2013 was the fourth consecutive year of low growth in global trade. This was due to the weak US and European economies and reduced demand for consumer products. Despite the feeble consumer demand, the supply of new mega vessels continued, with an average of one new vessel over 10,000 TEUs in size being brought into service every week. These new mega vessels are causing a surge in the number of large vessels in the intra-Asia and North-South trades, which is heightening competition between carriers in all trades. Mega alliances are being formed by carriers to consolidate their assets and realize economies of scale, but the new proposals remain subject to regulatory approval. It also remains to be seen whether these alliances can stabilize the market. Downward pressure on freight rates and intense competition between carriers is likely to remain the main trend in the market in 2014.

 

 
Mr. Sean A. Kelly
CEO
Modern Terminals Limited
Despite this challenging environment, MTL・s business units have continued to grow, and they achieved a number of goals in 2013. Throughput in Hong Kong Business Unit and Da Chan Bay Terminal One (DCB) increased strongly, with DCB almost doubling its volume, despite a decline in the overall Pearl River Delta market. Taicang・s operating performance also significantly improved.

A labor dispute involving a contractor at a neighboring terminal in Hong Kong occurred during the second quarter of 2013. Due to the integrated nature of terminal operations, resulting from the increase in carrier alliances, this dispute had a significant impact on the productivity of the port as a whole. A number of measures have been implemented at MTL to recover from the dispute and to establish a more robust operating environment that will enable us to improve the delivery of services to our customers continuously. Additional equipment operators have been recruited, barge handling has been rationalized, and MTL is working with the Hong Kong Container Terminal Operators Association to lobby the Government to allow additional back-up land and barge berths to be incorporated into existing terminal facilities, so that the competitiveness of Hong Kong port can be greatly improved. Despite the prevailing market conditions, the throughput of our Hong Kong Business Unit increased by over 15% in 2013. While handling this additional volume has been challenging, it has created a solid foundation for our continued growth in 2014.

At DCB, we achieved several goals in parallel. Throughput is on target to reach 1 million TEUs in 2013, despite the stagnant cargo volume in Shenzhen as a whole, and increasing competition within South China. The new Navis N4 terminal operating system was successfully launched there in November. That will allow us to make increased use of automated data transfers with customers, improve our planning, and speed up our recovery from unexpected events, such as typhoons or vessel delays. Its successful implementation at DCB provides the template for the system・s launch in Hong Kong next May. In addition to its growing throughput and operational improvements, DCB・s environmental management standards have been recognized with the award of ISO 14001 certification. That means all Modern Terminals business units have now achieved ISO14001 status.

At Taicang, efforts have been made to improve contractor efficiency and ongoing operating profits. New international feeder services commenced between Taicang and Ningbo, and the breakbulk operation continues to grow and deliver solid results.

Based on the achievements of 2013, the 2014 Business Plan includes a range of stretching projects to continue the improvement momentum in all our business units. The strengthening of our sales culture and the delivery of our Brand Promises continues along with the implementation of the Navis N4 operating system in Hong Kong. This will create the platform for a step change in our service delivery. With the new system to increase productivity, the acquisition of additional land and equipment to increase capacity, and more initiatives to relieve congestion, the throughput of our Hong Kong Business Unit will be able to continue growing, and the stability of its business will be re-established.

The rapid throughput growth at DCB will continue, and we will focus on ensuring that its supporting processes and infrastructure, such as customs clearance and approach channel access, remain competitive. As DCB grows, we will continuously improve its operating processes and closely manage costs so that we can realize potential economies of scale at its existing facilities and deliver profits. Operating performance will remain the focus at Taicang throughout 2014. Business plan projects there will improve vessel turnaround, increase system stability and improve operational efficiency and safety in the yard. The new company values that were shared with the management of every Business Unit at the cross-business-unit offsite meeting in September will be further rolled out, and initiatives to embed them into the day-to-day environment of all of the Business Units will be implemented. That means we can truly live up to our Employee Value Proposition - :Together, We Grow, Excel and Succeed!;

At MTL we believe the aim of being a sustainable enterprise is not limited to creating financial returns for our shareholders. It also includes responsibility for understanding the expectations of our stakeholders, and communicating and working together with them in order to contribute to the industry・s sustainable development. MTL・s first Corporate Social Responsibility (CSR) report was published recently. This describes the efforts we have made over the last two years to meet the sustainability challenges we face in order to provide efficient and high-quality services to our valued customers. Apart from enhancing our transparency, we regard CSR reporting as a valuable self-assessment tool that allows us to review MTL・s current sustainability performance and identify areas for future improvement. At the same time, we must ensure that monitoring and review structures are in place to turn the ideal of sustainability into a long-term reality. The report is available on our website, and I would welcome your feedback, which will help to guide our future CSR efforts.

In summary, the business environment will remain challenging throughout 2014, but MTL is very well positioned to continue growing, continue improving and continue to be a strong competitor in terminal operations. The year 2013 has shown us what we can achieve when the odds are against us. I look forward to another year of exceeding our expectations and delivering for each other, for our customers, and for all our stakeholders.

Sean A. Kelly