“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.”
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.”
“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.