The best days of the private independent shipowner are over, according to the audience who took part in a poll at maritime conference in Singapore Wednesday.
The poll followed a debate in which six shipping industry leaders at Sea Asia 2017 debated over the value of going public or taking private equity from outside investors, and whether this was a sustainable solution given the vagaries of the shipping industry.
“Globally the shipping sector has seen many companies shift away from private, independent ownership,” said Citigroup’s global head for shipping logistics and offshore industries Michael Parker. “This follows a pattern of traditional shipping banks moving their money out of shipping and into safer bets.”
Traditional sources of finance for ship orders are drying up as many banks look to improve their lending portfolios and decrease risk, he said.
For many independent private shipowners, this means looking to different financial solutions, with non-bank sources such as private equity from investors and capital market often filling this gap, said Parker.
“For some private and family-owned businesses, the answer is going public,” he said.
He was the lead speaker for the motion: This House believes that the best days of the private independent shipowner are over.
Going against the motion was Filippos Lemos, president of family-owned business N.S. Lemos & Company.
Lemos argued that there was still a future for private independent shipowners because they have the ability to be agile and deploy capital with long-term horizons in mind.
“We are best placed to generate appropriate risk-adjusted returns, while having the flexibility and far-sightedness to avoid hazards,” he said.
Private equity or “other people’s money,” as Lemos calls it, and its “uncanny” correlation with the rise of quantitative easing, exacerbate volatility which makes short-term investment in the shipping industry unsustainable.
He cautioned against equating the increasing flows of private equity into the shipping industry as a sign of inability of private balance sheets to support an increasingly capital-intensive industry.
Instead, the likes of Taiwanese container line Wan Hai Lines, German Oldendorff Carriers and Norwegian shipping magnate John Fredriksen’s Seatankers Group indicate that the “private arena is blooming.”
However, Teekay Corporation’s CEO Kenneth Hvid argued that size now matters because the shipping industry has changed.
“When I joined in 2000, we were an Aframax player in the Pacific. We had a business worth $1 billion in assets. Today, we have four public-listed companies, we’ve diversified into offshore, gas and tankers.”
“We have $16 billion in assets. We would not be able to grow $1 billion a year as a private owner,” Hvid said.
Additionally, Hvid said one can be a public company with a private mindset, something the team opposing the motion missed out.
Agreeing, Hafnia Tankers’ CEO Mikael Skov said shipping has a tendency to be undisciplined and that it needs to cut emotion from decision making. “It’s not either or. But find a middle way and utilize the best from two worlds… with investors’ input — advice and analysis — you’ll have a better model,” he said.
With technology as a disrupter and the world changing quickly, shipowners cannot afford to be stuck in a long-term strategy, Skov said.
“The only way to do it in my view is scale, working with other public markets or investors to make sure you follow the trends globally, and not in shipping alone,” Skov said.
However, Kenneth Koo, CEO of 100-year-old TCC Group, argued that one of the strengths of private shipowners is that they have the independence from the need to continually expand their fleet.
“We have the flexibility of decision-making based on risk management specifically tailored to our limitations, and we have a long-term strategic planning to ensure the perpetuation of business even in the face of adverse market conditions,” said Koo.
Unlike banks, private independent shipowners are not victims of financial crashes, he said. “Banks are victims because they keep on lending,” Koo said.
But in the end, 75% of the audience, which comprised ship brokers, ship management companies and financial institutions, heeded Parker’s call to vote for their heads and for the future. And, with a show of hands declared that the best days of the private independent shipowner were over.
Sea Asia 2017 was held in conjunction with the Singapore Maritime Week 2017. SMW is a maritime event in Singapore driven by the Maritime and Port Authority of Singapore.
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Seatrade’s report of the same debate came to the opposite conclusion