John Sutton talks to HCB

LET’S TALK TANKS

STRATEGY • JOHN SUTTON, CEO OF SUTTONS GROUP, TALKS TO HCB ABOUT HOW THE COMPANY IS ADAPTING TO COPE WITH CHANGING TRADE FLOWS AND GLOBAL UNCERTAINTY

FOR UK-BASED Suttons Group, its international tank container business contributes around half its total turnover. At present, with global factors changing the tenor of the tank container market and with overall trade growth, the tank container part of the Suttons business is attracting significant investment.

According to John Sutton, CEO of the Suttons Group, the company had held back from investing in the sector until a couple of years ago; the tank container market was over-supplied and he did not want to get involved in an aggressive war for market share, unlike some other big names in the business. Now, though, with newbuild prices at historically low levels and with overall trade growth, it makes sense to return to building the fleet.

Over the past two years Suttons has added around 2,000 new Chinese-built tank containers, split roughly 50/50 between standard units and baffled tanks. It has also added 120 baffled swap tanks with a 35,000-litre capacity to its European shortsea fleet.

Suttons is also working to improve the quality of the fleet, both through rebuilds of existing tanks and replacement of some older units. While tanks can last a long time with the right levels of maintenance, some were approaching the 20-year mark and it was agreed that it was time to replace them.

Suttons has implemented a large refurbishment plan for 600 of its existing tanks and a refurbishment programme over the next three years to bring 90 per cent of the current fleet up to newbuild standards once again. This ties in with the recent rebranding of the company to stress its approach as “evolution, not revolution,” says Sutton. The rebrand is steadily being rolled out continuously across the UK and international tanker fleet. In addition, Suttons continues to invest in new tractor units, road barrels and acquisitions in its road tanker business. »

SUTTONS IS INVESTING ACROSS ITS TRUCK,

MARKET MOVES Over the last couple of years, it has been mentioned by some that too many new tank containers have entered the market, attracting new entrants and squeezing established players. “My opinion would be that [the excess] seems to have been soaked up,” says Sutton. “Our utilisation levels have improved in the last year or two. Certain operators that once grew very rapidly seem to have stopped their ridiculous pricing approaches that they were taking. It does seem to have steadied a bit and the prices on the market are no longer unsustainable in the long run.”

Optimistically, Suttons believes market rates are holding firm. “I don’t think, as an industry, we are being successful in increasing the margins to the levels they once used to be, but they are holding steady at this rate,” says Sutton. “There was a big shift in the market when tank prices halved almost overnight. They have recovered slightly, but they are still significantly lower than they were five or six years ago.”

Nor is John Sutton likely to be drawn into over-bullish estimations of demand growth. Trade in the sorts of products carried in tank containers was impacted for a couple of months by the emerging trade war between the US and China, largely on routes into China, but this appears to have steadied. There was little impact on transatlantic business, he says. Sutton is also cautious about the impact of new chemical production in the Middle East; the massive new Sadara plant came onstream in Saudi Arabia amidst great fanfare but its impact on tank container demand appears to have been overestimated. Suttons’ volumes in and out of Saudi Arabia, where it has a long-established presence, have remained steady. There is also at present a shortage of cargoes for tanks moving out of the region.

Similarly, despite recent increases in petrochemical investment in the US as a result of the shale gas revolution, Sutton says it is very much “business as usual” in that territory. Suttons has hired a new sales manager to cover the US Gulf area, which is showing promising signs for the future. He also notes that there is a shortage of tanks available in that market, a sure sign of strong demand. »

TANKERS TOO

SUTTONS’ CURRENT INVESTMENT STRATEGY MAY LEAN TOWARDS TANK CONTAINERS BUT IT IS WILLING TO TAKE UP OTHER OPPORTUNITIES AS THEY ARISE

Confirming that it is not just its tank container business that is growing, Suttons Group last month announced a deal to acquire DHL Supply Chain’s UK bulk commodity chemical business. The acquisition primarily covers the transport of chemicals in road tankers from sites in the north-east (Billingham) and north-west (Runcorn) of England.

Michael Cundy, managing director of Suttons Tankers, says: “We see DHL’s bulk commodity chemical business as complementary to our existing offer and in line with our strategic commitment to this market. Customers can be assured Suttons will maintain the high levels of service and safety they expected from DHL.

“This acquisition shows Suttons’ continued commitment to the bulk chemical sector and the benefits of a national shared user-support network,” Cundy adds.

Stuart Carlyon, vice-president of operations for DHL Supply Chain’s Network Logistics and Transport Division, says: “We welcome this approach by Suttons Group. Like us, Suttons is a premium operator working in specialised logistics, utilising highly skilled driver, workshop and support staff with an emphasis on safety and customer service.”

The deal does not include DHL’s dedicated services in packaged chemicals, bitumen, lubricants and fuels, which will stay with DHL.

And, as Sutton notes, “It is usually the case that when the US is doing well, operators are doing well.”

RAISING STANDARDS While Suttons has to have one eye on trade developments and its capacity needs, it always has to have in mind the health and safety imperatives when dealing with dangerous goods. That is particularly true in certain parts of the world where there is a lower threshold for safety processes, where Suttons is having to lead the local industry. “The ability to influence health and safety is a challenge in the industry and needs support,” says John Sutton.

Things seem to slowly be moving in the right direction, but it is a business-led venture. The chemical sector does have some businesses that are trying to lead the charge in reforming health and safety in these regions as government intervention and enforcement can frequently be poor. Suttons believes it is up to each business in the industry to manage subcontractors and other parties to ensure strict health and safety boundaries are met.

“There is a reluctance to accept that quality and safety does cost money. You can’t pay the lowest possible price because you will get the lowest possible quality in safety standards,” says Sutton.

Third-party services work well for Suttons in most regions. The scale of the business in certain locations is not yet quite enough to justify investment in its own depots. China, however, is a different matter. Suttons owns and operates a depot in China, which is in the process of being upgraded and potentially relocated. The team is deep in discussions with various authorities about moving this forward.

Suttons is definitely open to the concept of a joint venture, but it is taking it steady and ensuring it has the right information and permissions from relevant bodies before starting any discussions. Regional variations must be kept in mind - what works in one market may not work in another. In China, for instance, investing in its own depot provides

a strategic advantage – particularly in terms of quality management, something that can be a challenge outside of the mature markets. Making sure the work is carried out as requested can prove a difficult obstacle, but it can be done.

THE INEVITABLE QUESTION It is hard to speak to anyone in a UK-based company at the moment without raising the question of Brexit and the preparations that firms operating internationally are having to make to cope with an unknown future. “Honestly, it’s very difficult to plan for it because nobody knows what is going to happen,” John Sutton (left) says. “What we’ve done is work with our customers to help them plan. The impact will be on our customers in terms of import and export duties.”

Suttons has been helping its clients stockpile inventory on both sides of the English Channel, which will provide short-term protection against the inevitable disruption. Sutton expects to see short-term disruption at UK ports but, as there are plenty of routing options between the UK and continental Europe, he is confident that these will be ironed out relatively rapidly.

The belief is that deep-sea ports will be able to handle the change as they are already set up to manage high levels of cargo and various protocols. The UK chemical market appears to be doing quite well throughout the Brexit process and Sutton points out that customer demand and utilisation levels in its domestic fleet remain high.

Long term, things are very difficult to predict in any form. The consensus is that trade will happen, logistics will adapt, and the process will become fluid. However, it could be the case that driver numbers are affected as the freedom of movement is halted. Wage costs for UK drivers have been increasing over the past few years – whether that has been accelerated by Brexit and EU drivers leaving the UK remains unclear – but as the industry as a whole employs large numbers of foreign drivers, the impact could hit hard. Suttons itself does not employ a large number of non-UK drivers, but the wages for their UK drivers could increase as they become more in demand.

Solving short term delays, discrepancies and shortages is more important for Suttons as it focuses on providing the highest levels of quality for clients. The largest concern is ensuring that quality and safety are maintained during any transition process. As it is a constantly evolving beast, Suttons is keeping a close watch on any new developments and adapting accordingly. HCB www.suttonsgroup.com