"I have always been agnostic to shipping class as I believe in financing relationship not asset. I do not view a vessel as an investment asset but an operating asset that requires to generate revenue for value."
James Tong, MD, Global Shipping, Logistics and Offshore, Citi, Hong Kong
To those in shipping, Mr James Tong needs little introduction: active in shipping finance for more than twenty years, he has worked on some of Citi’s high profile shipping and logistics transactions in the APAC region. Always with an eye a couple of decades forward, his shipping decisions and investments must not only make sense in today’s financial markets, but they also dovetail with an ever-changing world when macro- and political trends have to be considered. For those who had the fortunate pleasure to attend James’ conference presentations and discussions and also read his articles and postings, can only be impressed with the depth of his knowledge of the markets, the astuteness of his observations and also the sensitivity and the empathy of his thoughts, on both professional and personal matters. We are delighted and honored to be hosting this interview with James.
QUESTION (Q): James, first thank you for your time and generosity to grant this interview. Can you take us how you started in the shipping industry, your career progress and rising in the ranks in shipping finance, and the major evolutionary / revolutionary events you have experienced in the shipping finance industry.
Mr James Tong (JT): I stumbled upon shipping finance in year 2000 by an opportunity when a former HR colleague of mine had joined Citi and had invited me to join Citi. In fact originally the position was an analyst position in the regional office for the Global Aviation team with Citi and in the last minute I was asked to consider a junior transactor role for Global Shipping & Logistics with Citi. The rest is history. I was very fortunate to be able to work with a global team with a global platform like Citi that had allowed me to be exposed to many interesting cross-regional shipping transactions other than plain vanilla shipping finance but including all sorts of financing and capital raising for the shipping and marine infrastructure / logistics industry.
I was grateful of all the senior bankers I worked with and I am particularly appreciative of my former boss Mr. Toshio Yamada who was a veteran shipping financier of more than 3 decades Mr. Toshio Yamada and of course my GSL Chairman Mr. Michael Parker, then the Global Head of GSL who both have shared with me all the dos and don’ts in the shipping industry. I worked my way up through the ranks in Citi till 2008 and then took a year off and then was invited by Standard Chartered Bank to join their regional Structured Asset Finance team in HK and to be part of the North Asian team to build their investment in shipping. I was then invited by Citi to rejoin to rebuild their shipping portfolio after the financial crisis and I became the regional head in 2013.
Over the last 2 decades, there have been many too special events normally coinciding the industry troughs and peaks. The first evolutionary event was when the new breed of post-panamax 5,500TEU and 6,000TEU containerized vessels, then the largest kind, were out in the market, financiers talked about the difficulties to finance this new breed of large vessels. When you look at today, the behemoth 23,800TEU containerized vessel, those post panamaxes seem very small.
Then pre and post financial crisis in 2008 that during pre-crisis, all the stars were aligned for shipping in all sectors including the containerized, dry & wet bulk, car carrier, offshore and LNG vessels and the competition was so fierce and unhealthy that reflected in the shrinking pricing of the vessel loans and the blind investments on all types of vessels and I still remember I had once dealt with a ship owner who was chasing a 5-year capesize that was asking for $175MM and I insisted that my financing would be around 50%LTV while the other financiers were going for 70-80%. Then of course the financial crisis hit that so many traditional European shipping financiers were leaving the market and at the same time some new players such as regional players, Chinese leasing companies were entering into the market. Now of course the most current topic would be green shipping and Poseidon Principles.
Q: What is your impression of COVID-19? Obviously COVID-19 is a novel risk with no
previous playbook from past crises; there has been a wide set of possible permutations ranging from a “black swan” and multi-year global recession to a much milder “bad case of flu”. How shipping (and/or shipping sectors) will be affected (negatively / positively), either directly or indirectly?
JT: Shipping and logistic industry has been playing a very vital role during COVID-19 and considered vital industry that is supported by governments of many countries to ensure continuation of goods flow including daily food and basic necessities, medical supply etc. The lockdown definitely created bottleneck situation as the workforce was also affected by the lockdown. But the industry continued to work closely with their respective government, shippers and other supply chain stakeholders to continue operation.
Q: Where shipping stands at the moment in terms of opportunities, but also challenges, from a shipowner’s point of view, and how you, as a shipping financier, try to position yourself? Avoiding certain types of shipowners? Focusing on certain segments of the market along the supply chain? (i.e. terminals vs shipping, etc?)
JT: I have always been agnostic to shipping class as I believe in financing relationship not asset. I do not view a vessel as an investment asset but an operating asset that requires to generate revenue for value. It is worth as much as the next buyer who is willing to pay for it so the underlying employability, employment contract is key consideration for obtaining financing. Otherwise, the vessel should only be valued as the metal price. So based on the above principles, I do not finance speculator or pure financial investor who invests in vessels for flipping only, unless their vessel investments are for the employment of shipping operators and also shippers.
Q: Shipping is a capital intensive industry, and traditionally European shipping banks provided a great deal of capital (via lending) to the industry. After the Great Global Recession, most traditional shipping lenders either have exited the industry or have focused to the upper tier of the market; clearly a big funding gap. Any thoughts from where such funding gap will be filled (and if so, under what terms and cost?)
JT: I always believe that if the project is right, the economic makes sense, money will flow into that. The funding gap in fact has been partially filled by regional banks, Chinese leasing companies and sometimes local relationship banks and even some private equity. This cost of debt is always cheaper than that of a cost of equity, if the ship owner really believes in their investment then they should have come up with higher equity commitment as the returns of debt is always lower than the returns of equity so be prepared to pay for the right price, the money will be there.
Q: Chinese leasing has been one of the active sectors of shipping finance in the last few years, approaching the $100 billion market in just a few short years. Any reason Chinese lessors (and financiers) have been so active in the market? Do they see opportunity that shipping financiers in other parts of the world miss? Could Chinese shipping finance be a permanent source of capital for shipping? (the same way that European banks financed shipping for several decades and over several business cycles?)
JT: Chinese Leasing companies are under the supervision of two different legal governmental bodies and they are China Banking Regulatory Commission (CBRC) and Ministry of Commerce (MOFCOM). The China Banking and Insurance Regulatory Commission (CBIRC) and CBRC issue sets of rules for financial leasing companies which are supposed to provide financial and leasing services to companies often for purchasing large equipment. The objective of Chinese Leasing companies is not to fill the gap that the shipping industry need but to diversify their own asset classes on their book. Shipping obviously is also a strategic industry for China particularly for their shipbuilding industry and also the national One Belt One Road investment regarding the marine silk road. The ability to control the waters is like the ability to master global trade. The Chinese Leasing Companies, particularly the financial leasing companies, are subsidiaries of Chinese Banks which have larger balance sheet than shipping companies and they are much better positioned to be the financial investors of these capital intensive assets which in turn will be operated by shipping companies for their cargoes. I don’t see them as substitutes and replacements but a new type of investors/financiers in the shipping market.
Q: I suppose for shipping companies like Maersk and Cosco that are “too big to fail” and tightly integrated into the world’s global supply, financing will be available whether via capital markets, commercial and corporate lending, leasing, even opportunity to just charter-in vessels. How about the smaller shipowner of 5-10 vessels, or the medium size owner of 20-30 vessels? How susceptible to access of (competitively priced) capital are they? How their business models (that worked nicely over the last few decades) have to be adjusted going forward, if they want to keep being able to access capital?
JT: Shipping is the first indicator of the health of the global economies and the industry is sailing in one most disrupted environment from its last glory a decade ago that the industry had not seen in the previous 50 years whereby the global economic growth is anemic with many unprecedented disruptions and global lockdown caused by the global covid19 pandemic, the current political climate with many uncertainties, the change in environmental landscape in terms of technology, fuel consumption and other ESG matters, this is not particularly encouraging for smaller ship owners who are looking for vessel financings with terms and conditions similar to the old days. Merely relying on a vessel mortgage is likely to get any ship owner to obtain shipping finance let alone competitively priced shipping loans. However for those smaller ship owners who have operational expertise, ship management experience then their skills will be valued and needed. Other ship owns might likely be better off to consider putting their investment in other asset classes.
Q: The last couple of years had been dominated by the saga of “trade wars” between the Trump Administration and PRC; while it seemed to be a truce, at least temporarily with the “Phase I” agreement, now COVID-19 (and possibly the upcoming US presidential elections) have started bringing trade to the fore again, as there have been efforts to even weaponize COVID-19 for political reasons. How concerned are you with a continuous antagonism on trade (and likely on more) between the US and PRC, in not politically, at least in respect to shipping and trade?
JT: The trade war is definitely bad for China and US and those who rely on the trades to survive. However this also opens opportunities for many multinational trades between other countries and possible more investments in other developing countries for manufacture goods. The supply chain at the manufacturing end in China cannot be replaced immediately but gradually. That means investments will be opened up for other countries and shipping will benefit from those new trades.
Q: Citi has been one of the founding members of the “Poseidon Principles” advocating that shipping banks ought to focus on extending financing to ship owners meeting certain ESG standards (Environmental, Social, Governance). In your experience, is it the “E”, the “S” or the “G” that gives ship-owners the hardest time in complying? Also, for banks that are not signatories to “Poseidon Principles”, and their clients, do they obtain a comparative advantage over their competitors? Is there any “leverage” to ensure that all lenders (at least regulated lenders like banks) become signatories and comply with them?
JT: All lending principles take time to become effective and binding. We at Citi, like the other responsible financiers, see this as an opportunity for us to be part of the sustainability. Resources are not unlimited and we believe responsible financing is in fact for existentially important for any companies who are in the long run. Citi is here for the long haul for our clients and that includes our shipping clients.
Q: Shipping is a people’s business, despite the monstrous dimensions and capacities of the modern ships – it’s about people making decisions, running the ships and ensure the supply chains remain intact and efficient. What are the parts of your professional life as a shipping banker you get to enjoy most? Most memorable days or experiences? Most rewarding experiences, either professionally or personally? Any advice for aspiring young shipping bankers entering now the industry? Any “must do” and “don't do”?
JT: Shipping is an international business and any water can reach is where shipping can go. The people in the shipping industry are the most international but at the same time have their own tradition. Meeting people like yourself in different occasions to share our knowledge and expertise that connect the world is most fascinating and memorable in my life. Shipping allows me to meet friends from all over the world and definitely because of the people and the fascinating characters otherwise I would not have spent my last 2 decades in shipping.
We shipping bankers are investing depositors’ money in one of the most traditional industry that connects the world and facilitates the global trade. As such, it is our responsibility to ensure the money will go to the right people who understand the industry and have the expertise to operate these capital intensive assets that have an asset life of 2 decades or more. When we make a decision to provide financing to a ship owner for the acquisition of a vessel, it’s like a marriage, make sure it is the right person, it’s a long-term relationship, after all.
James, thank you very much for your time, and insights; we wish you all the best!
Mr James Tong is Managing Director - Regional Head of Global Shipping & Logistics, Asia Pacific & Japan with Citi. James holds a Bachelor’s of Commerce degree in Accounting and Finance from the University in New South Wales (UNSW) in Sydney, and has completed the Anatomy of Shipping at Cambridge University, Cambridge Academy of Transport. James is also the regional representative of Citi’s Pride Affinity Steering Committee on diversity and inclusion (D&I) causes for LGBT+ and he is involved with several social and non-for-profit that he is current a circle of friend of Human Right Watches for the LGBT Chapter and he was a Board Member of the AIDS Concern, NGO in HK.