs (twenty-foot equivalent units, the volume measurement for a standard-sized shipping container) are pipsqueaks compared with the Emma Maersk, which was launched in 2006 and has a capacity of at least 11,000 TEUs. The Emma Maersk is nearly 400 metres long and 56 metres wide.

There are more than 100, 10,000-plus TEU ships on order. The appeal? Lower costs. Some studies suggest bigger ships can shave between 10 and 15 per cent from sea transport costs.      - 2008 April 28    GLOBE & MAIL     by Wendy Stueck


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