Algoma Central Corporation (ALC-TSX)
January 22, 2010 Issue
The Most Powerful Name In Corporate News and Information
In Business For 110 Years With The Largest Fleet Of Dry Bulk Vessels Moving Raw Materials On The Great Lakes, Algoma Central Corporation Has Diversified Their Risk By Moving Into Ocean Dry Bulk Vessels And The Petroleum Tanker Business
Algoma Central Corporation, with its unrelated
partner in Seaway Marine Transport, is the largest operator of dry-bulk
vessels on the Great Lakes - St. Lawrence Seaway. Algoma Tankers, a
wholly-owned subsidiary, operates seven product tankers throughout the Great
Lakes to the Eastern Seaboard. The Corporation has five product tankers
under construction that will join its one existing international product
tanker and 18 additional product tankers owned by unrelated partners in
Hanseatic Tankers. With its unrelated partners, the Corporation is part of a
29 vessel ocean-going dry bulk fleet. The Corporation jointly owns five
vessels and wholly owns two of the vessels in the group. The Corporation
also owns three ocean-going geared bulk carriers. The Corporation provides
diversified ship repair, diesel engine repair services and fabrication
services to ship-owners and industrial customers throughout the Great Lakes
- St. Lawrence Waterway. The Corporation also has a mix of commercial real
estate properties in Sault Ste. Marie, Waterloo and St. Catharines, ON.
President and Chief Executive Officer
Algoma Central Corporation
St. Catharines, Ontario
Greg Wight was born in Sault Ste. Marie, Ontario and graduated from Mount Allison University with a B.A. in Economics. He worked for Thorne Riddell (now KPMG) and achieved his Chartered Accountant designation before joining Algoma Central Corporation in 1980. He has held a number of senior management positions with Algoma Central over the past 30 years and has been President and CEO since May 1, 2008. Prior to assuming the CEO role he was Executive Vice-President and Chief Financial Officer of Algoma Central Corporation, a position he held since January 2006. Greg Wight is a Chairman of The Standard Compensation Act Liability Association and the Chairman of the Canadian Shipowners Mutual Assurance Association.
In addition Greg Wight is a past Director of the Niagara Health System and a past Director and Treasurer of the United Way of St. Catharines and District.
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – January 22, 2010
Mr. Wight: The biggest change for Algoma over the last year and a half is that prior to the recession we had a business model where everything was operating at full capacity. With the impact of the recession on our customers this has not been quite possible.
CEOCFO: How do you adapt as a company to this situation?
Mr. Wight: We have seen other times in our history where the economy has not been so good, which has affected our customers. Our business model for that is quite simple; we determine how many ships we need and we lay some ships up and shed our cost by idling the ships. If it is something more long-term and systemic, then we would have to look at changing the size of our fleet or determining whether we want to be in that business segment. We don’t see that right now.
CEOCFO: So your history puts you in good stead for times like this!
Mr. Wight: Because we have a large fleet and it is diversified, if the economy is down then we just look at our most inefficient vessels, idle them and shed cost. It still impacts our profitability, but we are able to at least reduce costs fairly quickly.
CEOCFO: Would you tell us about the fleet and about the different business segments?
Mr. Wight: We have a number of different fleets and we are 110 years old, therefore we have been in this business a long time. Our background is in Great Lakes shipping with dry bulk vessels, moving free-flowing raw materials such as coal, iron-ore, salt, aggregates and grain for companies around the Great Lakes. We grew that fleet over the years and by the early 1990’s we were the largest fleet on the Great Lakes, but we felt that we wanted to diversify our risk and get into some other different business areas using our strengths that we had developed. We wanted it to be in water transportation, but in different segments. In the late 1990’s we moved into ocean dry bulk vessels, self-unloaders specifically, which are very dominant on the Great Lakes because of their technology. We became an owner of a small fleet that operated up and down the east coast of North and South America. Since then we have grown that fleet and it is now part of a large self-unloader pool, largest in the world. About the same time, we had an opportunity to get into the petroleum tanker business; it is a different product but the same philosophy, moving large volumes of products for large customers. We bought the fleet from the Canadian subsidiary of Exxon Mobile in 1998. Since then we have transformed that fleet from a single hull fleet of 5 vessels to now a fleet of seven modern double hull vessels. In using that knowledge and expertise, we have since expanded into the ocean product tanker business as well. We have 5 product tankers on order in China for delivery to go into a large ocean product tanker pool. We have one vessel operating in that pool now. We have essentially gone from the Great Lakes, but using the same business model and moved it outwards.
CEOCFO: What about the industry in general?
Mr. Wight: The water transportation industry, the parts that we are in are dependent on the financial health and robustness of our customers. That is why in the last year and a half it has been a bit of a struggle, because we move iron-ore, coal and aggregates for the steel industry, which is our largest segment. This segment obviously has had their problems, but we see that coming back a bit. We move a lot of aggregates for road construction and building projects as well. We had hoped that would come back with the stimulus projects, but not many of them have actually come to fruition in our operating environment. The petroleum business is tied to the economy as well. One of the bright spots we have is that we move a lot of salt for road control around the Great Lakes, which is not tied to the economy, but tied to the severity of the winter the year before; therefore counter cyclical. We move a lot of grain as well, which is not tied to the economy either, but tied to the ability to grow and sell grain from North America outwards. We are in many different business segments. We have a lot of customers in different business segments each having their own drivers, which give us a bit of shielding against the total collapse of the markets.
CEOCFO: Any new more efficient ways to operate?
Mr. Wight: The evolution of going from vessels that had to be unloaded by shore-side equipment to vessels that could unload themselves at customers’ docks. That is a technology that really started to grow in the 1970’s and 1980’s and has been refined since. On the dry bulk side that is our new technology although, it is thirty years old now. It really is the most efficient way to move large volumes of products because you avoid having the expensive shore-side facilities at each customers dock. We have refined and we are expanding this technology. The technologies on the vessels themselves as we get into newer ships where the engines will consume less fuel and put less emissions into the air. This is extremely important in the environment we are in today. We are in the process of working hard to renew our fleet in the Great Lakes, as it is a fairly old fleet, as are all of the fleets in the Great Lakes today. The newest ship built was in 1985. There is some work to do there. One of the advantages right now of having an older fleet is we can incorporate the newest environmental advancements into this fleet as we renew it.
CEOCFO: What is the competitive landscape for Algoma?
Mr. Wight: In the Great Lakes, there is competition from both our own water-born competitors. This industry has shrunk from a lot of companies, with many small ones to now three large ones. So there is strong competition, but by less players. We also have competition from other modes of transportation such as railway and truck depending on the product that is moved. Unlike ocean shipping where you are moving from one continent to the other, there is only one way to get it there and that is by water, where in the Great Lakes there is a few ways to get it there.
CEOCFO: What is the advantage?
Mr. Wight: The advantage for shipping is that because we carry in large volumes our cost per ton kilometer, which is a standard measure that most transportation companies use, is a lot lower. An added benefit is our emissions per ton kilometer are significantly lower than railway or trucks.
CEOCFO: What are you doing in the area of your strategic priorities from last spring, such as environmental sustainabilities?
The biggest way for us to make advancements in that area is fleet renewal.
That is our key priority, and the environmental impact will just be a
natural benefit as we switch over our fleet to the new technology, cleaner
engines, and larger ships, which further enhances our emissions per ton
kilometer. We are also part of the “Green Marine” program that all of the
Great Lakes companies are involved with to reduce our impact on the
environment in a number of different ways. We are not only using technology
but we are making it part of everybody’s work to improve in what they are
doing everyday and to think about reducing the impact whether it is ballast
water or cargo residue or oily-water separators. These are things that we do
on the ship that could have an impact on the environment. We have also
implemented ISO 1401, so we now have a full environmental management system
on board each of our ships.
CEOCFO: Do you have some real estate holdings as well?
Mr. Wight: We have commercial properties in three cities in Ontario. In Sault Ste. Marie, which is where the company started in 1899 we have a large real estate holding and St. Catharines where most of our businesses are now run out of, and Waterloo, which is about an hour and a half from St. Catharines.
CEOCFO: What is the financial picture like for Algoma?
Mr. Wight: Certainly, for 2010 we don’t have a whole lot of things we can point to and say it is going to be better for these reasons. We wish we could. Your gut says it is on its way up, but 2010 for us is uncertain. We see it more like 2009, the same. That could change just depending upon what happens with the auto industry and the infrastructure projects, and how that impacts our business. So it is a wait-and-see for us.
CEOCFO: In closing, lay it out for potential investors; what is the long-range picture and why should they be paying attention now?
are a number of reasons for investors to pay attention to Algoma Central.
First, the company has a long history with the businesses we are in. Second,
all of our business segments are leaders in the markets they operate in. We
have a number of strategic partnerships that allow us even further strength
through leveraging these partnerships. The water transportation model in the
future is going to be stronger. There is more pressure on the environment;
we are the green mode of transportation. Soon we will be greener. All of
those things bode well for our company in the future. We are well
capitalized and it may be a bit self-serving, but I think we are well
managed and have been for a long time.
There are a number of reasons for investors to pay attention to Algoma Central. First, the company has a long history with the businesses we are in. Second, all of our business segments are leaders in the markets they operate in. We have a number of strategic partnerships that allow us even further strength through leveraging these partnerships. The water transportation model in the future is going to be stronger. There is more pressure on the environment; we are the green mode of transportation. Soon we will be greener. All of those things bode well for our company in the future. We are well capitalized and it may be a bit self-serving, but I think we are well managed and have been for a long time. - Gregory D. Wight, FCA
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