Corporate View: Steven Wong, Neptune Orient Lines Group

Published: Jan 2015

Steven Wong

Group Treasurer

Singapore-based Neptune Orient Lines Group is one of the region’s best-known names in transportation and logistics, with more than 11,000 staff across 331 offices in 112 countries. The company’s brands include APL, the world’s seventh-largest container carrier, and APL logistics, a global leader in providing supply chain management services. Originally formed by the Singaporean government to help develop the economy, the company now transports over three million FEUs (40-foot container equivalent units) of cargo.

Having worked in the treasury department at Neptune Orient Lines (NOL) for 31 years, Group Treasurer Steven Wong is a ‘walking historian for the company’. “To discuss my entire career it may take one day, not an hour,” jokes Wong. Indeed, throughout his career, Wong has had to ride the waves of treasury in the notoriously cyclical shipping and logistics industry, navigate through multiple financial crises and also adapt to the changes that have transformed the treasury profession. Drawing from his appreciation of history and philosophy, Wong applied some of these principles to guide the NOL treasury department throughout his tenure.

Following graduation from the National University of Singapore in 1983, where he obtained a degree in business administration, Wong joined NOL as a management trainee. “In this role I was meant to be given exposure to all areas of the organisation,” says Wong. “However, I stayed on in my first rotation at the treasury department because the challenges were multi-faceted and interesting.” Looking back, this was a blessing in disguise. “Although I didn’t get the exposure to the other areas of business like I should have, I was put on a path within treasury that has allowed me to learn about all aspects of the business, rise up the ladder and head the department for nearly 20 years,” recalls Wong. “This may not have been the case had I moved to the next rotation as first anticipated.”

Recalling his early years in treasury, Wong is thankful to the people around him who helped him develop. “Back when I was at university, the treasury function was in its nascent stage and there was no treasury course. The closest I came to looking at treasury was learning about foreign exchange,” recalls Wong. Supported by those around him Wong was able to learn on the job, and learning is something that still resonates within him today. “Thanks to spending my entire career in treasury I now have a deep knowledge of the profession,” says Wong. “But I am never able to rest on my laurels as it is constantly evolving and there are always new things that need to be considered.” For Wong this is part of the allure of the profession. “I can never say that I am bored – even half an hour ago I was still learning from my conversations with my bankers and I am sure tomorrow I will learn something new as well.”

Captain of the treasury

Wong manages an 11-strong treasury team based in Singapore, which is split into three areas: cash management, risk management and financing. The most important aspect of their daily work is the management of liquidity, what he calls ‘the bloodstream of the business.’ “NOL’s business is capital-intensive and it is therefore vital that I don’t make any errors in this department or have a situation where we can’t meet our business requirements.”

To ensure that the treasury is able to meet its expectations, Wong believes it is vital that treasury and finance are integrated with the rest of the business. “To achieve this, treasury and finance must be a cohesive team,” says Wong. “One of the key roles of the team is to understand the company’s vision, business strategies and plan the cash flow accordingly. It is important that we work together and don’t ask the same questions and duplicate work. Thankfully at NOL we are like a big family and we work very closely together.”

The reach of the treasury also extends to the boardroom. “Treasury issues are discussed in each board meeting (there are four each year),” says Wong. “We also have one sub-board meeting twice a year that focuses solely on enterprise risk management.” In these meetings, treasury issues such as liquidity and counterparty risk are discussed in detail. “The board pays particular attention to this area so it is my role to ensure that they, and other business partners, are informed and understand the various risks and formulate the right policies accordingly.” For Wong, it is important to have a clear business strategy supplemented by a clear treasury strategy to ensure that the company moves in the right direction.

The philosophical approach

When building the treasury strategy, Wong calls on his many years’ worth of experience, as well as his philosophical approach. “A lot of my time is spent thinking through problems and planning how these can be resolved,” he says. “This is especially so since the financial crisis, which reiterated the importance of foresight.” Following the crisis, Wong has looked to ensure that NOL is well protected against both external and internal shocks.

One such example is in the company’s hedging policy. “The philosophy we have developed is to have a deep understanding of our own organisation – the strengths and weaknesses – and apply that to our treasury strategies. We are in the shipping industry and we make our money from the liner and logistics business. So any risks that are not directly related to these (for example foreign exchange, interest rate and even fuel) should be hedged away,” explains Wong. Natural hedges, Wong has decided, are the most effective and cost-efficient first line of defence and the treasury has worked with the business to develop a number of these, including creating a natural fuel hedge.

Thanks to strategy changes we now own 70% of our ships, our capacity is the same, and many of these ships are modern, more fuel efficient and also well financed. So we are better off, in terms of cost per teu (twenty-foot container equivalent units), than we were a decade ago.

“As one would expect, in our industry we consume a lot of fuel,” says Wong. Over the last few years, NOL has been aggressively finding ways to bring down its overall costs, particularly fuel cost. “The cost of any movement in fuel prices can have a dramatic impact on the earnings of NOL. The price volatility, coupled with the volume of consumption, means that sound risk management is an imperative,” he says.

To mitigate this risk, Wong had worked with the rest of the business, applying his philosophy of a natural hedge, to implement a strategy that protects NOL from swings in fuel cost. “The price we now charge our customers reflects our fuel costs and floats accordingly,” he says. “Through partnering with the business heads and explaining to our customers about this risk we have been able to on-board around 80% of our customers to pay a floating rate, naturally hedging away 80% of our fuel costs.”

Interest rates are another area where Wong has used his philosophical approach and deep knowledge of the shipping industry to naturally hedge risk. As a company that is capital-intensive and a net borrower, the exposure to interest rate risk is high. “A rise in interest rates however, for our business, is not a bad thing,” he says. “If rates are rising, this means that the global economy is buoyant and the demand for goods will increase and our business will therefore be good.” Having a floating interest rate therefore offers NOL a natural hedge against this risk. “A buoyant economy and good business can easily generate enough revenue to pay our interest rate costs many times over.”

“As the Group Treasurer it is my role to develop these strategies and then articulate them back to the business and for the board to decide upon,” he says. “Once they are accepted, they are institutionalised across all levels of the organisation.”

Transferable skills

While Wong missed his chance to sample other areas of the business during his management trainee days, he has since had the chance to gain exposure in other areas. The most prominent of these was time spent working alongside the group’s procurement department.

Historically, the procurement department has been run by the liner division, which made the strategic decisions of what ship size and which trade routes for the ships to be deployed. “In 2005, the board decided this was not necessarily the best way to do things from a financial perspective.” Wong explains that during an up cycle, shipyards and ship lessors demand the highest costs and longest leases. To effectively manage these demands, the procurement department was ‘decoupled’ from the business.

When procuring a new ship there are lots of questions that need to be asked, including whether they are leased or bought outright, and how they will be financed. “There are pros and cons to these options and they need to be carefully considered from a finance point of view,” says Wong.

Since the financial crisis, Wong has implemented some major changes as he has been involved in this side of the business. The biggest of these is arranging the financing of new ships in advance with no covenant in order to protect against any financing risk. This is something Wong admits required some frank conversations with his bankers, in order to secure financing for an as yet unknown ship. “I was upfront about this and helped by narrowing down the scope of the order, in terms of what size and yard we may purchase it from.”

“Ensuring that financing is in place is now something we do for any big ticket items, not just ships,” says Wong. The experience shows the value that treasury can add to the wider business when fully engaged and for Wong, “It allowed me to see the business directly rather than just through the lens of treasury. It has added more colour to my career and certainly allowed me to become a more effective treasurer and business partner.”

Upfront banking

“I have been very fortunate over the years to have worked with very good bankers and I appreciate what they have done for me,” says Wong. “They help me think through my issues and develop solutions through teamwork – this is invaluable.” With such high-held opinions of his bankers it is no surprise that Wong spends a great deal of time managing his banking relationships and ensuring that both the company and the banks benefit from the relationship.

“I am always transparent and upfront with my banks and look to adopt a mutually beneficial partnership model,” says Wong. For example, when it comes to areas such as fees, Wong is acutely aware that banks want to charge more; he therefore looks to establish a win-win situation. “If a bank is not keen on lending, but is happy to take our cash management business, then we will be transparent and ask for the lending we want. If the bank is happy to lend then we will reward them with some fee-based business – it’s then good business for me and it’s good business for the banks.”

For Wong, it is important to take time to understand their business in order to obtain the most out of relationships. “I work with local and global banks, depending on our requirements and their strengths. Local banks have very strong balance sheets and we are happy to use these for straightforward processes such as FX,” he says. “When it comes to cash management, for example, we chose to work with a global bank because of their innovative solutions and network. The key is to optimise banking relationships based on their expertise.” In doing so Wong is able to maintain balance of all the banking relationships.

Therefore it is always the best policy to be upfront and transparent and ensure that everyone is a winner.

In terms of technology and the services provided by banks, Wong looks to these in order to improve productivity and processes without increasing manpower or effort. “Banks are armed with so many skilful and knowledgeable people, so it is a source I am always looking to tap,” he says. “But I always need to ensure that what I tap is useful to the business. It can be quite easy to get caught up when being shown shiny new toys that the banks have developed, but if it is no use to the business then I am ultimately not interested.”

In a capital-intensive business that relies on bank borrowing, Wong is aware of the delicate nature of bank relationships. “Therefore it is always the best policy to be upfront and transparent and ensure that everyone is a winner.”

The next step

In Wong’s opinion the biggest threat to the shipping industry is overcapacity. “There are a lot of ships that have been ordered over the last decade and they are getting bigger and bigger,” he says. Despite this, with the treasury’s help, NOL has positioned itself well to meet the challenges of the future. “Thanks to strategy changes we now own 70% of our ships, our capacity is the same, and many of these ships are modern, more fuel efficient and also well financed. So we are better off, in terms of cost per twenty-foot container equivalent units (TEU), than we were a decade ago.”

In terms of more treasury-specific challenges, a liquidity crisis remains the biggest fear. “If there is a case that all the banks have to recall their loans and I need to raise capital urgently, this could be a nightmare.” Wong and his treasury team have done all they can to minimise the risk of this ever happening and while it remains a nagging worry, he believes that even if the worst does happen, the industry has the capacity to adjust.

When Wong decides to head for shore, he wants to put his historical, philosophical and treasury knowledge to work and move into consulting or teaching. “I have a former colleague who joined the teaching profession and he sends students to me to talk about hedging every other year. I am very happy to do this and I find it very rewarding to share my knowledge, so it may be my next move as I would like to give something back.”

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