ISSUE THREE 2014
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Profiles
24 3 At The Prow
Economy 5 US 6 EU 7 China 8 India 9 Brazil
Markets 11 Dry Bulk 13 Tankers 15 Containers 17 Offshore 19 Finance
Executive Debate 20 Reconnecting the ship to shipping
Issue three 2014
24 Cover Story TMT 27 Kaptanoglu 29 Oldendorff 31 Borealis Maritime 32 Vallianz & Havila 33 Tasik Subsea & CBI-MMEER 35 Tschudi 36 Varun 37 Mercator 38 Alterna Capital 39 UASC 40 Orient Express Lines 41 Harren & Partner 42 Tsuneishi 43 Concordia Maritime
Recreation 44 Wine 45 Gadgets 46 Books 47 Travel 48 Golf 49 Yachting
Opinion 50 The Secret Security Guy 51 The Contrarian 52 MarPoll
1
At the prow
An ASM publication Editorial Director: Sam Chambers sam@asiashippingmedia.com Associate Editors: Jason Jiang jason@asiashippingmedia.com Katherine Si katherine@asiashippingmedia.com Correspondents: Athens: Ionnis Nikolaou Bogota: Richard McColl Cairo: Camelia Ewiss Cape Town: Joe Cunliffe Dubai: Yousra Shaikh Hong Kong: Alfred Romann London: Craig Jallal Mumbai: Divya Lad New York: Suzanne Smith Oslo: Hans Thaulow Portland: Joshua Samuel Brown Shanghai: Colin Quek Singapore: V Subramanian Sydney: Ross White-Chinnery Taipei: David Green Tokyo: Masanori Kikuchi Contributors: Nick Berriff, Andrew CraigBennett, Charles De Trenck, Paul French, Chris Garman, Lars Jensen, Jeffrey Landsberg, Peter Sand, Neville Smith, Eytan Uliel Editorial material should be sent to sam@asiashippingmedia.com or mailed to Office 701, 9 Renmin Lu, Zhongshan District, Dalian, China 116001 Commercial Director: Grant Rowles grant@asiashippingmedia.com Sales Director: Helen Ong helen@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.maritime- ceo.com All commercial material should be sent to grant@asiashippingmedia.com or mailed to Asia Shipping Media, 20 Cecil Street, #14-01 Equity Plaza, Singapore 049705 Design: Tigersoft Design Printers: Allion Printing, Hong Kong Subscriptions: A $120 subscription is charged for 2014’s four issues of Maritime ceo magazine. Email sales@asiashippingmedia.com for subscription enquiries. Copyright © Asia Shipping Media (ASM) 2014 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: @Maritime_CEO LinkedIn: Maritime CEO Forum Facebook: ASM Maritime & Offshore News
Issue three 2014
The different mentalities of today’s owners
A
side from the 18 interviews with shipowners for our In Profile section we have the thoughts of another five over on our Executive Debate feature plus Harry Vafias is this issue’s guest yachting writer. Not bad, if I say so myself. Kenneth Koo, the boss of Hong Kong’s Tai Chong Cheang Steamship, got stuck into what another shipowner described as the ‘arrivistes’ in this issue’s contentious Executive Debate where we discussed whether shipowning was set to come full circle with owners reverting to type and being more in control of all operations. With all the new money in the industry, Koo said that, like the one-cell amoeba, shipping has split in two. The ship has disengaged from the shipping. Ship finance veteran Paul Slater, writing for our online site in a widely read article, noted, “Unfortunately, it will take several years before the current influx of new money faces the reality that it is operating income that makes a business and not the fluctuating values of the operating assets.” Quite so, agreed Michael Tusiani, the chairman of US brokers Poten & Partners. “Most shipowners have put making short term profit above all else. The long term doesn’t seem to matter particularly when capital markets are robust,” he said. Still, profits have been hard to come by, as brilliantly detailed by Turkish owner Sadan Kaptanoglu on page 27. “As our fellow shipowners and investors continue to order there will be no continuous improvements in the market and, if this is the new normal, then except the asset players, there will be not enough windows for healthy returns,” she warned. These measly returns may well force private equity (PE) from shipping far quicker than many thought.
In our last issue, you, the reader, were thinking PE would quit shipping sometime between 2016 and 2018. Our finance columnist, Dagfinn Lunde, reckons it could be earlier than that – see page 19. Traditional shipowners are just so different to the sharp suits of PE. For the Kenneth Koos of this world, a ship is almost part of the family, whereas for PE it is a floating dollar sign. “There’s little room for emotion in private equity and so, where a strong economic argument can be made, it normally wins the day,” Clive Richardson, the president of V.Group, told me the other day, encapsulating in a nutshell the difference in mentality between the traditional owner and the so called arrivistes. ●
Sam Chambers Editor Maritime ceo
“Whilst private equity is sexy and high profile in the press, there are still only a handful of senior level appointments of shipping people each year and competition is super fierce” — Mark Charman, ceo, Faststream
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ECONOMY REGULAR US
Revved up All indicators point to a solid, if slow, uptick
A
mericans are getting back to work – in the year to June the unemployment rate fell by 1.4 percentage points, the biggest decline in the jobless total since 1984. This news led one commentator on American TV to declare that the US economy is “revved up and ready to go”, but is it really? American consumers seem divided on the issue and they count importantly in terms of the overall performance of the economy. As of May consumer spending was climbing at just a 2.9% annual pace, the slowest rate in five years. This is growth, but small scale and doesn’t conclusively answer the question of whether American consumers are starting to feel more optimistic or not yet. Many will be glad to be back in work, or at least feel more secure in their jobs. However, the Federal Reserve reports wage pressure to have “remained modest” across the country. In July strong signals of renewed economic growth came from the Federal Reserve’s regular survey of regional conditions around the US. The Fed cited manufacturing, consumer spending and tourism as bright spots though reported a still highly mixed housing sector. However, growth in manufacturing has meant more jobs, which is beginning to filter into consumer spending though invariably any pick up in the housing market is subject to savings being rebuilt and mortgages confirmed and tends to lag faster indicators such as hitting the mall
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America’s Unemployment Rate Slowly Dropping April 2013
7.5%
March 2014
6.7%
April 2014
6.3%
Source: US Bureau of Labor
or grabbing a beach holiday (attendance at Broadway theatres is way up). It seems most analysts think the pick up will continue; many economists have upgraded their estimates for US second-quarter growth with talk of a 3% expansion as opposed to the earlier, far more dire, consensus of a contraction this year. As the economy picks up so logistics is growing again – employers report a shortage of truck drivers across the country and even the modest boost to the manufacturing sector has seen a
Growth in manufacturing has meant more jobs, which is beginning to filter into consumer spending Issue three 2014
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concomitant demand for trucking and rail services. A major question is whether the growth in the manufacturing sector will see a boost in America’s exports? The two don’t necessarily follow – America is itself obviously a huge market with a consumer sector capable of swallowing much additional manufacturing. Exports will get a boost following the Department of Commerce’s decision to allow the first exports of US crude oil since Congress imposed a ban on such sales (except to Canada) in the 1970s. Shipment of condensates (ultra light oils) is the first fuel for transport. So it seems growth is back – America’s first quarter saw a 2.9% shrinkage of the economy but almost everyone agrees the second quarter will see a rebound. Jobless rolls are down, wage pressure weak and consumer spending and manufacturing output growing. All seems set for a continued rebound, though fears of a triple dip will hover in the background. ●
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ECONOMY REGULAR EUROPE
The big three versus the rest The two-track European Union has many worried
I
ncreasingly the EU’s economy seems to be about competition between the Big Three – Germany, France and the UK. David Cameron, facing a general election in not so long, can take heart from the news, according to consultants PricewaterhouseCoopers, that the UK will overtake France as Europe’s second largest economy by 2020. However, by then the UK may have voted to leave the EU (a referendum on membership will probably be a platform of the Conservatives at the next election) and have seen an independent Scotland created (Britons north of the border vote on that issue this autumn). The UK is also expected to narrow the GDP gap with Germany over time. The Whitehall government may like to claim credit for this but it seems to be more to do with the UK’s
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Croatia is in its sixth year of recession
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Europe’s Major Economies GDP Predictions 2013 ($bn)
2020 ( $bn)
Germany
3,876
4,205
France
2,886
3,182
UK
2,828
3,258
Italy
2,171
2,323
Country
Source: PricewaterhouseCoopers
more favourable demographics (a less rapidly ageing population bolstered by the arrival of younger immigrants) and strong labour force participation rates (though at wages below those in Germany and France). Nevertheless, the EU is a sum of its constituent parts, and while the Big Three seem to be safely out of recession now and in a resumed growth pattern, and Greece more stable than a year ago, that’s not the picture everywhere. Some newer members are struggling economically. For instance, Croatia (which
only joined the EU last July) is now in its sixth year of constant recession. This is largely due to a small, and seemingly stagnant, private sector and does suggest problems on the fringes of the EU heartlands. Eurocrats seem concerned about the dual track of the Union with the larger nations on one upward path and smaller nations stuck in recession. The EU will review its fiscal rules at the end of this year to see if they can be made simpler and more efficiently used to encourage growth and jobs after years of budget consolidation. So, as ever, the ‘Union’ is a mixed picture – Ireland saw a 15% rise in exports in June month-on-month; Bulgaria a 15% decline in exports. What most analysts would like to see is the final settlement of several long awaited EU trade deals that could pump up exports. The EU has recently signed trade agreements with three former Soviet republics – Ukraine, Georgia and Moldova. However, the EU-India Free Trade deal is still mired in acrimony over issues as bizarre as mangoes and taxes while the EU-Japan trade deal remains stuck on issues of Japanese agricultural tariffs. Both are crucial deals for EU exports to both a fast rising emerging market and the world’s third largest economy and a traditionally strong partner of the EU. And finally, the euro, which is still coming under attack and lacks confidence. Recently the IMF joined the euro debate arguing that the eurozone’s recovery is weak, its financial markets too fragmented, and the region risks falling into deflation. ● maritime ceo
ECONOMY CHINA
Steady as she goes Growth of more than 7% in the coming years is just fine
T
he services sector appears to be holding up China’s economic growth at present. HSBC reported that sector expanded at its fastest pace in 15 months in June. However, the services sector is notoriously difficult to quantify in China. Matthew Crabbe, a consumer sector analyst, recently wrote in his new book Mythbusting China’s Numbers that, “There is a great deal of the services sector in China that continues to go underreported, despite the increased coverage of services sectors in the last economic census data…and yet the private services sector is one of the strongest growth components in employment generation in the economy.” However, this service sector growth does seem to mean that, with the growth in manufacturing in the first half of the year, China’s economy has stabilised somewhat from last year. A combination of enhanced factory activity and a growth in services has meant a mini-boom in consumer sales of late, in line with the Beijing government’s long-term drive to rebalance the economy away from exports and investment towards domestic production and consumption. The services sector accounts for approximately 45% of China’s gross domestic product (GDP) and now accounts for almost half of all jobs in the country and the major area of new job creation.
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The slippage in export orders may be of concern Issue three 2014
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This new buoyancy may mean that the currently sluggish property market will get a shot in the arm later in the year. However, exports remain sluggish (and manufacturing for export job creation is close to plateauing) while high local government debt levels remain as key risks. Still, the ruling Communist Party appears happy to let the economy grow as it is and, while on a trip to Germany, premier Li Keqiang ruled out any more stimulus spending in the economy. Li reiterated, albeit cautiously, that 7.4% remained China’s GDP growth target for 2014. The IMF says it expects growth in the region of 7.4% this year though the World Bank predicts 7.6% (see chart). However, for those in shipping the slippage in export orders may be of concern. It is hoped that export recovery will start to show through in the numbers in the third quarter of the year and show, perhaps, a 10% growth over the same time last year, according to the China General Administration of Customs. Chinese
China – GDP Predictions Year
% GDP growth
2013
7.7
2014
7.6
2015
7.5
2016
7.2
Source: World Bank
manufacturers report renewed orders from the US as America’s economy continues to improve and, rather than stimulus, Beijing is likely to offer a raft of incentives (tax breaks, improved currency transaction regulations and credit insurance) targeted at incentivising smaller manufacturers to better chase and win export orders. Once again perhaps we look to the old adage that ‘as goes China, so goes the world’ in that increased demand for exports from China can be seen as an indicator that global growth is bouncing back strongly and once more needs the workshop of the world. ●
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Economy India
Buoyancy breaks out on back of new BJP government The arrival of Narendra Modi has spurred the nation
S
urprise, surprise – India registered the strongest outlook for the next 12 months for the third successive month, ahead of Brazil and China, respectively, according to the HSBC Emerging Markets Index (EMI), a monthly indicator derived from Purchasing Managers’ Index (PMI) surveys. India’s manufacturing and services sectors both performed well and outstripped growth in China, surprising many analysts, and, perhaps, the New Delhi government itself. Is this the major rebooting of the Indian economy promised by Finance Minister Arun Jaitley in his maiden ‘make-or-break’ budget? Well, in terms of general GDP growth, that seems to be improving on an annual basis once again (see chart). However, long term problems persist. Indian inflation remains stubbornly high. In July India’s new Bharatiya Janata Party (BJP) finance minister Arun Jaitley presented his maiden budget in which he vowed to contain the fiscal deficit at 4.1% this year and lower it to 3% by 2016-17. If this target is achieved then any smaller fiscal deficit would slow inflation and improve domestic interest rates, hopefully stimulating business and manufacturing. However, as analysts have queued up to point out, the budget speech included no indications of how exactly Jaitley intends to reduce the deficit. Even prime minister Narendra Modi concedes that this is a “gradualist” path to a resumption of economic growth back to the heady days of 7-8% GDP growth. But there were a few signs that India might become more open to international business. The government has pledged to open the defence and insurance industries wider to foreign investors and to try and get
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“
India’s manufacturing and services sectors have outstripped growth in China
”
to grips with the thorny issue of tax reform. However, much of this was seen as rhetoric and certainly analysts have heard many times before pledges to greatly increase infrastructure spending, overhaul the costly food and fuel subsidies that drain the treasury and crack down on corruption. One note of interest for those looking at potentially rising shipments from India is the news that the new government will look to revive the lapsed Special Economic Zones (SEZs) programme. However, improved duty concessions and tax reforms with the SEZs are not part of this pledge. This is discouraging big foreign investors in the SEZs from expanding – for instance, Nokia was recently served a transfer pricing notice, which won’t encourage further investment from the Finnish telecoms giant. To add to these concerns is the still stalled EU-India Free Trade
Agreement (FTA) that is holding back certain key industries, notably textiles. According to Virender Uppal, chairman of India’s Apparel Exports Promotion Council (AEPC), this delay is allowing India’s major competitors such as Bangladesh, Cambodia and Vietnam, to beat out Indian competition for EU garment contracts. Still, economists are generally upbeat that the Modi government, and the promised new policy dubbed ‘Modinomics’, can kick start India’s economy again and lead to resumed strong growth. The major targets now are dealing with those forces and institutions in the country that are slower to act and more entrenched – namely the Indian tax bureau. ● India: Real GDP growth rate from 2010 to 2014 Year
% growth
2010
10.1
2011
7.9
2012
4.9
2013
5.9
2014*
6.4
Source: Annual Indian government economic survey *=estimate
maritime ceo
Economy Brazil
Bounce and slump?
Just what has the World Cup brought Brazil?
V
ery soon Brazil will know if the much-vaunted ‘World Cup boom’ is real or illusory. Brazil’s economy is certainly big – the world’s seventh largest – thanks to the combination of a commodities boom, a demographic dividend, and rising consumption. But, it slumps down the league tables, to 95th, in terms of GDP per capita. The economy is there, it just isn’t being shared. The much-fabled World Cup bounce (see table) may well lift Brazil’s economy slightly this year but, looking ahead to the 2016 Olympics, it’s easier to see some of the more persistent problems in the economy. The Olympics is a much more complicated affair to host than the World Cup – multiple events on multiple sites in multiple cities with many more people attending. Public transport will be key to the Games’s success and public transport is one infrastructural problem that is yet to be addressed. Scenes of joy and fun in Rio recently contrast with the fact that economists have been repeatedly lowering their expectations for Brazil’s GDP growth this year. Most estimates now have it around a measly 0.7%, down from an original projection of 1.7%. The problem for Brasilia is that nothing the government does seems
Issue three 2014
Valuing the World Cup Bounce $bn* addition to national GDP 2002 - Japan & South Korea
11.86
2006 – Germany
14.11
2010 – South Africa
5.62
2014 – Brazil (low estimate)
3.03
2014 – Brazil (high estimate)
13.6
Source: Coventry University * adjusted for inflation
work – stagnation is now in its fourth year, factories are cutting production, large federal loans appear to have made little impact, consumer credit has just led to debt and welfare schemes for the poor have lifted few out of poverty. While the government continues to announce plans to build ports and other infrastructure, few projects have been started, fewer still completed and the money for all this construction seems largely illusory. With the World Cup out of the way minds will now focus on elections in October with the country divided between continuing the economically interventionist government of president Dilma Rousseff or look to political alternatives. That means we have a long summer of waiting to find out if Brazil’s economy will be more of the same or something different? Brazil’s economy still remains
largely centred on two sectors – commodities and agri-business. Brazil has been expanding output of corn and soybeans to meet growing global demand, but an inability to rapidly expand its infrastructure to handle the increase in shipments has become an impediment. Commodities, such as oil and gas, also suffer the same problem. However, major customers of Brazil Inc, such as China and Japan, are offering help in building infrastructure to ease congestion at ports and so boost exports. Both countries have recently met with the Brazilian government and offered help in funding and constructing ports, railroads, power plants and oil drills. China is Brazil’s largest trading partner, having bought $21.8bn in Brazilian exports last year, mostly commodities such as iron ore and soybeans. ●
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Markets REGULAR Dry Bulk
Rates vault as Vale boosts exports Jeffrey Landsberg from Commodore Research eyes a strong capesize second half
B
efore 2014 began, many in the dry bulk market were expecting strong capesize rates during the second half of this year primarily due to two factors: manageable capesize fleet growth and an annual second-half-of-the-year surge in Australian and Brazilian iron ore shipments. 2013 had finally seen capesize fleet growth decline to a manageable level towards the end of the year, and the market has stayed well aware that Australian and Brazilian iron ore production (and shipments) surge during the second half of every year due to seasonal factors. In addition, Australian and Brazilian iron ore miners have long pegged 2014 as when significant mining expansion programs would come online. For those not following the miners’ recent production figures, Australian and Brazilian iron ore production has been increasing by a very large amount this year as anticipated. To many in the dry bulk market, though, capesize rates during 2014 were not supposed to find great support until the second half of this year. However, rates actually did quite well during the first quarter of this year and average daily rates peaked at over $25,000 in March. This changed the market’s perception of what the rest of 2014 would bring – but capesize rates retreated in the second quarter and caused sentiment to become quite negative. Overall, though, the first half of this year saw capesize rates average a respectable $14,135 a day, which was a far cry from the $6,136 a day average seen during the first half of 2013. After breaking through $25,000
Issue three 2014
in March, the dry bulk market became spooked at seeing capesize rates fall to lower levels. Sentiment should not have turned as negative as it did however. The potential for great strength in the capesize market has all along been set to occur during the second half of this year, as this is when Brazilian iron ore shipments in particular surge every year. Australian iron shipments have expanded throughout this year, and will be even higher during the second half of this year, but Brazilian iron ore shipments are more seasonal and traditionally decline by a significant amount during the first half of each year (compared with the second half of the previous year). Afterwards, Brazilian iron ore shipments jump by a very large amount during the second half of the year. The most recent quarterly data released from Vale showed that Vale’s iron ore shipments during the first half of this year declined from the second half of 2013 by 23.7m tons (-14%). Iron ore shipments during the first half of this year totalled 144.7m tons, while shipments during the second half of 2013 totalled a record 168.4m tons. Such a large decline is normal and puts pressure on capesize rates. While Vale’s
quarterly report showed that its iron ore shipments during the first half of this year totaled 144.7m tons, Vale also announced that total iron ore shipment volumes for this year are expected to reach at least 321m tons. Vale is expected to easily meet this target, and iron ore shipments during the second half of this year are set to total at least 176.3m tons. This would mark an increase of 31.6m tons (22%) from shipments seen during the first half of this year. Such a large second-half-ofthe-year surge in Vale’s iron ore shipments is common (and is a major reason why there has been great bullishness for capesize rates for the second half of this year). The second half of 2013, for example, saw Vale’s iron ore shipments increase by 31.2m tons (23%) from the first half of 2013. Overall, the market is about to see a huge increase in Brazilian iron ore shipments. This will lead to a further increase in capesize vessels needed in the Atlantic basin, and it will also cause capesize vessels to be out at sea for much longer periods of time as approximately 66% of Vale’s iron ore is shipped as long-haul cargoes to buyers in Asia. Capesize rates are poised to find a very large amount of support as a result. ●
Vale Iron Ore Shipments - First Half & Second Half of Each Year (2012 - 2014) 180mt 170mt 160mt 150mt 140mt 130mt 120mt 1H 2012
2H 2012
1H 2013
2H 2013
1H 2014
Data is in million tons
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Markets REGULAR Tankers
Beneath the rocks Erik Broekhuizen from Poten & Partners on how US shale gas has changed shipping patterns
T
he changes in the North American energy landscape over the last 10 years have been remarkable. Flashback to 2005 when oil demand in the United States peaked at 20.8m barrels per day (b/d) and domestic crude oil production had slowed to about 5m b/d after decades of gradual decline. During that year, the US imported on average more than 10m b/d of crude oil and 5m b/d of refined products. The global financial crisis triggered a 10% decline in petroleum consumption, but the past five years demonstrated a remarkable twist of fate. Now, with the US domestic petroleum pendulum swinging the other way, the impact on the tanker market could be striking. Today, US petroleum demand stands at 18.9m b/d. Languishing economic recovery and fuel substitution by petroleum alternatives have prevented demand from returning to past levels. In contrast, domestic crude oil production has rapidly increased, from 5.18m b/d in 2005 to 7.73m b/d in 2013. The catalyst for the dramatic turnaround in US crude oil balance has been the much talked about shale oil production. According to the US Energy Information Administration (EIA), the rapid growth of shale oil, which started to ramp up in earnest back in 2008, is expected to continue until 2016 before leveling off at 5m b/d. The combination of rapid growth in domestic crude oil production and stagnant demand has not only led to declining crude oil imports, but is also stimulating rapid increases in petroleum exports in the form of refined products. In 2005, refined product exports hovered around 1m b/d, but by December 2013, US exports exceeded 4m b/d – a new record.
Issue three 2014
By law, the US does not allow for crude oil exports. The legislation that has been in place since the 1970s was not an issue until recently. The recent surge in shale oil production has brought it back to the forefront, as crude oil producers would welcome the opportunity to export. On the other hand, refiners would like restrictions to remain in place to keep them well supplied with relatively cheap crude oil feedstock. Today, US Gulf refiners are enjoying record earnings due to strong refining margins achieved by selling refined products to foreign markets. Thus far, the impact of these developments on the tanker markets has been mixed. The availability of light, sweet domestic crude oil has backed out the need for imports of similar grades, and, naturally, the tankers that move them. While the demand for suezmax tankers moving light sweet crude from West Africa to the US East Coast has declined dramatically, the impact on longhaul VLCC movements to the US Gulf has been more muted. Medium range product carriers have benefited from the surge in refined product exports from the US Gulf to places like the Caribbean, Europe and Latin America. However, the big winner
thus far has been the US flag Jones Act market. The export ban, combined with domestic infrastructure challenges, have led to increasing demand to ship domestic crude oil in and around the US. Since this remains a small market, the extra demand has pushed up rates and also led to orders for additional vessels at domestic shipyards. What will the future bring? Over the next five to 10 years, expect to see continued growth in US domestic shale oil production, a reduction in crude oil imports to approximately 5m b/d (down from more than 12m b/d in 2005) and – as long as the export ban remains in place – continued high levels of refined product exports. However, a reversal of the export ban, combined with proposed crude oil export infrastructure in Canada, could create a completely different scenario. It is too early to say which scenario is more likely to play out, but we are sure to have a very interesting decade ahead of us. One thing is certain; the US is back in the energy picture in a big way and looks as though it is there to stay. ●
US Oil Prodution By Source (million barrels per day)
12.00 10.00 8.00 6.00 4.00 2.00 0.00
1980
1985
1990
1995
2000
2005
Crude oil production (excluding shale oil)
2010
2015
2020
Shale oil production
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Markets REGULAR Containers
2M – a new east-west dynamic P3’s demise and the new link between Maersk and MSC may usher in other alliances, writes SeaIntel’s Lars Jensen
T
hree weeks was all that Maersk Line and MSC needed to establish their counter-move to the unexpected Chinese rejection of P3. The announcement of the new 2M Vessel Sharing Agreement between the two largest containerlines cannot be said to be surprising in itself, although the speed with which it was agreed is impressive. Given that the use of Vessel Sharing Agreements is common industry practice, and that the 2M market share is clearly smaller than P3, it is to be expected that even the Chinese authorities will approve this collaboration. However, what are the ramifications for the industry brought about by 2M? At first glance, it appears as if Maersk Line and MSC stand to gain from this, whereas CMA CGM appears to lose as the French line is being unceremoniously dumped from the former P3. However, first looks might be deceiving. Clearly, Maersk and MSC will gain from the collaboration. 2M will field 10 Asia-Europe services, and once the vessels on order have all been delivered, all 10 services can be operated using only vessels with sizes ranging from 11,700 teu to 18,000 teu. The average vessel
size would be almost 15,000 teu. In this context it is worth noting that it is only eight years ago that the Emma Maersk was launched as the world’s largest vessel at a nominal size of 15,500 teu. But if we direct our attention to the other main players in the AsiaEurope trade, focus has to be levied on CMA CGM, UASC and CSCL. These three carriers already have a collaboration on a few services, but with the competitive pressure from 2M as well as from G6 and CKYHE, it is an opportunity for them to increase the scope of their vessel sharing agreements further. If we look at the three carriers as a single entity and compare them to 2M and the two main alliances, we find that they would indeed have a competitive advantage compared to both G6 and CKYHE. If we assume all carriers use their super-post-panamax vessels solely on the Asia-Europe trade, we can calculate the average vessel size deployed by each carrier grouping. When this is done, it is clear that CMA CGM/UASC/CSCL will be using vessels which are not quite as large as 2M, but clearly substantially larger than both G6 and CKYHE. A vessel size advantage
translates directly into fuel cost advantage, thus it is clear that we may face a significant change in the relative strength between carriers on Asia-Europe. G6 and CKYHE did indeed avoid the overwhelming competitive pressure that would have resulted from the formation of P3; however, the pressure, which could arise from an expanded CMA CGM/ UASC/CSCL vessel sharing agreement, will certainly be a formidable challenge in its own right. In conclusion, the formation of 2M might well pave the way for yet another strong grouping of carriers in the Asia-Europe trade. If this scenario unfolds, the consequence of P3 might well be a significant strengthening of UASC and CSCL. ●
Average vessel size in Asia-Europe with vessels delivered 15,500
— Russ Barling, founder, Scripto Communication
15,000 14,500 14,000 TEU
“Shipping is still haunted by the image of the oily cormorant ”
13,500 13,000 12,500 12,000 11,500 11,000
Issue three 2014
2M
G6
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15
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Markets REGULAR Offshore
Oil companies tighten belts Kicking off a new column for Maritime CEO, Mike Meade from Singapore broker M3 Marine, warns there’s a serious abundance of jack-ups coming into the market
“As a prudent measure, the buyer should always have a surveyor onboard to take the opening manual measurement of the bunker tanker for the verification of the flowmeter reading” — Eirik Andreassen, ceo, Veritas Petroleum Services
rapid pace but oil prices are not as high as they were before in 2008 preglobal financial crisis with prices more than $120 a barrel. Today’s oil price is hovering at slightly oover $100 a barrel and prospects in the deeper waters can require a minimum return of $100 per barrel to achieve free cash flow under the IOCs’ current capex and dividend policy. Some oil companies, such as Shell, are now divesting to focus on generating cash flow. We can expect this to continue over the next few years. The cutback in investment by oil companies suggests that demand for deepwater drilling rigs will be flat this year. This has been reflected in slower tendering activity and lower fixture rates. Total offshore rig utilisation in July this year dropped seven percentage points from a year ago to 80%. The rapid expansion of offshore rigs available in the market is moving faster than the market can possibly absorb. We expect to see an excess of rigs in the deepwater rig market in 2014-15 driven by
100.0 90.0 80.0
significant fleet growth and slower growth in exploration and production capex. Also, the market for jack-up drilling units is becoming oversupplied as there are currently 150 jack-ups scheduled to be delivered through 2017, 63 of these units will be delivered in 2015, of which only six have been contracted. Chances of a collapse in the jack-up market appear slim, however, as most of the new rigs will be used to replace older units and over half of the jack-up deliveries are from Chinese yards, which are prone to delays. ●
Offshore Rig Ultilisation by Rig Type
88.9
80.0
87.5 84.5
79.8
87.6
90.4
80.0
78.8 67.6
70.0 U1lisa1on
T
he number of offshore support vessels (OSVs) is often indexed by how many rigs are in service. Rigs, jack-ups at least, will soon be in abundance, so will we see an oversupply in OSVs in the market place? Some have been saying for some time it has been coming. Also, as has long been predicted, we are now seeing a change in the capex spend of the national oil companies (NOCs) and the independent oil companies (IOCs). Over the last decade, we have seen oil prices escalating partly because oil replacement is lagging behind new finds. As oil and gas fields head to deeper and harsher environs we have seen high levels of investment in the upstream sector. Now, with increased costs and the oil price stable at around $100 per barrel we are seeing oil companies with diminished cash balances caused by an aggressive capex spend. Some major oil companies have recently announced plans to sell off part of their assets in order to have funds to pay dividends. The cost of producing oil is rising at a
60.0 50.0 40.0 30.0 20.0 10.0 0.0
DRILL BARGE
DRILLSHIP
JACK-‐UP SEMI-‐ Rig Type SUBMERSIBLE Current (%) 1 year ago (%)
TENDER
Source: RigZone
Issue three 2014
17
Markets Finance
Bright spots amid the gloom Dagfinn Lunde identifies both good and bad investment opportunities in shipping and offshore
S
o here we are about to mark six years since Lehman Brothers fell and shipping remains in the doldrums. I get the feeling that many speculative investors will look for signs for the exit sooner than people think, rather than invest in more loss making ships. Lots of investors have already felt some disappointment because the market is not picking up like many thought it would, the spark in dry bulk led by capesizes seen in mid-August is just that, a solitary spark, unlikely to last long. There is, I’m afraid to say, a negative outlook for so many sectors in shipping at the moment. Since this magazine will be appearing at the world’s largest shipping show, SMM in Hamburg, it seems only right that we have a little look at what is happening in the world of German finance. The simple answer is not a great deal. Owners there continue to be under extreme pressure. Containerships in particular are struggling and the German ship finance scene is a shadow of its former self. Most German shipping companies are single ship companies and will struggle to survive. The German fleet will shrink
considerably over the next two years is my honest prediction. It is the Greeks and the Chinese who are buying these bankrupt German ships, and plenty more besides. The Greeks continue to be on a quite amazing fleet buildup charge. They have been putting money aside in the past years and buying with equity rather than loans. They will continue to buy. A lot of them are also fronting for private equity. Bigger Greek owners are diversifying more into LNG and offshore than the small guys, who are more focused on traditional dry bulk and product carriers. Elsewhere, I am still a believer in the OTC offerings in Norway, it has plenty of legs left, and I expect it to pick up again soon as it is a very liquid market with a lot of people needing to reinvest. It is also a very practical market for many non-Norwegians, especially those from the US and the UK. I cannot see too many shipping IPOs working out in the present climate. It is hard to convince an investor to go into a market where income is less than operating costs. When we look at the fortunes of the shipping sector it seems to me there has been at least one solid return to the normal, traditional
ways of shipping. The spot market is the key these days to assessing what’s going on, as it traditionally always was until a blip in recent years. I am perennially being asked what are the sectors to invest in. Readers of Maritime CEO take note: I still favour investment in LPG because as long as the LNG market is growing, LPG is a buoyant byproduct. Moreover, LPG will get even better once the US starts exporting. Another key to why I like this segment is that there are not many yards that can build this ship type so there is a limited output of newbuilds. If you want a new LPG carrier today, you have to wait till end-2016 at the earliest. I am also confident that the offshore sector is still a good one to be part of. The great thing about offshore is the solid charter parties, something shipping often sadly lacks. ●
“Every two years Hamburg assumes the role of world capital of the maritime business for the duration of SMM” — Bernd Aufderheide, president, Hamburg Messe und Congress
Issue three 2014
19
Will charterers lead a push back to traditional shipowning? Is the disconnect between shipping and actually running ships about to end? Top names discuss
A
t the end of May we met up with, Michael Tusiani, the chairman of US brokers Poten & Partners, for what turned into a fascinating interview on his take on shipping cycles – the article can be read in full by following the QR code link below. Shipowning today is a far cry from when Tusiani started out in the business. The advent of public money and other sources of capital such as private equity and hedge funds have changed the landscape because of the effective separation of the ownership of physical assets from their day-today operations. The primary focus of these public shipping companies, he reckons, is to demonstrate quarterly growth. “As there is a greater pressure to produce quicker returns, operational integrity could be potentially compromised,” the Poten boss warned. However, Tusiani does not believe that this new shipping structure – where ownership is separated from commercial and technical management – will last for a long time. “As soon as there is a major problem, charterers will not stand for them,” he predicted. Is shipowning set to come full circle, with owners reverting to type and being more in control of all operations, as Tusiani suggested? That was the question we posed to many top owners for this issue’s Executive Debate. Singing loudly from the same hymn sheet for a long time has been
20
Kenneth Koo, the chairman of Hong Kong’s Tai Chong Cheang Steamship. Describing Tusiani as a kindred spirit, Koo says he has been “crusading” on this argument for the last four or five years. “The commoditisation of shipping has led to not only lower barriers of entry but also lower standards in the industry,” Koo argues, saying that like the one-cell amoeba, shipping has split in two. The ship has disengaged from the shipping. As a result of this Koo is convinced we will be seeing more navigation-related accidents such as groundings and collisions, cargo claims will skyrocket and liability from exposure to pollution, injury, loss of property and death will increase. Jack Hsu, managing director of Taiwan’s Oak Maritime, clearly wants to support Tusiani ‘s and Koo’s assertions, but makes the point that both traditional owners and traditional charterers seem to be shrinking in size relative to the growth of the global tonnage supply as well as global cargo demand. “As a result of the enlarged pies on both tonnage and cargo,” he says, “the overall picture may look a bit different than it was compared to say 20 to 30 years ago, when shipping was still very much an old fashioned and traditional type of business.” Paul Slater, a ship finance expert and head of First International Corp, agrees that separating ownership from operations and
shipmanagement will not survive. “We are seeing a return to industrial shipping where the users of ships set the markets and those shipowners who speculated in ship values and fluctuations in short term freight rates are forced out,” Slater maintains. Much of the activity in new ships has been fuelled by speculative investors seeking to make quick profits from reselling ships or the contracts to build them, Slater relates. “The return of freight markets to pre-2000 levels has produced huge losses in many of these spectacular deals, and caused others to seek deferrals of ship deliveries, in the hope that markets will recover in the near future,” he says. Former banker, now chairman of Executive Ship Management and finance columnist for this title, Dagfinn Lunde, reckons there will be no great movement back towards traditional shipowning this year, and when, and if, this shift comes it will be most noticeable in dry bulk circles. Tim Huxley, ceo of Wah Kwong
“It now appears that most shipowners have put making short term profit above all else” — Michael Tusiani, chairman, Poten & Partners
maritime ceo
EXECUTIVE In profile Debate
Maritime Transport, thinks there is room for both types of owners, but he has a warning for the newer type. “What will not be tolerated by end users,” he says, “is a lack of transparency and accountability from shipowners, and that, combined with the easier operations when dealing directly with the actual owner, is why a lot of charterers prefer to deal with the head owner. Making sure that accountability is in place is going to be one of the big challengers for a lot of the arrivistes of the last couple of years.” Well-known financier Tobias Koenig, from Lexington Maritime, says that as long as the technical and commercial management is first class, he sees no problem when a ship is farmed out to other parties. Nevertheless, he feels that the disconnect between owners and actual management will not last as private equity will try to exit from shipping a few years from now. Voters in a Maritime CEO poll
Issue THREE 2014
“
Making sure that accountability is in place is going to be one of the big challengers for a lot of the arrivistes of the last couple of years
three months ago were split as to when private equity will quit en masse from shipping, with most votes split between 2016 and 2018. “I think that the future is with large and stock listed companies. Only very few private companies will be able to compete with those who have access to the capital markets,” Koenig says. As someone who has to handle day in, day out the hassles of managing everything in house, Ian Claxton, managing director of Thai shipowner Thoresen Shipping, says there’s plenty more potential for shipmanagers to expand their reach. “There will always be a segment of the market that does not want to have the expense of a full technical or commercial headcount,” he says,
”
“preferring to rather make their money on the asset spin, and filling the gap between buying low and selling high by operating through a third party commercial or technical pool.” Shipmanagement companies offer a comprehensive array of services that to duplicate them in house and still get economies of scale for both procurement and training would seem difficult, Claxton says, hence surely increasing operating costs. The chairman of the BW Group, Dr Helmut Sohmen, is more sanguine about this split between owners and their assets. “The more widespread separation of ownership and operational and technical functions has become a reality for some time,” he says, concluding that it is difficult to deny or criticise it. ●
21
Jon Edvard Sundnes p.35
Martin Harren p.41
Christoph Toepfer p.31
Sadan Kaptanoglu p.27
Evan Claar p.33
Jim Furnivall p.38
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 21 pages
22
maritime ceo
In profile
Njål Sævik p.32
Kim Ullman Hirotatsu Kambara
p.43
p.42
Peter Twiss p.29
Nobu Su p.24
Atul Agarwal
Yudhishthir Khatau
p.37
p.36
Darren Yeo p.32
Jorn Hinge p.39
Biju Oommen p.40
John Giddens p.33
Issue THREE 2014
23
In profile
The lost Midas touch Nobu Su, the man who flew too high, is now fighting court cases on multiple fronts. He speaks to Maritime CEO in a very rare interview
M
aritime CEO spent the best part of six months tracking down the elusive, mercurial Nobu Su for an interview. Few have soared so high and crashed so spectacularly as Su, the boss of Taiwan’s Today Makes Tomorrow (TMT). When we meet up, Su, 55, is not what we had expected, the larger than life character of six years ago has been replaced by someone more quiet, more reflective and, to our mind, sounding a little bit edgy. Understandably so, given the court cases he and TMT (formerly known as Taiwan Maritime Navigation) are fighting in so many corners of the globe. The image his PR firm asks us to use speaks volumes. Gone are the youthful looks, the lines on the forehead and the grey locks tell their own story. Most pertinently however in the mugshot is the volume of gold colours, for this was the man that
“More and more owners are moving to the Philippines as Singapore and Hong Kong have become too expensive” — Marlon Rono, president, Magsaysay
24
felt his Midas touch would never leave him. One of the industry’s most enigmatic characters, far more technically astute than most other shipowners (pioneering previously unheard of ship conversions, for example), Su got big by betting big. He was the largest FFA player during the boom years (accounting for 15% of all trades at his peak) and he was right about Chinese iron ore imports, but he grew too big, too fast and when things turned, he had nowhere to go. During the boom era he was the game in town, fêted by every broker and snake oil salesman and, looking back, it’s easy to argue he just could not stop believing what they said. Come the financial crisis, like the tale of the Emperor’s New Clothes, Su was exposed and bereft. TMT filed for bankruptcy protection in June 2013, listing $1.46bn in debt and $1.5bn in assets after seven of its 17 vessels were seized in ports across the world by bank lenders, vendors and crews demanding back pay, according to court records. The fiercely private Su never previously published financial figures, and has been a very rare sight in the world’s media. Su’s demise has seen an empire
“
fall apart, ships sold, crews left stranded and unpaid and lawyers spending many an hour in courts fighting for every nickel and dime. “We decided to let some ships go as the shipping market will stay quiet a long time in my view,” Su says, disregarding court verdicts that mandated vessel sales. Su is keen to highlight a number of intellectual property issues he has raised in a US court. He has more than 10 patents related to shipping and he feels some companies are infringing on his designs. He is fighting a US court decision to sell some of his ships, citing the patents onboard that he created. “I think this overcapacity and structural change will eventually lead people who know how to create different solutions to survive. So I’m working on it,” he says of his many self-created ship designs. TMT began back in 1958 when Su’s father – who started out as a scrap metal deal - ordered a new ship, called the Taiwan Banana and entered the island’s then thriving banana trades. The company grew quickly, and entered other sectors. At one point it had 10% of the world’s woodchip carriers, for instance. Nobu Su did work for his father’s shipping line for a brief while, but
During the boom era he was the game in town, fêted by every broker and snake oil salesman
”
maritime ceo
In profile
then left and spent 15 years in the cement industry. He returned to take over TMT on the death of his father in 2002 just as the Chinarelated shipping boom was about to kick off. Looking at the markets today, once-bitten, twice-shy Su is not keen to make any investments in shipping now. He cites the “huge market volatility” in both dry bulk and tankers and how “brittle” both sectors are, with overcapacity a new constant. “Whatever market pick up there will be,” Su says, “it won’t last for a long time as we have huge overcapacity. I don’t expect good markets
Issue THREE 2014
“
Whatever market pick up there will be it won’t last for a long time as we have huge overcapacity
”
in any of the shipping markets.” Spot on Looking back, Su now reckons market forces were beyond his conTMT trol for his mistimed investments. One of the most high profile casualties “The freight was not decided of the shipping downturn Today Makes in the normal competitive way,” he Tomorrow (TMT) has been run by Nobu recalls, adding: “It is decided in a Su since 2002 when his father died. Originally founded in 1958 as Taiwan Maritime very anti-competitive way. I did not Transportation, in its 2007 heyday under get this feeling for a long time. So If arch-risk taker Su, TMT operated more I knew, I would not invest so largely, than 130 ships. The company is now like $7bn in orders at two major subject to numerous bankKorean shipyards. I would have ruptcy related cases. played it differently.” ●
25
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In profile
Is the current supply/demand imbalance the new normal? Sadan Kaptanoglu on the altered dynamics of shipping
I
s the current supply/demand imbalance across many shipping sectors the new normal? That’s the question posed by Sadan Kaptanoglu, Turkey’s most famous woman in shipping, speaking with Maritime CEO. A board member at the eponymous family conglomerate, Kaptanoglu says of the current dry bulk market that recovery expectations have failed so far and no strong development is expected. “Maybe this is the new normal,” she muses, before noting optimistically that the demand side just passed the supply side in dry bulk for the first time in six years so there is, she says, “a possibility of a small window of a better market until the new orders start to be delivered in 2016”. Tankers, meanwhile, are moving up “slowly but steadily”. Kaptanoglu is optimistic about aframaxes and the chemical market. While the chemical tanker fleet
“Sustainable practice is going to become integral to commercially successful and enduring business strategies” — Alastair Fischbacher, director, Sustainable Shipping Initiative
Issue THREE 2014
is expected to increase from 41m dwt to 59m dwt in the coming 18 months, the total chemical trades are expected to jump from 151m tons to 215m tons by the end of next year, she says. Similarly, the product tanker fleet will grow around 50% in the same time frame but demand should grow more. The diverse Kaptanoglu fleet is made up of two kamsarmaxes and one handysize on the dry bulk front while in tankers it has two aframaxes, one MR tanker and three other differing sized product tankers plus three chemical tankers. “We see very volatile markets and we have always been known as a conservative traditional shipowner,” says Kaptanoglu, herself the fourth generation of the family at the helm of this famous name in Turkish shipping. “At one point we will invest, but since the money we will invest is solely ours we will be very careful about it.” She thinks the demand side of the equation is okay but is worried about the supply side.
“As our fellow shipowners and investors continue to order there will be no continuous improvements in the market and, if this is the new normal, then except the asset players, there will be not enough windows for healthy returns,” she warns. As well as being a shipowner the Kaptanoglu group has a couple of shipyards, one for yachts and one for commercial shipbuilding and repair. The latter, called Desan, is one of the best known repair yards in Turkey, which has in the past year also returned to shipbuilding, constructing a platform supply vessel for a Norwegian owner. “We are now expanding in Tuzla, the main area for yards around Istanbul, so that our ship repair services will not be affected,” Kaptanoglu says. Turkey’s yards scene is currently flourishing after years of stagnation. “Turkey is the address for vessels who do not want to do the Far East,” Kaptanoglu concludes. ●
Spot on
Kaptanoglu Holding Founded around 100 years ago this diverse conglomerate is involved in real estate, tourism as well as shipowning (dry bulk and tankers) and has two shipyards too.
27
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In profile
Reading the waves Oldendorff’s Peter Twiss is building up his fleet in dramatic fashion
O
ldendorff Carriers is one of the grandest names in German shipping, operating at any given time more than 500 ships, including its transloader units. Typically it transports around 300m tons of raw materials and semi-finished products every year with an annual turnover in the region of $5bn. The aim at the moment is to up the proportion of owned ships. The company took advantage of low prices back in the dark days of 2012 to kick off a very significant newbuild programme. The newbuilding program consists of 68 ships for delivery through to 2017 from Chinese, Korean and Japanese yards. “This will increase the share of owned vessels substantially,” says Peter Twiss, the firm’s president and ceo of the past 11 years. “We also expect our chartered fleet to continue to grow,” he adds. In big news for Oldendorff at the end of June it announced it had bought out Abu Dhabi’s Eships, a very significant diversification from its traditional dry bulk focus. Eships’s 30-strong fleet is made up of MR tankers, chemical tankers, LPG
Spot on
Oldendorff Privately held company, dates back to 1921. Controls more than 500 ships and is on a major newbuilding spree with 68 orders across Asia. Bought out Abu Dhabi’s Eships this June.
Issue THREE 2014
vessel and a pair of capesizes. Twiss, 46, reckons dry bulk rates in the coming 12 months will be “respectable”, especially with iron ore volumes remaining robust. “After the collapse in late 2008, we are currently experiencing the first signs of a slight recovery due to an intermediate slowing down in fleet growth,” Twiss, a Canadian national, relates. Annual newbuilding deliveries peaked in 2011 and have since slowed down, he observes. “However, the current recovery may not be sustainable with deliveries expected to increase again in 2015 and 2016 due to the high number of new orders placed in 2013,” Twiss reckons. Being involved in dry bulk naturally means Twiss is keeping a firm eye on the Chinese economy, which some analysts are insisting is in shaky form. Macroeconomic data this year continues to indicate that the Chinese economy is in the process of deleveraging, Twiss admits. “Although demand for commodities will certainty slow down, the Chinese government has shown that they are willing, and have the tools available to avoid a sudden or sharp fall in economic activities,” he insists, pointing to the slew of mini-stimuluses announced in recent months. Twiss started his shipping career in 1995 at Switzerlandbased Concept Carriers, which was founded by Oldendorff. In 2001, the company merged with the Egon Oldendorff group and Oldendorff Carriers was established. Two years later, Twiss became ceo of the new
“
The current recovery may not be sustainable with deliveries expected to increase again in 2015 and 2016
”
company, pursuing a brilliantly timed execution of shipping’s greatest maxim: buy low, sell high. He sold off a large portion of the fleet in 2007 and was one of the first to clock in 2012 that newbuild prices were hitting rock bottom. ●
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29
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In profile
Waiting for rates to head north Borealis Maritime has mapped out a clear growth path
C
ontrary to much positive sentiment earmarked for rates in the second half of this year, the founder and managing director of Borealis Maritime is concerned. The much talked about firm made up of former Allocean high fliers does not share the positive sentiment of others for the remainder of the year. Investors in 2013 rushed in to the market with the expectations of a quick profit, but most have been left disappointed so far, explains the boss of the firm, Christoph Toepfer. Volatility in asset prices, particularly in the dry bulk market, is likely going to remain high, he reckons. “Profits can be good if timing is perfect, but most investors are not nimble and disciplined enough to get their timing perfect,” he says, while reserving some praise for private Greek shipowners, who he thinks are likely to outsmart most of the so called smart money. “Returns for investors are very time sensitive, and a delay in the market recovery by one to two years may destroy returns,” says the German national. “We expect a downward trickle in most of the main segments over the next six months, not for lack of supporting fundamentals, but asset prices had run too far ahead and the chartering market did not follow,” Toepfer observes.
Spot on
Borealis Maritime An integrated investment and vessel management firm founded in London in 2010 by ex-Allocean executives with a strong focus on chemical tankers and containerships.
Issue THREE 2014
On the container side he reckons there may well finally be a more proactive approach to clear out insolvent KG ships from Germany, which may keep a lid on values for the time being. Describing itself as an integrated investment and vessel management firm, Borealis started out in 2010. “The best time to invest in to shipping is during a time of low asset values,” Toepfer relates. Back in 2010 he could see that the coming years were going to be a very difficult period in shipping and would therefore likely offer attractive investment opportunities. Borealis was established in January 2010, starting with a small team of three people who all had previously worked at Allocean. Borealis wanted to target markets with an attractive fleet supply profile and a higher barrier to entry and started with the chemical tanker market. In January 2011 the company acquired its first two chemical tankers at auction with the support of the existing mortgagee. This was followed by several additional purchases of chemical tankers between 6,000 to 17,000 dwt. While building the fleet Borealis also concentrated on building a partnership with a commercial team and found this partner in North Sea Tankers, a company set up by a group of ex-Stolt-Nielsen executives. Since 2012 the Borealis Investor Group owns a share in North Sea Tankers who today manage a total of eight chemical tankers for it. In early 2014 Borealis acquired Crystal Pool together with its commercial activities and now has a specialised chemical chartering team based in Helsinki. In 2012, Borealis decided the time was right to chase private equity money. It had secured $200m by the following year. It also then targeted the
container sector. Toepfer says the sector was attractive for investments due to its dysfunctional ownership structure dominated by insolvent German KGs, and a large debt problem faced by banks. “This should result in low asset prices from forced sales for some time,” he says. Borealis made its first container investment in November 2013 followed by four more vessels so far in 2014. In total, Borealis is about one third invested so far, Toepfer says, admitting honestly that some of its early investments were too early, but overall the company did not rush into the market with massive newbuilding orders or big fleet purchases. The goal now is to grow the business by identifying attractive investment opportunities. Borealis wants to strengthen and consolidate its position in the Northwest Europe and Baltic chemical market as well as adding to its container fleet. Toepfer himself is a man who can truly claim shipping is in the blood. He grew up in a Hamburg shipping family. One grandfather was Alfred Toepfer, a grain merchant and shipowner, and the other Egon Oldendorff, another well-known shipowner. “With shipping in the blood from both of my parents my eventual fate was probably sealed from very early on,” he says, smiling. ●
31
In profile
Expanding valiantly Vallianz’s geographic footprint is growing
O
ffshore support vessel operator Vallianz brought in Darren Yeo to the role of ceo two years ago from shareholder Swiber. Since then, the company has evolved to become one of the top OSV providers in Southeast Asia. Vallianz today owns 28 OSVs and manages more than 50 client vessels. The company has the capabilities to support customers in every stage of the offshore oilfield lifecycle. This is because its diversified fleet comprises almost every type of OSV imaginable. The plan, says Yeo, is to add a further 24 vessels to attain a target of a directly-owned fleet of 50 vessels by 2016. These new vessels will include shallow water AHTSs, PSVs and multipurpose supply vessels (MSVs). The company has secured a strategic collaboration in April this year with a top Chinese shipyard, whereby Vallianz will provide market intelligence and engineering specifications to the Chinese shipbuilder
ranging from AHTS, PSVs, MPVs and accommodation work vessels. In return, Vallianz will have the right of first refusal for up to 200 vessels constructed at the shipyard but without any upfront financial obligations or liabilities. The company currently has 13 vessels under construction in China “This arrangement gives us ready access and flexibility to acquire vessels that are built to our
specifications when the need arises. In addition, it will enable us to price our contracts more competitively, and reduce the time-to-market of our vessels as Vallianz actively bids for projects in various regions,” Yeo says. Vallianz is very much going global these days. In October 2013, Vallianz secured an immediate presence in the Middle East market by acquiring a 50% stake in Rawabi Swiber Offshore Services, winning chartering contracts worth $150m from a leading oil company in the Middle East a month later. Vallianz has also taken steps to penetrate and extend its presence to the booming Latin America market. It was awarded its first charter and shipmanagement contract worth $82m from a major offshore construction company in April 2014. In early July this year, Vallianz sealed a collaboration agreement with Offshore Oil Engineering (COOEC), China’s largest offshore engineering and construction company. Under the agreement, Vallianz will provide certain offshore support vessels to support the offshore construction activities and operations of COOEC. Vallianz is also setting its sights on penetrating the offshore marine market in West Africa. ●
Experience pays When Havila Shipping was established in 2003 in Norway, it was the third offshore supply company Njål Sævik’s father, Per, had founded. Sævik Supply and Havila Supply, the first two, have in time been sold. Havila Shipping was founded with 10 ships, and is now a modern offshore company with operations across the globe and a fleet of 27 vessels. For Njål Sævik, Havila’s ceo, 27 ships is just about right at the moment. He says there are no plans to add any more vessels for the time
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being. The current fleet is made up of 14 PSVs, nine AHTSs, three subsea vessels and one RRV. Havila has done well in Southeast Asia where it has a joint venture with PACC Offshore Services Holdings (POSH), part of the Robert Kuok empire, plus it has another vessel working for Fugro in Malaysia. Part of the reason for the reticence to order more ships stems from Sævik’s belief that overcapacity is creeping into the OSV sector. “We have seen an overcapacity in some segments now and then, and
we also know that the orderbook is large in some segments,” he concludes. ●
maritime ceo
In profile
Hallin Marine founder teams up with M3’s Meade ‘The key is building smart and getting the best quality and highest specification at the lowest price’
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ohn Giddens, who built Hallin Marine into a global subsea services player after starting it from a container in his back garden, has re-entered the industry with the announcement this August of the build of a 105 m subsea operations, diving and ROV support vessel. The contract for the construction of the vessel, named Tasik Toba, has been signed with Fujian Mawei Shipyard. The vessel’s design and specification has been carried out by Tasik Subsea, a company set up by Giddens (pictured, left) and long-time vessel collaborator Mike Meade (pictured, right), who heads up Singapore offshore brokerage M3 Marine. Giddens, 53, is known
throughout the subsea industry for founding Hallin Marine from his Singapore home and eventually selling it to US-based Superior Energy in 2010 for more than £100m. On what sort of size fleet Giddens and Meade envisage controlling going forward, they are
circumspect, with Giddens warning that the OSV segment as a whole is moving into another period of overbuilding. Meade says Tasik will only build to meet client demand. “We will not be building speculative vessels,” Meade stresses. On the spectre of OSV supply, Giddens says, “I think commodity boats – PSVs and AHTSs – are basically in oversupply.” High-end DSVs are potentially in oversupply also, he says, with a number of newbuilds underway including Tasik Toba, but, here, he stresses: “I think, as I always have, that the key is building smart and getting the best quality and highest specification at the lowest price.” ●
Unique accommodation rigs Dallas-based offshore oil and gas company Mike Mullen Energy Equipment Resource has formed a joint venture with CBI Capital ordering a total of four multi-use accommodation and construction support jack-up units worth around $150m each in the past 21 months at the offshore wing of Dalian Shipbuilding Industry Co (DSIC). The rigs can accommodate 354 workers and will deliver in the next couple of years. Evan Claar, chairman of the joint venture, known as CBI-MMEER, says there is nothing like these rigs in the marketplace. These larger units have previously been handled by multiple units. With over 11,400 sq ft of deck space and abilities for full construction support, nothing currently available matches the capabilities
Issue THREE 2014
of these accommodation jack-ups in 400 ft water depth, Claar maintains. The rigs are DSIC’s DSAJ-400 design in conjunction with Noble Denton and feature National Oilwell Varco’s BLM jacking and fixation system. Claar says the rigs will enter the market vastly cheaper than the many floaters that are being used today in shallow waters. Moreover, it is not just the build cost that is cheaper, but the operating costs too, he claims. Claar calls for Chinese yards to be more precise with their pricing if they are to get more offshore orders. “The relatively low downpayment is very attractive,” he says, “but a lot of financing uncertainty could be removed which would attract more orders into the shipyards. For
example, we are going through our construction, I still don’t know with precision how much money we are going to need, nor do I know what the fee package is going to look like.” Claar says a fifth unit could be ordered soon, but clearer pricing would help swing the deal. ●
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In profile
Beyond shipowning Norway’s Tschudi Group has Arctic ambitions
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mid tough times one of the most famous names in Norwegian shipping is increasingly turning its back on its traditional shipowning role in favour of diversification. Tschudi Group, whose shipowning heritage dates back to 1883, is increasingly focused on offshore, logistics and ports. The Tschudi Shipping Company can trace its history back to some 131 years ago when the shipping company Tschudi & Eitzen was established. The founders of Tschudi & Eitzen were both captains onboard the world’s first sailing tankers. The company subsequently operated a wide range of vessels starting with sailing and steamships and moving onto general cargo vessels, tankers, bulk carriers, OBOs, submersible heavylift vessels, chemical tankers, gas carriers, tugs and barges as well as container and roro vessels. The Tschudi Group currently owns a fleet of multipurpose container vessels, tugs and offshore vessels in addition to operating containerlines between northern European ports in the Baltic and North Sea. Tschudi Shipping Company was also involved in the privatisation and now owns the former national and oldest shipping company of Estonia, ESCO.
Spot on Tschudi Tschudi Shipping Company is the privately owned Norwegian holding company for the Tschudi Group, which dates back to 1883. In the last decade it has moved away from traditional shipowning more into logistics, ports and offshore.
Issue THREE 2014
Jon Edvard Sundnes, ceo of Tschudi Shipping Company, tells Maritime CEO, that multipurpose/ small container vessel rates have been “a disappointment” and the company’s concern as owners is that they will remain so. As a result, Tschudi has sold most of its tonnage in this segment. In terms of vessels owned, these days Tschudi is bigger in the offshore support vessel domain. “For OSVs we expect seasonal variations but still that levels will be fairly strong,” Sundnes says. Nevertheless, the focus these days is, as mentioned, less on vessel ownership, as Sundnes explains. “Because of our position as port/ terminal owners in northern Norway and a logistics/liner operator and project cargo operator our focus is more on cargo and port development than on vessels just now,” he says, adding: “We have a strong belief that we can build on our special competences with regard to northern regions and also on Russia and neighbouring countries.” Tschudi also runs a small, but growing third party shipmanagement business. “We will grow the business gently, but we do not foresee any giant steps in this respect,” Sundnes says. He expects there will be further consolidation amongst some of the smaller managers and also smaller shipowning companies possibly seeking to outsource because of an increasingly demanding regulatory regime. Moreover, in weak markets cost levels and cost control will be important, Sundnes stresses. “Some locations may be too expensive and/or lack the recruitment basis for shipmanagement. That is where Estonia as a rather cost efficient European location and still having many seafarers as a recruitment basis for shore based personnel
is considered favourable also for providing services to the region’s owners,” he says. Tschudi, as a company, is pinning much of its future on the growth in industrial activities in the Arctic. “We expect that there will be a significant growth in activities related both to oil and gas but also to minerals,” Sundnes says. This will require specialised tankers, bulkers and project cargo/MPP vessels, he reckons. In addition there will be a need for transhipment in ice-free ports in the region, he says, both to utilise the ice-classed vessels better but also to use the ice-free season as efficiently as possible. “That is where we come in with our strong location as port and terminal owners in Kirkenes and our oil transhipment services in Honningsvaag, northern Norway,” Sundnes suggests. These locations represent what Sundnes describes as “ice-free wedges” into the Arctic. Born in 1955, Sundnes graduated as a naval architect. He worked as a surveyor for DNV in the early 1980s, then as a ship and project broker at Fearnleys and has subsequently held various management positions including managing director of First Olsen Tankers and Mega Tankers until he joined Tschudi & Eitzen in 2000. ●
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In profile
A way out? Varun has been in the headlines for all the wrong reasons of late
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arun Shipping’s vice-chairman and managing director Yudhishthir Khatau, whose company has just come back, virtually from the dead, is in upbeat form when Maritime CEO comes calling, although the stress of the past few years is still etched on his formerly youthful looking face. Right through the course of 2014, Varun has been in the news for all the wrong reasons, most recently with Standard Chartered suing Khatau. In early March, three officers aboard the company’s LPG carrier Maharshi Vamadev had to be rescued by India’s Coast Guard after their health condition became critical, following a hunger strike lasting several days. The captain of the vessel said his crew had not been paid wages since September 2013. The vessel itself had been stranded off the coast of Mumbai since the beginning of the year. Later the same month, the company lost its licence to operate ships after it failed to carry out mandatory drydocking of the vessels for safety surveys and pay six to eight months’ wage arrears to its crew. The Directorate-General of Shipping (DGS), India’s maritime regulator, declared Varun’s Document of Compliance (DoC) null and void, and threatened to declare all vessels under its ownership or management as unseaworthy. Suspension of the DoC led to the automatic cancellation of the vessels’ insurance cover. Varun, headquartered in Mumbai and listed on the Bombay Stock Exchange, then had a fleet of 18 ships, comprising 10 LPG carriers, three crude oil tankers and five anchor handling, towing and supply vessels (AHTSs). “Offshore at its peak was earning
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$70,000 a day,” Khatau relates, “In the trough, it was just $15,000 a day. The trough level was the same for tankers, which had earlier seen a peak of $45,000 a day. We ended up losing $40,000 per day.” The pain was compounded by two issues – the short, tight loan profile of the ships, and the ban on having foreign crew on Indian flag vessels. “The fundamental issue in shipping is matching your assets with your liabilities,” says Khatau. “Ships are very capital-intensive. In the international market, when you finance ships, especially when they are young, you get a 15-year loan profile. Sadly, in India, shipping is not considered infrastructure; and, as a result, most banks finance you with a seven-year profile. When Varun did its projections in 2009, it thought the market might come down by 10%. “Nobody expected it to come down by 65-70%,” Khatau says. The other problem at the time was that India did not allow foreign crew on an Indian ship. To get around the problem, the company decided to restructure its business from the grass-roots level. It created three Varuns – Varun Gas, for the LPG segment, which was retained in India; Varun Asia for the tankers and Varun Cyprus for the offshore vessels. Varun put its offshore vessels
The fundamental issue in shipping is matching your assets with your liabilities
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into long-term charter in Brazil and Azerbaijan, and placed its three tankers under the Singapore flag. The company then went to the banks and got them to restructure its debt. But the challenge it faced was working capital. “We had 10 vessels that were perfectly seaworthy, but needed immediate statutory drydocking; and to put a ship into drydock these days costs anything between $2m and $2.5m,” Khatau relates. This was money Varun simply did not have. A lengthy delay in paying wages ensued. “Last year, we had revenues of Rs600m ($10m), every rupee of which was spent in wages payments,” he claims. “Including bank loans, our aggregate wage bill last year was Rs750m.” The company also had a dialogue with banks and worked out a package with Dubai Drydocks World to get its gas carriers operational, all of which will be complete by the end of September. The company has sold one gas carrier to Mumbai-based Mercator, and got rid of two offshore vessels. It has taken a conscious decision to eventually exit offshore. “The critical mass regarding the number of vessels required to make money in this segment is large, and beyond our capabilities,” says Khatau. “If we have to divide our resources between offshore and gas, we are better off staying in the gas sector.” ●
Spot on
Varun Founded in 1971 in Mumbai, Varun is a gas and oil tanker player that latterly entered the OSV sector. Hit hard by the downturn, the fleet has downsized and the aim is now to exit the offshore business.
maritime ceo
In profile
Seven-year mix Mercator cashed in many of its shipping chips in 2007, and these days is far more diversified with an ever stronger oil and gas focus
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ust over a decade ago, Mercator Lines had gone on a vessel acquisition spree to metamorphose from a relatively minor shipping player into India’s second largest private sector shipowner, with 4m gt of diverse tonnage. However, the two brothersin-law – Harish Kumar Mittal, chairman, and Atul Agarwal, managing director – who ran the company displayed Nostradamus-like qualities and foresaw the arrival of the global shipping downturn. They decided, in 2007, to reduce the company’s dependence on core shipping activities. “We have diversified over the last seven years, and broad-based our operations,” says Agarwal. “Coal mining has been a major area we have gone into; and we have mines in Indonesia, which we are currently exploiting. “We also have coal mining assets in Mozambique, but the infrastructure there is so poor that we don’t harbour much hope of getting it going.” Transporting coal from Indonesia to India, to feed the maw of the numerous power plants could well have been done in-house, employing the fleet of dry bulk carriers the company had built
Spot on
Mercator Run by two brothers-in-law – Harish Kumar Mittal, chairman, and Atul Agarwal, managing director – this Indian line has reduced its shipping exposure a great deal since 2007. Now has just 28 ships, while it has diversified into coal mining and energy.
Issue THREE 2014
up. But Mercator (the name of the company was changed four years ago to Mercator Limited to better reflect the wider scope of its activities) gave the idea of captive employment a wide berth. “We have 14 vessels in the bulk sector at the moment, but we don’t use them for in-house work,” says Agarwal. “If we can buy freight at a cheaper rate than we can sell, why should we use our own vessels? Only the possibility exists that, if our ships have no employment whatsoever, we might use them on the IndonesiaIndia coal run.” This is contrary to what fellow Indian firm Adani group is planning to do – using its bulk carrier fleet to transport coal from the Carmichael coal mine it has recently purchased in Queensland, from Abbot Point to Indian destinations. “Our business model is different from that of Adani; they are not per se into shipping,” says Agarwal. “They use shipping as a support structure for their primary business of coal and ports, whereas our primary business has been shipping.” The Mercator chief feels that there has not been much improvement on the shipping scene this year, and that the industry continues to be in the grip of recession. “In fact, if you ask me, there does not seem to be a silver lining on the horizon for shipping in this entire decade,” he says. “Only the gas and offshore sectors appear to be doing fine. I don’t see bulk shipping improving for some years. There is excess capacity, and too many orders continue to flow into Chinese
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shipyards.” The company has diversified into other areas. It built up a fleet of six dredgers, and operates a mobile offshore production unit (MOPU), converted from a drilling rig, which is doing well with a nine-year contract. It is in the process of building two more such units, and is actively on the lookout for more offshore contracts. A step-down overseas subsidiary, Mercator Energy, is in the process of raising debt of $55m to help it expand in the oil and gas space. A possible listing of its energy division in Singapore is also on the cards. It has bought two small oil blocks in the Cambay basin, has commenced drilling operations. “We have also tied up with Oil India Ltd and invested in two oil blocks in Myanmar during their recent round of international bidding,” says Agarwal. “The geological formations in these blocks are supposed to be similar to Reliance’s D6 block in the Krishna-Godavari basin; and so, the prospects appear to be bright.” ●
If we can buy freight at a cheaper rate than we can sell, why should we use our own vessels?
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In profile
‘Volatility will create attractive exit opportunities’ The boss of Alterna Capital Partners says he’s in for the long-term with his many shipping investments unlike many of his private equity peers
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n the news this summer once again was Alterna Capital Partners. The US private equity firm was revealed as the firm behind an order for six 25,000 dwt chemical tankers at Hyundai Mipo in South Korea. Alterna has been very active in the market, tying up with a number of shipowners. It has a joint venture with Norway’s Western Bulk owning three 2011-built supramax bulk carriers as well as three other companies. Mid Ocean Tanker Company acquired a partially completed Jones Act product tanker at auction. Mid Ocean managed the completion of that project – delivered in 2012 – and has arranged employment for the vessel through August 2020. Then, there is Sterling Ocean which ordered a total of seven product tankers, three of which delivered from Korea’s STX last year, while another four are under construction at Hyundai Mipo. Finally, there’s Steelships which is a handymax bulker play, now with five ships in the water. Unlike many of his peers, Jim Furnivall, managing partner at Alterna, says his private equity firm is very much in shipping for the long term.
Spot on
Alterna Capital Partners Alterna invests in assets for the transportation, industrial and energy sectors. Supramax and handymax bulkers as well as product carriers are among its investments.
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On product tankers, Furnivall admits there are too many ships at the moment, but demand growth for products should outpace supply growth over the next three years. “As such the market should come into balance during that time and we will see rates return to historical averages, maybe with some premium,” he says. Furnivall’s commitment to hang on in shipping is not matched by many others in private equity, something he acknowledges. “For the time being I think that hedge funds and probably private equity are likely to focus elsewhere than on shipping. The returns on the capital that have been deployed will have the major impact on whether this is a sector of permanent interest,” he says. In terms of what sectors he now sees as hot within shipping, Furnivall is quick to put the spotlight on LNG and LPG carriers. “The recent huge increase in shale gas production, the regional price differences in gas and expected future growth have gotten a lot of owners and investors very excited about this area,” he says. As to when Alterna will cash out, Furnivall has a few principles he wants to follow. “When we make a shipping investment our base case investment model always assumes that liquidity comes from selling the assets and distributing the sale proceeds,” he explains. There will be times and structures where a strategic sale or public float may provide a premium to the net asset value and Alterna endeavours to structure its investments to position itself to take advantage
of this, but that outcome would be upside to its investment case. All of this means that acquisition price and operating cash flow are critically important to Alterna’s success investing in shipping. Also, understanding Alterna’s partners’ motivations and then aligning interests is essential. “We believe that if we get those things right and are patient investors, industry volatility will create attractive exit opportunities,” concludes Furnivall. ●
“There’s little room for emotion in private equity and so, where a strong economic argument can be made, it normally wins the day” — Clive Richardson, president, V.Group
maritime ceo
In profile
Size matters UASC is in the spotlight for its giant orders and its alliance plans. Maritime CEO finds out more in conversation with the line’s president
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or at least five years now, the container sector has been in indifferent health. Several efforts have been made by the big players to improve profitability – forging alliances, resorting to slow steaming, announcing unmaintainable rate restoration initiatives. United Arab Shipping Corporation (UASC) thinks it has the problem licked by introducing such economies of scale into its operations as to remain profitable with even rates that, on the face of it, appear unremunerative. “If we have good load factors, and resort to slow steaming, our slot costs go down significantly,” says the Dubai-headquartered shipowner’s president and CEO Jorn Hinge. “We can ensure that our slots are filled by having joint container pools, joint terminal contracts and container interchange arrangements,” he adds, in a nod to ongoing speculation that UASC will be drawn into some container alliance soon. “Alliances make good sense in liner shipping. They allow lines to adjust capacity more easily to fluctuating market demand,” Hinge says. UASC’s belief in its strategy is apparent from a fresh $2.3bn newbuilding programme at Korea’s Hyundai Heavy Industries, involving 11 latest-generation 18,000 teu leviathans, of which partner China Shipping Container Line (CSCL) has ordered five – for delivery beginning the second quarter of 2015. These marine jumbos are in addition to an equal number of 14,000 teu vessels already on order, and which will start joining the fleet from November this year. Many of them will use the freshly dredged Panama Canal. “We had a very good experience with the operation of our 13,000 teu
Issue THREE 2014
A13 class containerships, which were delivered to us in 2012,” says the jovial UASC boss. “We were able to save almost $200m in slot costs with these fuel-efficient vessels, and they encouraged us to go in for the even larger sized ships. We also decided to scrap our entire old lot of fuel-guzzling 2,000 teu A2 vessels.” However, UASC lacked the confidence of being able to fill all the 18,000 slots on its own, and decided to ink a slot-sharing deal with CSCL. “We can now get the operational savings, and with a reduced risk of underutilisation,” says Hinge. The jumbos that Hyundai Heavy are constructing will feature several design innovations, including long-stroke engines which provide a slightly lower top speed, but substantially better fuel economy, as well as waste heat recovery systems. Premium hull coatings will minimise resistance through the water. “We have been told that the largest ships will run at 18 knots between Asia, the Middle East and Europe, and at 16 knots on the return leg,” says Hinge.
With bunker prices accounting for a large chunk of running expenses, UASC opted for ‘LNG ready’ designs that will allow the vessels to be swiftly retrofitted for predominantly LNG burning, once a suitable international bunkering infrastructure is in place. It is the first containerline to opt for a design that uses the environmentally friendly fuel. Additional savings via a significant internal reorganisation should also help UASC make further annual savings of around $250m. Lean yet large seems to be the way for UASC. ●
Spot on
UASC United Arab Shipping Corporation (UASC) was set up by the governments of Bahrain, Iraq, Kuwait, Qatar, Saudi Arabia and the United Arab Emirates in 1976. Qatar’s holding of the containerline now stands at 51.3% after a series of capital increases. UASC’s huge orderbook should see it operate a fleet carrying more than 500,000 teu in the coming three years.
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In profile
New markets eyed
Orient Express Lines is sizing up moves into other Southeast Asian nations
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ontainerline Orient Express Lines (OEL) is looking at entering the Indonesian and Philippine markets. The ceo of the firm, Biju Oommen, tells Maritime CEO, “The Indonesia and Philippine trades are being studied carefully, as there are opportunities considering the growing container volumes.” Any
Spot on Part of Transworld Group Singapore, OEL provides a network of container feeder services, through its fleet of owned and chartered container vessels, linking transhipment ports in Singapore and Malaysia with the Indian SubContinent. Fleet currently stands at ten, a mix of owned and chartered tonnage.
entrance into these trades would be done as a joint service, he says, much like it did this April when it launched a new service to Vietnam with Taiwan’s Yang Ming. Part of Transworld Group Singapore, OEL provides a network of container feeder services, through its fleet of owned and chartered container vessels, linking transhipment ports in Singapore and Malaysia with the Indian Sub-Continent. OEL’s fleet stands at 10 vessels at the moment, five owned and five on charter. “We are keen to acquire another 1,700 teu vessel this year, and thereafter study the market trends to formulate plans for the next year,” Oommen says. The volumes on the Bangladesh and India routes continue to grow for OEL. However, with the port limitations, the line is not able to increase
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the size of the vessels, which would have helped reduce costs per teu. With the size of container vessels getting larger and larger, OEL is careful to avoid trade lanes where bigger ships can be deployed. “We are careful to avoid deployments onto such trade lanes,” says Oommen, “as the capacity surge would create unhealthy competition for volumes, and push the freight rates below sustainable levels.” ●
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In profile
Diverse fleet helps keep Bremen firm on an even keel Harren & Partner on the vital importance of not putting all your eggs in one basket
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t’s 25 years since captain and business graduate Peter Harren (pictured, right) purchased his first ship – the multipurpose carrier Orion III. Since then Harren & Partner has grown and diversified dramatically. The German owner now boasts a fleet of more than 50 vessels, and is also a third party manager as well as into logistics and ship financing. The fleet currently consists of 52 owned or managed ships. It comprises 12 product and chemical tankers, five multipurpose and 15 heavylift ships, two offshore construction vessels and four dock ships, eleven container feeders as well as three bulk carriers. “Today, we have no orderbook with any yard but we do have some plans for newbuildings,” says Dr Martin Harren, managing director (pictured, left) and son of the group’s founder. “The realisation of these plans is just a question of market timing and financing opportunities,” he adds. Diversification has been the way Harren & Partner has always navigated the ebbs and flows of the shipping markets. So while one sector might be performing poorly, such as heavylift, the tanker side is propping the figures up. “Today, the heavylift markets suffer from an oversupply of available tonnage,” Harren says. “Big projects in infrastructure or the oil extracting business came forth slower than expected and even highly specialised ships ended up competing for classic breakbulk,” he relates.
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As a result Harren’s heavylift focus lies in consolidation rather than adding new ships. A first step in this direction has been the establishment this May of the BHS Pool Weser-Ems together with Briese Schiffahrt. This pool consists of 15 units for the time being and will be managed by BBC Chartering and Combi Lift. Being asked to carry out third party management for a number of business clients is an ever-growing side of the business. Another successful niche the group has pursued has been with the creation 15 years ago of Caribbean Feeder Services (CFS). The success of CFS relies on the ability to identify a demand and a potential market and then offering a reliable and efficient service. As boxships have got larger and larger many ports in the Caribbean and its rim countries have fallen off the map, providing an opportunity for CFS. “With scheduled connections between select ports, CFS supplied this support based on fairness towards its contract partners and local knowledge of the Caribbean,” Harren says, while acknowledging the CFS model could be replicated elsewhere. “The model could suit any region with a comparable initial situation,” he says, noting: “Today’s development towards ever larger containerships in the liner trades might even further the demand of regular feeder services.” However, the prudent German owner then says the existing pressure on earnings for all types of container vessels through an oversupply of
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Ultimately, there will always be interesting niches
Issue THREE 2014
tonnage does not help to promote the establishment of a new service at the moment. “In the end, it always comes down to the right judgment and a solid calculation,” Harren says. It is this ability to invest across diverse markets that has served the Bremen company well in its first 25 years, and will do so in the future. “We have the capability to adapt quickly to new situations and new tasks,” Harren says in concluding. “We have been using this ability, building up our diversified fleet and see it as our most valuable asset in facing the rapidly changing shipping business. Ultimately, there will always be interesting niches. When the right conditions come together, we will be there.” ●
Spot on
Harren & Partner 25 years old this year, this Bremen firm has a varied fleet including heavylifters, tankers, containerships and bulk carriers. Nothing on order at present, but newbuilds are on the cards.
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In profile
On its own path 111-year-old Tsuneishi Group combines shipbuilding and shipowning in its own unique way
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irotatsu Kambara is a busy man. As well as being an executive director for Tsuneishi Shipbuilding he is the president of Japanese shipping line, Kambara Kisen. The line is made up of 35 ships. “Going forward, we plan to keep adding two or three ships a year, for which fuel-efficient bulk carriers shall be the mainstream to meet the strong demand among charterers,” Kambara says. As well as the dry bulk side of the business, 111-year-old Kambara Kisen is also an intra-Asia container player, much of which business is done in a tie up with Thailand’s Regional Container Line (RCL). Kambara, the great grandson of the founder of the company, says shipping still faces harsh times ahead thanks to overtonnage and sluggish economies around the world. “Shipping is a highly volatile type of industry, and although we will have minor ups and downs, the increasing cargo volume of the world can recover the market in the mid- to long-term projection,” Kambara says, adding: “Whether
“The galley is one of the last places on a ship to be brought up to standard” — David Steele, founder, Food Inspection & Training
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times are good or bad, the important thing is to invest solidly in new tonnage according to your own size.” On the shipbuilding front, Kambara says global capacity at the moment is around 100m tons, which post-Lehman, is about twice what it ought to be. “To survive this tough competitive environment for orders, we are working to develop more distinctive products while lowering costs,” Kambara says. To this end, Tsuneishi manufactures ships in both China and the Philippines as well as its southern Japanese headquarters. There is also a joint venture in South America, in landlocked Paraguay, building river and canal vessels.
Spot on Tsuneishi Group Shipbuilder as well as owner founded in 1903. Has 35 ships and operates bulkers and boxships. Yards are located in Japan, China and the Philippines.
Tsuneishi. The aim is to offer ships in 2020 that emit 40% less CO2 emissions than vessels built in 1990. Further yards in Southeast Asia are also on the cards, with Indonesia top of the list, which will initially focus on ship repair. ●
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The important thing is to invest solidly in new tonnage according to your own size
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“Although these ships are not ‘Made in Japan’ per se,” he says, “they are built overseas using Japanese expertise and are thus ‘Made with Japan’.” Among new products, this year Tsuneishi has started marketing a new bulker, the TESS64 Aeroline, a 64,000 dwt fuel-efficient bulker. Offering fuel-efficient ships is a top goal for maritime ceo
In profile
Concordia Maritime switches to the spot market Swedish tanker player wary of fragile product sector
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he product tanker market is becoming ever more brittle, says one of the sector’s leading players. Kim Ullman, ceo of Concordia Maritime, the Swedish firm controlled by the Stena Group, says that for pure products the picture is “still positive, but more and more fragile”. “Demand growth is there and distances are increasing but the influx of supply makes it fragile,” he says, predicting equilibrium at best for the coming 12 months. “Influx is a given, but demand is not,” Ullman points out, adding: “We need every percentage we can scramble.” Part of the problem for product tankers is that they became a solid bet for many, and now too many have been ordered. “Everybody builds on relatively well-founded expectations,” Ullman says, “but when everybody does it the expectations go away.” As for chemical tankers, this, he says, is a “very interesting” market, hence the company’s IMO2 investments. In the coming months
“In the near future we expect to see all industries having industry dedicated social networks” — Eirik Fosse, ceo, Shippingcluster
Issue THREE 2014
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Influx is a given, but demand is not
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Concordia will take delivery of a pair of self-designed chemical tankers from Guangzhou Shipyard International. A big part of that investment is towards the vegetable and palm oil business in Southeast Asia. Currently Concordia has 10 product carriers trading plus one suezmax which is in a pool with Sonangol. Ullman says there are no plans to order any more ships at present. In amongst the product and chemical tankers, the suezmax stands out as the “joker”, Ullman says, while noting that it is appreciating in value and earnings. In terms of how the ships are deployed, that has changed a fair bit of late. A few years ago Concordia had everything on time charter at good rates signed in 2005 to 2008, which carried the firm profitably over the slump years through to 2013. Now all ships are on the spot market as the time charter market is not good enough, Ullman says, while adding: “We believe in gradually improving markets.” Ullman is Stena through and through. He was recruited in 1983 to Stena Bulk as chartering manager and through the years he has had a number of positions in the company. He was one of the driving forces behind the formation of the strategic marine alliance with
Texaco (StenTex) in the mid-1990s and was also the ceo of this company between 2000 and 2005. During this period, he also managed the formation of the Stena Sonangol Suezmax Pool. He has also served as managing director of another product player, Stena Weco, and has also headed up Stena LNG. ●
Spot on
Concordia Maritime An international tanker company focusing on refined petroleum products and vegetable oils. Can trace history back to 1888. Bought by the Stena Group in 1966.
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WINE
I
make no apology for saying this: I adore the wines of Germany. They are such a fundamental part of my vinous world that what really amazes me is that they are not more popular with the drinking public. There are several reasons for this. First, lingering confusion over the (Austrian) ethylene glycol scandal of the 1980s. Second, memories of Black Tower, Blue Nun and Goldener Oktober: vapid, overcropped, underpowered wines that were served at the wrong temperature with many a Sunday lunch during the 1970s. Third, its producers have until recently shown a stubborn refusal to make concessions towards making the wines easier to understand or buy. Nonetheless, it is my contention that everyone should drink more German wine. And since the industry is converging on Hamburg for SMM, you will have plenty of opportunity. At their best, German wines combine freshness and precision with great depth and long ageing potential, employing as they do among the noblest of grapes; Riesling. To appreciate German wine, you must first overcome your fear of sweetness. Sweetness is a good thing
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when accompanied by balancing acidity. The two complement each other perfectly and the fact that Riesling can make wines that run from dry to properly sweet is a demonstration of its versatility. In fact, the driest Rieslings are rarely that – not by Sauvignon Blanc standards – but they have a steely edge and with age can develop a distinctive petrol-like aroma that is strangely compelling. The sweetest are superbly lush: rich and unctuous yet still refreshing. In between, the off-dry wines cry out for fine food and lingering enjoyment. Another factor in these wines’ favour is their low alcohol – at least by modern standards, starting at 7.5% and often around 9% making them very easy to drink. Though you’d never know it from the flatlands around Hamburg, Germany is also home to some of the most auspicious and beautiful winemaking country in Europe. You will need to do a little travelling to find them, but for beginners it is probably easiest to start with the light, mineral Rieslings from the Mosel Valley (pictured) or the slightly firmer examples from its tributaries, the Saar and Ruwer. Fuller styles are found in
Two to try The Maritime CEO editor and his family swear by the Blauer Spatburgunder Rose Extra-Troken produced by Ursula Schäfer at Bad Kreuznach-based Emrich-Montigny. It’s a very acceptable €9 a bottle - or €12 for a litre. Perfect if you are launching a new real-time, engine bearing, remote monitoring system. JJ Prüm’s 2009 Wehlener Sonnenuhr, Riesling Auslese from the Mosel is rather more aristocratic. Berry Bros & Rudd buyer David Berry Green pondered whether this was “the ultimate expression of this blueblooded, blue slated jewel of a vineyard”. A six-bottle case is $240 and you’ll need to give this five years at least until it hits its stride. ●
Jenny Chambers
Neville Smith confesses his love for German wines
@
Über alles?
the sunny Rheingau and the less well-known Nahe region is a cross between here and Mosel. Further south, the Pfalz is warmer and its wines richer with a greater degree of sweetness, though there has been a move here towards making more dry and medium dry styles. Without serious study, the appellation system is a little baroque but the wines of the well-known producers such as JJ Prüm, Fritz Haag, Donnhoff, Keller and Carl von Schubert, while not cheap, are all safe bets. There are plenty of German reds too, though the oak is often hefty and the fruit rather dry, as well as sparkling wines known as Sekt for when you feel like bubbles. If all this seems too much then don’t be afraid to try a good Riesling from a New World location such as Australia’s Clare Valley where the additional ripeness takes the wine in different but still exciting directions. ●
maritime ceo
gadgets
The large pixel collider
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his is not the most conventional of gadgets, in that it can’t be bought from a single vendor — it’s basically a plan for the ultimate gaming computer, as constructed by the folks at PC Gamer. They came up with the ridiculously powerful and eye-wateringly expensive Large Pixel Collider (LPC), a 6-core Intel Core i7-4960X running at 3.6GHz, 64 Gig of DDR3 RAM, a 480GB SSD disk, 4 Nvidia GTX Titan Graphics cards powered by a 1,200 watt power unit and cooled back to usable temperatures by a water-cooling system. The results are impressive, with most games working smooth as silk at maximum graphics settings on a 1440p (2560 x 1440) display with support for running three such monitors for a resolution of 7680x1440 (across the 3 monitors). The maximum resolution for a single display is up to 4K (4096x2160). As they put it together six months ago, there’s probably some better stuff out by now, but it’s a pretty good guide for pricing. $10,005 lpc.pcgamer.com
Channel your inner super villain
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nce you’ve assembled your super computer, it would seem churlish not to have a pretty nifty workstation space to use it. Enter the Emperor Lx, a top of the range Steel & ABS chair. “Just a chair?” I hear you cry. It’s just a chair in the same way the Bugatti Veyron is just a car. It looks like something out of a Bond movie and has room for three 24” 1920 x 1080 monitors, that fold over the top on a scorpion-tail arrangement, an integrated Bose Companion 5.1 audio system, LED lighting, climate control, and an ionic air filtering system. The chair is actually a car seat, the Recaro Style XL, and features lumbar support and just about everything is independently adjustable and it reclines to 25°. Practically the only thing it lacks is the white Persian cat and the secret volcano lair. $21,500 www.mwelab.com
It’s a Peel, but is it a lemon?
I
f building an absurdly over-specified gaming computer isn’t your speed, perhaps something rather less specified might a-Peel. Why not give the world’s smallest car a go? The Peel 50 was originally built in 1962-65 by Peel Engineering in the Isle of Man in the UK, and holds the record of being the world’s smallest production car. It has been resurrected by a UK firm recently and comes in both electric and petrol versions and is street-legal in the UK and the US — you’ll have to check for other countries, but they can custom build it to regulations. It has room for one person and a shopping bag. If you want a passenger, then the Peel Trident is for you. Sportier-looking than the Peel 50, the Trident features a bubble canopy making it look like “something out of the Jetsons” as Top Gear’s James May put it. Top speed for both is 45 kmh for petrol and 50 kmh for electric, with a range of 24 km for the electric and 50 km per litre for the petrol. As both are three-wheelers, 50 kmh feels more than dangerous enough for all but the hardened thrillseeker. $16,000 to $25,000 www.peelengineering.com
Issue THREE 2014
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REGULAR Books
Asia’s energy quest Paul French digs through a number of oilrelated titles
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ust what will Asia’s energy needs be in the future? It’s a big question but one it behoves us all in international shipping to try and work out, especially when you consider that, according to America’s Energy Information Administration (EIA), about half of the world’s oil production moves on maritime routes. The EIA recently raised its 2014 and 2015 average price estimates for crude oil, gasoline and natural gas by a few dollars a barrel and thermal unit. Perhaps some analysts have the answers? In Future Oil Demands of China, India, and Japan: Policy Scenarios and Implications (Lexington Books, 2014), George Eberling argues that the future oil demands of China, India and Japan will result in intense competition for scarce energy resources. Eberling argues that China’s rising dependence on imported oil will mean the PRC will try to become the dominant actor in world energy affairs in the near future. Already China is sourcing more oil from the Near and Middle East and SubSaharan Africa. This global quest
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for the black gold will only increase as China’s dependency on imports sharpens. Muhammad Olimat, a professor at Khalifa University in the United Arab Emirates, goes somewhat further and argues in his book, China and the Middle East: from Silk Road to Arab Spring (Routledge, 2013), that oil is the central driver in all relations between the Arab world and China. He argues that, “the core of Sino-Saudi relations is oil, while Iran and China are tied with deep historical, civilizational, cultural and political relations, but China’s current interests in Iran centre on oil.” Olimat contends that if China is taking an interest in anything else in the region, notably the Arab Spring movements, then it is primarily in terms of how it will affect China’s oil trading relations with those nations as Beijing seeks to up exports from the Middle East. Ben Simpfendorfer, a former investment bank analyst in Hong Kong and now a partner in the consultancy, Silk Road Associates,
The region’s urbanisation, the rise of the middle class and local resource scarcity will drive oil demand
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neatly put the case for China’s growing relationship with the Arab world – both political, financial and oil trading – in his widely influential first book The New Silk Road in 2011 (Palgrave Macmillan). Since then China’s reliance on Middle East oil has only grown and affected everything from world barrel prices, as China has become a major buyer in a market previously largely selling to Europe and America, to anti-piracy activities in the Malacca Straits. Simpfendorfer continues his analysis of the growing inter-linkage of the East, Middle and Far, in his new book The Rise of the New East: Business Strategies for Success in a World of Increasing Complexity (Palgrave Macmillan, 2014). It’s not just about China anymore, but also about the growing consumer power of other Asian nations, particularly Indonesia, and how that will drive oil demand from Southeast Asia too. Across the region the three key themes of urbanisation, the rise of the middle class and local resource scarcity will drive oil demand and import shipments over the next two decades. Finally, Sam Tranum’s Powerless: India’s Energy Shortage and Its Impact (Sage Publications, 2014) reminds us starkly that India will have to compete increasingly with China for oil if its growth trajectory is to continue. Tranum, a journalist based for some years in Kolkota, argues that India (even compared to China) is starved of most of the resources it needs to grow its energy base to support industrial development – oil, as well as coal, gas and uranium. Tranum estimates the energy supply-demand gaps are 75% for oil, 49% for natural gas, 56% for uranium, 35% for electricity and 15% for coal with only minimal domestic reserves of most power-related commodities. Just as in China importing energy, be it coal, oil or gas, will continue and grow, argues Tranum. Quite simply, he says, “current renewable technologies and resources cannot bridge India’s supply-demand gaps.” For the foreseeable future it seems oil will continue to voyage east from the Arab world in greater and greater quantities. ● maritime ceo
Travel
Hopping around Hamburg Etyan Uliel walks through this most maritime of cities
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visit to Germany’s second largest city must begin at the old harbour area on the Elbe River, the city’s heart since the 12th century, and a perfect area to discover on foot. Start at St Michaelis Church, where you can climb the tower for a fabulous birds-eye view of the city. Then stroll to the Landungsbrücken (landing bridges), from where a boat cruise will give you a real sense of what Hamburg is all about – ships, docks, and the sea (about an hour; English tours available, so ask). Walk along the waterfront on the Elbpromenade, dotted with souvenir stores, boutiques, and restaurants. Make sure you try Hamburg’s very own Fischbrötchen (fish sandwich), available from snack bars along the way. The permanently moored Cap San Diego cargo ship, now a museum, is worth a look. And if you happen to be in the neighbourhood early on a Sunday morning (4.30am - 9.30am) don’t miss the Fischmarkt - a truly fabulous openair market, since 1703. Continue your walk to the HafenCity, Hamburg’s redeveloped maritime quarter, nowadays a glittering showcase of warehouse conversions, cutting-edge architecture (like the Hamburg Cruise Centre, built out of 40 sea containers), theatres and
museums (the International Maritime Museum is the best of the bunch). Stealing the show here is Miniature Wonderland, the world’s largest model railway with over 12,000 m of track, 890 model trains, and 200,000 human figurines. Done with the sea? Head north into Hamburg’s Altstadt (Old Town), to the imposing sandstone Rathaus (city hall), and the lovely open public square that surrounds it. From here you can simply wander aimlessly, through narrow streets lined with grand buildings, which speak to Hamburg’s wealth as a trading city. If you’re feeling peckish, now would be the time for Franzbrötchen, a pastry that looks a bit like a croissant, with a cinnamon and sugar filling – seriously addictive, and unique to Hamburg. Here you will also find the city’s best shopping – whether in one of the plush indoor shopping arcades, or on the main shopping drag of the Jungfernstieg. But you can’t escape the water for long in Hamburg. Stretching into the city’s north are the Alsters - two large, artificial inland lakes, surrounded by luscious green parks and crisscrossed by walking trails, so you can stroll here for hours, read a book under a tree, or even sunbathe on the grass (in
winter, when the lakes freeze over, you can sometimes ice skate). For a really special experience though, hop on a preserved steamboat for a romantic putter across the waters. By law all lake-facing buildings in Hamburg must be painted white and their roofs covered with copper, so the views are beautiful, especially as the sun sets. Saking your thirst as the sun goes down, head to one of the city’s breweries; Ratsherrn is our top pick for a decent beer, located on Lager Street appropriately. Then, once darkness falls, head to the Reeperbahn, Hamburg’s notorious and slightly seedy red-light district, in the city’s west. People either love it or hate it here, but these days it’s as much a tourist attraction as anything else, with restaurants, theatres, musicals, live shows and good-old people watching on offer (for those not so interested in the world’s oldest profession). So there you have it – Hamburg in a day (or two or three). Oh, and by the way, in case you’re wondering: yes, the hamburger can indeed trace its origins to this city. Apparently migrants from Hamburg to North America brought with them their beloved Frikadelle, a ground-beef patty mixed with onion, spices and egg, pan-fried. The rest, as they say, is history. ●
Your Hamburg Itinerary Activity
Time needed
Opening hours
Cost
St. Michaelis Church
45 minutes
Summer 9am – 8pm Winter 10am – 6pm
Church : free Tower: €5 Crypt: €5
Harbour Cruise
1 hour
Hourly departures
Around €20, depending on tour
Elbpromenade
1 hour
Always open
Free
Cap San Diego
45 minutes
10am – 6pm
€7
HafenCity & The Maritime Museum 1-2 hours
Museum: Tues – Sun, 10am – 6pm, shut Mon
€12
Miniature Wonderland
1-2 hours
9.30am – 6pm; open late on holidays
€12
Altstadt & shopping
2 -3 hours
10am – 6pm
Skies the limit
Alster Steamboat
1-2 hours
Hourly departures
€11 - €20
Reeperbahn
Make a night of it
After dark
Free to look!
Issue three 2014
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REGULAR GOLF
‘Like a wild horse waiting to be tamed’ We are always seeking readers to outline the best golf hole they’ve ever played at. This issue, Mohit Batra, from Survival Craft International, takes us to Malaysia
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eing a golf enthusiast, I was excited at the opportunity to put forth my thoughts on which is the best hole I have played. However, when I started to ponder, it would be only fair to say that I thought of each and every golf course I have played and each of them had something unique to offer such as scenic views, well-manicured greens, treacherous roughs, long open fairways and abundant obstacles – sand bunkers and water hazards. The question that kept crossing my mind while I was deliberating about all this was – what would be the criteria for me to choose the best hole? Would it be the most architecturally
beautiful or the most challenging with the worst obstacles, or would it be a hole that I simply enjoyed due to the simplicity in its layout? Considering that I live and play in Asia mostly, I’d probably choose an Asian course and one where I have repeatedly failed to play well. It has to be The Mines in Kuala Lumpur, Malaysia. Everything about the Mines Resort & Golf Club is fascinating – right from learning that it was built upon the world’s largest open cast tin mine, transformed from a barren wasteland to a beautiful terrain brimming with a plethora of flora and fauna making it a masterpiece of environmental restoration. It is a course with wide accommodating fairways but requires accurate approach shots to well-contoured greens. Grassy roll-offs, hollows, and tight chipping areas encourage short game artistry. I remember the first time I played there in 2010; I was still in the infancy phase as a golfer having just obtained my handicap and eager to explore new courses. The Mines particularly sticks out in my memory as each hole is laid out through jungle bounded terrain, with occasional water hazards and impressive
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bunkering, which can be especially deep and protective around the excellent greens and I’m not exaggerating when I say that I must have lost at least 12 balls and my scorecard was a shameful disaster. Every time I have played the course since, it has taunted and teased me, reminding me of that fateful first visit. Although, my game has improved since, I am still daunted by the layout and hazards of this course, wishing that somehow my next game would be better. Natural elevation changes are used to create some of the most memorable holes but the show-stealer for me would have to be hole 6 – a downhill short par 4, with a knee-trembling tee-shot against a panoramic backdrop and a deep swale awaiting anything you hit left. This hole 6 at the Mines will always be special to me for in my mind it’s like a wild horse waiting to be tamed, a matured wine waiting to be uncorked and like a fine lady waiting to be wooed. I always look forward to a challenge and few of the unforgiving holes (including hole 6) at the Mines offer great resistance and I am always looking forward to an opportunity to play there and conquer. ●
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Each hole is laid out through jungle bounded terrain
maritime ceo
Yachting REGULAR
Turquoise heaven
We’re constantly asking shipping personalities to describe memorable destinations by sea. This time, Harry Vafias from StealthGas, takes us across Greece
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hen cruising in Greece a vast number of opportunities arise. Going west to the Ionian sea, or northeast towards the Sporades or Chios or even in the middle of the Aegean where the most beautiful and small islands are located, at least according to my taste. Now if I had to choose just one itinerary I would go towards the central Aegean and I would recommend the following route. Leave Athens for Kythnos, and go swimming in the beautiful double sided beach of Kolones. Then head for Antiparos which is next to Paros, an island accessible by both fast ferry and plane. In Antiparos there’s plenty to do like going for a swim at Soros beach where there’s great bars and restaurants serving fresh fish with great music. Head into the picturesque small town where small shops can be found as well as great restaurants such as Lolo’s for fresh baked pizzas, or La Lose or Margarita. Moreover, one should not miss visiting the cave which goes 150 m under ground and is full of stalactites. Last but not least end the night with drinks and great music at Bogaloo. After Antiparos head for the island, Schinoussa, which is close
Issue three 2014
by (east of Naxos, another big island with ferry and plane services). On Schinoussa there’s great beaches, very few tourists and great Greek food, especially in Taverna Nicholas by the small port or up in the small village in a restaurant called Deli. Don’t expect popular clubs and loud music! Then I’d suggest heading off to Poliaigos, a small uninhabited island next to Milos with probably the most turquoise waters you’ll ever see. White sand everywhere, no tourists, I don’t think it can get any better! Next stop has to be Milos, but not to where everyone else goes. Avoid going to the port and head to the southwest side to a place called Kleftiko, where you will find an amazing series of caves and bays ideal for swimming and exploration. Many of these caves lead to other bays, so it’s great fun to swim into them or explore with your own tender. Before heading back to Athens you should stop in Spetses island. Here you wont find the turquoise waters and white sand of the central Aegean but you will find a bigger
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island easily accessed by car or fast ferry plus after a few days without real civilization it is good to return somewhere where you can combine the sea with nightlife, bigger restaurants and more tourists. Don’t miss Freud Oriental for great sushi within the beautiful Posidonion Grand Hotel, Ptralis taverna for fresh fish, lobsters and shrimps and drinks at Bikini, the new hot place to socialise. For this whole trip estimate about eight days in total although as Athens hoves into view, you’ll wish you could spend longer. ●
If I had to choose just one itinerary I would go towards the central Aegean
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The Secret REGULAR Security Guy
Watch your tail Every issue we search for someone brave to describe the realities of a sector within shipping. This issue, we welcome back a former army man
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couple of issues back I started to tell you about the realities of the UK maritime security industry, a tale of betrayal, back stabbing, lies, lost friendships, broken marriages and dislocated egos. To read the first installment, click on the QR code below. For this final part, I’ll start from the moment I decided to create my own private maritime security company (PMSC). In retrospect the business was rolling down hill from day one, even though we were doing 60 to 80 transits a month. The mismanagement of the chancing so-and-sos I was employing started straight away. I have it from the horse’s mouth: “You must have been aware that I was planning on starting my own business whilst working for you.” I should have had tighter legals in place at the time, but, what with the business growing out of control, it was one element that just got put to one side. The swines were all nobodies, most were the dregs of society, failures in life who pounced on my stupid
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trusting nature. The question has been asked on more than one occasion, why did you employ them? The answer involves that emotion that you should never mix in business: former army, or close protection mates from my early days cutting around the streets of Najaf and Fallujah, thinking that if you had someone watching your 6 in that environment, then you could trust them with something a bit more complex and with a monetary value. So after I had ridded myself of these idiots I still needed help with the operations, which were still growing on a daily basis. To cut a long story short, we needed to recover the millions owed and pay the thousands that we owed. It took a gargantuan effort to get some clients to pay up, some still haven’t. Luckily, a client with a decent moral code helped and we started to get some semblance of stability and routine back into the mess that my previous staff had left behind. The people I next employed had all the intelligence that comes from the chest-poking brigade, and who, I thought at the time I could trust. You know what I am going to write next, so I won’t bother, other than to add: £220,000, fraudulent mortgage applications and blood being thicker than water unless you add a £ sign to it. Cretins. Next up, I took on a business development manager who actually turned out to be worse than any of the above. There was a calculated attempt to get his greasy, civilian hands on a business he knew nothing about, working with elements from the first lot I had
fired. This business that I sacrificed my family, my health - both physical and mental, my friendships, and my sanity for. I am proud of very little that I have done in my life, but I am glad that if you dig deep enough you will see my paw prints all over some of the processes still being used today. I was the first to meet with flag states to discuss weapons onboard. I helped to develop the armouries in Galle, Suez and Muscat as well as developing the insurance element. I thought up the ship’s questionnaire, as well as onboard training techniques and drills in the event of an attack. There is one thing no one can take away from me, no, not the grey hair, but the knowledge I gained in my years at the top of this game, that being my understanding of human nature; put a suit and tie on a friend, give him a laptop and mobile phone, and a few quid and a plush business card, and he changes from that guy who helped you in a firefight in Baghdad to a self-promoting, greedy, backstabbing bastard. My plan now is to buy out the smaller companies – you now who you are – and ring fence the clients that have remained loyal, and start again for the fourth and hopefully final time. ●
“This is a dirty business, mostly full of grubby self-promoting little nobodies” — The first installment from our secret security guy
maritime ceo
The REGULAR Contrarian
The great PMSC retreat Andrew Craig-Bennett details the hardships now faced by private maritime security companies
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hen I was six, I lived with my parents in Mogadishu. It was a delightful place to be a little boy. One day a man with a big black beard and tattoos came to stay in the spare bedroom. He was a Royal Navy petty officer, landed ashore to the hospital with acute appendicitis, rescued, to convalesce after his operation, by my ex-RN father. His ship was on anti-piracy patrol. Two things we never thought we would see again, some years ago, were wars of religion and private warships. We were wrong on both counts. Wars of religion are doing well, but privateering may soon have had its day. One large British provider of armed security guards for merchant ships has just gone into liquidation. There are very definite rumours that this company may have been the first, but it almost certainly will not be the last of the armed guard providers to go bust. There are quite a number of self-employed people sitting around with guns with money due to them. The number of companies in the business has increased, and the perceived risk has decreased. Shipowners and particularly charterers, faced with lots of competitors, have reacted in the usual way, by haggling the price down, because they no longer expect their ships to be attacked. At the same time, we have what I might term the ‘anti-vaxxers’ – those shipping companies – particularly some of the large containerlines – who are now running ships through with no armed guards onboard, relying on the pirates assuming that they will have guards,
Issue three 2014
because most ships do. The effect has been a reduction in the income of the guard companies, whilst their cost structures have been unable to adjust. I would expect those companies who are operating ships themselves to be the hardest hit, as they have the highest levels of fixed costs. Their ships are often described as ‘escort vessels’ but more often they are actually used as accommodation vessels, for guards and their arms, at each end of the High Risk Zone, thus allowing guards to carry military type weapons, which would not be permitted through customs without military type paperwork, to join and to disembark from ships without going ashore, thus avoiding customs and immigration altogether and saving a fortune in agency costs and hotel bills – provided there are only a few men sitting onboard doing nothing. Those companies that regularly land their men are carrying less fixed costs and are in a somewhat better position to bend with the wind of fortune. The bigger operations often
have other sidelines, like providing personal security for the obscenely rich, both with and without yachts, and they will fall back on those. We may observe in passing that Parkinson’s Law applies. Bureaucracy expands to fill the space available, and is now so perfect that my company was recently grilled at length, taking a couple of hours of our time, because one guard on one ship, flown out in a hurry as a relief, was missing one bit of paper. My favourite story of the whole security thing will remain the account, given to me, deadpan, by a delightful man, of the ‘security services’ variety, about a Russian oligarch who wished to send his not small yacht through the Red Sea, quite early on in the business. He was able, let us not enquire how, to obtain the services of a Russian warship to accompany his gin palace, and, to ensure that the grey ship stayed close by, he instructed the yacht’s stewardesses to sunbathe topless on the upper deck throughout the transit. ●
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MARPOLL REGULAR
You decide Once a quarter we ask readers for their thoughts and comments on pertinent topics. This issue we have teamed up with Singapore’s Masterbulk to produce a special shipmanagement survey. Around 400 of you responded Has third party shipmanagement come of age?
Where are third party shipmanagers failing today?
“ Yes 65% No 35%
The ongoing phenomenon of equity ownership in shipping assets Yes 65% has catapulted third No 35% party shipmanagement from a dark horse to an indispensable asset management element
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How likely are you to select a new third party shipmanager in the next 12 months?
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The good-old adversarial relationship, so prevalent Price certainty 33.33% throughout is also Maintenanceshipping, 35.56% Crewing 42.22% clearCommunication to see in with theowners owner55.56% Regulatory compliance 11.11% shipmanager relationship
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Other 8.89%
Price certainty 33.33% Maintenance 35.56% Crewing 42.22% Communication with owners 55.56% Regulatory compliance 11.11% Other 8.89%
Are third party ship managers prepared for regulatory and legislative changes?
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Third party ship managers are infallible fire fighters – prevention is not their forte
Highly likely 20.45%
Highly likely 20.45%
Likely 27.27%
Likely 27.27%
Unlikely 36.36%
Unlikely 36.36%
Highly unlikely 15.91% Highly unlikely 15.91%
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Yes 71% No 29%
Yes 71% No 29%
Rank these key features you look for most in a third party ship manager – 1 least important, 6 most important
Will the use of third party ship management increase over the next 12 months?
“
As more regulatory compliance issues arrive, such as the Polar Code, the Yes 73%for experts in this field need No 27% will drive new business
Price 3.82
Price 3.82
Service 4.82
Service 4.82
People/Relationship People/Relationship 4.29 4.29 Fleet 2.31 Fleet sizesize 2.31 Reputation 3.603.60 Reputation Office location(s) 2.162.16 Office location(s)
Yes 73%
”
No 27%
52
maritime ceo
Co-Partners
present
13th Annual
23rd & 24th September 2014 St. Regis Singapore
Cocktail Sponsor
Closing Reception
Corporate Sponsors
Media Sponsors
World ils
For Speaker opportunities, please contact Mr. Kevin Oates (koates@marinemoney.com) or visit (www.marinemoney.com)
Five star service across the seven seas Did you know that very few luxury hotels are actually owned by the brand on the door? The vast majority are managed, hotels being but one of many industries to have embraced outsourcing. However, from Shanghai to San Francisco, step into a top branded hotel and you can expect the same five star service wherever you are. It’s the same with Univan. Shipowners can expect their ships to be treated to the very best standards. We select our owners to join our exclusive club based on a shared commitment to quality and safety. Find out more and join our award-winning privilege club today – visit www.univan.com