Chembulk's Jack Noonan: from the sea to the corner office
This story originally published on Fairplay.IHS.com.
Shipping bosses come in different breeds. Some rise to the top after careers in banking. Others hail from multigenerational ship-owning families and are born to take the helm. Still others - like Chembulk Tankers CEO Jack Noonan - ascend to the corner office after years of getting their hands dirty at sea.
Noonan, who is extremely humbled to be named the Connecticut Maritime Association (CMA) Commodore for 2017, sat down with Fairplay to discuss his career and the key decisions and course corrections he made along the way. The following is an edited version of a conversation that occurred in Chembulk's headquarters in Southport, Connecticut on 13 February:
Greg Miller: You're one of the many graduates of the US Merchant Marine Academy in Kings Point, New York who have made a big mark in the shipping industry - there really are a lot of you out there. I know that the Kings Point experience was extremely formative for you, but I wanted to start by going back even further. Was there anything in your childhood that was important in shaping how your career turned out?
Jack Noonan: "Absolutely. What really brought me to where I am today goes all the way back to my childhood in New Jersey and the values my parents instilled in me. I came from a loving but very disciplined Irish and Italian Catholic family and I was the oldest son. I had an older sister, a younger brother, and three younger sisters. My dad was a World War II veteran and a lawyer who ended up as a US judge.
"I was born in 1956, so I grew up in that era of post-war glorification, of America as a superpower. I was always a patriotic person and I've never lost my affinity for patriotism and history. I'm still a history buff.
"Even when I was young, I had a thing for wearing uniforms - I was in the Boy Scouts - and we had a summer house on the Jersey Shore where we did a lot of boating. So when it came time to apply for college, I applied for an appointment to Annapolis [the US Naval Academy] with the idea of going into the navy and then going to law school and being a lawyer like my dad.
"I didn't get the appointment at Annapolis, but I had also applied to the US Merchant Marine Academy at Kings Point. Initially I received an alternate appointment and ultimately I was appointed. I wouldn't go so far as to say that the regimentation and discipline at Kings Point were already second nature to me, but I would say I was prepared for it, given that I had gone to a Catholic high school and I had been in the Boy Scouts, so I was used to wearing a uniform. I was there [at Kings Point] between 1974 and 1978, during the post-Vietnam War era. We all had military haircuts and everybody else had long hair."
How important was your time at Kings Point to your career in the shipping industry? How often do you think back to your time there?
"I think about it every day. I wouldn't have been in this industry had I not gone to Kings Point or to another maritime college.
"It's also about the camaraderie. I'm still very close to the people I went to school with, and I've developed relationships in business over the years with people I was only casual acquaintances with at school, or who were there during years that didn't overlap with mine.
"There are so many Kings Pointers within the industry. [Ridgebury Tankers CEO] Bob Burke was a plebe [a freshman] when I was a first classman [a senior]. I was a midshipman officer and he was in my platoon. [World Fuels executive] Bill Mergenthaler was my classmate; World Fuels is Chembulk's top bunker supplier. [McQuilling president] John Schmidt was four years behind me. [Eagle Bulk CEO] Gary Vogel was 10 years my junior. [Retired Sea River president] Jack Buono was my classmate, and there are a number of Kings Pointers at Exxon Mobil, which is one of Chembulk's biggest customers. The chartering manager for Chevron Chemicals, Kelly Courter, is a Kings Pointer."
Can you give me an example of a lesson learned or philosophy or value that you took away from your time at Kings Point that's still a part of the way you do business today?
"Are you familiar with the term 'turn to'? It means 'get to work'. If you're in your room, off watch and you get the call to 'turn to', you get to work. That's probably the biggest thing I took away from Kings Point. I always knew how to 'turn to' because of my upbringing, but Kings Point really ingrained it in me. It's something that has stayed with me throughout my career and that has helped me develop the work ethic I have."
Tell me about your time at sea, both when you were at Kings Point and during your service commitment period after graduation, between 1978 and 1984. What kind of ships were you on? Where did you sail?
"As a midshipman at Kings Point, I went to sea for six months as a sophomore and six months as a junior. I sailed extensively on freighters to the Far East, South America, and Europe.
"My goal [after graduation] was originally to get my naval officer's commission, then go to law school, but when I was at the academy, I really developed an affinity for the commercial side of shipping, so to fulfil my commitment [the six-year service commitment after graduating], I worked aboard the Jones Act fleet of Texaco. The ships sailed mainly out of Port Arthur, Texas, with runs to Florida and up the east coast to New England. There was also a run on the west coast from Los Angeles up to Puget Sound. I made one run to Hawaii, but I never made it to Alaska.
"I started as a third mate, then advanced to second mate, then to chief mate. I ultimately wanted to get my master's licence, but it would have taken another two calendar years to achieve that [six months at sea per year] and the market took a turn and Texaco start laying up ships, and I had gotten married, so I decided at the end of my six-year commitment to look for a shoreside job."
That time at sea must have really had an effect on you. When you're sitting here in the office today, trying to ensure this business is profitable, do the memories of your experiences as a deck officer aboard tankers affect your managerial decisions?
"Yes, they do. Even though I'm over 30 years from going to sea as an officer, it reminds me that when we're shoreside, we can take for granted what the seafarers are up against, and what they're doing to push the steel. I'm running a business here with a fleet of 27 chemical tankers and obviously safety is priority number one, but let's face it, it's a business, it's bottom line-driven, and it's about getting the best possible freight rates you can get for your cargoes and optimising your operations so you have the best netback.
"In my daily updates with my team, they may talk about ships being delayed in the north Atlantic or a ship losing a day or two or three coming across the north Pacific. We had a ship not too long ago calling in Anchorage, Alaska, in December. When I hear about these things in the comfort of an office in Southport, I have to bring myself back and remember what it's like to be at sea.
"Have you read the El Faro transcript? [the Jones Act cargo ship El Faro sank in a hurricane on 1 October 2015, killing all 33 aboard; the transcript from the vessel's voyage data recorder was publicly released in December 2016]. I've read it and I can relate to a lot of that dialogue. It almost makes me feel like I was there. Reading that El Faro transcript really hit home.
"Thinking back to the days I was sailing reminds me that this is not just contracts and numbers on a spreadsheet. This is about hazardous cargo being loaded onto a very capital-intensive ship that is taking a journey from one port to another through a potentially perilous situation. And when you get right down to it, without the ability to do that safely, what else matters? That's where it all starts."
Which raises the question about executives who can't think back to their days at sea because they never had any. Over the past decade, more and more executives who run shipping companies have come from banking careers, a trend that is at least partially driven by the rise of the public markets and the investments by private equity. Do you think having shipping companies increasingly run by executives with no actual experience at sea is a problem?
"No, I don't think there's a right or wrong 'secret sauce' for who is going to make the best shipping executive. I have no issue at all with people ascending to the corner office who have financial acumen but no maritime background. And I think it's totally understandable, because this is an extremely capital-intensive business and it's a bottom-line business. I can guarantee you that those executives with a purely financial pedigree who have risen through the ranks have very experienced maritime people in the key roles. On the other hand, I have some very good financial minds working for me."
Let's get back to your career path. You came shoreside after your six years at sea with Texaco, and you were hired by Stolt-Nielsen in 1984 - and you never did get to law school as originally planned.
"I took the job at Stolt-Nielsen as a 'ship operator', which is basically the first office point of contact with the ship. I wanted to determine whether I could perform that job and handle law school at night. Then, just when I thought I could handle law school at night, I got into chartering, and I grew to love chartering, but the time commitment for that was such that it precluded law school.
"Stolt-Nielsen had established services in all of the geographic regions, one being the Indian Ocean and Arabian Gulf, and my job was to put together cargo programmes for those ships. I eventually rose to become sales manager [for the Indian Ocean], in charge of entire ships and an entire trade."
Stolt-Nielsen is where you really learned the chemical tanker business?
"Absolutely. It was a tremendous experience and I have the utmost respect for that company. Niels Stolt-Nielsen [the CEO of Stolt-Nielsen since taking over for his father in 2000] and I worked together on the Indian Ocean desk for a year or maybe a little longer. Regardless of what his last name is, Niels is a very talented shipping man and I consider him a friend.
"What I like about the chemical tanker business is that it's really fundamental to everyday life. It's about the building blocks of everything we buy. It's about your camera and my automobile and the clothes we're wearing. Here's a classic example: In 2007, methanol was a big mover [on chemical tankers] to China. Methanol was being used in China for the production of formaldehyde, a resin that was primarily being used in the production of plywood, which was then shipped back to the US. Well, what happened during the housing crisis [in the US in 2008-10]? How many houses were built? How much plywood was purchased? How much plywood was produced? How much formaldehyde was produced? And how much methanol was needed in China? So methanol shipments went down. I like that aspect of this business [the relationship between chemicals and end-products]."
I find the chemical tanker business to be so much more difficult to understand than some of the other shipping markets. I'm looking at your fleet list and I see several vessels on there with over 20 tanks. I assume that to fill those it's a combination of contract and spot cargoes and that there's a real complexity to balancing it all.
"You hit the nail on the head. In the chemical tanker business, you're a cross between a traditional tanker operator and a logistics provider. There's a contract base and your contract customers include your big producers, your Exxon Mobils, your Chevrons, and your Shells, and then there's a balance of spot cargoes, and the shippers of the cargoes that move spot are quite often commodity traders, but these shippers can be just as regular as the contract charterers.
"Then it's a matter of optimising your logistics. Say you have a ship with 20 tanks. Let me give you an extreme, ludicrous example: you don't want to fix 20 different parcels from 20 different berths to 20 different discharge berths, because you won't make any money. It's a balance of optimising volumetric cargo with smaller-volume, high-value cargo, and it's also about optimising the number of berths and ports you're going to call at and packaging together and constructing a voyage."
That is vastly different from the business model of, let's say, a Panamax bulker owner, with one hold to fill. When it comes to owners of bulkers or crude tankers or product tankers, the offering to customers seems extremely commoditised. Spot cargoes are generally won by the lowest bidder. And if you look at how these commoditised tanker and bulker owners are valued by investors, the valuation is now based on the break-up value of the fleet, on the value of the steel, with essentially zero value given to the brand and the management. Given the complexity of the chemical tanker business, do you get an extra valuation for management and brand - the added value of the operating platform - beyond just the pure asset value?
"There's no question. Clearly, in the chemical tanker business, there is value to the operating platform. What really crystallised that for us was when Chembulk was owned by BLT and BLT was going through its restructuring [in 2012-15]. The banks never enforced on the assets when they could have at any time, because they recognised that the steel had a certain value, but the steel was only part of a platform that included contracts and a management team and an operating staff that had intrinsic value. It was that [operating platform] value that provided continuity through the restructuring and made Chembulk attractive to its new shareholders, [private equity groups] KKR and York Capital.
"While I believe what you just said about bulk shipping is largely true [that it is being priced by investors solely in relation to asset values], I think it's a shame, particularly when you think about a company like Eagle Bulk under the management of a guy like Gary Vogel, who I worked with at Clipper and who is a brilliant shipping man."
After you learned the chemical tanker business at Stolt-Nielsen, and spent 11 years at that company, you left in 1995 and joined brokerage Sound Tanker Chartering, which has since been renamed SPI Marine. Tell me about that career move.
"That was the toughest career decision of my life. I wanted to expand the scope of what I was doing and I saw the success brokers were having and I felt I had the skillset for it and it was something I just wanted to try. Sound Tanker Chartering was a competitive brokerage shop specialising in the chemical tanker business that was founded by schoolmates of mine from Kings Point, like Jeff Mavelli, who I'm still friends with and who I still conduct business with. Sound Tanker Chartering was a Kings Point shop.
"At Stolt-Nielsen, my knowledge of the Indian Ocean trade was exceptional. My focus was like a laser beam. It cut very deep, but it was very narrow in scope. When I moved over to the brokerage side at Sound Tanker Chartering, it was the opposite. It was much more broad-based. I was exposed to every geographical trade and I conducted business with every chemical tanker owner. I got to know a lot of customers. It was like my graduate school.
"But at heart, I was a shipowner, and so eight years into my time there, I took an opportunity to go back to the owning side with a part of the Clipper Group that was at the time called Copenhagen Tankers."
How would you compare your time at Clipper, in 2003-7, to your previous stretch at Stolt-Nielsen?
"It was similar but different. Copenhagen Tankers specialised in smaller-size vessels in regional trades. I came in as vice-president, running the chartering team in the United States. The big thing when I was there was expansion. Copenhagen Tankers, which became Clipper Tankers USA, doubled in size. It went from a 16-ship pool operation to a 30-plus-ship integrated owner with its own in-house technical management. The demand was there [for expansion] - 2003-7 were very good years for chemical tankers, and in 2007 I became president of Clipper Tankers USA because my boss, who was a Dane, was promoted and went back to Denmark."
Less than a year after you become president of Clipper Tankers USA, you left for Chembulk, after Bob Burke brought you into that company as chief operating officer. How did that sudden turn of events come about?
"I knew Bob going back to 1977 [at Kings Point] and when I was at Stolt-Nielsen, he was at GE Capital and our paths crossed and we stayed in touch and picked each other's brains. When I was a broker and I needed information on what was going on with ship finance, I would call him, and when he needed information on chemical tankers, he would call me, and we'd see each other at Marine Money and CMA. Bob's a great guy and we've always been friendly and cordial.
"Bob was involved with the purchase of Chembulk Tankers from MT Marine [in January 2007]. He basically spearheaded the deal and was the one who brought the opportunity to AMA [boutique shipping investment bank AMA Capital Partners], which then identified [private equity group] Varde, which was the underlying funding. Bob was positioned to be CEO and he was getting the whole chartering team from MT Marine, but he needed a chief operating officer and a chartering manager, so he approached me."
Only a few months after you came aboard as COO, AMA and Varde sold Chembulk in December 2007 to Indonesia's BLT Group, which is controlled by the Surya family, for USD850 million. Was it the plan from the beginning for Bob to leave and for you to take over after the private-equity owners 'flipped' the company for a profit?
"No, no, not at all. The idea was to go public and for Bob to stay on as CEO and for me to stay on as COO. Then BLT came along and bought us. At that point, BLT basically felt like it did not need someone of Bob's acumen and I got promoted to president. That was very, very unexpected. When I was informed that the company was going to be sold to BLT, it came as quite a surprise.
"Hadi Surya, the founder [of BLT], and Siana Surya, who's still on our board today, are really terrific people. When they bought Chembulk and put it together with BLT's other chemical tanker businesses, we became global overnight, and being a half a world away, we were fairly autonomous, to the point where BLT adopted our best practices. When the four BLT chemical tanker business units [Chembulk, Banyu Laju Shipping, Gold Bridge Shipping, and Berlian Laju Tankers] came together as the BLT Chembulk Group, with over 60 tankers, they appointed me CEO of the group. After that, we grew the business in the Western Hemisphere and repositioned a number of our newer stainless steel ships over here [BLT took delivery of 13 stainless steel newbuilds in 2008-11]."
Those BLT newbuildings came on-stream just in time for the global financial crisis …
"The financial crisis had hit us by 2008, the first year Chembulk was under BLT. The other problem was a big influx of chemical tanker newbuilds in 2009-10, so there was overcapacity."
Were you able to hold on to your contract customers despite that overcapacity?
"The thing I'm really proud of here at Chembulk is our continuity of customers, which again, speaks to our service, because if you're not providing the service, you're not going to get the contract renewals. There were times when our service was really the determining factor [in retaining contracts]. It's like anything else: If something is working for you, why change it, right? I mean, imagine if as an individual you changed insurance companies every time you saw a GEICO commercial?"
It's too much effort. Who wants to deal with that?
"Exactly. Who wants to do that? Even if you pay a little more for the service you're getting."
So let's talk about the BLT restructuring. From the outside looking in, that looked painful. When did everything fall apart?
"January 2012. It isn't something I would have signed up for - to see your company declaring a debt standstill and suspending its stock - but having said that, when I was brought into the restructuring process and working with the chief restructuring officer, Cos [Cosimo] Borrelli, I was exposed to aspects of the business I never would have been exposed to otherwise. Yes, there were times when it was painful, but I still wouldn't trade that experience. It was very knowledge-enhancing. And at the end of the day, it was very satisfying that we were able to get through that entire [restructuring] period and our customer base stuck with us and we did not lose staff."
BLT filed for Chapter 15 bankruptcy protection in New York in March 2012, after filing a Singapore scheme of arrangement, and filed for Chapter 15 protection again in March 2013, seeking recognition of its Indonesian restructuring. Sophisticated business people understand that 'bankruptcy' does not equate to 'liquidation' and business can continue as usual during a court-protected restructuring process, but at the same time, the very word 'bankruptcy' has negative connotations. It can bring to mind terms like 'morally bankrupt'. Plus, customers may ask themselves, 'If I can choose between a service provider that is not bankrupt and one that is, why even bother with the one that is bankrupt?' How did you deal with this issue?
"I found that the key was getting out in front of the news and being very transparent, sharing bad news as well as good news. There was more bad news than good news in the beginning, but if I got out in front of it, the bad news became old news when somebody else was telling it. There was a lot of damage control.
"When I was a shipbroker early in my tenure with Sound Tanker Chartering, I was working a cargo that two shipowners were competing for. After fixing the cargo late in the afternoon, I'd planned on waiting until the next morning to inform the other owner he'd lost the cargo, because I didn't want to ruin his evening. In sharing this with my boss, he told me to inform that owner immediately, as it was the prudent thing to do and because 'bad news doesn't get better with time'. That statement has had a profound impact on me ever since, particularly during the BLT restructuring. 'Bad news doesn't get better with time' is a principle that guides me to this very day."
It seemed like the BLT restructuring went on and on. It stretched over a really extended period of time.
"Almost four years. It began at the end of January 2012 and day one of Chembulk Tankers under our new shareholders was November 30, 2015."
Now that the restructuring is finally over, let me ask you: Did you always think it was going to work out, or were there moments when you privately thought to yourself that it might fail?
"I didn't know how things would turn out for the overall BLT restructuring, but I never doubted that Chembulk as an entity would survive in some shape or form. I was always confident of that. I knew we had good ships, good service, and a good team at Chembulk - one of the bankers referred to us as the 'jewel in the crown'."
As part of that restructuring, a significant majority of the equity in the new Chembulk was taken over by KKR and York Capital. I've heard mixed reviews of having private equity as an owner. What has it been like for you?
"I would say that the people we're dealing with at both companies are very knowledgeable financial people and they're excellent partners. They do not micro-manage us. They let us run the business. On a day-to-day basis, the ownership structure above me is really not a factor in how the business is being run. With private equity, there's always talk about the ultimate exit, but if they do exit, once again, the value of Chembulk goes beyond the ships. It's the whole package, both the platform and the steel."
One of the ways that private equity prefers to exit is through an initial public offering (IPO). In today's market, shipping IPOs are extremely difficult, but a couple of years from now, who knows? I'm not asking whether the ultimate plan is for Chembulk to go public, but in general, do you have any thoughts on whether it's better to be private or public? I find it ironic that you've just told me the plan for Chembulk prior to the acquisition by BLT was to go public with Bob Burke as CEO, because I've heard Bob repeatedly state from conference podiums that he believes there's an inherent flaw in the public shipping model. Where do you come down on this debate?
"I like to quote my friend and former colleague Gary Vogel, who was asked this question on a panel we were on together and he said, 'The benefit of being private versus public is that I don't have to tell you the benefit of being private versus public.'
"I would say there are pros and cons to each. When I worked for Stolt-Nielsen, it was a public company but it didn't have a public company feel at my level - it felt like it was still the Stolt-Nielsen's [family] company. And I would say that our reporting requirements at Chembulk right now under private-equity ownership are as stringent and demanding as they would be as a public company."
OK, we've gone through your career, which brings us to the present, and your being named the CMA Commodore for 2017. Looking back, it goes without saying that things have turned out well for you professionally, but in retrospect, what do you think about the decisions you've made through the years, the paths you've taken versus those you didn't?
"To this day, I regret that I never achieved my master's licence. But if I had, it would have meant another two years at sea. Would I have then gone on to law school? I don't know. Instead, I went to Stolt-Nielsen, where I turned down a position to be based in London [and went on to Sound Tanker Chartering instead]. What would have happened if I had accepted? Would I be sitting next to Niels Stolt-Nielsen now? I don't know.
"In September 2006, I had two milestones: I turned 50 and it was announced I would become president of Clipper Tankers USA. Then, a couple of months later, Bob Burke reached out [with the Chembulk COO offer] and I initially resisted. What would have happened if I hadn't accepted?
"When I look back at all of these things, there's a certain aspect of being in the right place at the right time - of luck - but there's also a certain aspect of putting yourself in the right place at the right time and making your own luck. And I think I've had more successes than failures. The decisions I've made - touch wood - seem to have worked out for me.
"As you progress through your career, it's human nature to look back and think, 'If I had only known this, I would have done that' or 'If I could only go back…' but the thing is - and I can't tell you when it happened - there was some point in my life when if I was given the opportunity to go back, I wouldn't, because if I changed something, there was more that could go wrong than has gone right."
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