CY Tung and the study of modern China Ocean Shipping

YINWEIJIAN

Abstract：CY Tung was the pioneer of innovation and the practioner of innovative theories in modern shipping， regardless of his huge oil tanker building， container transport， institutional management or resource integration. Tung， the shipping industry have called the pioneer of innovation， Tung's road to success is a story and history of continuous innovation. In his shipping career， adhering to the innovative concept， multi-use new shipping technology， and management practice， Tung had built a team with the ability to innovate. Tung’s group， by integrating its human resources， contacts and production resources ultimately established himself in the highly competitive international shipping market and achieved his legendary of the world shipping tycoon.

Keywords： Technological innovation，integration，supertanker，container transport

Introduction

Tung Chao Yung， as a pioneer of shipping industry in China， conforming to the historical trend of shipping industry in the world to develop container transportation， through loan and capital rising， has built arrays of super tankers and tried to be the biggest shipping magnate. Until the 1970s， with decades of hard work he had established his shipping empire of 150 cargo ships， with their total load more than 12000 thousand tons. He has not only all kinds of cargo ships， bulk carrier， oil ship and container ships， but also the top-level luxurious passenger liner， car carriers and liquefied gas carrier in the international shipping field. He was one of the seven shipping magnates of the world， and the total load of his ships is the double of the Greek shipping magnate----Onassis’.Therefore， Tung has become the biggest independent ship owner in the world actually， and was called as “oriental Onassis”. In a sense， Tung has created a legend of shipping in the world； however， by reviewing his struggling stories， it is obviously that the sustained innovation of technology and management is an important guarantee of his success. According to Schumpeter’s economic theory， the entrepreneur is the subject of the innovation； if taking the combination of organizing management and technological innovation as the root of an enterprise， the people who are engaged in the organization of the above factors are called as entrepreneur. According to Schumpeter， the core effect of entrepreneur is not the management， but the promotion of the management and technological innovation， as well as the operation in the organization. [1]

I The innovation of super tanker

Schumpeter economic theory suggests that innovation is a process for entrepreneurs to reorganize his production factors and to achieve excess profit with the risk of market. However， innovation is only realized in the production process. Furthermore， it is the transform effected by outside factor， occurres inside the enterprise that can be called as innovation. [1] In his career of shipping， Tung has paid attention to the development of shipping both at home and abroad， to learn the latest shipping theory and technology which have been used in the shipping business.Meanwhile， with his advantages of human resources， clients relation and production factors， through combining resources and transforming organization and management， he has won a dominant role in the competition.Consequently， Tung established himself in the severe competition of international shipping industry.

According to the contrast between Guangdong people and Shanghai people by some scholars， “Guangdong people primarily invest in catering service； they pursue high and rapid profits……they are shortsighted and impatient， while， Shanghai people always use large capital to gain small but stable profit……they are less influenced by the psychological barrier of colonialism.” “Shanghai people have high quality of technology， as a group， they have rich experience on the management of big factories……able to protect themselves and swiftly to grasp opportunities in the market.” [2] As an outstanding representative of Shanghai businessman， because he grow up in Shanghai， he possessed himself with all the advantages of Shanghai businessmen， Tung has fully given play their characteristics of cautiousness and long-term vision.In addition， his creative thought has greatly helped him to get success in his career. In the mid 1930 s， confronting with the condition that the imperialists had exclusively dominated the high-level shipping of China， Tung was very indignant.Through his study and practice， he learned its disadvantages of the independent ocean shipping industry of China. According to Xiao Guoliang----a scholar， in the industrialization process of modern China， capital has affected the development of modern industry； while the growth of modern capital market of China has deviated from that of modern industries. Facing the disadvantageous condition in which the capital chain of shipping industry has broken， Tung had proposed the Solution to Reorganize the National Shipping Industry to the Ministry of Transport of the National Government. In the solution， he proposed to integrate the shipping industry of China， with the guidance by government and investment by private shipping companies， to establish large shipping company， as well as to transform credit system， to manage and deploy all the ships， and to construct more economic and regular ship routes. [3] Tung hoped to make China shipping industry more competitive against the big powers of shipping in the world and promote the internationalization of shipping industry of China， But due to political factors， he failed to realize this beautiful dream. However， he had never felt discouraged and never stopped his footstep. Until the 1940s， he had established China Shipping Trust Company， to support the shipping industry of China， which was the first key step in shipping history.

As a Chinese who loved the ocean deeply， and Tung had travelled around the world， which had cultivated his uncommon international vision， as well as his broad mind， taking innovation as his pioneering idea all the time. With the rapid recovery and growth of capitalism economy in the world after WWII， the demand of petroleum by some Asian countries with poor petroleum such as Japan and South Korea had greatly increased. However， the increase of oil to transport depends on the large tonnage tankers， relatively speaking， which will reduce the cost of transportation in economic view.Meanwhile，Greek magnate Onassis’ investment strategy for tanker had given Tung great inspiration. In the 1960s， Onassis had explored the great business opportunity to transport oil from the industrial development of the world， and invested most of his capital to the tankers. In his heyday， he had possessed with 45 tankers， with 15 among them were over 20-ton supertanker.With his supertankers， his fleet had become the biggest private merchant fleet with it’s annul profit over $100million. However， Tung’s supertanker dream was bigger than that of Onassis’， because Tung had more innovative idea and practice ability than Onassis. He had realized the business opportunity in the supertanker’s age from Onassis’ success， and he said，“With a developed shipping industry， a country could not only reduce its foreign exchange expenditure， but also increase an invisible trade income” [4] By combing with the oil market in Asian countries as well as his own shipping experience， he proposed the vessel cost theory in a creative way. According to the theory， the tanker volume and load are in reverse proportion to the shipping cost， and to build greater volume of tanker will get lower cost of shipping but higher profits. In 1959， overcoming objections， he decided to build the biggest tanker in the world at that time， and he had invested almost one fifth of his financial resources as well as large human and material resources to build the “East Asia Giant” which had undertook her first trial trip in August 1959， and had become one of the ten titanic ships in the world. Kent Well， a famous shipping expert of Australia， had ever said： “Tung targets to develop shipping industry……therefore he had invested all the profits in the fleet even on the business of non-profit in short term in order to enlarge his career. It is such idea that has built this shipping empire， bringing more profits to Hong Kong and other areas”. [5]In Tung’s diary， for many times he had mentioned the related issues to buy tanker.For example， in one dairy he wrote，“It is possible to buy the 55-tonnage tanker， while it is still need work hard for the next cooperation…… ” [6] Tung’s group had greatly increased its ships by purchasing as well as by building independently， and the total tonnage has rapid increased over 12000 thousand tons in dozens of year. Although its was smaller than the global group of Kong Pao----the world ShipKing， the ship variety， and individual tonnage as well as its new mechanical equipment have exceeded that of Pao.

However， the innovation of East Asia Giant was more than that. Limited by the technology of China at that time， East Asia Giant was built by Japanese， while on the capital source， besides his own investment， he first introduced millions of investment from international financial organization into the construction of supertanker in China shipping field， and he insisted that Chinese experts to take responsibilty for the project design and construction supervision which was undoubtedly a pioneering work. Meanwhile， in the future construction of supertanker， he paid more attention to the advanced technology and management， especially the energy conservation and failure rate. The machine equipped in the tanker was MST-14----a reheat steam turbine developed by America GM， which was not only energy conserved， but also with lower failure rate； it also possessed the first-level engine power of the day in the world. According to the measurement， the engine of this kind cost oil less than 0.4 pound for each horsepower hour. During the construction of “Atlantic Giant Star”， Tung fearlessly used the balance equipment of cistern system， which had never been used by manufactures in the world because the equipment had just been invented for a short time. But， with this technology， Tung had greatly improved the stability of the ship body， and made a sound foundation to enlarge the hull as well. In order to ensure the durability of steel plate and to reduce the cost of the tanker， without hesitation， he demanded to use the expensive RUSTHAN agent， the cost of which had reached over $700 thousand dollars， and his courage to innovate was undeniably great. In order to learn the advanced technology and theory for shipbuilding， he established Shipping Magazine in 1952， in which some latest shipping market situation had been published， as well as some new technologies， theories and shipping knowledge.It helped to promote their innovative consciousness， to immediately understand the developing situation of the world and to strengthen themselves. As a shipping tycoon， Tung kept learning and innovating.He took innovation as the base of his career， and paid attention to all the new invention and designs in the field.So long as to improve their commercial value， these latest technologies or design would be used in his career in a short period. With his Shipping Magazine， Tung propagandized and promoted Bian Baoqi’s ship design theory on speed acceleration.He also specially went to Tokyo University of Japan for Doctor Bian’s lecture， and talked with him about the related new technologies. In his diary on October 28th， 1961， he recorded，“l(fā)ast week， Bain， as a shipping expert， went to Japan Tokyo University to give a lecture， which has indeed won honor for our Chinese.” [6] Through the discussion between them， Tung had combined Bian’s hull design theory with his other shipping technologies， and put the semi-submersible type hull----a new technology into the construction of “Oriental Queen” in 1965， and greatly accelerated the speed.

In the next twenty years， Tung had built many supertankers such as “Brazil Glory” and “Seawise Giant” etc. What is deserved to be mentioned is that Tung had bought a 42-ton tanker from a Greek ship businessman. In order to curtail expenditure for shipping and increase their advantage of cost， he ordered the technical personnel to expand the hull.With his order， they cut the hull and added another section between the two parts with great risk. During the construction， with the enlargement of the hull， the propeller and anchor should be lengthened and reinforced as well. However， Tung， leading his technical team， had overcome the technical difficulties one by one， eventually they made the ship a 56-ton supertanker， which was “Seawise Giant”---- the biggest tanker in the world so far. With his innovative spirit and courage， as well as his brave management， Tung had started new journey one by one in the shipping history of Tung’s group.

II The innovation of container shipping

According to the Schumpeter’s economic theory， innovation should and must create new value， and the outstanding performance of innovation is a new tool or method being used in the production； he also believed， any invention or innovation which failed to be applied into the production or management can’t realize its value. [1] in the 1960s， the container has started a new era of shipping in human history； In the view of logistics， compared with the traditional shipping transportation， the container shipping has more advantages such as more convenient to load and unload， more load， higher speed， and less harm to the cargo.For the transportation of single tanker over 8000 tons， with container shipping it could extremely improve the container load for the ship each time， and the transshipment port could be sharply reduced， and the cost for each container would be 20% lower than that of traditional shipment， therefore it could reduce the transportation cost， to improve the profits to the extreme. This is the great advantage of container transportation， and many countries in western world， such as America， UK ，Japan and other countries began container shipping. Bing skilled in grasping the international opportunities， undoubtedly Tung would realize that， and he had ever pointed out，“With the continued development of shipping technology in the world， the shipping efficiency has played an increasingly important role in the financial success…..for the container shipment； there is still a great demand for the container shipping.” [4]

The extremely sharp-eyed Tung had realized the great strategic value of container shipping for the shipping industry， and he believed that container shipping was the primary trend for the future development of the industry. When the container shipping was still in its early period in the international shipping field， Tung had predicted that the age of container shipping has come. Facing the huge potential of container shipping， Tung issued his container shipping development strategy immediately and practiced it at once.Meanwhile， he consulted with several ship manufactures and asked them to built four container ships for him. The speed of the first container ships was over 22 miles per hour， and with 750 containers for each ship.The cost of construction for each ship had reached $30 million dollars， which was obviously an astronomical figure at that time with the average cost of construction for a single ship being about hundreds of thousands dollars. With the successful trial trips of the four container ships， and clients’ consistent approval on its intensified and specialized service， make Tung more confident to build his container shipping fleet. Since 1969 when he began to develop his container shipping without sparing any effort， he had spent a lot of money and had built containers and wagons， and the first container ships， as well as built his container shipping fleet in a few months， which would become the new growth points of the profit. In the first year， he had opened ship routes from Far East to the east and west coasts of America， to Europe and to South America and so on. Tung had said proudly，“All the ships of our company rented or operated along the route from Far East to Europe had been replaced by the new container ships. All the business along the route from Far East to Australia being cooperated with Australia State Shipping Company and Asia the MRT Company， have been continued to operate since 1976， and the business was very successful”. [4]However， as a totally new mode of transportation， only with special wharves， as well as the collaboration of full equipment and resources， container shipping could work well. In the shortest time， the company had purchased some wharves in Hong Kong， Taiwan， America， and UK specially used to deposit， load or unload the containers and cargo. These wharves were very expensive， and only a wharf in UK had appreciated over three times， which indicated that Tung’s unsurpassed courage and strategic perspective

Tung clearly knew the significance of process management on the container shipping， and formulated a series of transportation system to make all departments， branch companies and wharves collaborate to load or unload the cargo and promote market， etc. With the development of situation， in order to highlight the leading role of container shipping in the company， Tung had replaced the original name Orient Overseas Shipping Company by Orient Overseas Container Line Ltd， which had implied such meaning.

Compared with the traditional shipment， one significant difference of container shipping is its high demand about the capital and enterprise scale， and only large-scale operation and management could bring more profit， which Tung knew clearly. However， because they were limited by the Confucianist traditions at that time， Chinese businessman， fettered by their stable strategy to run their business step by step， did not dare to pursue great-leap-forward development， such as Kong Pao----the famous shipping magnate of Hong Kong， who only adopted the alliance and external financing under the sound situation of container shipping at that time. [7]Pao tended to ally with some big shipping companies in west， to cooperate and explore the container shipping market； meanwhile， he had achieved a win-win situation through financing from bank magnates such as National City Bank of New York， etc. on his running strategy， he went ahead steadily and surly， to collect high rent from his cargo ships and containers from some businessman， and won a relative platform of development for his company. At that time， many shareholder and management personnel suggested Tung to adopt Pao’s strategy.However this strategy and management model was too traditional to Tung who saw innovation as the key. For Tung， there existed huge political risks in the model of alliance with foreign enterprises at that changeable international situation.Furthermore， although the income was stable by the rent model of management， it means the return was low， because the risk and return are in direct proportion to each other. What was more important， Tung understood that， if the lessee violated honesty to cheat the clients， the company’s reputation would be damaged in the long term. Therefore， he refused to ally and rent， but proposed the strategy of merger and acquisition， purchased a few of internationally famous ship companies and started a new journey of his career. The company had purchased 32% share of European Greatness Shipping Company in 1973， British Furness Shipping Company in 1980， and America Rail Pacific Shipping Company in 1981. In this way， the company was enlarged successively， and the brand strength was improved， as well as the right to speak about the international shipping. Huang Cifa----the chef engineer of the company signed with emotion： “Tung was the first Chinese who had purchased foreign shipping companies in such a large scale.” [8]

The strategic innovation had promoted Tung’s shipping career， and Orient Overseas Container Line Ltd had achieved a brilliant performance in the 1970s when the global economy had encountered recession. In 1979， the turnover of the year had reached 430 million KDD， and the profit was over 120 million KDD. Since 1969， in the less four years， OOCL had 8 international lines and 30 standard containers， with its total tonnage more than 500 thousand tons. Proudly Tung said： “the container shipping line of the company has reached every comer of the world， and there is a large profit for the cargo shipped to each wharf.” [4] “With the cooperation with the internationally famous container shipping companies， the company could be able to fully use its funds and reduce its cost to the extreme” [4]

In other words， through his creative thought of management and container shipping strategy， Tung’s group had grasped the opportunity of shipping market， and attracted senior clients and won an advantageous position in the severe competition.

III Innovation of organization and management

As an ancient business， shipping industry had its own huge risk， such as shipping price， ship’s price， line， international situation， war， energy and financial crisis and other related factors exert a big influence on the shipping market.Furthermore， the frequent marine perils have cast a shadow on the deep ocean shipping. However， the rapid development of shipping technology and the updated shipping ideas demand more creative thoughts about the management； [9] meanwhile， an efficient and pragmatic team of management is necessary to run the shipping business， and the operation and management of shipping needs higher innovation， too. According to Schumpeter， a new organization style is necessary to combine the production factors， and the innovation of management and organization is as well as important. [1]

Under the influence of Confucianism， Tung paid attention to the innovation of organization and management， stressing “integrity” and “benevolence” in the management， and taking honesty as the basis of career. Long Denggao， a scholar said that，“Integrity was the first tradition of Chinese merchants， and almost every successful Chinese businessman takes it as their lifeline.” [10] Tung had kept the idea at the first priority of his business， and created his own view on integrity with his faith and action in his whole life. In the early period， he had ever proposed to establish a shipping school. In order to fulfill his promise， even during the difficult time for working funds， he still purchased the luxurious ship “Elizabeth Queen” with a huge sum of money， and transformed her into a marine school， which however was destroyed in a fire， Later， he bought another ship “Atlantic”， and realized his dream to build a shipping school， eventually. In the company， he created ideas to train his employees， taking the existing stories as well as their own experience to educate the employee， indoctrinating them with integrity and rooted it into their deep thought， which had become the unexhausted source of their great-leap-forward development. Family enterprise has been criticized by the academic field， ， because in its developing process， it often encounters many problems such as information asymmetry and rising cost of trade caused by the different moral backgrounds， and in the imperfect market， the imperfect moral system would evoke to rise the transaction cost of the business in a large scale. [11]At the same time， due to the complicated contradictions and conflicts of interests and power among different family members， many such kind of enterprises declined because they failed to arrange the inner issues. Therefore， combining the whole process of development， how to build an efficient and stable management team is one of the key problems which fettered the family firms’ development. Du Xuncheng stressed， for the family firm of Chinese， it is hoped to construct a management model of all family members collaborated in a harmony， which would reduce the transaction cost and business circle. [12] As a private and family enterprise， Tung’s group has confronted with these challenges in its growth. In order to reduce the transaction cost， Tung introduced the Confucianism to the management， and he hoped to harmonize the complicated personnel relations in the management circle with Confucians ethnics. Du also suggested，“The household division and distrust of the person with different family name are two big barriers to enlarge the enterprise.” [12] However， with his innovative idea of management， Tung had explained the advantage of family enterprise in a new way. In all his life， he appreciated the famous words by Confucius， “Young people should be filial to their parents at home and respectful to their brothers when they are with them， They should be serious and trustworthy， love the populace extensively and be close to those who are humane. When all this is done and there is time for other things， they should use it for the study of the classics” [13]， which was regarded as the important principle for the large Tung’s Group.In his diary， Tung had many times mentioned that he educated his children with ethnic ideas of “integrity”， “filial piety”， “l(fā)ove” and so on， and encouraged them to practice these ideas in the actual management.

No matter how busy he was， Tung often went to the grassroot employees and encouraged them to work hard， and he believed example was better than the best sermon. He often worked in the ship to inspect the mechanical problems and assist the security personnel to clear the troubles.He educated his workers with actual faults， which would make them clearly know the problems.He even invited the retired workers to visit the company and promised them a normal treatment. According to the memories of a former employee in OOCL， as the head of the huge group， Tung could remember the name of every employee， and he had always visited his excellent employees on their birthday with gifts.

Through making a personal example to train others， all his family members cared the employee， and were honest， trustworthy， and adherent to the teachings. In this way， they could unify all the staff and improve the cohesion， the management and coordination had become more efficient， and the whole team worked hard toward their common target. In a sense， this was one of the secrets for the success of Tung’s Group. Long Deng gao believed， “Indeed， there are many problems and faults existing in the family enterprises， while the innovative spirit of the entrepreneur is the key dynamic to the success， and family firm has such advantage.” [14]Tung often regarded the Confucius ethics as his principle of management， such as “I am not concerned that I have no place， I am concerned how I may fit myself for one. I am not concerned that I am not known， I seek to be worthy to be known.” “He who is not in charge of governing does not interfere in its business.” [13] In the company， Tung；s brother and several children had worked at the senior positions， but Tung knew his subordinates well enough to assign them jobs commensurate with their abilities， characteristics and strengths. After long-term practice on the basic working stations， Tung Chee-hwa， the first son of Tung， was assigned to charge the most important subsidiary of OOIL according to his long-vision and strong ability of anti-frustration.Tung Chee Chen， the second son of Tung， was assigned to charge the branch company of Orient America according to his skillful collaboration ability and western model of thought； Tung also had appointed other senior managers such as Zhuo Moulai， who had played a great role in the exploration of America market，Zhang Gongquan， who could take charge of the financial business alone，and Huang Cifa， the leader of supertanker， who had lead the construction of over twenty supertankers in over ten years. Talking about Tung’， Huang always signed with emotion， “without Tung， how can I get such an opportunity to build so many ships？” [8]All these talents discovered by Tung had grown as the backbone of the Tung Empire for long-term brilliance， and the primary secret of this team was just one word----innovation.

IV Conclusion

Next year will be the hundredth anniversary of the birth of Tung Chaoyung ----the shipping magnate. Reviewing his stories and studying his idea of innovative practice， could help to grasp the essence of his innovative idea in higher sense， and to learn the soul of his success， which is of significance of time to inherit and publicize Tung’s innovative management idea， as well as to promote the shipping industry of China. No matter in the aspect of supertankers’ construction， container shipping， organization management， or resources integration， Tung was regarded as the pioneer of innovation in the shipping field； Tung’s success and stories was fulfilled with sustained innovation and changes. Making a general survey of Tung’s success， it could be found that： the new supertanker he created had opened the new era of international shipping and laid solid foundation for Tung’s further growth； his innovation about container shipping， conformed to the tides of international ocean shipping and provided Tung’s Group with powerful wings for future development； the innovation about organization and management had cleared the barriers of management for Tung’s Group on its growing road， and cultured its strong cohesion and vitality of the enterprise， providing unexhausted dynamic and support for the group. Life is limited， while innovation is endless. Technical innovation promoted the management innovation， and vise versa， which provided Tung with endless driving force. Therefore， it can be said， innovative thought and practice are the soul and backbone for Tung to surpass his peers， to build his shipping empire and to accomplish his peak in shipping industry.

Notes

[1].Huang Jiansheng， Great Economist Schumpeter [M]. Beijing： China Citic Press， 2006.25-47.

[2]. Huang Shaolun，.Immigrant Entrepreneur----Shanghai Entrepreneur in Hong Kong [M] Shanghai ：Shanghai Ancient Books Publishing House2003.64.

[3]. Song Meiyun， Zhou Licheng， the Shipping Magnate Tung Chao Yung in Tianjin Tianjin： Tianjin People Press 2008.19-20.

[4].Jindong Jianpin， Zheng Huixin， The World of Tung Chao Yung [M] Beijing： Joint Publishing 2007，156-2137.

[5].Dick Kent will， The Early Shipping Companies in China， [M] Australia， 1988.233.

[6].Zheng Huixin， Tung Chao Yung’s Dairy [M] Joint Publishing， 2007.45-1136

[7].Yu Xingguo， Management Innovation of Enterprise [J] Journal of Changsha Railway University， 2005，（1）：97.

[8].Huang Cifa， It Is My Luck to Peet Mr.Tung， the Pioneer of Modern Shipping of China， [C].154-158.

[9].Zhang Zhongmin， The Scientific Management of Shanghai Enterprises in the 1930s [J] Shanghai Economic Review ， 2003，（6）：45.

[10].Long Denggao， the Sociological Analysis on the Management Model of Overseas Chinese Merchants [J] Sociological Study， 1998，（2）：77.

[11]. Wang Yongming， Jin Kongsheng， Analysis on the Management Innovation under the Knowledge Economy[J].Journal of Chongqing University Of Post And Telecom， 2004，（2）：19-20

[12]. Du Xuncheng， Confucian Theories and Enterprise System in Modern China [J]， Financial Study 2005，（1）：72-75.

[13]. Shao Yu， the Analects of Confucius [M]. Hangzhou： Zhejiang University Pres， 2010.66-67

[14]. Long Denggao， Analysis on the Invisible Operation and Management of Overseas Chinese Merchants [J]. Overseas Chinese History Studies， 1997，（4）：27.