General Manager, North Asia, SUTTONS INTERNATIONAL, Shanghai, China
2008-01-01, China International Business (CIB) www.cibmagazine.com.cn
By Mina Choi | From CIB January 2008 Print Edition
FACE TO FACE INTERVIEW
EDUCATION: Eton College, Oxford University
POSITION: General Manager, North Asia, Suttons International
IN HIS POCKET: Basic Nokia mobile phone -- "anything more costly is a waste because I sometimes leave them behind in taxis" -- Swiss army knife, mini Maglite torch, train ticket
Founded in 1954 in the UK, Suttons has grown to be one of the world’s leading specialist transportation solution companies, transporting bulk liquid chemicals and bulk gases.
Suttons has two divisions – a road tanker business, based in the UK, and an international shipping division, which operates 3,000 ISO tanks, specialist containers used to transport liquid chemicals and gases, with a network of offices worldwide. The company opened its first office in China in Shanghai in 1997.
CIB visited William Leigh-Pemberton, the general manager of North Asian operations, at the firm’s Shanghai office to talk about the art of transporting dangerous chemicals worldwide.
Can you tell us a bit more about what Suttons does?
A typical example of what we do is pick up aniline, a chemical used to make polyurethanes for insulation in refrigeration, from a chemical factory in Nanjing and deliver it to a company in Houston, Texas. It’s basically a door-to-door service.
What's the current state of the market?
We’ve entered the boom time of sourcing of chemicals internationally, which is reflected in the fact it is very, very difficult for us to find space on any container vessels going to Europe. Chinese exports to Europe have increased dramatically and we have to fight for space on those ships that are carrying fluffy toys, deck chairs and barbeque sets. Our loads are much heavier so it’s a very tough thing to negotiate. Most ships would prefer to transport lighter and less dangerous loads, so we have to maintain a very good relationship with the various ship owners.
How about costs?
The volume has gone up but the costs have also gone up. I would say that freight costs have almost doubled even from just one year ago. In China, the shipping routes — which shipping lines go to which port — are pre-determined. So in Shanghai, for example, loads coming in from Asia go to Waigaoqiao, and loads coming in from Europe and the US go to the Yangshan Deep Port. That has really pushed up the costs for us. Yangshan is much farther away.
Are there congestion issues at the port?
Actually I think the port operators are very well managed. There is no congestion except during the time leading up to the Chinese New Year. If you compare it to Rotterdam [in the Netherlands], where there are [regular] strikes, or India, I would say ports in China are being very efficiently run. The real problem with us is that in terms of volume, compared to exporters like Tesco or Wal-Mart, we can’t compete and we’re also shipping heavier loads, so we’re not really in a position to negotiate.
Can you give us a geographical overview of your operations?
Well, the more expensive chemicals are usually produced abroad. The top ports where expensive chemicals originate from are Ludwigshafen, Germany and Houston, Texas. Those chemicals would then ship into Asia, to ports in Singapore, the Chinese mainland, Korea and Taiwan. Then these tankers get cleaned at licensed cleaning stations, and we use them to export out of Asia. We export high-level or mid-level chemical products [out of] Korea, Japan and Taiwan. They are used in industrial processes to turn into consumer goods. From the Chinese mainland, the chemicals going out are base chemicals and intermediates. These are then supplied to multinationals abroad, used as starter materials for their more expensive chemicals produced back in Europe and USA, and the cycle starts again. So basically many of the labor-intensive chemicals are processed in China.
Do you also provide domestic distribution in China?
[Yes]. For example, we may transport 20 tons of, let’s say, sodium lauryl sulfate — something you’d find in shampoos or toothpastes — from East China to an end user in Guangzhou.
Have infrastructure improvements in China changed your domestic business?
It’s been fantastic for us. For example, when I first started working with our customer of eight years, based in Xin An Jiang, in Zhejiang Province, our truck took eight hours — almost all day — to drive back from the factory to the Shanghai harbor. Now it takes just five hours each way, almost half the time. So the cost is lower for us and we have been able to consistently lower our prices.
You are transporting dangerous chemicals. What kinds of safety standards does Suttons have?
Suttons maintains a strong leadership in safety standards, and [conforms] to all health, safety and environment (HSE) standards. But this has been a problem for us because some competitors do not observe the HSE standards. For example, every time we transport a chemical, we must do a cleaning-out of the container after it unloads. There are certain protocols for disposing of the wastewater, but this standard varies very widely in Asia. . . . So for example in Malaysia, there are cleaning stations that will charge as little as USD 80 a wash, but that means there are day laborers in flip-flops washing out the tanks manually with the wastewater being dumped into the sea. We at Suttons have to pay USD 200 a wash because we use cleaning-out companies that meet our environmental standards. If you look at it long-term, the difference in the two cleaning-out prices is significant, but there is nothing we can do about what our competitors do unless more pressure is put on them. This is the largest and most significant business area of unfair competition for Suttons.
What's your volume of business?
Well, in China, if you combine our domestic distribution and our international
export side, we carry 750 loads a month. When we started in 1997, we
had one customer with 15 loads a month. And I would say our whole group
transports about 50,000 loads a year.
How many employees in total do you have in China?
We have 30 employees in the team and are continuing to grow. We are currently building a cleaning-out station on a greenfield site at the Shanghai Chemical Industrial Park, with an investment of USD 500,000. This will be built to service only our own tanks. This chemical industrial park in Shanghai is already the largest such facility in Asia.
So is China now your main growth market?
China definitely has shown a much quicker expansion rate than anywhere else. But the US has shown growth and so has the UK/European market.
And have you increased your market share?
We have taken more market share from our competitors, but we are limited by our size.
Who are your main competitors?
There’s Stolt Nielsen Transportation Group from Norway, who are the biggest players. I would say they are about five times bigger than we are. Then there is Hoyer, a German company and Bulkhaul, a UK-based company. We’re smaller in size because we are a specialist carrier that generally avoids high-volume commodity chemicals. We tend to carry technically much more demanding and high-value products.
Do you have any domestic Chinese competition?
China has its own homegrown ISO tank operators and they are very, very difficult to compete with. They are very well-financed, many of them being state-owned, and I would say that they take a considerably longer-term view of return on capital than Suttons. . . . In China, the business mentality is often still “build it and they will come,” but Western companies cannot compete on that level or justify investment of capital until they have signed contracts in hand.
How long have you worked with the company?
I’ve worked at Suttons for over 10 years.
Has the business changed significantly since you joined?
In those 10 years, our international container division has grown tremendously. At the same time as opening up in China, we also opened an office in Tokyo and another in Kuantan, Malaysia. So of our 10 overseas offices, three of them are in Asia-Pacific. In [terms of China], the Chinese chemicals industry was not so developed, and consumer goods production developed much more quickly than the chemical sector. This created a huge demand for chemicals not available in China. In the last five years, there have been massive imports of chemical goods into China. Now this importing has dropped quite a bit because of the new investments in chemical production capacity. And the biggest effect on our business came on July 1, 2007, when the Chinese government withdrew its 13% export subsidies on many chemical exports. For many companies, that 13% was their profit margin and many of them have left the export business. We’ve seen a drop in export business from that date.
In your 10 years at Suttons, what have you learned is the most important aspect of doing business in China?
I think the most important thing is to maintain stability. We have tried our best to maintain the same team and to avoid staff turnover. We’re basically a service provider and it’s very important for our clients to know whom they are dealing with. We do our utmost to retain our staff by creating a fair working environment. We work hard to build a team, and I’m proud to say that out of 30 people here, three of them have been with us for the past 10 years, and another six or seven staff members have been here at least five years. The other important thing is that we always try to keep our promises. We never over-commit or get in over our heads. Our services are more expensive than some of our competitors, but we have still managed to increase our business significantly. And that has been very difficult as the price of oil has gone up and the freight rates have shot up. We cannot always pass these costs onto our customers.
Where do you see future growth in China?
I think the real avenue of growth in China will be domestic distribution. There’s been an increasing investment by the government, and increasing end-user demand inside China. This is creating a bigger intra-China market, and domestic distribution will grow much more than overseas distribution. The rate of exports cannot continue to grow forever.