BLT challenges global shipping firms, expands to Middle East

With the country's shipping industry still dominated by foreign players, not many local shipping firms dare to plunge into the business especially with the country's unfavorable shipping policy.

Among those limited local players is the publicly listed PT Berlian Laju Tanker (BLT), the country's largest sea transportation carrier for liquefied bulk cargo which ships crude oil, petroleum, lubrication oil, chemicals, liquefied gas, vegetable oil, animal fat, molasses and asphalt.

The company currently has 37 vessels with a total load capacity of around 400,000 dead-weight tons (dwt), serving clients such as the state-owned oil and gas company Pertamina, Shell, Exxonmobil, Caltex and Saudi Arabia-based petrochemical company Sabic.

The Jakarta Post's Rendi A. Witular interviewed BLT chief executive officer Widihardja Tanudjaja last week on the prospects for BLT business amid global economic uncertainty and lingering security concerns at home.

The following is the excerpt of the interview:

How do you view your market prospects this year?

If tension in the Middle East subsides particularly after the Iraq war, I think the market prospects will be fairly good, especially for petrochemical products (shipment).

The development of new petrochemical plants from 2003-2010 will be concentrated in the Asia Pacific and the Middle East. For the Middle East, in particular, total output in 2003 is forecast to reach 16 million metric tons from 15 million in 2002.

Therefore, we expect an increase in shipment (business) from the Middle East to the Far East especially to China, India and Southeast Asia.

Moreover, there will also an increase in output capacity of chemical plants in Malaysia, Thailand and Korea in 2003 to replace supplies from Europe and the United States.

Another important factor is the World Trade Organization regulation which requires China to ease protection of bulk chemical import into the country. Currently China is the biggest market for our commercial operations.

What about the local market?

The local market offers huge potential. Last year Pertamina supplied 3.5 million dwt (of shipment business). BLT only managed to ship around 200,000 dwt while most of the remaining volume was shipped by foreign vessels. There is still a huge market share for local shipping companies since we are protected by the cabotage policy (interisland shipment must be handled by local firms). However, due to the small number of local players involved, foreign shipping companies are currently also welcomed.

How bad is the impact of Iraq war and the outbreak of Severe Acute Respiratory Syndrome (SARS) on BLT since 65 percent of the company's income is derived from overseas business?

SARS will have no (direct) impact on our business but on our crew. We have told our crew to be more alert.

Although there was a war in Iraq, trade activities in neighboring countries were still active. The Hormuz Straits (which connects the Persian Gulf with Oman) was still open for ships, so countries like Iran, Saudi Arabia, Qatar and Kuwait could still export their goods.

However, the Iraq war caused our operational costs to rise by 15 percent due to the increase in fuel prices, component costs and war-risk insurance.

Any impact on this year's profit target?

If the tension in the Middle East continues we forecast there will be a decline in our revenue. Our target for this year is an increase of around 12 million metric tons of shipment from 10.3 million last year.

There have been signs that operational costs started to decline in March after the end of the Iraq war.

If the Middle East conflict could be resolved soon it would have a positive impact on our operating costs and on our expansion in the Middle East.

What about problems at home such as the looming war in Aceh and the preparation for the 2004 general election which could trigger social unrest?

Since most of our income is derived from overseas operations, and most of our assets are mobile, the affect of such risk is small, especially since the company's autonomous overseas operating offices can maintain all operational functions.

What will be your focus in the next two years?

We will focus on the shipment of petrochemical products. Iran, Qatar and Kuwait will be emerging players after Saudi Arabia. Iran currently has the largest petrochemical facilities after Saudi Arabia. We seek to net clients from those countries.

To anticipate the increasing business, we have ordered eight new ships to enhance our fleet with a combined load of at least 80,000 dwt. With the new ships we expect to increase our load capacity by around 2 million metric tons a year.

How optimistic are you about the expansion plan into the Middle East, since the market is dominated by Japan and European countries?

We're certain we can compete since we offer cheaper freight rates with the same ship specification. The low rate is possible since our operational costs are lower than their's because our crew are all from Indonesia.

How tough is the competition at home, such as from the Humpuss Group?

Humpuss concentrates more on delivering LNG and methanol. The real competition is from foreign players in Japan, South Korea and Europe.

Are there any plans to buy back BLT share from the World Bank subsidiary International Finance Corporation (IFC)? (IFC owns about 14 percent shares in BLT)

Currently, we have no plan for that. We are happy to be partly owned by IFC as there are a lot advantages. First, for our credibility and second for the trust of local and foreign investors and banks. With IFC, foreign banks have the trust to extend loans to us.