By Alex Binkley
With the first of its new freighters in operation and the consolidation of the shipping operations and assets it acquired in 2011 from the Upper Lakes Group complete, Algoma Central Corporation is keeping a close watch on future prospects and possibilities, says President and CEO Greg Wight. “We’ve done a lot of good positive things,” Wight says in an interview. “We consolidated our dry bulk business, launched our fleet renewal and got the company into a positive financial situation. Now, we will focus on continuous improvement to all parts of our business.”
Algoma has 18 bulk carriers, six self-unloaders and seven product tankers, the largest Canadian flagged fleet on the Seaway-Great Lakes. It’s in the midst of taking delivery of six state-of-the-art Equinox Class vessels for domestic dry-bulk service and will be managing two others for CWB Inc., the former Canadian Wheat Board. Wight is especially pleased by the recognition from outside observers “that Algoma is one of Canada’s best run companies in Canada.” That ranking is considered as the mark of excellence for Canadian-owned and managed private companies and closely held public companies. It includes a rigorous and independent evaluation of the calibre of the abilities and practices of a company’s management.
As well, Algoma has placed in the top 10 in Marine Money Magazine’s Rankings of publicly-traded shipping lines, he adds. The Marine Money Magazine list, which has been produced since 1991, included 83 public shipping companies engaged in all aspects of marine shipping in 2012. The annual Marine Money Overall Performance Rankings, which are designed to measure companies’ ability to improve operating efficiency and to create shareholder value, are based on an average of measures including total return to shareholders, return on equity, return on assets, total asset turnover and price to book ratio. Algoma placed sixth in the 2012 Overall Performance Rankings. Marine Money also ranks companies based on financial strength and Algoma placed fifth in these rankings for 2012. Algoma was one of only two companies to place in the top 10 in both rankings for 2012, and placed in the top 10 of both rankings for the second straight year. Not surprisingly, many stock market analysts rate the company as undervalued by investors.
The company earned $49.2 million on revenues of $491.5 million in 2013, down from $42.2 million on revenues of $527.9 million in 2012, mainly due to lower shipments of grain and construction materials. In total, Algoma moved 9.1 per cent less cargo last year, which in turn led to a 7.8 per cent decrease in operating days.
The record Prairie grain harvest finished late last year and in the first year of an open market many growers held on to their crops in hopes of getting higher prices. As a result, little of their grain made it through the Seaway before winter set it. However, the company’s vessels have been working hard this year moving carryover grain and preparing for what’s expected to be at least an average western harvest this summer.
During 2013, Algoma secured contracts with every major grain shipper utilizing the Great Lakes-Seaway, which should generate strong demand for grain movements this year and in the future, Algoma points out.
Lower shipments of construction materials are mainly the result of reduced infrastructure spending by Canadian and American governments, it adds. Overall, Algoma is optimistic that the lower value of the dollar will be “broadly positive for many of our export-oriented customers and we expect that, in time, movements of most products that we carry will benefit.”
The bulk carrier Algoma Equinox arrived in late 2013 to positive reviews from shippers and marine exports. With its imposing bow and functional design, it conveys a ready-to-work attitude. Satisfied with its performance, the company will add more new ships to its fleet as financial conditions permit, Wight states. Many of Algoma’s older vessels were built in the 1960s and 1970s and while being extensively upgraded, lack the carrying capacity and energy saving capabilities of the new ships. Algoma has two other modern freighters, the Radcliffe R. Latimer and the Algoma Mariner, which joined the fleet before the Equinox program was introduced.
Ward Weisenel, Chief Operating Officer of CWB Inc., says the grain handler has had “a very good relationship with Algoma through the process of bringing new ships to the Great Lakes. “We had been discussing fleet renewal with them for some time but it was a challenge to justify the cost because of the 25% duty on imported freighters,” he recounts in an interview. That changed in the fall of 2010 when the duty was terminated by the federal government. “We were interested in being partners with Algoma because we are a big user of grain transportation through the Great Lakes.”
In addition to the duty removal, the other deciding factor for the CWB was the strong Canadian dollar and foreign shipyards that were hungry for contracts when the order was placed, Weisenel adds. “While that has changed during the last couple of years, there is still a good business case for owning the ships. We’re excited about being involved with Algoma as a shipowner.” CWB has decided to name its vessels CWB Marquis and CWB Strongfield in honor of the Canadian-developed wheat and durum varieties that have made Prairie grain popular around the world.
Stephen Brooks, President of the Chamber of Marine Commerce, says Algoma has been “not just a huge success story in shipping, but also a great example of wider Canadian innovation and business leadership.” In addition to the ULG takeover and its fleet renewal program, Brooks says Algoma “has been an industry leader in adopting new environmental technologies and safety training practices. It’s certainly no surprise to us that Algoma is consistently listed among Canada’s best-managed companies. This kind of investment in both infrastructure and people is essential to ensuring Canadian industry has a modern and efficient marine transportation network now and in the future.”
Bob Ballantyne, President of Freight Management Association of Canada, says Algoma has a good reputation in the shipping community. “We don’t hear many complaints about the way it treats its customers.”
Wight says the consolidation of the Algoma’s domestic shipping operations and its corporate team to its St. Catharine’s office has enabled the company to focus on future opportunities. “This restructuring and consolidation, which included commercial and operational personnel, as well as the support functions of finance, business information systems, procurement and human resources, has proven to be very successful and well received,” he explains. “This combined group is now able to plan and manage our businesses consistent with our one vision, one purpose, one team strategic focus.”
Algoma’s history goes back to 1899 when the company was founded to build a railway line from Sault Ste. Marie to the Canadian Pacific transcontinental line at Franz, Ont. The next year it ordered four steel freighters to provide freight and passenger service connected to the railway. In 1995, Algoma Central Railway was sold, followed in 1997 by the sale of the company’s large forest land holdings. In 1998, Algoma expanded its domestic shipping operations, acquiring Imperial Oil’s fleet of domestic product tankers and forming Algoma Tankers Limited. In 1997, Algoma acquired an interest in Marbulk Canada Inc. which took its interest in dry-bulk shipping to the high seas. The end result was the formation of Algoma Shipping Ltd.
Today, Algoma Central Corporation comprises four operating segments, domestic dry-bulk, product tankers, ocean shipping, and real estate for properties in Sault Ste. Marie, Waterloo and St. Catharines.
The domestic shipping business includes a diversified ship repair and steel fabricating facility on the Great Lakes. In addition to its seven domestic tankers, it owns one ocean-going tanker. Its Ocean Shipping division includes ownership of two ocean-going self-unloading vessels and a 50 per cent interest through a joint venture in an saltwater fleet of four self-unloaders.
The second Equinox vessel, Algoma Harvester, joined the fleet this year. The CWB bulk carriers will arrive later this year and the four self-unloader versions will debut during 2015 from the Nantong Mingde Shipyard in China. One of the ships will be named Algoma Sault to mark the shipping line’s historical connection with Sault Ste. Marie.
While Algoma is happy with the performance of the new ships, it has been disappointed by the slower than expected completion of the vessels. “Offsetting this disappointment is the fact that the quality and workmanship of the shipyard is very good. Our decision to develop an innovative and advanced vessel has taken more time than what might have been achieved with a lesser design, but that said, we firmly believe we have made the right decision for Algoma, our customers and the environment.”
Algoma is spending $300 million on its six Equinox vessels, which have been designed “to optimize fuel efficiency and operating performance, thus minimizing their environmental impact. A 45 per cent improvement in energy efficiency over Algoma’s current fleet average is expected, resulting from the use of a modern and efficient Tier II compliant main engine, significantly increased cargo capacity and an advanced hull form that produces less resistance through the water. In addition, a fully integrated IMO approval exhaust gas scrubber will remove 97 per cent of all sulphur oxides from shipboard emissions.”
Wight says Algoma is also proud of its success in lowering its operating costs, earning a better return on its operating capital and reducing workplace accidents. “Our goal is zero workplace injuries, an achievement that many of our individual vessels and work places have achieved. We have reduced our lost time injury frequency per 200,000 hours for all business units combined by 61 per cent over the last five years. Although we are pleased with this improvement in performance, anything above zero is unacceptable.”
He also notes overall progress in reducing incident costs as a percentage of net revenues. A mechanical breakdown on one ship led to a slight increase in incident costs over 2012, and the company is looking for ways to further improve its efforts to reduce similar events.
One on-going concern for Algoma is what the Canadian government will do about marine ballast treatment regulations. “It’s unclear what requirements Canada will impose on Canadian shipping lines,” Wight says. Canadian companies have already joined a legal challenge in the United States against contradictory rules brought in by the Environmental Protection Agency and U.S. Coast Guard, he notes. The rules severely restrict what Canadian ships can do even though ballast exchange rules introduced in 2006 for all ships entering the Seaway have prevented the introduction of any new invasive species into the Great Lakes.
“Canada has not put forward any regulations or set a time line,” he says. Nor has it shown any leadership on resolving the issue with the American government. Meanwhile the American Great Lakes fleet has been exempted by Washington from those regulations, but not the Canadian fleet. “Transport Canada has not issued its regulations yet regarding ballast water treatment, but we want to see the Canadian and American fleets treated in the same way, so that nobody gets a competitive advantage. We want the federal government to ensure they have scientifically measured the actual risk of introducing further invasive species against the cost of us having to put in new equipment.”
There’s no ballast water treatment equipment that been proven to be effective in the cold waters of the Great Lakes, he points out. Canadian companies could be forced to spend millions on equipment that isn’t suitable. “We estimate it will cost $4 million to retrofit each older vessel with new ballast water treatment equipment, $2.5 million to $3 million for each new vessel.”
With its seven modern double hulled tankers, Algoma provides safe and reliable transportation services of petroleum products for refineries, distributors and major industries on the Great Lakes, Seaway and Atlantic Canada. The company has a flawless execution policy and meets all ISO and ISM codes.
The conversion of Imperial Oil’s Dartmouth Refinery to an oil terminal in 2013 has resulted in major changes for Algoma’s tankers. They have increased calls on other terminals, which has led to more activity for them and even the need to charter ships, he points out.
Algoma seems to have charted a course for meeting delivering promises while ensuring its long-term prosperity.