TRANSPORT / OCEANEnvironmentally friendly heirA year after pollution violations, Evergreen Marine Corp.chairman lays out environmental challenge to the industry.Kuo-Cheng Chang, heir to the Evergreenthrone, took the opportunity inearly March to lay down the gauntletto the rest of the shipping industry.Speaking to a massive crowd of industryofficials that included port, carrier and shipperluminaries, Chang said Evergreen wouldbuild only environmentally friendly vessels,and they’d turn a profit doing it.But he challenged the rest of the industryto follow suit, or risk jeopardizing the veryplatform that allows ocean trade to be sucha lucrative global business.“These issues may be dismissed as commerciallyinsignificant, something to bedealt with by the P.R. department,” Changsaid. “This is no longer the case.”Chang then showed a quote from his father,Evergreen Group Chairman Yung-Fa Chang:“We shouldn’t wait for the introduction ofregulation to tell us where to improve.”Later, in an interview with <strong>American</strong><strong>Shipper</strong> in a hotel suite overlooking the Portof Long Beach, Kuo-Cheng Chang said hedoesn’t exactly expect to be a pied piper forthe industry. “My intention is not to influenceother people. People have to decidethemselves,” the affable Chang said. “Wehave to at least face this. We cannot continueto keep blind and not face these issues.”Educated in the United States at theUniversity of Boston and University of California,Los Angeles, Chang is due to be thenew face of Evergreen, which is celebratingits 30th year in the liner business.Started in 1975 as a low-cost carrier,Evergreen has emerged as one of the world’sbiggest shipping lines three decades later.But it was almost exactly one year ago thatEvergreen was in the news for decidedly unfriendlybehavior toward the environment.On April 4, 2005, the U.S. Justice Departmentmeted out it largest penalty ever forconcealing vessel pollution — 24 felonycounts and five misdemeanor counts in all— and the Taiwanese company found itselfon the business end of a $25 million fine.The investigation of Evergreen shipsand companies began on March 4, 2001,after the discovery of about 500 gallonsof oil in the Columbia River near Kalama,Wash., according to a Justice Department72 AMERICAN SHIPPER: APRIL 2006BY ERIC JOHNSONKuo-Cheng Changchairman, maritimedivision,Evergreen“My intention is notto influence other people... We have to at leastface this. We cannotcontinue to keep blindand not face these issues.”news release. In all, seven Evergreen shipswere found to have used bypass equipmentto dump oily waste and sludge, and thecompany was found to have systematicallyconcealed the actions.Yet by December, Evergreen’s first in aline of what it calls “green ships,” made itsfirst call on <strong>American</strong> soil, when the HatsuSigma docked in Los Angeles.The company has ordered 10 ships inthe string of S-type vessels, each capableof carrying 7,024 TEUs, and has alreadytaken delivery of four.“All our new ships will be green ships,”said Chang, who indicated that it’s too earlyto have concrete assurances from shippersthat they’ll be more apt to have their cargomoved on environmentally friendly ships.The S-type ships have:• Auxiliary fuel tanks that enable theship to run on low-sulfur fuel while dockedand near ports.• The capability to run on electricalpower while docked for terminals withcold-ironing facilities.• Higher volume oil water and bilgewater storage tanks.• Double-skinned hulls.• Fuel tanks that are positioned insideof container stacks so they are less likelyto rupture in an accident.During his presentation at the conference,Chang said Evergreen is not ignoring thefinancial realities of equipping ships withenvironmental safeguards that have not yetbeen required of carriers.He said it would cost $5 million per vesselto upgrade environmentally, plus $400,000maintenance annually over the 20-year lifecycle of a ship.“We estimate the cost to the industry to be$70 billion, which is a huge cost for the carrierindustry, one with low profit margins,” Changsaid. “We are not blind to the costs.”When asked in the interview if Evergreencould maintain its stance if other carriersdidn’t follow through, thus placing it at acost disadvantage, Chang said the companycan indeed absorb the costs.“That is an easy question,” he said. “Nomatter what, we have to survive. Everycompany has its costs situation.”Perhaps it’s because Evergreen has beenable to maintain low operating costs comparedto other carriers, at least so far asChang is able to tell.“By total cost, I am quite confident we arethe lowest cost operating company,” he said.“But honestly speaking, I don’t know othercompanies’ costs. The shipping industry isnot an open industry.“The other companies may have their ownsecrets,” he said with a chuckle.This year promises to strain the carrier industry,as dipping freight rates are juxtaposeduneasily with rising operating costs.And Chang said security is a competingcost with environmental upgrades for anindustry with a low profit margin. Oil priceshave tripled in the last decade while the tradeimbalance on the transpacific has swelledto about 2.75 eastbound containers to onewestbound container as of October.“This creates huge repositioning costs forcarriers,” Chang said. “We have reached thetipping point of trade imbalance.”Most carriers at this point have diversifiedtheir business to handle logistics functionsor terminal operations, or both.“Some companies use terminals just forinvestment purposes. They use the terminalsas profit centers,” Chang said. “Some wantto invest in terminals other than for commercialpurposes. We just want to make ourterminals smooth — not to make a profit,but to provide a better service.”When queried about carriers buyingterminal leases as assets, (as evidenced bythe huge amount Dubai Ports World is payingfor its controversial purchase of P&OPorts) Chang said he couldn’t quite figurewhy terminals were so valuable.“Why is DP World spending so muchmoney to buy (P&O Ports)?” he said. “PSA
TRANSPORT / OCEANEvergreen’s Hatsu Sigma, its first in a line of “green ships,” made its firstU.S. call at Los Angeles in December.decided it was not commercially viable (atthat price). Maybe they see in the futuregrowing returns, but I really don’t know.”Evergreen’s businesses now include an airline,a hotel chain and a logistics division.“Every shipping line has their logisticsarms,” he said. “I think that’s a trend, becausethe shippers demand more and more.”He said the expected service level of shippershas gone from point-to-point, to doorto-door,to floor-to-floor, with some evenrequiring smart labels and radio frequencyidentification (RFID) tagging.“It’s a requirement of the shippers, and theindustry is just following on,” he said.As for vessel overcapacity worldwide,with analysts predicting as much as a 5percent gap in container slots and actualdemand, Chang appeared unruffled.“As a company, we are short of capacity,”he said. “The past three years, we have hada load factor higher than other companies,so I don’t think we’re concerned with overcapacity.”And on rates, Chang doesn’t see the rateYung-Fa Changchairman,Evergreen Group“We shouldn’t waitfor the introductionof regulations to tell uswhere to improve.”decline that some analysts predict.“Transpacific rates will be quite stable, butEuropean rates have come down,” he said.Chang also commented on the burgeoningpossibilities of expanding Asia/U.S. EastCoast lanes through the Suez Canal. Andagain, he said the market will dictate whereEvergreen goes, not the other way around.“It depends on the <strong>American</strong> and Europeanpeople,” he said. “Where are they going tobuy products from? Are they going to shiftfrom China to India? We cannot decide whichlane we are going to open. Within five years,it’s possible (that shippers will diversify theirsources of supplies). Vietnam is the onlyplace that can compete with China on cost,but the population can’t compete. Gradually,China labor costs are increasing, so low-valueproducts may go to India or Indonesia.”But intermodal costs in the Unites Statesmay make the Suez even more attractive asa way to get around rail and terminal congestionon the U.S. West Coast or lack ofcapacity through the Panama Canal.“Singapore is the mid-point for goingthrough the Panama or Suez,” he said. “Forthe more time-sensitive products, (the Suez)can be quite practical.”But Chang’s main goal was to stressEvergreen’s emergence as an environmentallysound player. And he urged the industry asa whole, not just his carrier competitors, topitch in.“We have to look at the cost of the globaleconomy against future generations,” Changtold the conference. “It is our responsibility toaddress these issues proactively. How can weinvest together to protect the environment?“If we all want to protect the environment,we all must share the cost to protectit. The success of the supply chain dependson sustainability, so you cannot expect oneparty to protect the environment and carryon the success of the carrier industry.” ■The PortOf VirginiaNew straddle carriers complementa $279 million renovation atNorfolk International Terminals,ensuring your cargo is handled inthe fastest, most efficient mannerpossible. We’ve devised the easiestway for truckers and shippers tosave time and money: a one-of-akindtruck chassis pool. A growingnumber of companies, looking forthe closest possible access toEastern U.S. and Midwest markets,are taking advantage of thePort’s ideal location and have setup distribution centers in Virginia.The Port of Virginia. It doesn’t getany better than this.TheIs HereVirginia Port Authority • 600 World Trade CenterNorfolk, VA 23510 USA • Phone 757-683-8000FAX 757-683-8500 • Toll Free 800-446-8098 •www.vaports.comAuthorityFuture© 2006 Virginia PortAMERICAN SHIPPER: APRIL 2006 73
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