Y. K. Pao: My Father

3: The Road to Success

37 3 The Road to Success Shikumisen In 1955, Father purchased his first ship, a 25-year-old 8,201 DWT coal carrier, for £160,000. He named it Golden Alpha.1 The Golden Alpha was immediately chartered to the Japanese Yamashita-Shinnihon Company. Some other wellknown , contemporary shipowners were: D. K. Ludwig, Aristotle Onassis and Stavros Niarchos. In Asia, among others, there was C. Y. Tung (董浩雲), called the “Hong Kong Shipping Magnate”. Father was a new upstart, a banker-turned- “shipper”, who knew nothing about shipping. The Golden Alpha, Father’s first ship, a coal carrier built in Glasgow, was purchased second -hand on 30 July 1955. Y. K. Pao, My Father 38 But Father’s approach to shipping was described by Newsweek as “stupid”,2 because he chose long-term charters instead of the usual shipowner’s practice of single-voyage charters. The latter would have given him at least 25 percent higher income. He was right. He took a very conservative stance towards leasing his ships, preferring a safer approach even if the yield was lower. On 28 July 1956, Egyptian President Nasser nationalized the Suez Canal. Troops occupied both ends of the canal and only ships of “friendly” countries were allowed to go through. This decision forced all ships to take the longer route around the Cape of Good Hope, resulting in escalating transportation costs and demand for more ships, leading to a jump in freight rates literally overnight. Luck was with Father. The charter of the Golden Alpha was only for nine months. And the new charter rate quadrupled. He used this first profit to purchase his second ship, then his third. But he put them on long-term charter, each contract lasting four to five years. The popular practice at that time for the international market was voyage charter, as rates were increasing daily and for many it made commercial sense not to fix the long term. People were all laughing at Father for being a “novice”, a banker trying out his hand at shipping. It was true, Father’s banking background played a major role in his low risktaking policy. He foresaw the ups and downs of international shipping and opted for a lower profit but longer-term consistency in return for his investments. He thought there were two advantages to long-term charter. Firstly, a steady income to reduce risk; he knew that government decisions like the closing of the Suez Canal could not remain unchanged forever; nor would it take place every year. What would happen when the Suez Canal opened again? Secondly, with shortterm voyage charters bankers were reluctant to fund any large expansion projects. In Japan, where Father built his ships, the national bank was willing to let him pay for his new ships in instalments. Repayment for bank loans thus could be covered by charter income. Moreover, he could get cheapter credit from Japanese banks if it were a longer repayment schedule. He turned out to be right in his approach. Within a year, he owned seven ships and set up World-Wide Shipping Company in Hong Kong and Marine Navigation Company Limited in London.3 The Road to Success 39 Father was highly respected by the Japanese for good reasons: • Father was conservative and reliable and always delivered what he promised. Compared with other foreigners, he had strong communication skills, sometimes with the help of good body language. • He had a large international business network. • Father was a foreigner and could raise funds both in Japan and elsewhere. • The Japanese government needed foreign exchange badly as post-war Japan had to rebuild, and shipbuilding brought foreign currency. • World-Wide Shipping placed a large number of orders at several Japanese shipyards, some calling themselves the “New Building Department of WorldWide Shipping Co.”4 Indeed, the company contributed a great deal to postwar Japanese economy by boosting her heavy industry. The reasons for Father’s partnering with the Japanese were obvious: • Japan’s rebuilding programme after the devastation of war created many opportunities. Father inspecting a ship at the Mitsubishi Shipyard, 1976. Y. K. Pao, My Father 40 • Japanese policies gave preferential treatment to foreign investors, especially in heavy industries such as shipbuilding for export. • Japanese workers were well-disciplined, loyal, hard-working, and worked well as a team. • Japan’s large shipbuilding capacity had been destroyed during the Second World War by Allied bombing and dismantled...