Cycle of Change

Mr. Hing Chao, Deputy Chairman

Setting the Course for the Company

It is a truism that shipping is a cyclical business, driven by a constant shift in the balance between demand and supply. Traditional shipowners such as Wah Kwong, who have been riding the wakes of shipping cycles for many a decade, have thrived on the waxing and waning moons of asset prices. However, the cyclicality of the shipping industry has been made increasingly unpredictable by new factors at work since the 2000s. The rise of China, with a seemingly relentless GDP growth and surging demand for goods and resources, led to an unprecedented boom in the shipping industry, driving the market to vertiginous heights between 2005 and 2008. Over-capacity and an unsustainable level of shipbuilding, however, soon plunged the market to a new nadir, the effects of which linger to the present day.

Ironically, the enormous pessimism generated by the prolonged downward cycle, which has stayed many a shipowner’s hand in ordering new vessels, has restored some level of equilibrium to the market. Yet as global trade becomes increasingly politicized and uncertain, and with disruptive new regulations and technology playing an ever-bigger role in ship operation, whatever optimism there is in a slowly rising – and volatile – market must be tempered with caution.

For Wah Kwong, while we are committed to our traditional role as responsible supplier of modern tonnage, we are cognizant of the need to make our business model more robust and resilient to market changes. This has led to an exploration of asset-light business strategy – “Wah Kwong Lite” – in order to optimize Wah Kwong’s value and natural advantages as a reputable international shipping company with unique insights, connections and know-how in East Asia. Over the past year, our team have been exploring different dimensions of Wah Kwong Lite. The first manifestation of this new strategy is the development of an integrated, flexible ship management solution that offers any combination of new-building supervision, operational, technical, as well as commercial management. In this regard we are grateful to our friends and strategic partners in China, whose trust and support has been indispensable to this development.

However, Wah Kwong remains, first and foremost, a shipowner. Despite the vicissitudes of the market, we have not shied away from placing orders for new ships, including a series of 11 ultramaxes from Chengxi shipyard, which were delivered between March 2014 and September 2015, and 4 aframax tankers, built respectively by Waigaoqiao and Sumitomo Heavy Industries, which were delivered in 2016 and 2017, as well as most recently two kamsarmax bulk carriers, to be delivered by Chengxi in the first quarter of 2020. The strategy set by our late President, Mr. George Chao, of owning and operating a diverse fleet of dry bulk carriers and tankers, has served us well and enabled us to survive in the extremely turbulent waters of the past few years. Our new-building activities are very much framed within an overall strategy of fleet renewal that is committed to this vision.

As we venture forward to embrace new opportunities and challenges, it is our tradition, values, and reputation, built up through three generations of stewardship, from our founder Mr. T.Y. Chao through the late Mr. George Chao to our current Chairman Sabrina, that have put us in a position to navigate out of the straits into unchartered areas. Since our earliest days Wah Kwong has been committed to running our own ships, as well as nurturing seafarers and ship managers, while from the 1990s, Wah Kwong has been building ships and supervising new- buildings in China. This has established Wah Kwong’s reputation as a knowledgeable and reliable partner in new-building supervision and ship management.

At the same time, Wah Kwong has significantly enhanced our efforts to provide high-quality training to seafarers with the launch of training facilities in Qingdao and Weihai. We hold regular crew conferences and training programmes for our own officers, as well as educational programmes in partnership with Shandong Transportation Academy, particularly for the handling of liquid cargo, which is one of the only programmes of its kind in China today, with state-of-the-art facilities.

Training centre in Qingdao, Shandong Province
During the Beijing visit on 27-30th Sept 2017, Ms. Sabrina Chao (front row, 3rd from right) led ship- owners to visit the National Development and Reform Commission and was received by Mr. Hu Zucai (front row, centre), Deputy Director of the Commission. Photo courtesy of HKSOA.
Vision for Hong Kong as International Maritime Hub

When T.Y. Chao founded Wah Kwong in 1952 he had a vision of a great shipping company that would be the “light of China”. From the very beginning he understood that as a global business, he had a responsibility to represent and serve the needs of the community, and that the role of a shipowner was that of a bridge that connects people, companies, and countries. This vision led him and ten other likeminded shipowners in Hong Kong to found Hong Kong Shipowners Association in 1957, and led the first delegation representing Hong Kong shipowners to Taiwan in the same year.

By the 1970s, Hong Kong shipowners were considered by many to be one of the greatest shipping owners in the world, second only to the Greeks. By 1984, at the height of the “golden years” of Hong Kong shipping, Wah Kwong controlled a fleet of 50 dry bulk carriers and tankers. Like many other shipping companies, Wah Kwong had a major setback when the market crashed in the 1986, but we soon bounced back and, under the helm of our late president, steered the company out of the troubled waters. Throughout this experience, Mr. George Chao never wavered in his commitment to shipping or Hong Kong. Instead, his vision for Hong Kong as an international maritime centre started to take shape and to deepen, particularly after his term as Chairman of Hong Kong Shipowners Association in 1995–97, leading to his call for an independent Bureau for Transportation and Shipping, which he perceived as essential in addressing the needs of Hong Kong’s maritime industry.

When our current Chairman Sabrina took the helm of Hong Kong Shipowners Association in 2015, she undertook to address some of those needs. In particular, she took significant steps to reforming the Association from within, with the view of engaging major stakeholders in a more effective manner.

During her tenure, Sabrina re-visited the Association’s work programmes and re-organized the Association, with an enhanced committee structure and an expanded secretariat with broad expertise to strengthen liaison and dialogues with different stakeholder sectors at all levels – local, national, regional and international, to promote and protect members’ interests on issues of common concern.

Specifically, while the Association has continued to maintain a strong presence in the global and regional arenas, it also made the following achievements in local and national affairs:

Mrs. Carrie Lam (front, first from left), GBS, JP and Ms. Sabrina Chao (next to Mrs. Lam) on 23rd Nov 2017 at HKSOA’s 60th Anniversary cocktail reception. Photo courtesy of HKSOA.
  • Planned and kick-started a year-long celebration with notable events and projects (including hosting the AGMs of the International Chamber of Shipping and Asian Shipowners’ Association) to commemorate the Association 60th anniversary and to achieve the purposes of members networking, community engagement and international partnership. All these events and projects were well received.
  • Sought improvement of the Hong Kong Shipping Registry, including the provision of support services, the quality of accident reports, the delivery of certificates, the rationalization of exemption and dispensation standards, etc. All the new measures were welcome by the users.
  • Lobbied for policy enhancement, such as extension of the “14-day” rule for non-local seafarers to three months, expansion of the scope of the Maritime and Aviation Training Fund, and policy support and financial incentives for the development of ship leasing business. All these initiatives were considered positive and conducive to the long-term growth of the industry.
  • Organized delegation visits and strengthened the liaison mechanism with the Mainland authorities and other business contacts, at national, provincial and municipal levels, to facilitate professional and information exchanges on policy and regulatory issues of concern to the Hong Kong maritime industry, and to help the industry tackle problems encountered in the Mainland ports.
Ms. Sabrina Chao (left) discussing with Mr. Frank Chan Fan (right), JP, Secretary for Transport and Housing at HKSOA’s Executive Committee meeting on 6th November 2017. Photo courtesy of HKSOA.

One of Sabrina’s outstanding achievements as Chairman of Hong Kong Shipowners Association was to articulate Hong Kong’s natural competitive advantages as international maritime centre, which consist in its position simultaneously as a major international financial centre and a well-established shipping centre. In addition, together with peers from the finance and shipping sectors, she put forward a paper (“Maritime Leasing Paper”) that argues for the need to create better policies and more favourable business conditions to make Hong Kong a ship leasing centre, and to attract international leasing companies.

Press Release from HKSOA:

HKSOA supports FSDC’s recommendations for the maritime fnancing and leasing industry

The Hong Kong Shipowners Association (HKSOA) supports the recommendations in the “Maritime Leasing Paper”, published by the Financial Services Development Council (FSDC) earlier, for the long- term growth of Hong Kong maritime industry.

The HKSOA shares the FSDC’s concern that Hong Kong must expedite efforts to build a base for commercial principals, including ship owners, lessors, carriers, investors, operators and ship-management companies, with a view to attracting more service providers to Hong Kong and expanding its maritime cluster.

“Commercial principals are the drivers of the maritime business. Hong Kong, in particular, needs commercial principals to maintain and grow its maritime presence,” said Mr. Jack Hsu, Chairman of the Association. “If more commercial principals are attracted to Hong Kong, it makes commercial sense for the related service providers to follow. From time to time, we come across principals from both overseas and the Mainland of China that are interested in setting up operations or regional offces in Hong Kong, as long as the city provides a stable tax and investment environment.”

The HKSOA supports the various recommendations in the FSDC’s paper including, among others, urging the Government to ensure the stability, consistency and transparency of Hong Kong’s section 23B tax regime; to conduct a full consultation with the industry during the Government’s preferential tax regime review; to reduce the standard profts tax rate for qualifed ship leasing management activities and shipping-related support services; to conclude more double tax agreements with major shipping jurisdictions; and to upgrade the effcacy of the Hong Kong Maritime and Port Board.

In response to the maritime leasing report, Ms. Carrie Lam, the Chief Executive of Hong Kong Special Administrative Region, announced in her most recent Policy Address (delivered in October 2018), that the Government has undertaken the following:

  1. “Using tax measures to foster ship leasing business in Hong Kong and commissioning the Hong Kong Maritime and Port Board to set up a task force to devise the details, with a view to enhancing Hong Kong’s position as a ship leasing centre in the Asia-Pacific region”;
  2. “Injecting $200 million into the Maritime and Aviation Training Fund to enhance the training and nurturing of talent for the sectors”; and
  3. Asking “the Transport and Housing Bureau to take the lead, together with other relevant governments, in putting feasible proposals as soon as possible” to “encourage more commercial principals of the maritime industry (such as shipowners, ship operators and ship managers) to base their operations in Hong Kong”.

In other words, the Government’s response to the maritime leasing report is very positive.

On 14th March 2018, Ms. Sabrina Chao, our Executive Chairman, was given the 2018 Commodore Award by the Connecticut Maritime Association (CMA) in recognition of her contributions to the shipping industry. Photo courtesy of CMA.

At the same time, Sabrina has continued her father’s campaign to persuade the Hong Kong government to establish a statutory body for the maritime industry, which led to the establishment of Hong Kong Maritime and Port Board (HKMPB). This may be seen as an important milestone and first step, hopefully, to the establishment of a full-fledged Transportation and Shipping Bureau, the idea of which appears to be gaining momentum under the current administration.

Sabrina has set a personal example of how a traditional shipping company such as Wah Kwong may adapt and find its position in a fast-changing world while upholding our traditional values, and at the same time promote, elevate and help Hong Kong discover its maritime path in the cycle of change.

In recognition of her significant contributions to the global shipping community, Sabrina was named as the Connecticut Maritime Association’s “Commodore for the year 2018”.