ISSUE THREE 2017
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Hon g Ko S p e ng Dist ribu cial t ed cit y’s m a ariti cross th me w e eek
Fear and loathing in shipping
Oak Maritime’s Jack Hsu on the constant battle between charterers and owners
MANIFEST
3 At The Prow
Economy 4 US 5 EU 7 China 8 India 9 Brazil
Markets 10 Dry Bulk 12 Tankers 15 Containers 16 Offshore 17 Finance
Executive Debate 18 Should shipping institute cyber security regulations?
Profiles 22 Cover Story Oak Maritime
24 Ocean Network Express 26 AO Shipping 29 Varamar 30 Pacific Basin 31 Asia Maritime Pacific 33 Timbercoast 35 Dreifa Energy
Hong Kong 37 Technology 38 Lines 41 HKSOA
Recreation 42 Wine 43 Gadgets 44 Books 45 Travel
Opinion 46 Basil Karatzas 47 Andrew Craig-Bennett 48 MarPoll
45
ISSUE THREE 2017
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AT THE PROW
An ASM publication Editorial Director: Sam Chambers sam@asiashippingmedia.com Associate Editor: Jason Jiang jason@asiashippingmedia.com Correspondents: Athens: Ionnis Nikolaou Bogota: Richard McColl Cairo: Camelia Ewiss Cape Town: Joe Cunliffe Dubai: Yousra Shaikh Genoa: Nicola Capuzzo Hong Kong: Alfred Romann London: Paul Collins Mumbai: Shirish Nadkarni New York: Suzanne Smith Oslo: Hans Thaulow San Francisco: Donal Scully Shanghai: Colin Quek Singapore: Grant Rowles Sydney: Ross White-Chinnery Taipei: David Green Tokyo: Masanori Kikuchi Contributors: Nick Berriff, Andrew CraigBennett, Paul French, Chris Garman, Lars Jensen, Jeffrey Landsberg, Dagfinn Lunde, Mike Meade, Peter Sand, Neville Smith, Eytan Uliel Editorial material should be sent to sam@asiashippingmedia.com or mailed to 24 Route de Fuilla, Sahorre, 66360, France Commercial Director: Grant Rowles grant@asiashippingmedia.com Maritime ceo advertising agents are also based in Japan, Korea, Scandinavia and Greece — to contact a local agent email grant@asiashippingmedia.com for details MEDIA KITS ARE AVAILABLE TO DOWNLOAD AT: www.asiashippingmedia.com All commercial material should be sent to grant@asiashippingmedia.com or mailed to 30 Cecil Street, #19-08 Prudential Tower Singapore 049712 Design: Tigersoft Design Printers: Allion Printing, Hong Kong Subscriptions: A $120 subscription is charged for 2017’s four issues of Maritime ceo magazine. Email sales@asiashippingmedia.com for subscription enquiries. Copyright © Asia Shipping Media (ASM) 2017 www.asiashippingmedia.com Although every effort has been made to ensure that the information contained in this review is correct, the publishers accept no liability for any inaccuracies or omissions that may occur. All rights reserved. No part of the publication may be reproduced, stored in retrieval systems or transmitted in any form or by any means without prior written permission of the copyright owner. For reprints of specific articles contact grant@ asiashippingmedia.com Twitter: @Splash_247 LinkedIn: Maritime CEO Forum Facebook: Splash Maritime & Offshore News
ISSUE THREE 2017
The rise and fall of Vale as a shipowner
T
he rise and fall of Vale as a shipowner stands as another cautionary tale in the long line of failed industrial shipping plays. The global financial crisis and a failure to navigate Beijing’s power hierarchy consigned the fleet of 400,000 dwt ore carriers, the biggest bulkers ever built, to economic oblivion. Vale announced in August it had sold another two of these giant ships – the largest bulkers ever constructed – to China’s Bank of Communications, leaving it with just two left, which are also due to be sold soon. Vale’s dabble with shipowning follows a well-worn industrial path, most notably the oil majors and their huge build up of tankers in the 1970s, many of which headed straight to the Norwegian fjords into lay-up, only emerging to either sell to the breaker’s yard or be picked up by Greek shipowners – or savvy US hoteliers in the case of Loewes Corporation – at scrap related prices. Roger Agnelli, the former CEO of Vale, came up with the valemax concept 10 years ago as a way to claw back pricing power with Australian mining rivals. Freight costs a decade ago – the highest of all time – were making Brazilian ore uncompetitive. Brazil lies 45 days steaming away from key customer, China, compared to Australia’s comparatively nearby 10 days. Vale started to place orders for this brand new class of ship in 2008 anticipating 40% savings over the hot cape spot market. At the time Vale’s intercontinental iron ore conveyor belt concept had shipowners on edge. Its fleet plans formed major planks
of most shipping conferences nine years ago. However, the collapse of the dry bulk freight market quickly saw the ships – ordered at an average price of $126m – slide in value by around 40%, while the cape spot market fell off a cliff from six-digit a day highs to less than $10,000. Vale’s capital cost advantage was already in tatters, but things were set to get a whole lot worse for these cursed ore carriers as China, Inc threw in an unforeseen curveball. Citing safety concerns following a crack on the maiden voyage of the 362 m long Vale Brasil in 2011, China moved to ban direct valemax calls. In reality, Beijing was heeding the calls of local shipowners and steel mills who were worried at the possible stranglehold Vale could hold in the ore markets. The Brazilian miner was forced to create two ore transhipment hubs in Malaysia and the Philippines where cargoes were shifted onto smaller tonnage for onward shipment to China. The valemax experiment had been holed below the water. The end game for these ships – one symbolic of the maritime rise of a new superpower this century – was China taking them over in return for direct access to its ports, something Panos Patsadas, from brokers Target Maritime Transport, told me the other day was the perfect game of shipping chess. Check mate! ●
Sam Chambers Editor Maritime ceo
3
ECONOMY US
Blowing hot Hurricanes aside, America is enjoying solid growth
W
ashington seems stalled – mired in argument, still dazed by the victory of Donald Trump and the chaos at some key economic departments such as energy. Yet the US economy appears, at least statistically, to be still powering onwards. The American government may seem to be in a somewhat confused state at the moment and future policies unclear, but GDP grew by 3% in the second quarter – the strongest growth since 2015 and better than the first quarter’s 1.2% growth. President Trump has promised to raise growth above 3% and this may happen – though how much will be down to any Trump-inspired economic policies and how much due to the ongoing momentum of the
economy’s recovery from recession will be vigorously debated. Growth in America is challenged in a number of key ways – those where metrics can be applied such as the US’s aging workforce and low productivity gains, and those where metrics are less obviously applicable such as whether or not the president starts a trade war with China and other more contentious economic strategies. To date in the Trump administration there has been little in the way of concrete policy change or initiative. Tax changes that were promised have not occurred and a programme to boost infrastructure spending has likewise not materialised despite campaign promises. It is unclear how successful or otherwise the administration will be in
America’s employment situation, 2017 Category
%
Employed
59.2
Unemployed
3.2
Actively looking to change jobs now
1.4
Considering changing jobs soon
0.9
Source: Pew Research Centre
4
introducing these packages given the administration’s defeat on its key healthcare reform legislation. However, one other piece of good news for Trump is an expected increase in jobs and so a lessening of unemployment. This may not be the promised ‘return of jobs’ from those outsourced to China and other overseas locations but rather a knock-on effect from the overall growth of the economy. Still, it is expected the president will take the credit. A major question for America’s continued overall economic recovery, and the global economy, will now be the extent of the fall out from the storms that ravaged the Texas Gulf coast in late August. That coast is home to approximately 30% of the nation’s refining capacity. Ellen Zentner, the chief United States economist at Morgan Stanley in New York, has calculated that every 10-cent rise in the price of gasoline is equivalent to a $10bn tax on consumers. Zetner told the New York Times that, “should higher prices be sustained, it would rob other categories of spending as dollars are diverted to filling tanks.” ● maritime ceo
ECONOMY EUROPE
Don’t forget the politics Brexit, German elections, frosty Russia relations: there’s much to ponder across the continent
T
he European Union is for all its single market, customs and tariffs unions, open borders and taxation policies essentially a political union. Therefore politics matters much in the EU – Brexit; the election of the populist Macron in France; the German federal elections; relations with Russia. All of these are potential problems for the EU – the Brexit negotiations are sucking energy and effort from the EU (and of course from the UK government even more so); Macron’s labour reforms are likely to be met by general strikes from France’s volatile trade unions; the outcome of the German elections may see Angela Merkel’s position either strengthened or weakened; and the disputes between the EU (particularly Germany and the Eastern European member states) and Russia over the status of Ukraine rumble ominously on. The data on Brexit remains inconclusive - the UK economy made its slowest start to a year since 2012, while the Eurozone grew twice as fast. The UK grew by a tepid 0.3% in the three months to June, while the Eurozone expanded at a much healthier 0.6% - though none of these are particularly stellar rates and with margins for error factored in there’s probably not much in it between the EU and the UK. Central Europe is far more interesting. Romania was the stand
“
The UK economy made its slowest start to a year since 2012, while the Eurozone grew twice as fast
”
ISSUE THREE 2017
out growth economy but the Czech Republic, Poland, Slovakia and Hungary all did well thanks to low interest rates and good improved employment data. Most of the central European economies are growing between 3-4% per quarter – significantly more than western Europe or the UK. Romania managed 5.7% growth year-on-year in the second quarter. Much of this is due to eastern and central Europe being ever more closely integrated into the German supply chain and, effectively, riding off the back of continued German economic success. However, that success is leading to more jobs and better wages with the concomitant knock on effect to Central Europe’s retail and consumer economies. This growth should remain unless Germany changes direction significantly after its elections. For France and Germany (elections and labour law revisions aside) it’s the strong euro that’s the major concern for manufacturers and exporters. In early August Europe’s single currency surged to $1.1910,
EU annual GDP growth rate: 2015-2017 Month/year
% annual growth
Jan 2015
2.1
July 2015
2.2
Jan 2016
2.2
July 2016
1.8
Jan 2017
2.1
July 2017
2.3
Source: Eurostat
its highest level since early January 2015. It’s retreated slightly since but it’s still very high. Companies are reporting that the strong euro is hitting company profits. However, it seems likely that the German, and even the French, economies are resilient enough to ride out the strong currency while the UK and US both seem to be deriving few benefits from a weaker currency at the moment. It is expected that, barring political upheavals, the Eurozone should stay strong to the end of the year and into early 2018. ●
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ECONOMY CHINA
Strong consumer story The Chinese are on course to surpass US retail spending by the end of the decade
T
he Chinese economy delivered many surprises in the first half of the year, disappointing (yet again) the pundits who are still predicting a hard landing for PRC, Inc. The most recent macroeconomic data published by the statistical bureau in Beijing (which is notoriously imperfect but still a good general rough guide most feel) is consistent with a healthy economy, driven by impressive wage growth and consumer spending, and supported by strong earnings growth. Arguments over foreign currency reserves, state spending and support for ailing industries, potential urban property bubbles and, most importantly perhaps, the amount of bad debt on the Chinese system all continue with both the usual bulls and bears. However, nobody can argue that China is not still a strong consumer story. Strong wage growth, low household debt, mild inflation and consumer optimism this year have resulted in real (inflation-adjusted) retail sales growth of 9.3% in the first half of 2017. This compares to US real retail sales growth of 2.3% during the first five months of the year, and it might be useful to note that while spending by Chinese consumers was
ISSUE THREE 2017
China’s relatively constant GDP growth rates 2016-2017 Month/year
% growth
Jan 2016
6.8
July 2016
6.7
Jan 2017
6.8
July 2017
6.9
Source: China National Bureau of Statistics (NBS)
equal to only 22% of North American retail sales a decade ago, it was equal to 87% of American consumer spending last year and is likely to surpass US retail spending by the end of the decade. All this means that the longerterm project of rebalancing the Chinese economy away from investment and manufacturing solely for export and towards a domestic consumption and financed driven economy is continuing successfully. There’s no reason to believe the strong consumer story won’t continue for the rest of the year and into 2018. In the industrial sector profits have improved, especially in the construction industry (where many do see bubbles). This has helped feed strong wage growth at the lower earnings end of the spectrum. Bubble
or no bubble in the future, new home sales rose 13.5% year-on-year (on a sq m basis) during the first half of this year. The clouds, if they come, are political – a certain degree of uncertainty over the political orientation of the Communist Party post the key party congress this October, the continuing instability caused by Kim Jong-un and the North Korean nuclear issue and the possibility of an all out Trump trade war with China. But some analysts believe this is not as crucial as others. Andy Rothman, China analyst with Matthews Asia in San Francisco, writes, ‘”If Trump were to make a policy U-turn and pursue currency manipulation and punitive tariffs on Chinese imports, those steps would have only a modest impact on the Chinese economy.” Predicting the final outcomes on all these uncertainties though is tricky to say the least. Crucially though it is worth remembering that nowadays only about 18% of China’s exports go to the US, while Europe, Japan and the ASEAN countries combined take more than one-third of the share, limiting the impact of any new barriers to the US market the Trump administration may erect. ●
7
ECONOMY INDIA
Disappointment and storms ahead The brutal monsoons have hammered an already hard hit local agricultural scene
T
he awful recent weather which swept across the Indian subcontinent from the border with Bangladesh to Mumbai will not help India turn around its somewhat faltering economic growth rate. Second quarter numbers released in June, before we knew the severity of the approaching monsoon season, were disappointing at 5.7%. Analysts were hoping for higher growth in the third quarter but that, thanks to the climactic conditions, looks less likely now. India’s agricultural deflation, 2017 2017
Deflation in agriculture year-on-year (%)
Q1
7.2
Q2
5.7
Q3*
1.8
Q4*
2.6
2018
5.1
Q1*
-2.0
*=forecast Source: IdusInd Bank
8
The fall in growth in the June quarter is also on account of disruption caused by the long awaited introduction of the goods and services tax (GST). Still it was industry rather than consumer that has been worst affected in 2017 so far. Industrial growth, which had been a respectable if hardly staggering (for India that is) 10.7% in the first quarter, slumped horribly to just 1.6% in the following three months. Consumers took the expected hit of the new GST while agriculture rebounded slightly following 24 months of drought. But, as noted above, that drought is now well and truly over and that is not a good thing given the extremes. Government spending is doing a lot to prop up the Indian economy from quarter to quarter. Political tensions may be high with China at present over border issues but New Delhi has certainly learnt something from the Beijing playbook. Consumers look unlikely to lead any potential recovery in India.
Apart from the continuing fallout from the GST (which will eventually dissipate as industry and retailers absorb the costs and consumers become used to the system) employment is a problem in some key sectors. Traditionally construction has been a large employer but it’s pretty stagnant right now. However, once again state spending may help somewhat – India is implementing a large-scale road building, upgrading and repair initiative, which is employing some additional labour. It is also the case that, for those in work, wage rises have been slender to non-existent this year. For those in the shipping and logistics business the unexciting news on Indian exports will be not be welcome. Export growth is still far slower than import growth. In the consumer sector those consumers with money are trading up from basic Indian made electronics (washing machines, cookers, appliances) to better designed and more expensive imported brands from East Asia. Appreciation of the rupee this year has also not helped trade balance matters. For those in the agriculture sector things might be really severe for the rest of this year. Though Bangladesh bore the brunt of the monsoon season much of India suffered too and came at a time of continuing deflation in agriculture. Farmers were having a tough time even before the inclement weather. The storms, rainfall and flooding are not of the last month are not going to do anything but severely exacerbate that problem. ●
“Batteries are the new oil for ships” — Brent Perry, CEO, Plan B Energy Storage
maritime ceo
ECONOMY BRAZIL
Out of recession
Two quarters of consecutive growth have politicians trumpeting a long awaited turnaround. Not everyone feels like celebrating however
C
ould it be that the Brazilian economy is finally pulling out of the doldrums it has been languishing in for many years? Perhaps – at least the Brazilian stock market seems to think it might be possible. This was all based on second quarter growth of a meagre 0.2%, but still…growth is growth. Local politicians shouted loud that Brazil’s Q2 growth was not only the second quarter of growth in a row but also better than Portugal (a lusophone country Brazil often cites as a similar economy for some reason), Singapore and Taiwan and the stock market responded with a 2% jump (it’s actually up 22% for the year). But short term bursts do not erode the long term problems – corruption trials of politicians and senior corporate officials continue remorselessly, expected (and much needed) pension reforms have been cancelled for this year and the government of Michel Temer looks likely to push through further cuts in welfare and social spending before
“
Short term bursts do not erode long term problems
”
ISSUE THREE 2017
the end of the year too. Much of Brazil’s growth, such as it is, was derived from the services sector. This is good news in that, thanks to bureaucratic red tape and overly regulated sectors, services have lagged in recent years. However, the key drivers of the country’s economy – agribusiness and industrial production – showed little excitement. Farming flatlined with zero growth in the last quarter and industry was down 0.5% on the quarter and 2.1% for the year. For those in shipping and logistics this is bad news as Brazil is so commodities driven – less shipping of components, engineering and bulk cargoes like soybeans is not good news. Exports are slightly up, but nothing that would be noticeable dockside. Still personal consumer spending is up along with employment (see chart) – approximately 0.7% since January. Big retailers, pharmaceutical and healthcare providers and clothing chains have been the major beneficiaries of increased personal spending. The Temer government would have us believe that the two quarters of growth (i.e. Brazil is officially out of recession) is the start of a recovery
Brazil’s improving employment rate, 2017 Month
Employment rate (%)
February
53.4
March
53.1
April
53.2
May
53.4
June
53.7
July
53.8
Source: Instituto Brasileiro Geografia e Estatistica (IBGE)
track that will continue. Analysts do at least believe the data and are feeling more bullish than anytime in the last half-dozen years; retail sales data would indicate ordinary people are also feeling more confident than previously. But high debt loads in companies and red tape mean industrial investment is not happening sufficiently to secure the economic growth trajectory and better employment levels. Similarly, this year’s expected welfare cuts will not help a continued rise in positive consumer sentiment. Corporate and regular Brazil, it would seem, are both working hard but still not receiving the sort of political help that could benefit both employers and employees across this vast nation. ●
9
MARKETS DRY BULK
The problem with real news In 2017, sadly no research, articles or reports can be assumed as being accurate, writes Jeffrey Landsberg from Commodore Research
T
he topic of ‘fake news’ has been all the rage this year, but for decades ‘real news’ has also been quite flawed and prone to creating inaccurate economic narratives. Separating fact from fiction allows savvy traders and shipping executives to create very lucrative opportunities to profit in the dry bulk shipping market (and the related equity and derivative markets). The Chinese economy often finds itself a subject of flawed research and media coverage. For example, back in January we published a report that discussed how a major media outlet wrote about current “dampened electricity demand” in China but bizarrely only included 2015 data. The same data set that showed China’s electricity demand grew by 0.5% in 2015 (which was the only demand statistic used in that article) also showed China’s electricity demand grew by 5% in 2016. Eleven months of 2016 data was available when that very flawed article was published -- but nevertheless only 2015 data was used. Stunningly inaccurate work is often published by the largest and most respected global media
Year-On-Year Growth in Chinese Electricity Consumption 12% 10% 8% 6% 4% 2% 0%
2011
2012
2013
*2017 growth is for January - July
10
2014
2015
2016 2017*
outlets, and both ‘real news’ and ‘fake news’ must always be analysed very carefully whenever being consumed. In 2017, sadly no research, articles, or reports can be assumed as being accurate. What is also true in this day and age is that the predictions for what is to come next in China, the dry bulk shipping market, and various dry bulk commodity markets are often made by pundits who are not even fully aware of what is occurring at present. As we have also often examined in our research, predictions published by the Chinese government itself cannot simply be treated as gospel as well. The fact that the Chinese government’s predictions must not be treated as gospel is a fact we like to discuss as it can easily be proven. One example is that the China Electricity Council last year predicted that the nation’s electricity consumption in 2016 would grow by 1 - 2%. As it would later announce this year, however, consumption in 2016 ended up growing by 5%. The China Electricity Council early this year also predicted that electricity consumption would grow in 2017 by 3%. After that prediction was released we opined in several of our reports that Chinese electricity consumption growth this year would easily exceed 3% -- and so far this year the first seven months of data have shown that China’s electricity consumption has grown by approximately 6.9%. Another popular but inaccurate narrative that makes the rounds every June and July (and occurred again this year) is that China’s steel production and demand are very weak in summer months. The pundits that make this claim year after
year ignore what actually occurs in China. However, a look at seasonal historical data before this summer began showed very clearly that Chinese steel production usually comes under only a small amount of pressure every June, July, and August. As we advocated earlier this year, there was no reason to expect a large drop in Chinese steel production would occur this summer -- but nevertheless that is what countless pundits were predicting. This year pundits have seen how that is not at all true (China’s steel production set a record this summer), but come next year the same inaccurate narrative will likely surface again before the summer of 2018 begins. Overall, inaccurate economic narratives can often be found in various markets -- but this remains wonderful for traders and shipping executives as it creates very lucrative opportunities to profit when knowing the truth. In the dry bulk shipping market (and the related equity and derivative markets) there is a great deal of money to be made whenever perception is not aligned with reality, and this year has shown such instances can occur quite often. ‘Fake news’ is unlikely to disappear any time soon, but the same degree of scepticism should also be adhered to whenever consuming ‘real news’. ● maritime ceo
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MARKETS TANKERS
As reality bites, VLCCs are torched Tanker owners are facing up to a troublesome demand future. BIMCO’s Peter Sand reports
F
our VLCCs have been sold for demolition in August alone. This equals the numbers of VLCCs sold for demolition in the preceding 11 months. More importantly, it’s just what is required by shipowners to stem the pressure from overcapacity in a market, which has been hit by soft demand. During July and August, the pace of aframax and suezmax crude oil tanker demolitions has also picked up. BIMCO expects a total of 9m dwt to leave the fleet this year, right now we are half way. The global crude oil tanker fleet is about to see a six-year high inflow of capacity in 2017. More than 28m dwt is set to be delivered this year, according to BIMCO estimates which take cancellations, postponements and delays into account. Speaking of being under pressure, freight rates for VLCCs, suezmax and aframax crude oil tankers, have now been below $20,000 per day since May. In August, they
dropped below $12,000 per day for all of them - a truly loss-making level across the board. September and October are unlikely to bring about any respite, as global refinery maintenance will see refinery runs decline and thus also lower demand for crude oil and the transportation service that tankers offer to the refiners. All of this is happening, as the oil market is about to find a new balance. As the oil market itself, is of utmost importance to the tanker shipping market – the drawdown of excessive stockpiles must be evaluated very carefully. Trouble is, what’s the benchmark to watch out for? There isn’t any! Several indicators must be observed to get a fuller picture. OPEC compliance rate, US shale oil production, out from Libya and Nigeria, global oil demand, changes to OECD stocks, changes to US stock, etc. Combined with the fact that we all would like to see the stocks
Crude oil tanker demolition activity 1,800
1,600
1,600
1,400
1,400
1,200
1,200
1,000
1,000
Suezmax
12
Panamax
Aug. 2017
Apr. 2017
Jun. 2017
Feb. 2017
Oct. 2016
Dec. 2016
Aug. 2016
Apr. 2016
Aframax
Source: BIMCO, Clarksons
Jun. 2016
Feb. 2016
Oct. 2015
Dec. 2015
Aug. 2015
Apr. 2015
Jun. 2015
Feb. 2015
Oct. 2014
VLCC
Dec. 2014
Aug. 2014
200
0
Apr. 2014
400
200
Jun. 2014
600
400
Feb. 2014
800
600
Oct. 2013
800
0
Thousands DWT
2,000
1,800
Dec. 2013
Thousands DWT
October 2013 - August 2017
2,000
“
More than 28m dwt of crude tankers are set to be delivered this year, a sixyear high
”
drawn down fast, to re-establish stronger tanker demand and higher freight rates – we must still rely on facts rather than fiction and wishful thinking. Having said that, the data to prove the rebalancing of global oil stocks will only appear months after it has happened. Until then, rely on simple intuitive maths: if stocks are 365m barrels too high, it will take one year at a reduction rate of 1m barrels per day to bring it down. While waiting for the market to improve, some owners have been busy ordering new ships. Some of them were also amongst the ones who sold ships for demolition, but only a few of them. Make no mistake, shipping of oil is a geopolitical matter too, where national tanker companies participate with a different agenda than the independent owners. Moreover, the 20-year outlook for global oil demand may be the blurriest ever. The notoriously optimistic IEA global oil demand outlook is only topped by those of oil majors. Nevertheless, they may all be underestimating the advances in vehicle efficiency, a rise in the number of electric cars, tighter emissions standards and shifts to other fuel sources: all elements that would result in a much lower global oil demand. And thus, also a lower transport need. ● maritime ceo
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MARKETS CONTAINERS
Temporary truce reached on Asia-Europe Carriers are making money finally on a key tradelane, but challenges lie ahead, warns SeaIntel’s Lars Jensen
I
n the period 2011-2016 the AsiaEurope market was subjected to escalating levels of freight rate volatility, outright rate wars and far more blank sailings – the industry’s euphemism for cancelling promised products. In 2017 all of this has been completely reversed. The spot rate levels have become extremely stable – the volatility measured as the difference between the highest and lowest spot rates has dropped by more than 70% compared to the past six years. The freight rate wars of 2016 which drove spot rates to near zero levels was effectively cancelled since the Hanjin collapse. Blank sailings have been all but disappeared as the service integrity level reached 99.5% in the second quarter this year to North Europe and 98.8% to the Mediterranean. A stark contrast to the same period in 2016 where the corresponding service integrity was a low 86.5% and 92.5%. Additionally, the combination of a surge in backhaul demand and the
ISSUE THREE 2017
need for carriers to switch into new networks led to a temporary spike in backhaul freight rates in spring 2017, at one point even seeing back haul spot rates reach the same levels as the head haul spot rates. All in all, this is a very positive development for one the world’s major backbone trade lanes. The stabilisation of this particular trade is a key ingredient in solid improvement in container liner results we have been seeing in the second quarter. And even though shippers might to some degree lament the fact that freight rates are increasing, it is a fact that carriers do need to show a decent level of profitability in order to provide stable services to the shippers – a fact so clearly exposed when Hanjin collapsed. We have finally switched from a bear to a bull market in Asia-Europe in 2017. The interesting question is whether it will last. From a demand perspective, it appears we are back to a norm of 3-5% annual growth, with 2017 being at the higher end of the growth spectrum. But looking at the coming 18-24 months we do see a potential challenge coming. The main alliance carriers have very different orderbook profiles with some having almost no mega vessels left on order, to carriers with multiple series yet to be delivered. From an alliance perspective, 2M stands to grow their collective capacity by 7% and THE Alliance stands to grow slightly short of 10%. Even if MSC goes ahead and places the order rumoured to be nine 22,000 teu ships, this only brings
“
Spot rate volatility has dropped by more than 70% compared to the past six years
”
2M’s capacity growth to slightly short of 10%. Provided we maintain a healthy demand growth, this appears balanced. However, the Ocean Alliance stands to grow 21% and even though CMA CGM’s new order of 22,000 teu vessels pull the number upwards, the key driver of growth is actually Cosco and Evergreen. As the vast majority of vessels to be delivered are mega vessels, these will make it into the Asia-Europe trade, and hence it is equally clear that if the Ocean Alliance intends to have a high degree of utilisation on their new vessels, they need to increase their Asia-Europe market share significantly in the next 18-24 months. ●
15
MARKETS OFFSHORE
Rig empires emerge Those buying drilling rigs at today’s values could dominate the industry soon, writes David Carter Shinn from Bassoe Offshore
B
orr Drilling, Northern Drilling, Shelf, Ensco, and most recently, Transocean have started acquiring offshore rigs at values which may never be seen again. What do they know that nobody else does? If you’ve been following the market over the past few years, the answer should be nothing. Dayrates have fallen by at least 50% compared to their highs in 2013–2014. Values for modern (post-2007 built) rigs have declined to 50% or less of the original construction cost. The difference between the active players and those who remain idle is that the former believe in a material, sustained improvement in dayrates (and utilisation) or they simply have better access to capital compared to their debt-burdened peers. Although one could argue that this year’s deals can be viewed as out of the money today, the conclusion is simple: if you think offshore rig dayrates are going to rise, then you should be buying new rigs. The idea is that you don’t have to believe that the market will return to its peak to make money off acquiring rigs these days. You just need dayrates to go up enough to support your investment. The risk, of course, lies in the curve (timing and magnitude) that rig dayrates will follow. But this risk seems to be diminishing as signs of improvement in the rig market become clearer. Borr Drilling commented recently: “Since the start of the year, marketed utilisation for independent cantilever (IC) jack-up rigs that are less than 10 years old has improved by 3% to 72% today. During the same period marketed utilisation for IC
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jack-ups older than 10 years has decreased 4% to 66%.” Borr’s statement reinforces the point that demand for new rigs is rising. It’s also consistent with our views on old rigs versus new rigs where we estimate that up to 340 old rigs could be scrapped by 2020. Borr acquired the Hercules Super A class rigs at $65m each, and the average price they paid for the newer Transocean jackups (not including those still under construction) can be estimated to be around $135m. This compares to an average all-in construction cost of around $230m. Northern Drilling paid $365m for the Norway-compliant newbuild semisub, West Mira. In August, Transocean paid around $350m for the four Songa Cat-D semisubs (also Norway-compliant) depending on how you value the rigs’ backlog. This compares to an average all-in construction cost of over $700m. While current average Rig Valuation Tool (RVT) values for 6th gen Norway-compliant semis are at $350m, we already value the West Mira (including other ‘premium’ Norway-compliant semisubs) at $385m–$426m and the four Songa rigs at $350m –$389m. On the jack-up side, our average RVT values match with these transactions, but we see values rising further for 400ft premium and harsh environment rigs through next year. Two highly simplified examples illustrate why rig acquisition deals are happening now. Consider that a ‘premium’ newbuild 6th gen harsh environment semisub cost around $700m to build and can be purchased for around $400m today. With current dayrates
of $225,000, a very basic measure of cash-on-cash investment payback comes in at 34.2 years based on newbuild cost and 19.6 years based on current value. If dayrates rise to $350,000 within the next two years or so, payback reduces to 10.9 years and 6.2 years. A similar scenario plays out for jack-ups, where a rig purchased at $120m today can achieve a 6.6-year payback if dayrates rise to a conservative $125,000. We don’t consider other variables like SPS costs, additional investments, and downtime between contracts as these are constants. Ceterus paribus, the numbers demonstrate that the magnitude of the investment advantage an owner gets by acquiring rigs at today’s values is significant. And that’s why – if the market develops as they believe it will – new owners and established owners who are systematically adding first class assets to their fleets will dominate the industry. Empires are rarely built in a day, and the clock on this cycle’s downturn in the rig market won’t run forever. If more rig acquisitions occur, rig values may rise ahead of the dayrate curve, so those who invest early will find themselves even stronger in the future. The risk of rig values falling further (for new rigs) seems outweighed by the likelihood that they’ll rise as oil companies continue to prefer modern, efficient rigs and the pool of supply becomes smaller. Look for more transactions as the shakeup in the offshore rig market continues. ● maritime ceo
MARKETS FINANCE
Digital tsunami threatens to wipe many out By and large shipping has failed to grasp the ramifications of the tech revolution sweeping in, argues Dagfinn Lunde
I
am afraid to tell you that I think too many shipowners and ship financiers have little or no understanding of what the future holds for our industry. Whether its unmanned ships, cyber this or digital that, the industry media might be full of the buzzwords of transformation shipping is set to go through, but those at the sharp end, the owners and bankers, in the main are paying lip service at best to this revolution, something that could ultimately wipe many out of business if they fail to join the digital dots. This sea blindness to change reminds me of when containers started. A lot of people just ignored them and seven years later they were out of business. Ships are becoming outdated so fast to the point whereby they can be out of date by the time they deliver from the yard. This is something we have never experienced before, and surely should be of concern to the banking brigade funding these brand new multimillion-dollar relics.
ISSUE THREE 2017
However, over the past decade the banks have lost so much shipping expertise that many of them don’t know their aft from a stern. They also have little understanding of how the technological revolution hitting the sector will change the fortunes for so many. Shipowners have become essentially taxi drivers. Those that will prosper going forward are the ones who work out how to add value. An Uber in shipping? One big question that remains to be answered – and could slow the pace of change – is who will be brave enough to finance the most pioneering ship concepts. Japan’s Nippon Yusen Kaisha (NYK), for instance, has announced it is planning to carry out an unmanned transpacific containership voyage by 2019. Will that be a ship any bank will finance? Banks are naturally cautious in such instances, as they do not know the regulatory environment yet. The International Maritime Organization – like so
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Shipowners have become essentially taxi drivers. Those that will prosper going forward are the ones who work out how to add value to the logistics chain
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many in shipping – is struggling to keep up with the pace of change. Most of these new inventions will have to take on equity requirements and most people I speak to – whether owners or bankers – are adopting a wait-and-see approach before investing. It seems you, dear reader, agree with this sentiment. I note on the back page of this issue that more than 80% of voters in an online survey believe payback will have to be demonstrated before owners invest in new, disruptive technologies. Still, for all this talk of change, it remains a fact shipping is playing catch up with many other sectors. By way of an example, I was invited into a KLM cockpit on a flight to Oslo not so long ago. The pilot was very excited because, for once, he was allowed to land manually. It’ll be a very, very long time, I’d suggest, before we see a master’s eyes light up on the bridge of a ship for a similar reason. ●
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EXECUTIVE IN PROFILE DEBATE
Hacked off Does shipping need to thrash out a new legal framework regarding cyber attacks?
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ith the acceleration of digitalisation across maritime, the cyber threat to shipping is racing ahead of efforts by industry bodies and regulators to combat the menace. IBM’s 2016 Cyber Security Intelligence Index showed that transportation was the fifth most cyber-attacked industry. In June, shipping giant Maersk suffered a cyber attack, which caused a major breakdown at the company and affected all business units including container shipping, port and tug boat operations, oil and gas production, drilling services, and oil tankers. Maersk has since admitted that the cyber attack will wipe as much as $300m off its books. Importantly, Maersk was not the only shipowner to have been laid low by June’s NotPetya attack. Mate Csorba, principal specialist at classification society DNV GL’s marine cybernetics services, has noticed that the awareness of cyber risks has been increasing rapidly in the shipping industry over the past few years. Judging from the feedback DNV GL received from customers, Csorba says it is not just the “big players” who are seriously contemplating third-party verification of their assets’ cyber security. “Of course, it takes more than a single investment. One could spend tens or hundreds of thousands of euros on hardware/software, and might still end up compromised by a malicious attacker with a gadget worth €100. This is why we are working to continuously improve our skills and techniques, and why owners and operators also need
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to be aware that rather than a one shot they must continuously be addressing cyber security, including hardware, software, and also the human factor,” Csorba says. According to Csorba, when it comes to regulations, IMO and IACS have already had this issue on their radar. MSC 98 agreed in June that there is an urgent need to raise awareness on cyber risk threats and vulnerabilities, and adopted resolution MSC.428(98) on maritime cyber risk management in management systems. “Stricter regulations could, of course, harden security, but would come at a price in a cost-sensitive market. However, there is already a lot that shipping companies can do, for example by following the existing recommended practices developed by the industry, such as the DNV GL Recommended
Practice (RP) on Cyber Security Resilience Management,” Csorba says. Developed in cooperation with customers, the RP provides guidance on risk assessment, general improvements to cyber security, and the verification of security improvements and management systems. Philip Tinsley, manager of maritime security at shipowning body BIMCO, says there is no current legal legislation which directly tackles cyber security within the maritime industry. Initiatives such as guidelines and best practice are currently the only guidance available to ship operators and owners. According to Tinsley, new legislation, which will see the adoption of cyber threats being appropriately assessed and managed within the existing International Safety Management (ISM) Code is fully supported by BIMCO. This new
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Over 90% of seafarers have had no cyber security training maritime ceo
EXECUTIVE IN PROFILE DEBATE
initiative, which was proposed by the US this year to IMO, has achieved industry support and will be implemented in 2021. Last year, IMO released its interim cyber security guidelines and in July BIMCO published its own recommendations based on the IMO directives. Jens Monrad, senior intel analyst at FireEye iSIGHT Intelligence, says it is critical for organisations to have the necessary security foundation in place to tackle the growing hacking issue. “Unfortunately, many organisations buy into the notion that technology only will save them, where the key challenge is the lack of insight into own infrastructure, lack of internal resources and lack of intelligence, allowing organisations to minimise the gap between discovery and recovery of a cyber security threat,” Monrad warns. Monrad anticipates that cyber threats and thus risks continue to increase since there are no political agreements on the rule of engagement, and no global political settlement or cooperation between law enforcement agencies and nations. John Boles, who previously worked for the FBI and is now a director at consulting firm Navigant, believes that the current digitalisation transformation in the maritime industry is definitely bringing more cyber security concerns. In Boles’ opinion, every aspect of the maritime industry is becoming more connected and reliant on computers and software driven operations, which has created significant risks from all types of attack vectors; from hackers, cyber criminals and nation states, to simple computer malfunctions and unintentional human errors. “In most instances, when considering new technology, cost and efficiency are the primary concern, not security. Naturally, the digital transformation is improving operations; however, the unintended consequence of digitisation is
ISSUE THREE 2017
exposure to new risks because of our increased dependence on software and computers and an exponentially expanded potential attack surface,” Boles says. Boles reckons the challenge will be in making cyber security laws and requirements applicable and enforceable across multiple jurisdictions, given the maritime industry’s global nature. “Security requirements that are truly binding and effective will most likely come from the industry itself and from groups like P&I Clubs, IMO, BIMCO, Lloyd’s, and others. Maritime cyber insurance carriers are also likely to have significant impact on security practices,” Boles says, suggesting incentivising information sharing, both formally and informally, of cyber practices, attacks, and consequences from those events as a good first step in improving the global maritime cyber security set-up. Krishna Uppuluri, the digital leader at GE’s Marine Solutions, reckons that the cyber security challenge should be viewed in two zones: OT security – core equipment controls and automation and IT security – digitalisation and information. “A regulation framework would serve OT security much better due to the larger risks. IT security can evolve its natural course as long as the two zones are properly separated,” Uppuluri maintains. Peter Broadhurst, senior vice president of safety and security at Inmarsat Maritime, believes prescriptive regulations are unlikely to keep up with the rate of technological change. The guidelines for cyber security best practice offered by BIMCO last year used a risk-based approach. Inmarsat was consulted at the drafting stage and continues to believe that this approach offers greater resilience against evolving threats. Inmarsat is also supporting an International Association of Classification Societies (IACS) working group, which is formulating more detailed cyber security
recommendations. “Clearly, crew don’t want to make their own jobs more difficult, but surveys we have commissioned suggest that while around half of seafarers have experienced a cyber security incident, over 90% have had no cyber security training. Inmarsat is firmly convinced that training and the implementation of cyber best practice is a straightforward and effective way of lowering the risk of malware, phishing or virus infections,” Broadhurst says. Norma Krayem, senior policy advisor & co-chair of cybersecurity and privacy at law firm Holland & Knight, stresses that the recent global cyber security attacks which hit Maersk and others must be an immediate wake-up call to the industry. “While the IMO has been looking at cyber security, in 2016 only voluntary guidelines were agreed to, not mandatory. There is a very short window for the sector to create voluntary guidelines and demonstrate it is sufficient to address the risk or it will only be a matter of time before new legislative and regulatory mandates are handed down,” Krayem says. The US Department of Homeland Security and the US Coast Guard issued updated guidance in 2016 that required disclosure of cyber security attacks and in July 2017, the Coast Guard issued a request for comment on a new Navigation and Vessel Investigation Circular (NVIC) 05-17 which states that existing Maritime Transportation Security Act requirements are applicable to cyber security related threats. It also addresses Cyber Governance and Cyber Risk Management Implementation Guidelines. “Ultimately, it remains to be seen if a new legal framework is needed, however, risk and security have always been part of the maritime regime, it may be that the sector does not understand the risk enough to see that existing legal frameworks may be flexible enough to cover cyber as well,” Krayem concludes. ●
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IN PROFILE
Jostein Ueland p.35
Cornelius Bockermann p.33
In profile this issue Maritime CEO’s 17 correspondents around the world have been in touch with many of the world’s top shipowners. Highlights are carried over the next 15 pages
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maritime ceo
IN PROFILE
Alexander Oetker p.26
Alexander Varvarenko p.29
Jack Hsu p.22
Mats Berglund p.30
Mark Young p.31
Jeremy Nixon p.24
ISSUE THREE 2017
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IN PROFILE
‘Uncertainty creates hesitation, confusion, or perhaps even fear’ Oak Maritime’s Jack Hsu on the chances that come about by being prepared while others dither
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ack Hsu, managing director of Oak Maritime (Hong Kong), is on typically engaging form when Maritime CEO comes calling, touching upon the evolving, strained relationship between owners and charterers and the benefits of bear markets during an entertaining interview for this issue’s cover story. Hsu, the third generation at the
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The need for a charterer to create a mutually committed longer-term relationship with the owner – and the trust that strengthens that foundation – has all but disappeared
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helm of the famous bulk line, has seen enough cycles in shipping to talk knowingly about the constant tit-for-tat that is the owner/charterer relationship. “There is never an everlasting time of good health in freight rates for shipping in general. The market is very complex, with lots of moving parts. Shipping in general has always been an industry where these moving parts create a permanent state of dysfunction, fuelled by greed and fear,” Hsu explains. Owners, however, tend to bet long, he points out, always hoping for a further recovery in asset prices or freight rates. “What would be a more interesting is if the charterers, who are motivated by – or desire – low freight rates, begin to see a need to hedge their forward risk on freight exposure,” Hsu muses. “Sharp spikes
in freight feed the fear factor for charters.” Hsu says he’s looking forward to seeing some sharp rate spikes destroy charterers’ “complacency” that has developed in the current cycle, hoping that this fear could reverberate into the board rooms, leading to a more sustainable longer term policy change to hedge physically, through time charters or COAs.
maritime ceo
COVER IN PROFILE STORY
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Uncertainties that feed cautiousness could be opportunities for those who have the ability to take action on matters they have already carefully studied
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Hsu admits the charterer has had it all to easy this decade. “In this market,” he says, “glutted with an excessive supply-side induced structural illness, the charterer faces minimal risk in managing his freight exposure. The need to create a mutually committed longer-term relationship with the owner – and the trust that strengthens that foundation – has all but disappeared.” The Oak Maritime Group is one of Asia’s best-known names in shipping. The group is represented through its affiliated offices. The principal office, Sincere Navigation Corporation, is a publicly-owned company based in Taiwan. General management is coordinated through Oak Maritime’s office in Hong Kong where Hsu is based. The 20+ fleet is made up of predominantly bulkers with some tankers with an average age of just 7.5 years. For Hsu and his family-run firm, it is this multi-generational shipping life that breeds hope in its own way.
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Oak Maritime The Oak Maritime Group is one of Asia’s best-known names in shipping. The principal office, Sincere Navigation Corporation, is a publicly-owned company based in Taiwan. General management is coordinated through Oak Maritime’s office in Hong Kong. The 20+ fleet is made up of predominantly bulkers with some tankers with an average age of just 7.5 years.
ISSUE THREE 2017
“Ironically it may be the current challenges in the market, especially the pipeline of new regulations coming our way, which create high levels of uncertainty, which are the beneficial factors in the market,” he tells Maritime CEO. “Uncertainty,” Hsu says, “creates hesitation, confusion, or perhaps even fear. A bear market caution is fundamentally good, because uncertainties that feed cautiousness could be opportunities for those who have the ability to take action on matters they have already carefully studied.” Hsu is currently also serving as the deputy chairman of the influential Hong Kong Shipowners Association (HKSOA), likely meaning he will take over from Wah Kwong’s Sabrina Chao as chair of the organisation for a two-year period from this November. “The HKSOA is working closely with other stakeholders in the maritime cluster, including the Hong Kong government to address the lifeblood of our industry, which is people,” Hsu says. One of the association’s strategies is to promote awareness of shipping to the society at large, with a view to stimulate awareness among Hong Kong’s youth as a potential career direction, ensuring just like at Oak Maritime, there are more generations as keen on shipping as the Hsus. ●
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Sharp spikes in freight feed the fear factor for charters
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“Accountability is a core value that is not seen so much nowadays in the shipping industry” — Kenneth Koo, chairman, TCC Group
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IN PROFILE
ONE: ‘Large enough to survive, small enough to care’ An exclusive interview with the UK national tasked with merging Japan’s top three containerlines
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n his first official interview since being anointed the boss of Ocean Network Express (ONE), Jeremy Nixon tells Maritime CEO of how he intends to position the new Japanese container colossus. In July Nixon became the highest ranked foreigner at any of the Japanese big three lines in a history that dates back to 1884. Nixon has taken the reigns asCEO of Ocean Network Express (ONE), the merged container company of Mitsui OSK Lines (MOL), Kawasaki Kisen Kaisha (K Line) and Nippon Yusen Kaisha (NYK), which will operate out of Singapore. With a combined fleet of 1.44m slots ONE will rank sixth in the world when it officially starts business in April next year. “ONE does not aspire to be the largest carrier in the market, just large enough to survive and yet still small enough to care,” Nixon says. “We hope to offer future customers a high quality, reliable and innovative service offering. Reliable not only in service delivery terms but also in financial stability, as ONE will inherit a very strong balance sheet.” Nixon worked for P&O Nedlloyd
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ONE The merged container subsidiaries of Japan’s big three lines, NYK, MOL and K Line. Set to launch next April with a fleet of 1.44m slots.
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from 1994 through to when it was bought out by Maersk in 2005. After just under three years at Maersk as vice president he jumped ship to NYK in 2008, where he rose through the ranks to become CEO of NYK Line, based in Singapore, in 2012. ONE will launch at a time where prospects for container shipping are finally looking up, but Nixon remains cautious of the markets, saying that the recovery is still in its infancy. “The market has gradually been correcting, with minimal new orders of late and more positive pick up in global demand,” the UK national says, adding: “However, the balance between supply and demand still remains sensitive, and therefore a full recovery is by no means guaranteed on the basis of previous historical norms.” Sales activity and a global promotional campaign for ONE will kick off this October, with bookings
starting in February next year. NYK, as the company with the largest box fleet among the three, has a 38% stake in ONE, with K Line and MOL holding 31% stakes each in the new venture. Nixon’s unveiling as the CEO of ONE was overshadowed by news from Hong Kong where Cosco finally made public its massive $6.3bn bid for OOCL. Nixon thinks the Cosco/OOCL merger will not be the last we see in the current container consolidation run. “The consolidation of many shipping companies and brands over the years has been an ongoing economic evolution, but has clearly accelerated in the last 24 months,” he says. “Extrapolating forward, historical data would indicate that there are still likely to be further future changes, and so it is premature to call an end to this cycle.” Having been in container shipping for the past 23 years Nixon is circumspect about future growth prospects for the sector. Growth spurts seen pre-global financial crisis are very much a thing of the past, he concedes. “The original exuberance of newly emerging developing economies and trade agreements encouraging international outsourcing are now well behind us,” Nixon says from his Singapore office. ONE will be moving into new 50,000 sq ft premises in Singapore in the coming months with regional headquarters to be established in Hong Kong, London, Richmond and Sao Paulo. ● maritime ceo
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IN PROFILE
Oetker name continues to shine in Hamburg Hamburg Süd might have been sold to Maersk, but there’s an Oetker who’s still very much in shipping
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he sale of Hamburg Süd to Maersk for $4bn does not mean the mighty Oetker family have rubbed their hands of shipping entirely. Far from it, in fact. In Alexander Oetker, the famous name in Hamburg maritime circles has a rising star. He founded AO Shipping in 2003 and since then the private dry bulk concern has forged its own path building up a fleet that today numbers seven ships. Oetker is aware of the pressure that goes with his name among Hamburg’s shipping cognoscenti. “I feel responsibility, to live up to the standards of my ancestors, while establishing my own position,” he says. He formed AO, rather than building a career at Hamburg Süd, as he was keen to be independent and wanted to focus on dry bulk at a time where Hamburg Süd was scaling back in this field to focus more on the container trades. “It was a calling from an early
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AO Shipping Dry bulk firm founded in 2003 by Alexander Oetker, a scion of the family, which just sold Hamburg Süd. Now with seven ships and in the market for kamsarmaxes and supramaxes.
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Bankruptcies in themselves don’t help anyone; rather, they push down prices, which drags out the recovery even further
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age,” Oetker says. And timing-wise, 2003, the start of last decade’s super cycle, was a propitious time to launch a dry bulk shipping line. AO has carefully expanded the fleet over the years and has time charter coverage for all units in place. Unlike many in today’s supersized shipping industry Oetker is not likely to pursue massive fleet growth any time soon – prudence appears a key watchword.
“For sure we would like to grow the fleet, however, size in itself is irrelevant to us,” Oetker says, pointing out how the average size of a Greek outfit is around five vessels. He is looking atJapanese-built secondhand kamsarmaxes and supramaxes at the moment. “We aim to hand over the firm to the next generation: debt free and intact,” says the man for whom shipping has been part of the family blood since the 1930s. “All vessels must be successful standalone, by building up cash, so that the unit can weather any future storms,” he stresses. On the markets, Oetker remains cautious. “While the orderbook seems finally under control, the demand picture remains rather bleak, with much depending on China, coal and ore,” he says. Oetker pleas for fellow bulker owners to hold off from ordering new ships in large numbers and to ensure older vessels are scrapped if supply/ demand equilibrium is to be met. “As it stands now, I am slightly optimistic, as the capacity on order is the same as all scrap potentials counted together,” Oetker says. The lengthy downturn has seen a number of bankruptcies in dry bulk, but this is not something that aids the sector per se, Oetker argues. “Bankruptcies in themselves don’t help anyone; rather, they push down prices, which drags out the recovery even further,” he observes. ● maritime ceo
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IN PROFILE
LevelSeas meets Uber? A Ukrainian shipping magnate has just launched a platform linking ships with cargoes
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lexander Varvarenko, a Ukrainian maritime magnate, reckons he might have cracked the Uber of shipping, the Holy Grail for many in maritime IT development. Varvarenko, the founder of Odessa-based shipping company Varamar Group, officially unveiled ShipNEXT at the start of October, a global freight platform linking ships with cargoes around the world in what his company claimed in a release “marks the beginning of a new chapter in the history of shipping”. In its first phase, ShipNEXT’s software will ‘read’ an emailed cargo request or ship position and automatically match cargoes with ships using over 70 various databases and algorithms. “It will minimize human error and increase efficiency by automating multiple routine checks and calculations relating to ship and port data, distances, restrictions, risk zones and rules of carriage by sea, among many others,” the company claimed in a release. In the next phases, to be gradually rolled out over the next 18 months, ShipNEXT will integrate various aspects and sectors of the market. It is designed to be a one-stop online platform for fixing
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Varamar Odessa-based MPP and bulker player founded in 2009 with 15 ships on charter and five offices around the world.
ISSUE THREE 2017
all types of cargo, tendering and negotiations, contract management, reporting, post-fixing and operations, and even ratings of its users. ShipNEXT will also facilitate the increased transparency in ship finance by providing banks with real-time charter rates, statistics and analysis. One of the largest banks in eastern Europe, Dragon Capital, has just bought a minority stake in the platform. Speaking with Maritime CEO, ShipNEXT’s founder Varvarenko explains the platform is essentially a fusion of his life’s experiences. Twenty years ago, Varvarenko, who is also the founder of the Ukrainian Shipbrokers Club, was obsessed with programming but his whole family was involved within the shipping industry so he went down that path, working in many sectors of the industry including in agency, shipbrokering and as a chartering manager. In 2009, he took the plunge and founded Varamar, a multipurpose shipping line which acts as a time charter operator and now has five offices around the globe. Its 15-strong fleet is a mix of MPPs and bulkers. However, IT remained a fascination for Varvarenko. He looked at other industries and their platforms – Uber and cars; Amadeus and tourism – and plotted how to create a platform to link ships with cargoes. The Ukrainian national harked back to Soviet days, and a mathematical programming system that the USSR had developed for land transportation; something he claims is now “a science in high demand by Maersk among others”. This unique methodology calculates the most efficient transport for individual cargoes and could make
even established platforms like Uber more efficient. As Varvarenko explains, it is not just the nearest car, but the most suitable car/driver combination for a specific journey. The last time this transport ‘science’ was used was back in the USSR in the 1980s when there were no computer systems capable of tracking transport worldwide. This month he unleashes this updated system in a bid to change how shipping goes about its daily business, what many might view as a LevelSeas for 2017. LevelSeas was one of the most high profile chartering tools during the dotcom boom around the turn of the century. “Shipping needs transparency. Ships must be a commodity being operated every time in the most efficient way,” Varvarenko insists, adding: “Shipping is so international. Until ships are managed in one marketplace - matched when they are available with the most suitable cargo - they are not being handled efficiently.” There is no need to even go online or register with ShipNEXT. Users can simply send an email. Everyday the platform has up to 4,000 cargoes and 5,000 positions on its platform, figures Varvarenko is sure will multiply in the coming months. ●
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IN PROFILE
Supramax hunt Hong Kong’s largest shipowner has tripled the size of its owned fleet in the past five years. More vessels are on the cards
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acific Basin, the largest shipowner in Hong Kong by fleet number, is keen to add more supramaxes. In an exclusive interview, the company’s Swedish CEO, Mats Berglund says recent supramax acquisitions are just the beginning, more will follow soon. In August the company issued new shares to Japanese shipping giants Imabari and the Kambara family to secure four secondhand supramaxes as well as one resale. “We still own a relatively low proportion of our supramax fleet and that’s why four of the five ships in our last transaction were supramaxes. We also liked adding more supramaxes now since typically, in a recovering market, there is more upside on the larger ships,” Berglund explains, adding: “We continue to look for and assess attractive ship acquisition opportunities to grow and renew our fleet with modern, high-quality secondhand ships or resales that can generate a reasonable pay-back and cash flow even in today’s challenging market, and can reduce our average daily break-even levels.” Pacific Basin has about 250 ships on the water of which it owns 106. This is up from 34 owned ships in 2012.
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Pacific Basin 30-year-old handy/supra dry bulk major player with around 250 ships in the water of which 106 are owned.
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“We proactively vary the mix of owned, long term and short term chartered ships with the shipping cycle and have increased the number of owned ships significantly in recent years due to the weak market and the historically low vessel prices,” Berglund says of the company’s owning strategy. The five ships acquired in August were financed by issuing new shares, a tactic other big listed lines have adopted in 2017, and one Berglund is happy to deploy again. “The structure is an example of the many options available to public companies with good and transparent governance and track record,” Berglund says, adding: “We like to keep it simple and we have sufficient scale without pools or owning ships together with other investors.” On the markets, the Pacific Basin executive feels the worst is over for the current dry bulk cycle but the market improvement so far has been from a very low base. “More time, scrapping and limited ordering are required for a more normal market balance to be sustained,” Berglund stresses. Pacific Basin expects supply to grow about 3% net for 2017 but significantly less in 2018 and 2019 due to much fewer ships delivering from the yards. “If demand continues at 2017 levels, we expect a tightening of the demand/supply balance driving a gradual recovery in the market,” Berglund hopes. Moreover, he anticipates that new ordering activity in the handy/supra segments will continue at relatively low levels due to freight rates not being high enough to provide an acceptable return on newbuildings and the still
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We have sufficient scale without pools or owning ships together with other investors
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large gap between newbuilding and secondhand prices. There’s also new low sulphur and BWTS rules causing uncertainty about future ship designs and new accounting rules from 2019 discouraging new long time charters. “With a leaner cost structure and more owned ships, we feel we are well positioned for a recovering market,” Berglund concludes. ●
maritime ceo
IN PROFILE
Consolidation call amid ‘short, weak’ bulk recovery The head of Hong Kong’s Asia Maritime Pacific is also touting pooling
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he dry bulk sector should consolidate more amid what is set to be only a weak recovery at best, reckons Mark Young, the CEO of Hong Kong’s Asia Maritime Pacific (AMP), a handysize specialist operating more than 40 ships, with Paul Over, formerly of Pacific Basin fame, among the line’s backers. “I believe we are now in the recovery stage within this shipping cycle,” Young tells Maritime CEO, however he warns that the upside of this particular cycle is likely to be short and weak. “I am very cautious when looking at this current recovery,” he stresses. While consolidation has been ongoing in the container, tanker and project sectors over the past few years, dry bulk has tended to eschew the craze, though it is something Young is keen to champion especially in the smaller dry bulk segments such as handysizes and supramaxes. “If you look at these sectors,” he says, “you can see the logistical and capital intensive nature of the business, just as if you were looking at a trucking business – you can see how
Spot on
Asia Maritime Pacific Hong Kong handysize operator with a fleet of more than 40 ships. Keen proponent of ship pools.
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difficult it is to run only a 10-truck company in this modern world.” However, he concedes consolidation in the dry sector remains a challenge mostly because of human nature. “A lot of shipping businesses are still proudly family owned, or are run by entrepreneurs who tend to have very strong characters, which makes the discussions around consolidation very difficult because consolidation will require a degree of give and take,” Young observes. Another measure owners can take to avoid the worst vagaries of the market is to go down the ship pooling route, something AMP is marketing heavily at the moment. While admitting such a strategy is not necessarily suitable for all owners, pools make the most sense, Young argues, for those who mistimed their dry bulker bets and are now waiting for better times to secure a decent exit strategy. “In the past, some have invested
in the shipping industry in the expectation that they will make their investment returns from asset appreciation,” Young recounts. Most of those investors had little capacity or interest in building their own platforms to run these ships. Their business model was to charter-out their owned tonnage and divest when the market started to recover. Many of those investors got the timing of the cycle wrong. So today, they find themselves in this current market with very disappointing levels of charter demand, at a time when the market for favourable divestment is clearly not there yet. Many of them hope to hold their tonnage for a little longer without locking in their ships for another few years of chartering contracts. “They want to keep the ships employed at a level better than the index, but keep the flexibility for divestment opportunities open should the market recover in the near future,” Young explains, adding: “I think these are the kind of owners / investors who should consider the pool structure option, for obvious reasons.” AMP, which merged with another Hong Kong bulker owner, OSL in 2012, formed a private handy pool in 2015, initially focusing on the West Africa log trade to China. The first parties to join the pool were fellow Hong Kong owner Taylor Maritime and Shanghai investment vehicle Maritime Asia Pearl. Following another merger with Texas-based Sono Shipping at the end of last year it has since sought new members to the pool with a view to more transatlantic trades.●
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IN PROFILE
The sailing alternative Cornelius Bockermann and his company have launched ‘the world’s first truly low impact transoceanic logistics chain’
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his magazine has always been aimed fairly and squarely at the shipowner as its core readership as well as its sole focus for interviews. Cornelius Bockermann checks the box as a shipowner. However, in a first for this title Bockermann and his firm Timbercoast are the first profile we’ve had of a company that does not rely on engine power. Bockermann, a master mariner who hails from Bremen, founded Timbercoast to provide wind-powered cargo shipping, linking sustainable producers with their ecological consumers. Three years ago, Timbercoast bought the Avontuur, a beautiful 44 m long two masted, gaff-rigged schooner which was built in 1920 in the Netherlands. Refitted and now with a 114 ton carrying capacity, the ship kicked off this July a liner service between Western Europe and Canada, a route it aims to make up to two times a year. The company is currently designing an emission free replacement for its auxiliary diesel engine. The plan is to install an electric motor powered by batteries that will in turn be charged by a hydrogen or
Spot on
Timbercoast German company moving cargoes on regular liner services onboard a 97-year-old schooner.
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We want to disrupt the business as usual approach to shipping
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methanol powered fuel cell. Bockermann explains the origins for Timbercoast. “Over the course of 20 years working in the maritime industry,” he recounts, “I witnessed first hand how shipping affects our environment.” In 2013, Bockermann moved with his family to Cairns, Australia and shipped all of their possessions from Germany to their new home in Australia. “Through the process of shipping my own goods I experienced the disconnect between commerce and environmental preservation,” he says. “The cost of shipping my possessions around the world and across two oceans was three times cheaper than trucking it from Brisbane to Cairns. After learning of the plans to expand shipping along the Queensland coast and amongst the Great Barrier Reef I knew it was time to act.” Bockermann says the idea
behind Timbercoast is simple. “We want to disrupt the business as usual approach to shipping by offering a truly low impact shipping alternative. Together with the support of our partners in the Sail Cargo Alliance, we are providing a truly sustainable and environmentally responsible service,” he says. Bockermann is not out to compete with what he describes as the “environmentally destructive, bigger, faster, and cheaper approach to commercial shipping”. “The people interested in shipping their goods with us do not need to be convinced of the merits of sailing cargo but rather are excited to be at the forefront of a truly disruptive approach for a healthy shipping culture,” he explains. With a permanent transatlantic liner service now commenced, Timbercoast has partnered with Port Franc Logistics to ensure cargoes are loaded and offloaded onto electric trucks making the service “the world’s first truly low impact transoceanic logistics chain”, according to Bockermann. In between the Canadian services the Avontuur will be sailing into the Caribbean and servicing the North Sea. Getting to where the company is today has not been easy, as Bockermann reflects. “In this David versus Goliath situation, we’ve had and continue to have many big challenges,” he says. Nevertheless, more sailing ships are very much on the cards for Timbercoast. “As we develop the market for sailed goods, we surely wish to grow our fleet and inspire corporate reflection on their shipping choices,” Bockermann concludes. ●
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IN PROFILE
Making gas affordable around the world A new Norwegian FRU company has set out to build up a sizeable fleet on the back of solid growing demand seen across many emerging economies
D
reifa Energy, a new Norwegian outfit founded by a number of gas veterans, is pushing ahead with its first FRU development. In late June Dreifa Energy entered into an agreement to acquire the platform supply vessel Blue Betria from Blue Star Line. The vessel was built in 1983 and upgraded in 2015 and is currently trading in the North Sea. Dreifa is developing mid-scale floating regasification terminals for LNG imports and it aims to build, own and operate a fleet of FRUs. A final investment decision for the first FRU conversion will take place in the coming months. Dreifa has already formed an operational partnership with Bernhard Schulte Shipmanagement. With analysts predicting global LNG production capacity will grow by an unprecedented 50% over the coming five years, new markets for gas are opening up, with emerging economies seeking cheaper ways of importing gas – a niche Dreifa intends to occupy. The floating storage and regasification unit (FSRU) is a well-established and proven concept with a short and attractive delivery
Spot on
Dreifa Energy Formed in Norway this year with intention of building up a significant fleet of FRUs to be deployed at emerging economies across the world.
ISSUE THREE 2017
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Our approach is to offer new and aspiring LNG consumers infrastructure solutions for what they need, not what they might need in 10 to 15 years
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schedule compared to land based import terminals. The LNG industry has historically been a game between large producers selling under longterm contracts and a small number of equally large buyers. This has had an impact on the early stages of the FSRU market, where the core technology has developed in a similar manner; increasing regasification capacity and large LNG storage to match the increasing ship and parcel sizes in the chase for economies of scale. As a result of this, FSRUs being offered by leading players in the industry are often ill equipped and uneconomic for new and smaller LNG importers. Jostein Ueland, 38, one of Dreifa’s
founders, was previously the CFO and co-founder of FLEX LNG. “The Dreifa approach,” Ueland explains, “is to offer new and aspiring LNG consumers infrastructure solutions for what they need, not what they might need in 10 to 15 years. By providing low cost and fit for purpose solutions, projects can manage their access to regasification capacity commercially instead of going long and subsequently trying to off load the capacity or make uneconomic decisions to fill unused capacity.” Dreifa is working on a number of projects around the world. Focus areas are new and prospective LNG consumers in Africa, Southeast Asia, the Mediterranean, the Middle East and the Caribbean. “We see strong demand for the Dreifa Terminal solution,” Ueland says, adding: “We plan to build a significant fleet of FRUs over time and work with new and old relationships to enable LNG to be available around the world.” Dreifa will continue to be active in the secondhand market for potential conversion candidates and is open to further outright purchases or alternative partnership structures. ●
“By 2050 there could be more plastic than fish in the ocean” — Trond Lindheim, founder of SpillTech
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HONG KONG TECHNOLOGY
Tech laggards Does the city suffer from a cultural resistance to innovation?
T
hink of Hong Kong and images of high tech mash with soaring skyscrapers and neon lights. However, despite some enterprising ventures the territory is nowhere near the forefront of the technology revolution sweeping through shipping. Our latest survey, MarPoll, places the Cantonese city in eighth place in terms of leading shipping’s tech developments. Norwegian consuting firm Menon places Hong Kong 12th worldwide in terms of maritime technology, far behind Asian rivals Singapore and Shanghai. There are individual start-ups that are bucking the trend most notably Freightos, an online freight marketplace which gained significant traction for GE Ventures to pump $25m into it earlier this year. In the past year, Hong Kong has seen the launch of a few maritime-related tech start-ups including online booking platform AgreeFreight, blockchain initiative 300cubits, and an online P&I Club comparison tool called Pilot. Looking at the city’s overall innovation level, Hong Kong has slipped for the fourth year in a row in the Global Innovation Index, which is co-published by Cornell University, INSEAD Business School and the United Nations’ World Intellectual Property Organisation. The city ranked 16th globally in the index this year – its lowest ever position Johnson Leung, founder of 300cubits, which this year launched a container shipping-focused crypto currency called TEU, has called on the local government to help foster a better environment for start-ups to evolve and develop. Looking to broaden Hong Kong’s presence in the technology sector, the government-backed Hong Kong
ISSUE THREE 2017
Science and Technology Parks will create an industrial park at the former colony’s border with Shenzhen, a city that is rapidly becoming Asia’s answer to Silicon Valley. The nonprofit statutory body hopes to have the site operating by the mid-2020s. A major goal of the project is to tap into the expertise of high-tech companies in Shenzhen to develop startups in the new industrial park. Earlier this year, the Hong Kong government also introduced a new HK$2bn ($700m) innovation and technology venture fund aimed at encouraging increased funding from private venture funds in technology start-ups through a matching process. Sunny Ho, executive director at the Hong Kong Shippers’ Council, reckons technology innovations are needed in many maritime-related sectors, including alternative power sources for ships, and creating tools for faster ship inspection. “While Hong Kong should do our own R&D, the focus should still be on providing the matching of technology suppliers on a regional/global basis with users. The government should contribute to the development of knowledge, as well as the information of accessing to technology and adoption,” Ho maintains.
According to a recent report by online investment platform China Money Network, Hong Kong’s government-led innovation drive has failed to foster a legitimate technology sector. Among issues most cited by investors and entrepreneurs are high costs, legal complexities and above all a cultural resistance to innovation that is reflected in everything from opening a bank account, to finding programming talent and consumers willing to try out new technology. Leo Chen, managing director of fintech company Calastone’s Asia operations, also reckons Hong Kong is lagging behind in the technology evolution. “Government support has an important role to play but it is critical that the companies are receptive to technological innovation and understand the implications that technology could have for their businesses and strategies,” Chen says. “To further accelerate digitisation, firms, regardless of sector, need to strategically incorporate technological innovation into their businesses. Dealing with the technology revolution requires innovative thinking and cultural changes in how firms approach technology,” Chen concludes. ●
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HONG KONG LINES
OOCL sale tops the news The wily Tungs are set to pocket $1bn from selling OOCL to Cosco
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ithout question the biggest news emanating from Hong Kong’s shipowning community this year has been the $6.3 sale of Orient Overseas Container Line (OOCL) to China’s state-run Cosco Shipping and
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Shanghai International Port Group. The Cosco-OOCL deal has been many years in the making with the
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Tung family, the majority owners of the Hong Kong-listed liner, having previously rebuffed bids from Cosco.
The Cosco-OOCL deal has been many years in the making maritime ceo
HONG KONG LINES
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We won’t build just to expand our fleet
to work at Parakou right up until his death alongside his two sons. The shipping line has been slimming down its fleet size all year.
fleet size were now more than double his own. While the Tungs are selling OOCL, they are not exiting shipping, retaining their privately held Island Navigation, a firm with a focus on product tankers and bulkers that has become increasingly active over the past 18 months.
Pacific Basin on a charge
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Centenary for TCC
As speculation grew throughout this year that a deal would finally be consummated the share price in OOCL’s parent more than doubled. Bloomberg data suggests the Tung family, which controls just under 70% of the line’s listed parent, will pocket about $1bn from the sale. CC Tung, the veteran OOCL chairman said that the dramatic consolidation seen within the liner sector had left his company without the necessary capital base to compete with larger companies whose
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Kenneth Koo, the third generation at the helm of the 100-year-old TCC Group, is currently in the midst of a notable fleet rejuvenation plan that will see his fleet become more evenly split between bulkers and tankers. “We’ll never be big, just consistent and steady,” Koo says, stressing that TCC never wants to go above 20 ships in fleet size. “We build ships to focus upon offering specific solutions for our long term business partners. We won’t build just to expand our fleet,” he adds. Koo’s cousins at another of the territory’s venerable shipowning names, Valles Steamship, have been keeping their powder dry this year, just looking to get through the cycle. The company concluded its first sale in three years, in mid-July, offloading a 2003-built tanker. Similarly low profile this year has been Wah Kwong, another of the founding members of the Hong Kong Shipowners Association. However, Maritime CEO understands the Sabrina Chao-led outfit is gearing up at the moment, getting finance in place for a sizeable addition to its fleet. In terms of Hong Kong’s old shipping guard, the city bade farewell to the last of a generation in May with the passing of the founder of Parakou, CC Liu. After a career at Cosco, Liu founded Parakou in the mid-1980s and built up a sizeable dry bulk and tanker fleet that hit financially tricky times in recent years. He continued
Among the most aggressive lines in the city this year has been Hong Kong’s largest shipowner, Pacific Basin. Pacific Basin has about 250 ships on the water of which it owns 106. This is up from 34 owned ships in 2012. “We continue to look for and assess attractive ship acquisition opportunities to grow and renew our fleet with modern, high-quality secondhand ships or resales that can generate a reasonable pay-back and cash flow even in today’s challenging market, and can reduce our average daily break-even levels,” says the company’s Swedish CEO, Mats Berglund. Also eyeing the markets for opportunities has been Tribini Capital. The company, founded in Hong Kong 13 years ago, has conducted hundreds of millions of dollars of business over the years including charter transactions, newbuilds and secondhand tonnage with a focus on containerships and bulkers. It currently has four ships on the water, and according to Thomas Söderberg, a partner at the company, more ships are being considered. “We always looking at opportunities in containers and bulk, but,” says the Danish national, “we are patient people and are careful not to let the tail wag the dog when the money is eager but focus on the all important thing: timing.” Tribini is now looking at diversification with MPP investments on the cards or passive investment in offshore assets. Also sizing up ships left, right and centre is Edward Buttery’s Taylor Maritime, which in the 45 months since it was founded has built up a handysize bulker fleet of 15 ships, a number Maritime CEO understands is set to swell dramatically in the coming months. ●
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HONG KONG HKSOA
More state support sought Sabrina Chao’s time at the local shipowners association nears end
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abrina Chao has hit out at “bad apples” within shipping that need to be targeted by legislation. Interviewed for the debut issue of Opportunity, Hutchison Ports’ corporate emagazine, Chao, chairman of Wah Kwong Shipping and the Hong Kong Shipowners Association (HKSOA), commented: “Regrettably, there are some bad apples among the good, and it is the former that the new regulations are targeted at.” Ensuring Hong Kong continues to have a strong voice on the international regulatory stage has been an important aspect of Chao’s tenure in charge of the HKSOA. “I am determined that we will continue to be at the forefront of the regulatory debate and will not hold back ensuring the views of our membership are well represented,” she said on assuming the association’s top position.
Port in a storm HONG KONG HAS reinforced its reputation as an efficient jurisdiction for ship mortgage enforcement with the biggest ever court sale on record. The demise of South Korea’s Hanjin Shipping was the largest bankruptcy of a containerline in history, and earlier this year it resulted in the biggest ever court sale of ships in Hong Kong, with a total sale price exceeding $600m. According to a recent report from law firm Mayer Brown JSM, Hong Kong is a preferred choice for bank mortgagees because its legal system is based on English law and brings with it a fixed order of priorities to the proceeds of sale of a ship. A mortgagee ranks ahead of all claims
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Chao used the interview with Hutchison Ports this June as a platform to air her three-point plan for local Hong Kong owners to mitigate the worst of the ongoing downturn. Chao said it was vital shipowners scrutinised all incoming legislation,
as well as urging the Hong Kong government to do more for the local shipping community including fixing more double-taxation agreements and deploying more staff for the stretched local ship registry. Finally, Chao urged her peers to “think creatively and plan innovatively” by taking advantage of the latest technologies. Chao’s two-year tenure as head of the HKSOA comes to an end this November. She has been active touring global maritime hubs trying to get overseas shipping lines to set up in the Special Administrative Region, as well as helping forge closer maritime ties with Shanghai. Another key part of Chao’s tenure has been overseeing the transition of the association’s leadership, with Sandy Chan taking over as managing director from the long serving Arthur Bowring last year. ●
except for maritime liens (such as collision damage, salvage claims and crew’s wages), possessory claims (such as an unpaid repair yard), and the actual costs of the arrest. “Hong Kong’s role as an international financial centre is dependent on its legal system continuing to provide certainty and its courts continuing to adjudicate openly, impartially and free from interference or influence. There is no bias for local creditors,” the report from Mayer Brown JSM stated. Moreover, the application process is clearly established. The mortgagee needs to file an admiralty writ in rem and an application for an arrest warrant with the court accompanied by an affidavit proving its claim and, when obtained, a warrant of arrest is served on the ship by
the bailiff. Once arrested, the procedure is very fast compared to other jurisdictions as the court has the power to order the sale ‘pendente lite’, meaning whilst the action is proceeding, the ship is treated as a wasting asset. The proceeds of sale that are paid into the court stand in place of the ship while the ship can be sailed away by the purchaser. The bailiff’s fee of only 1% compares favourably with the 2%-2.5% commission charged in other jurisdictions in the region. Lastly, but most importantly, the court’s bill of sale passes ownership to the purchaser free not just from the mortgage but also all other encumbrances, debts and liens. The ship is clean to begin trading once again. ●
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WINE
Start an Italian affair, you won’t regret it An appreciation of Italian wines is not enough, it must be amore, writes Neville Smith
F
or a country that on balance produces too much wine, Italy also manages to generate some of the finest examples to be found anywhere. The country’s leading growers have shown themselves adept at modernisation as they are at tradition. And they are not afraid to depart from the rulebook. It has been said that Italy’s winemakers understand perfectly the rules of the DOC and DOCG systems and know perfectly well how to work around them. As is so often the way it’s important to understand that lower-designated wines can deliver as much as the heavy-hitters. For those who favour longlived reds from indigenous vines or international style blends, Italy’s best known output spans an axis from Piedmont in the northwest to Tuscany then heads northeast. There are superb whites to cherish in these regions too as well as from more southerly climes. As with so much in life, you will have to kiss some frogs before you find your prince, but don’t assume
Two (more) to try GAVI IS A classic Italian white and 2016 Gavi di Gavi, Bric Sassi, Roberto Sarotto, Piedmont (£11.72, Berry Bros & Rudd) is a delight, with a classically lifted, white flower and stone fruit style.
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that by ordering a Barolo, Brunello di Montalcino or Cabernet/Merlot Super-Tuscan that you are going to find value. In fact, it could be argued that modern Italian wines are best enjoyed at the most reasonable of price points because, unless you know your vintages and producers you might find yourself with lots of gong but not much dinner. This approach repays the adventurous but may not suit those who label-shop or order from the right hand side of the wine list.
The Veneto is home to great reds and whites and Soraie, Veneto Cecilia Beretta 2015 (£10.95, Corney & Barrow) is a humble IGT but built like a mini-Amarone, with a gripping palate of dark, dried fruit, mocha and nuts. ●
In the course of compiling this column I tried one wine that smelled not unlike a wild animal’s breath, with tannins so dry you could put a cigar out with them. Its full-on dark fruit just sucked me in and dared me to keep tasting. You must be extremely fond of Pinot Grigio to pay over a tenner a bottle when it’s so often a depressingly unrewarding experience. Pinot Grigio La Tunella 2015 (£11.95, Corney & Barrow) is not everyday fare; lovely fresh style with good flesh and persistence. Good Soave can be a wonderful thing but like Pinot Grigio can suffer from over production. Soave Gregoris, Antonio Fattori, 2016 (£10.25 Private Cellar) is a great antidote, classically built even at non-Classico level, it starts very light and lifted but yields to persistent white fruit fleshiness. Equally straightforward but no less rewarding, Marmora, Cannonau di Sardegna DOC 2015 (£9.95 Private Cellar) is a fruit-driven red that’s clean and classy summer quaffing. ● maritime ceo
GADGETS
Psychedelic, baby!
O
ne curse of being into ’60s spy thrillers like Bond, the Man from UNCLE or the Prisoner is developing a penchant for lava lamps, and villainous aquariums. Hammacher Schlemmer have come to the rescue with their hypnotic Jellyfish Aquarium — perfect for the chill out room in your sub-volcano lair. And it is a trouble-free aquatic experience, as the jellyfish in question, whilst looking realistic, are not real. Now we realise it’s not much of a gadget, but we want one. Badly. The Hypnotic Jellyfish Aquarium $90 www.hammacher.com
Sparks will fly
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ikola Tesla’s name seems destined to be forever associated with electric cars, although we suspect he’d view the products as relatively uninteresting, technologically. That said, the newly announced Nikola Zero electric UTV or Utility Task Vehicle looks set to be a very interesting ride. It’s a small, four-seat, off-road, waterproof, four-wheel drive with ridiculous amounts of torque and horsepower: 490 ft-lbs before gear reduction and over 138 hp per wheel. That translates into a beast that despite weighing 1.5 tonnes can hit 0-60mph in 3.9 seconds (~0-100kph in in four seconds) and can tow up to 1.3 tonnes. It also boasts a maximum range of 320 km, although with the variety of loads, speeds and terrains it can handle, your mileage will certainly vary. They’re scheduled to roll off the production line in January 2018, but you can reserve one now for $750. Nikola Zero $35,000 www.nikolamotor.com/zero
Invincible vision
F
ilming the sort of irresponsible driving of a wild ride like the Zero requires a tough action camera. Sony’s RX0 1.0 is pedestrian in name only: waterproof to 10 m without a special case, drop-proof from a height of 2 m and crushproof to 200 kg, the RX0 also sports a 24mm f/4 Zeiss lens and a professional-grade one-inch CMOS sensor, giving it a huge edge over most of its rivals in terms of quality. It can produce full uncompressed 4k UHD video at 3840 x 2160 via clean HDMI cable or using its own storage, it films 1080p at 60fps (up to 1000fps in super slow motion) and 16fps of 15.3MP still shots, and it sports an anti-distortion shutter of up to 1/32,000 sec, making video crisp and clear and not wobbly. Sony RX0 1.0 $700 www.sony.com/electronics/cyber-shot-compact-cameras/dsc-rx0
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REGULAR BOOKS
Harnessing big data Publishers have a raft of tomes on this growing tech trend from a Dummies guide to more advanced fare. Paul French gets up to speed
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ecently Forbes magazine nominated big data as a technology trend that will dominate the immediate future. Certainly the term big data is being bandied about a lot at the moment though its definition is not always clear. The idea is that mass quantities of gathered data — which we now have access to — can help us in everything from planning better medical treatments, executing better marketing campaigns and improving our logistics and business operations. For those without a particularly scientific or computing background who just want to get a handle on this thing called big data and sound reasonably intelligent on the subject when it comes up at meetings then Big Data for Dummies in the famous Dummies series is as good a starting point as any. However, perhaps a more engaging read is Timandra Harkness’s Big Data: Does Size Matter. Harkness is a comedian with a scientific background
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who aims to make big and complex ideas understandable to those of us not blessed with geek capabilities. She takes the reader on a whirlwind tour of how people are using big data today: from science to smart cities, business to politics, self-quantification to the Internet of Things. After this book you need never look confused when the IT department starts talking big data again. Once you’ve got the basics there’s a useful series of books from John Wiley & Sons detailing big data through a series of case studies. Big Data in Practice and Big Data: Using Smart Big Data, both by Bernard Marr, outline multiple examples of how corporations have harnessed big data to improve their businesses. There’s a good range of case studies across the two books – Apple, Amazon, John Deere farm equipment, Target retail and many others. Marr argues that big data’s applications now go beyond just improved customer base
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The next big thing is humanised big data
knowledge and slipstreamed logistics to actually spurring innovation. Marr’s books also have useful exercises whereby you can adapt the relevant parts of the case studies to your own specific business or sector. Case studies really do help when trying to work out how best to apply big data to your needs. Victor Finch’s Big Data for Business is very up-to-date and looks closely at the various tools, algorithms and software programmes that can best help the new user of big data. Finch’s book is especially helpful if you’re looking to specifically harness big data to streamline operating costs or help with improved human resources management – areas he goes into in some detail. Once you’ve handled all those titles don’t sit back and relax. Forbes reckons the next big thing is ‘humanised big data’ - whereby we will see advancements in humanising big data, that is to say seeking more empathetic and qualitative bits of data and projecting them in a more visualised, accessible way. Another whole new world to get to grips with. ●
maritime ceo
TRAVEL
The world’s crewing capital It’s not for the faint hearted, but Manila can be fun
M
anila is the crewing capital of the world, where shipmanagers descend to man vessels across the seven seas. Moreover, with GDP set to grow by 6.5% this year the Philippines is becoming a standout economy in Asia. There’s no denying it is not a pretty city, however, the Philippine capital can be fun, raucous even, and the friendliness of its citizens often makes up for the frustrations of its crumbling infrastructure. First things first, if you are coming on business, do not make a ton of appointments each day. Metro Manila is gigantic, with 13m residents and incredibly dense traffic, whereby taxi rides can seem interminable. A simple tip – arrange your meetings at your hotel if possible. As to where to stay there’s a vast choice. The Sofitel offers decent outdoors recreations, while the Shangri-La in Makati is luxurious and in the capital’s central business district as well next door to the city’s top malls. A favourite, however, is the Pan Pacific in Malate on a street
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The last vestiges of yesteryear can be seen at the historic walled area of Intramuros, a throwback to Spanish colonial times
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– Adriatico – alive with bars and restaurants. Old Manila has all but disappeared sadly. The Second World War destroyed what was once known as the Pearl of the Orient. The last vestiges of yesteryear can be seen at the historic walled area of Intramuros, a throwback to Spanish colonial times with cobbled streets and old forts and churches. Check out Fort Santiago as well as the San Agustin Museum. Intramuros is also home to a neat - albeit quite short – par 66 golf course. For those keen to buy some curios, Silahis Arts & Artefacts is well worth a stop. Another district worth checking out is Binondo, the world’s oldest Chinatown, in existence for more
than 600 years. It’s famous for its Chinese shop-houses while its church is a fascinating fusion of Spanish baroque and Chinese styles as shown in its pagoda bell tower. Dining is a mixed bag in the Philippines. The local cuisine is not to everyone’s taste – comparatively plain compared to its neighbours. However, there are some gems to sample the best of Filipino cuisine such as the mega buffet at Café Ilang-Ilang inside the historic Manila Hotel or Bistro Remedios on the aforementioned Adriatico Street, after which you can pile out and enjoy the mad nightlife along this bar-strewn road. ●
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OPINION
Shipping’s sharing economy Issuing shares helps loosen the ship finance conundrum, writes Basil Karatzas
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few recent transactions on the mergers and acquisitions front in the tanker and dry bulk sectors have attracted attention as sellers opted to accept payment in cash and shares (in the buyers’ business or in the new business entity formed). The newsworthy point is that shares have been used as currency in order to make the deals happen in the first place, and also in a manner that could allow for more value creation for both the buyer and the seller if there is a market recovery. A few cases in point: a few months ago, Golden Ocean acquired Quintana by assumption of debt and issuing of shares valued at approximately $110m to the seller. Hard cash is a valuable commodity for most shipowners these days, and thus the lack of transaction activity in the market to a certain extent; the purchase of Quintana by issuing shares (or ‘paper’, in investment lingo), had been the key to the transaction, a key that only publicly listed companies hold. The Quintana shareholders exchanged their stock of a privately held company (Quintana) for shares in a publicly listed company (Golden Ocean); seeing through the transaction, in a circumventional way, Quintana accomplished their long aspired goal of going public; in this case, not by having an IPO but by selling to an already listed company. In a similar way, earlier this year, the BW Group sold their VLCC business to DHT for approximately $540m, $260m of which were in the form of newly issued DHT shares. Other examples include Tanker Investment Limited (TIL) – a purpose-set public company sponsored by Teekay and private equity funds to exploit tanker asset appreciation, which has been folded into one of the
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Teekay companies (Teekay Tankers) in exchange of shares payable to the institutional investors, while Navig8’s aspirations for a monstrous IPO in the tanker space had to materialise in the form of a sale and payment in shares to Scorpio Tankers. Issuing shares for the acquisition of assets or companies is standard procedure in the M&A world. By issuing shares, the buyer can lessen the burden of taking on too much debt and jeopardising the transaction and the overall outcome of the transaction by overleveraging. For the seller, accepting, at least partial payment, in shares provides for a better alignment of interests and ensures that they will work hard to see the transaction through; also, it indicates that the seller has faith in the buyer and the market and that they take a position to benefit from an improving market. Quite frankly, none of the four transactions above would had happened if the buyer was not able to issue shares, and vice versa, none of these transactions would had happened if the seller was not agreeable to a partial payment in shares. And, in our opinion, all these transactions happened since payment in shares was the closest the sellers would have gotten to obtaining liquidity and/or public status, given the IPO market is
closed shut at present. Issuing new shares and paying in shares is a distinct benefit of being a public company. Privately held companies (shipowners) have to pay in hard cash for any acquisitions but publicly traded companies can offer their shares as currency, too. Too bad that many of the shipping IPOs of the last decade have degenerated into penny stocks with their shares of little or no value that no one would accept as payment. Too bad that quite a few of the shipping IPOs of the last decade were no more than quick cash grabs. Paying in shares is not a panacea and it has both practical and financial, and also regulatory, limitations. Once again, in a world where shipping finance is in a bind, shipowners are compelled to explore every option, and payment in shares is fair game. Actually, there may also be cases where the envelope seems to be pushed to the limit. Nordic American Tankers (NAT) announced that payment of the company’s 80th consecutive dividend will be paid in cash and in … shares of another company, Nordic American Offshore (NAO), a daughter company of NAT. The ‘sharing economy’ seems to get a completely different meaning for the shipping industry. ● maritime ceo
REGULAR OPINION
Musical chairs and containerships Andrew Craig-Bennett predicts there will be just three global liners in the future
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his column contains speculation. I hope that it is speculation based on the principle that, to a certain extent, the past may provide, if not a guide, then at least a greasy handrail on the ladder to the future. The struggle for mastery of the Asia-Europe container tradelane is in its final stage. Chinese dominance of the sea route to Europe is implicit in the One Belt, One Road strategy, so we should not find the aspirations of Cosco Shipping to be in any way a surprise. I think that Maersk’s alliance with MSC is the least surprising development. Culturally, these two huge empires resemble each other more closely than an outsider might imagine. Each is very much the creation of an outstandingly able and very disciplined individual, and both are run with very lean management teams. Both put a premium on innovative flair in operating to schedules. I expect this to be quite a stable partnership. The real decision for these two is return on investment versus market share and I expect that they will both be seeing that question in
ISSUE THREE 2017
the same way. The key strengths of this group are their depths of management expertise and their ability to act and react very quickly. CMA CGM has moved into the Chinese camp. China has long favoured Winston Churchill’s approach to Europe – attack it through the soft underbelly – and CMA CGM fits nicely into this pattern. This group’s strength is the backing – ultimately – of the Chinese state’s commitment to One Belt, One Road. History is repeating itself in Japan, where the three major companies have chosen to hive off their container operations into ONE single unit. This has been seen by most observers as a long overdue move, and there has been a certain amount of merriment over the celebrated inability of shipping sararimen to work well together. However, there is another aspect of this – those with long memories will recall the now extinct British liner shipping companies responding to the threat – and it was a rather similar existential threat – posed by Malcolm McLean’s original
development of the box, and the huge investment needed – by putting their container ambitions into two baskets. Associated Container Transport (ACT) was formed by Ellermans, Blue Star, Harrisons, Ben Line and Port Line whilst Overseas Containers Limited (OCL) was the child of P&O, Furness Withy, Blue Funnel and British and Commonwealth, each with a quarter share. The two groupings were each doomed from the start, simply because their parents continued to exist. Requests from the new, part owned, subsidiaries for fresh investments were often spiked in the board meetings of the parents simply because the directors of the parents were not the directors of the subsidiary. Consequently both OCL and ACT were starved of capital and to some extent were starved of the big management vision that is needed. I foresee that the same fate awaits ONE. Too little, and far too late. What goes for Japan may go also for Hyundai Merchant Marine (HMM) in South Korea and for Evergreen and Yang Ming in Taiwan. Hapag-Lloyd and UASC – the Odd Couple – are perhaps the people with the most interesting management challenges for the near future. What of the still very large companies, owning and controlling just a few dozen ships, that one is tempted to label the small fry? Pacific International Lines (PIL) has sat for a very long time in its own niche and it is safe until someone else covets that niche – which may happen quite soon, as PIL’s stamping ground is inside the area marked out by One Belt, One Road. As is the stamping ground of Wan Hai Lines. We have just seen that there is a price at which even the owners of proud family businesses are happy to say, “Enough of containers!” Above and beyond all this, and affecting everyone, is the ending of the era of rapid growth in the carriage of goods by sea. We will be looking at a mature market, globally, like civil aero engines, in which the stable number of players, over the long term, is three. ●
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MARPOLL REGULAR
Topical take Three months ago we posed eight questions for you to ponder. With more than 500 votes cast, here are the results plus punchy comments Is the average lifetime of ships set to get younger?
Which city is leading shipping’s digital tech innovations?
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We will see ships getting replaced faster to live up to regulations and to follow the latest tech trends to be competitive
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Yes 81%
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The Nordics as a whole
London 10%
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Busan 3%
Hong Kong 4%
Hamburg 7%
Oslo 33%
Shanghai 1%
Singapore 15%
Copenhagen 8%
No 19%
Tokyo 5%
Will payback have to be demonstrated before owners invest in new, disruptive technologies?
Should a cost/benefit analysis be undertaken before any new IMO regulation is enacted?
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Owners never insist on a proper payback calculation for a new ship, so why for anything else?
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Yes 76%
No 18%
No 24%
Enough funds of course, any desire to feed an over packed supply curve, maybe not
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Politics is driving this. The attempt to remove governance from business practices
Yes 32%
Yes 74%
No 68%
No 26%
Is the conversation on unmanned ships being driven by owner demand or by the equipment vendors?
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It is a Henry Ford moment. The owners would just like faster horses Owners 19%
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Equipment vendors 81%
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Is shipping’s global regulatory regime under threat from lack of consensus on major issues?
Are there enough funds available from financial institutions for retrofits?
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Regulatory, like a business, needs to be agile and move quickly. More so, with the economic consolidation of shipping
Yes 81%
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Helsinki 14%
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Should converted VLOCs be banned?
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Inherently unsafe when combining a 15-year-old single skin VLCC with new steel longitudinal structures Yes 67% No 33%
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maritime ceo
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