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peci G al fina erman nce, o port w ners, s an d wi ne
We want to shape the maritime industry
3 At The Prow
Economy 4 US 5 EU 7 China 8 India 9 Brazil
Markets 11 Dry Bulk 13 Tankers 15 Containers 16 Offshore 17 Finance
Executive Debate 18 Where will newbuild prices go?
Profiles 22 Cover Story Wilhelmsen
25 ZIM 27 Triomphe 29 Hoegh Autoliners 30 Okeanis Eco Tankers 33 Premuda 33 Confitarma 37 ICS
Germany 38 Owners 40 Hapag-Lloyd 41 Ports
Recreation 42 Wine 43 Gadgets 44 Books 45 Travel
Opinion 46 Santosh Patil 47 Andrew Craig-Bennett 48 MarPoll
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AT THE PROW
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ISSUE THREE 2018
Internet blackout brings light to the wifi debate
ecently my quaint French Pyrenean town resembled something of an early ’90s zombie flick. Citizens shuffled around, slack jawed, morosely. Occasionally they’d stab their fingers at their smartphone, befuddled, and hold it in front of them like a metal detector, desperately hoping for normal service to resume. One morning all phones, internet and communications ceased to work in the picturesque valley near the Spanish border that I call home these days. Suddenly we were all plunged back into the 20th century with local authorities initially baffled as to what was going on. “The internet in France has gone on strike with everyone else,” one local quipped as I frantically sought some form of communication with the Splash team with minutes ticking down to our daily newsletter. My wife even suggested popping into the post office to send a telegram to colleagues on the other side of the world. For hours in this narrow valley in the far southwest of France we were cut off comms-wise from the rest of the world. Anyway, long story short, after just shy of eight hours the words ‘No Service’ at the top left of the screen of my iPhone were mercifully replaced with ‘Orange 4G’. I was back basking in the 21st century, apps buzzing red with all manner of white noise. Turns out that further up the valley towards Toulouse they’d been installing some new fibre optic wires and there’d been some tech hiccup. Hey
ho, the enforced digital detox gave me a chance to get stuck into a new book I’d been itching to read. Worse things happen at sea. So why the long preamble? It is only when you do not have something that you are accustomed to – that frankly you take as a given right – that you realise its importance. Consultancy Futurenautics published earlier this year a survey of nearly 6,000 active seafarers on crew connectivity. 75% of seafarers said the level of connectivity provided onboard did influence which ship operator they worked for. 92% said it had a strong or very strong influence on who they worked for. While you and I, as landlubbers, presume access to the internet is as natural these days as breathing air, for those at sea it remains a sore point of contention. I joined the Facebook group of a shipmanager recently. Within the group, whenever a sailor inquires of his peers about whether or not such and such a ship is worth working on, invariably the question is tagged with the all-important inquiry about whether or not the vessel has wifi. We seem to forget or ignore the fact that the nationalities who make up the bulk of the manpower serving the merchant fleet today are among the world’s most chatty online with friends and family. Sooner rather than later legislation should come in to ensure that all those at sea have access to the internet. ●
A boom based on preparation for bust? We’ll only get a proper view of the trade war precipice in upcoming quarterly GDP updates
f you travel through America for any length of time (as this economist just has for some weeks through the Pacific Northwest, California, the southern states and the east coast) anti-Trump Americans all want to talk about the same things – job insecurity, healthcare fragility, government-induced cruelty (breaking up immigrant families at the border), rising homelessness, the unfavourable perception of the US overseas. Talk to the pro-Trump lobby and they care little for those matters and invariably point to the economy. It is a conundrum. The US economy did grow by about 4% in the second quarter of 2018, over 2.2% in the first quarter, which is robust by previous second quarters in the last few years. Remember that Trump promised to push growth back up and over 4%, which appears to have happened. Meanwhile, the Bloomberg Consumer Comfort Index showed Americans apparently more confident than at any time since 2001 (the
US long-term manufacturing job decline – 1960-2018 Year
% of US workforce in manufacturing
Source: CNN Money
first year of George W Bush’s tenure). America did add 213,000 new jobs in June alone, mostly in healthcare, construction and manufacturing (though there were net job losses in retail). Wages were up about 2.1% (hence the Bloomberg index above). And many economists, trying to look dispassionately at the economy, are seeing further job creation and wage growth next year. Of course, this may now be derailed somewhat by the president’s launching of a trade war with China. Whatever the rights and wrongs of that fight it will affect jobs everywhere from Maine lobster catchers to Mid-West soybean farmers to Seattle
employees of Boeing. And, it has to be asked (and is not totally clear) is the high performance of the second quarter manufacturers, sourcers, retailers etc ‘stocking up’ in anticipation of the launch of a prolonged trade war? Many, many items, components, and inputs are about to become more expensive due to the trade war and factories and warehouses were simply anticipating this. It should also be remembered that trade wars slow growth in other countries – not just China, but (if the trade wars expand) in the EU, Canada and elsewhere. This doesn’t help America in the long term and will quickly (and is already) leading to higher oil prices and inflationary pressures. Any rapid job losses due to the trade wars will obviously impact both retail sales and mortgages meaning more retail sector job losses and a slowdown or reversal in construction jobs. The potential economic scenarios are legion. However, once again, and as with so many things from Mexican border walls to climate change to North Korea, we are all in largely uncharted territory with President Trump. What the rosy Q2 economic numbers in the US may have been indicative of is that American manufacturing and business are now simply trying to strategise to avoid the worst of the president’s international decisions. ●
American manufacturing and business are now simply trying to strategise to avoid the worst of the president’s international decisions
German cars in Trump’s headlights Europe is already feeling the pinch from the trade war with the US
et’s put the Brexit talks (or lack of talks) to one side this issue – there appears to be little to no progress and the prospect of the UK performing a ‘hard Brexit’ next March is now increasingly likely. The UK government has effectively admitted this through hiring thousands of new customs officers and (rather woefully) preparing for potential food shortages come the new regime in 2019. The EU, however, has other issues to deal with. After his actions against China, President Trump is threatening to escalate his trade war with the EU by raising import tariffs on European cars by 20% – a first step. By itself, this wouldn’t derail the European economy, but second-round effects could lead to serious economic damage. In this scenario (which, given his actions against Beijing and lack of consensus in meeting with Jean-Claude Junker, there is now no reason to assume won’t happen) Germany is the clear immediate EU loser. Germany’s share of total exports of cars and car parts that goes to the US is the highest of all EU countries. Still, even if Americans decided that BMWs and Audis weren’t actually worth a bit more, Germany’s car manufacturing sector still accounts for only 5% of total German GDP. Despite having a strong industrial base, Germany’s economy is largely (71% in total) made up of services. There will be knock-ons for bases of large production for German, French and Italian cars that are exported to the US. Poland, Hungary and Eastern Europe all have west European-owned car factories. Still, it is the second round
ISSUE THREE 2018
Germany’s top export destinations, 2017 Country
Source: German Federal Statistical Of fice
impacts of any US-EU trade war that are most worrying. Less income is normally followed by less spending (the multiplier effect). So a fall in US demand for EU manufactured cars will suppress EU economic growth more than the initial effect. But even if this is taken into account, Dutch bank ING estimates the export damage for the EU will be no more than 0.1% of GDP. Indeed, were the EU to retaliate in kind against US auto manufacturers there could be a net gain as EU motorists shift from US imports to locally produced marques. It is the case that the EU commission has indicated that it could well decide to retaliate if President Trump imposes higher tariffs on cars. So
this could easily lead to an escalation of the tariff war. At the moment we have a so-called trade truce, though this may not hold for the long term. Still, trade wars have affected the EU economy. According to the German Federal Statistical Office, German exports to the US slumped by more than 10% in May compared with the same period last year due to US protectionist measures. This slump was offset by rising Eurozone demand for German manufactured goods. However, this kind of fluctuation, based on minor protectionist measures and White House rhetoric on trade, can create disturbances in trade that are unhelpful, to say the least. ●
“In just four days, SMM takes its visitors on a journey around the entire maritime globe” — Claus Ulrich Selbach, SMM director
In good shape ‘Centrally controlled Beijing has more economic sustenance levers to pull in a trade war than free market America’
he general consensus among economists is that President Trump’s American economy is less robustly prepared for a trade war than China’s. This may or may not be true – there is a tendency to see the Chinese economy as monolithic (when in reality is appears that way largely because it lacks transparency) and America’s as vulnerable. However, it is true that the worst fallouts from a trade war – job losses, mortgages defaulted on, businesses closed – will hit America first. Quite simply – from pump priming struggling businesses to issuing ‘no redundancies’ edicts, centrally controlled Beijing has more economic Chinese crude oil imports, 2017 Importer
% of total Chinese crude oil imports
Source: Crystol Energy
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sustenance levers to pull in a trade war than free market America. However, amid all this talk of trade wars it is important to remember two things about China. First, verifiable macro data for the second quarter reflects that economic fundamentals and corporate earnings in China remain strong. Secondly, domestic demand is still phenomenally strong in China, limiting the impact of a trade war. Let’s look at some China numbers. Industrial profits rose 21.1% year-over-year in May, the most recent data available, compared to 16.7% a year ago. Industrial margins in the first five months of this year are at the highest levels in eight years for the same period. Industrial value-added rose 6% in June (versus 7.6% a year ago) and 6.6% for Q2 (versus 6.9% in Q2 2017). These numbers indicate a very healthy manufacturing sector that will only have a limited impact during any trade war. Now consider the domestic consumption numbers. In the first half of 2018, domestic Chinese consumption accounted for 78.5% of GDP growth (up from 45.2% five years ago. Inflation-adjusted (real) retail sales rose 7.2% during the second quarter, down from 9.7% in the same period
last year, but this is still a very fast pace by anyone’s standards. New apartment sales rose 3.6% (on a sq m basis) during the second quarter, showing that that long awaited China property bubble is still not apparent. This is, quite simply, not a domestic economy that will suffer significantly from a trade war with the US. It is also unclear whether sourcing will drop considerably – the Trump tax rate is only 10% and many US manufacturers and retailers will simply pass this along to US consumers. There is a another statistic that should always be remembered in this trade war; a war the president has decided to enter alone without any support from the EU, Australia, Japan, South Korea, New Zealand, Canada or anyone else. Last year, Chinese exports to the US accounted for only, at best, 19% of total Chinese exports. Combined with other countries it could have been closer to 50% (quite a larger percentage for Beijing to consider). Quite simply, China has diversified and America is not as all-important as it once was to Chinese imports. And in terms of oil it should be noted – not at all important. ●
Is this India’s moment?
The building bricks are well placed for the fastest growing major economy in the world
ather a lot of analysts it seems (and not just in India) think the second half of 2018 could become India’s year. The thinking goes that if New Delhi can maintain economic stability, control money supply and inflation while boosting consumer and business confidence with a continued roll back of bureaucracy then a US-China trade war will provide the impetus to India it needs to kick start serious growth. Yes, India is the fastest growing big economy, the best performing BRIC, but it still isn’t delivering results to the nation the way China’s economic boom did. Manufacturing and services account for a whopping 80% of India’s $2.6trn economy. New orders have India’s passenger car sales, H1 2018 Vehicle type
Sport Utility Vehicle (SUV)
Multi-Utility Vehicle (MUV)
Source: Society of Indian Automobile Manufacturers
been picking up since June – many perhaps part of sourcers’ diversification away from China as the DC-Beijing trade war moved from rhetoric to reality. This is also coming at a time of reasonably good middle class Indian consumer confidence – witness car sales advancing at double digits, nearly 20%, in the first half of the year over the same period in 2017 (though it should be noted that Indian made car exports remain negligible to non-existent). Of course not everything is going India’s way and a prolonged US-China and perhaps US-EU and (not to be flippant but perhaps…) US-everyone else trade war is not in the country’s long-term interest. Inflation is still too high at 4% and will probably go a tad higher in the second half due to persistently high oil prices at present. Still, it seems to be consensus that we’re looking at between 6-7% GDP growth this year and perhaps as high as 7-7.5% in 2019. Exports could be performing better had it not been for the government mandated cash/currency monetisation changes in 2016, the ripples of which are still being felt by
smaller and medium-sized exporters. Additionally last year’s consumption tax (the Goods and Sales Tax - GST) has also hurt some. But, going into the second half (and trade wars in East Asia aside) the rupee is weaker and this will benefit some – notably, it is expected, India’s sizeable software services sector. Mines and mining, minerals in general, as well as heavy industry – which total 40% of industrial output in India – are all stagnant and showing few signs of growth at the moment. The only exception is coal production, which did see a spurt of growth in line with a 3.5% rise in national electricity production. So India is now the world’s sixth largest economy (about on par with France) and fastest growing major economy. This is, of course, generally good news though we should always remember per capita incomes and that India remains an overwhelmingly poor country. Still, this stellar decade-long growth spurt will certainly be championed by the ruling Bhartiya Janata Party (BJP) and Prime Minister Narendra Modi as we head towards 2019 and an election year. ● maritime ceo
Trucking strike adds to nation’s woes The economy is taking a battering on multiple fronts
ou could be forgiven that Brazil’s economic fortunes or misfortunes all come down to politics. Recently the economy has been hit by a 10-day national truck drivers strike. Unable to move parts around in May industrial production fell by a significant (indeed catastrophic) 10.9% or $30bn. Still, the truck driver won and the government in Brasilia, after talking tough for a bit, agreed to a diesel fuel subsidy and a minimum freight price. Still this interruption to manufacturing was enough to ensure that, in the first half of 2018, Brazil was the worst performing of the BRICs (on a par with South Africa’s equally unexciting first half performance). And, if you subscribe to the opinion that it is invariably domestic politics that holds back Brazil’s economic expansion and consistent growth, then it is not going to get easier. There are presidential elections scheduled for this October – with no stand out candidates, none that big business in Brazil appears willing to endorse and none likely to be able to form a majority government, which is essential to pushing through economic and social reforms that are much needed and long, long overdue. Still, there is not much those in shipping can do about Brazilian elections, except watch them. But we do know some things about Brazil’s economy that are certain whoever – leftist, rightist or centrist – is in charge. And that is that Brazil’s economy is highly susceptible to whatever happens in the US. And it is clear that Brazil, and indeed the rest of Latin America (excluding the immigrants he doesn’t like) is not on the
ISSUE THREE 2018
Top five products exported by Brazil, H1 2018 Commodity
Source: Rio de Janeiro Productivity Council
Trump White House’s list of priorities. President Trump has yet to visit a country south of the Rio Grande and did not attend the Summit of the Americas in Peru last spring. This is not an ideal situation for Brazil, although the Trump-China trade war may help boost Brazilian soybean and other agribusiness exports to China in the short to medium term. Persistent low worker productivity, sluggish retail sales, poor trade relations with America, political uncertainty as elections loom, and the truck driver strike are all combining to serious downgrades of 2018 GDP forecasts while inflation has risen back above government targets. The truck driver strike may be
settled, the current freight rate table (FRT) negotiated but shippers are far from happy with the deal, not least as they face large increases in trucking costs under the new FRT, averaging 20%. Shippers argue that it is not just them that will face higher costs but that the new FRT current minimums will increase all Brazilian retail prices by 12% by the end of the year. That obviously won’t do much for export prices nor for boosting domestic consumption. The truck strike is over but it will reverberate in high street pricing, export pricing and the presidential elections well into the second half of the year. ●
“In the last two years, the administrative burden on agents and their principals has continued to increase significantly” — Terry Gidlow, CEO of WaterFront Maritime Services
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MARKETS DRY BULK
A new type of empire China is playing a brilliant long game at home and abroad, which is hugely beneficial to the dry bulk trades, argues Jeffrey Landsberg from Commodore Research
or about 600 years, modern colonial empires around the world enjoyed great success. Common among these empires was the ability to exploit other nations’ resources, maintain huge balances of trade, and have new markets to sell their goods to. While the age of modern colonialism came to what most historians consider its end on December 20, 1999 (when Portugal relinquished Macau back to China), today China is arguably a new type of empire that is reaping many of the same benefits that history’s greatest empires enjoyed in the past. Clearly, China has not subjugated foreign populations and has no colonies. Its influence and power is unmistakable, though, and it continues to dominate global trade, import a staggering amount of commodities, and is carrying out a large amount of infrastructure and construction projects outside of its borders – all while maintaining a huge balance of trade and holding an epic amount of foreign currency reserves. Going forward, Commodore remains of the view that China will continue to source a growing proportion of its commodities from
ISSUE THREE 2018
abroad. At the same time, China is also poised to continue carrying out a very large amount of infrastructure and industrial projects in foreign nations while also maintaining an extremely favourable trade surplus. Importing grain also remains set to serve as a Chinese proxy for importing water. Globally, it is estimated that approximately 70% of all freshwater withdrawals go to agriculture – and as shipping water from nation to nation is not practiced in earnest, the trade of agriculture remains a very effective means of water redistribution. Going forward, Commodore expects that this proxy trade will intensify considerably in upcoming years. China has approximately 18% of the world’s population, but only approximately 7% of the world’s fresh water. History is witnessing a new type of empire, and we do not expect that this empire will relinquish its power any time soon. During the next several years, we expect that China will continue importing a larger amount of commodities while at the same time effectively exporting more pollution and also using the rest of the world as a ‘China-West’ where more of its massive industrial projects can be constructed (and where more Chinese goods can ultimately be sold to). China continues to push forward with its One Belt One Road initiative, and a large amount of industrial projects will continue to be constructed outside China. While there are only so many heavy industry projects that China can build within its own borders, China is set to continue building various industrial projects around the world and the One Belt One Road initiative is in many ways creating a China-West.
The future of China is now not only in the less developed central and western parts of China, it is also in the various nations to the west of China that have long been desperate for investment, jobs, and economic growth. This decade has continued to see China gain much more prominence globally, and the government has continued to artfully create many new construction and industrial projects outside Chinese borders. China has very successfully leveraged its infrastructure and industrial expertise (combined with its robust existing currency reserves and authoritarian wherewithal) to be able to create a gigantic new region for which to spread its massive industrial machine to. At the same time, China has continued to bring back home a growing amount of high quality commodities. Overall, what the world is witnessing from China is awe-inspiring, and remains very beneficial for the dry bulk shipping market. In an age when colonial empires no longer exist, China is carrying out lofty projects well beyond its borders while also bringing in a growing amount of raw materials and maintaining a very large trade surplus. ●
Can this still be real or just some crazy dream? BIMCO’s chief shipping analyst Peter Sand warns there’s plenty more pain to come
hat a horrible tanker market it is. Freight rates are crawling on the floor, while demand growth can barely walk. Owners and investors are fighting overcapacity – again. Will ‘OPEC and friends’ save the day as it increases its production? How low will Iranian oil exports go come November 4 when the US sanctions on the nation’s oil and gas sectors go into effect? The tanker market is constantly changing – but often not as fast as hoped for. While waiting for the market to change, sale and leaseback arrangements are as popular as ever. Executed to raise cash to stem the pressure of constantly negative cashflows from daily operations. This is mostly popular amongst oil product tanker owners, while crude oil tanker owners still eat into the profits made from 2014 to 2016. As demand has been very poor for tankers this year, and I am not only thinking about the missing winter season – I have decided to focus more on the fleet development this time around. For sure the multi-year high of crude oil tanker capacity already
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demolished this year has been in the headlines, but demolition of oil product tankers is up there too, heading for a six- to seven-year high. 29 VLCCs with an average age of 20 years spells out a terrible year in the freight market for crude oil. Oil product tanker demolitions are set to pass the 2017 level during August. Inflow of new oil product tanker capacity in 2018 has totalled 2.65m dwt by early August. This is solidly down from a total of 6.5m dwt for the whole of 2017. Nevertheless, with demand growing even slower – the fundamental market balance between supply and demand worsens. The same can be said about crude oil tankers, and it hurts just as much. Some ask: are there any scrapping candidates left in the market, now that all this demolition has taken place? The reply is quite simple and goes like this: when freight rates continue to tumble – there is still oversupply in the market, which means the fleet is too large. In the previous issue of this magazine I asked: when will oil become a part of the US trade war with China? Though not the first hostage taken from August 23, 0.5m tonnes and 1.6m tonnes of respectively US and Chinese oil product imports face 25% tariffs. At the last minute crude oil was removed from the Chinese tariff list, meaning that 10.5m tonnes of Chinese crude oil imports remain out of the trade war, at least for now. OECD crude throughput is expected to drop from 39.9m barrels per day (bpd) in August to 38.2m bpd in October as the normal maintenance season in September/October takes its toll.
But the direction of the overall tanker market remains a matter of growth only for crude throughput east of Suez, whereas crude throughput in the Atlantic basin is volatile and fell in both Q1 and Q2 of 2018. Will we notice that OPEC and its non-OPEC oil producing friends in June decided to produce a bit more oil? I don’t think so. The world hasn’t really been missing it, as other producers have stepped up production. And the Arabian Gulf is no longer a ‘long-haul no-brainer’ as it may have been earlier, as much of the growth is in the east nowadays. For that reason, China remains highly relevant for the crude oil tanker market. Growing its imports (including land borne) by 5.8% (+12m tonnes) during the first half of 2018 over the same period last year. Pay only little attention to the negative stories about China’s June crude oil imports being at a six-month low. I say it is mostly local seasonality related to maintenance, served with a twist of politics relating to state-owned entities and the private refineries, nicknamed teapots. ●
Market balance has been postponed Hopes that the box sector might find equilibrium by 2020 now look rather optimistic, writes Lars Jensen from SeaIntelligence Consulting
t the beginning of 2018 the industry was set on a path where the carriers might have hoped for a structural balance between global supply and demand by 2020. There was an air of modest optimism in the air driven by the strengthened conditions in 2017 where carriers were returning to profitable territory. However, the past few weeks seem to have at the very least postponed this hope for a balanced market for a variety of reasons. First of all, the carriers correctly point to the fact the fuel prices have increased significantly and this has undermined their profitability and sent them back into red numbers. But it is equally clear that fuel prices are not really to blame for this malaise. In the past, changes in fuel prices were typically fully transferred into the freight rates within three to five months depending on the specific trade lanes. In 2018 we are not yet seeing that transfer happen
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effectively, indicating that the pricing mechanism is broken in terms of fuel cost transfers. Given that 2020 and the low sulphur regulations are literally just around the corner this is of significant concern as the added costs from this are of such a large magnitude that the carriers need to be able to effectively pass these costs on to the shippers. But this requires a strengthened supply/demand balance, and in 2018 data is now pointing in the opposite direction. First half of 2018 had demand growth of 3.8%, which is slower then the expected 5% and at the same time vessel scrappings have been much lower than in 2017. Presently capacity injection in 2018 stands to be at the 5-6% level which will further deteriorate global market balance and postpone a structural balance beyond 2020. Additionally a number of carriers have clearly been pursuing market share growth, which further adds pressure to the industry. This
is of course a perfectly legitimate strategy for any carrier to pursue, but given the significant degree of commoditisation in the main deepsea trades it does come at a cost. Comparing Hapag-Lloyd, Yang Ming and HMM clearly shows the impact. Hapag-Lloyd grew more than 30% in Q2 2018, but the main part of this was the acquired volumes from UASC. Organically the growth volume was 3.9%, and hence in line with market growth. Yang Ming grew volumes three times faster than Hapag-Lloyd, but at the cost of losing $100 per teu shipped, which was four times more loss making than HapagLloyd. For HMM, volume growth was four times higher than HapagLloyd, but that also made the Korean carrier seven times more loss making per teu than Hapag-Lloyd. Giving that the global overcapacity will persist for a few more years and the fact that a number of carriers have clearly expressed a desire to grow significantly, it appears that any hope of a stable and balanced market is also postponed a few years unless the carriers collectively lay-up significant amounts of capacity, switch from super-slow-steaming to ultra-super-slow-steaming or a significant number of the major carriers decide that they already have achieved as much scale advantage as they can and switch fully to strategies more focused on yield management and value add, and less on growing volumes. â—?
This is why jackup rig day rates will double Let the newbuilds come. The jackup market is far from oversupplied, argues David Carter Shinn from Bassoe Offshore
he jackup oversupply theme is so 2016. The offshore rig market has suffered through a four-year depression. And all the while, the new-rigs-will-replace-oldrigs argument has been touted by nearly every rig owner (assuming they have new rigs in their fleet). So far, that argument has proven itself right to some degree. According to Bassoe Analytics, around 90 jackups have left the fleet since 2014, and the number keeps rising. During the first six months of 2018, 31 jackups have gone. On the other hand, if you look at the numbers, there are still a lot of old rigs drilling in various parts of the world. It doesn’t matter. Old rigs are on their way out. It’s almost hard to believe that, of the 285 or so jackups on contract today, 112 are 30 years of age or older. In fact, 46 rigs (not including those we consider non-competitive) built in the ’70s are still around – and 33 of them are drilling. Sure, most of these older rigs have been upgraded to varying degrees of modernity, but they’re old. And, in most cases, they’re less efficient (less variable deck load, less hook load, lower capacities). Although the cost of continued investments on these rigs may still be justified in some cases, any way you put it, 30– and 40-year old rigs are living hand to mouth.
The combination of years of neglected capital expenditure programs for new offshore projects (and subsequent falling offshore production), higher oil prices, lower exploration and development costs, and higher activity on the decommissioning and maintenance side will lead to an increase in the number of offshore rigs on contract over the next few years. We estimate that within five years, around 400 jackups will be on contract. That’s an increase of around 115 rigs compared to today’s level of demand and is right around the highs we saw back in 2014. And most oil companies will continue focusing on better technology, higher efficiency, and less safety risk. That means they’ll want newer rigs. Let’s stop questioning whether or not old rigs will leave the fleet and assume that demand moves toward 400 jackups on contract in five years. There’s a currently a pool of 143 ‘competitive’ jackups in the world built before 1990. Let’s say that just over half of them, or 80 rigs, leave the fleet by 2023. On average, that works out to an attrition number of 13 rigs per year. The annual average for the last five years is around 18 rigs. With the conservative attrition forecast (we think the number will be higher), jackup supply in five years will be virtually the same as it is now. And this accounts for the current newbuild rigs under construction – even with the first few of ARO Drilling’s 20 planned newbuilds which are slated to start incremental deliveries in 2021. The combination of this supply scenario with rising demand will push jackup utilisation up to 85% by
2021 (or earlier). Beyond that, the potential for an undersupply scenario exists. While it may be unlikely to last because newbuilds would be ordered (although probably not on the scale we saw in 2011–13), sustained utilisation at levels near 85% is more than plausible. Or will rig owners be lining up at shipyards in 2023 to upgrade rigs built in 1979? If 85% jackup utilisation seems relatively certain, then a doubling of day rates is too. As this five-year supply and demand situation develops, day rates will rise steadily until 85% utiliation becomes a reality. From there, a spike in day rates will follow. Average benign environment jackup day rates now move within the $45,000-$65,000 range. By 2021, this number should well surpass the $130,000 level – and it would still be at the low end of previous average highs. As supply and demand continue setting up the jackup market for a higher day rate environment, we’ll see more more acquisitions of newbuild (or newer jackups). Until now, Borr has led the way, and owners like Shelf have made efforts toward fleet renewal. But there’s much more to come from other players. ● maritime ceo
Shipping’s greatest loser since Lehman Brothers went under Dagfinn Lunde reflects on the sad demise of the German fleet over the past decade
o shipowning nation in the world has been worse hit in the 10 years since the global financial crisis than Germany. There can be few more classic cases in shipping of overleveraging at the peak of the market than how the German fleet was placed as Lehman Brothers folded. Arguably, the beneficiaries of Germany’s demise have been owners in Norway, Greece and China who have been able to hoover up tonnage on the cheap. Europe’s largest economy has lost one third of its fleet in the past six years alone, down by 1,300 ships from the 3,900 the country controlled in 2012. Just as frightening, think for a
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moment when you know that only 323 newbuilds have been contracted by German owners in the same period, which means that the average age of the German fleet is getting a whole lot older while shrinking. Just a handful of German owners have actually increased in size in the past decade – the likes of HapagLloyd, Oldendorff, Ernst Russ and MPC. Germany’s continued shipowning crisis is now largely due to a lack of available financing. Back in the day the likes of Dresdner Bank, Commerzbank, Deutsche Schiffsbank, SHL and Deutsche Bank et al were all household names in ship finance. These days, scanning the pages of Marine Money for recently done deals, I only note KFW as active, and that is a bank that primarily focuses on newbuilds. This is an enormous setback. Still, I do note the new owners of HSH Nordbank have committed to ship finance, although with small money, as has Nord Deutsche Landesbank, otherwise it sadly seems it’s a dying business in Germany. On the equity side the way that the German authorities have clamped down on KG models is a real shame and has destroyed the local market in an irreversible fashion. Further, due to many KGs losing their ships/ equity, investors now connect shipping negatively with high risk. As I have always stressed, the KG system was and is a good system – it just became overused and overleveraged at the wrong moment. KGs are
There can be few more classic cases in shipping of overleveraging at the peak of the market
a 200-year-old system that worked for generation after generation with partners clubbing together to invest in ships. Its glory days of the previous decade might never be met again. Despite the dreary comments above, make no mistake Germany is still a maritime powerhouse in Europe. Its shipmanagement sector (if one includes Cypriot offshoots) plus its renowned manufacturing expertise remain hard to beat as will no doubt be evidenced at this year’s mammoth SMM shipping exhibition in Hamburg. However, unfortunately the heyday in shipowning and ship finance seem now well behind it. ●
EXECUTIVE IN PROFILE DEBATE
Where will newbuild prices go in the next 18 months? Most analysts reckon shipyards should be able to push through further price increases soon. Chinese shipyard reopenings remain the fly in the ointment however
here will newbuild prices go through to the start of 2020? It’s one of shipping’s perennial $64bn questions. Get it right, and you could be reading the shipping cycle perfectly. Get it wrong and you could be out of business. In our latest survey (see page 48), roughly four-fifths of readers think newbuild prices will continue to rise over the coming 18 months, although by how much is keenly debated.
Newbuilding prices have been on an upward trajectory over the last 12 months, driven by the interplay between a rising orderbook, shipyard consolidation, rising dry bulk freight rates and a hike in construction
costs. Despite the volatile factors in the newbuilding market, most analysts contacted by Maritime CEO believe newbuilding prices in most ship segments will continue to rise over the next year.
The unwillingness to accept loss-making projects is contributing to the rationalisation of shipyard capacity
EXECUTIVE IN PROFILE DEBATE
A useful barometer to keep an eye out for where newbuild prices are at is by checking the Clarksons Newbuilding Price Index, which stood at 129 points as of mid-August, up by four points since the start of the year. The index uses the prices from January 1988 as its base at 100 points and for useful comparison over the last 10 years the index has soared to above 190 points (almost exactly 10 years ago to the day) and hit a low of around 120 points in late 2016. Despite more orders pouring in, margins are still tight for shipyards and price hikes have been hard to pitch – owners holding sway at the moment. “Although we don’t expect to see much further upward pressure exerted by steel plate prices, which have already risen by around three quarters since the start of 2016, a further weakening in the US dollar will give an additional uplift to costs over the course of the next 18 months,” says Dr Adam Kent, managing director of Maritime Strategies International. Kent believes that not only will the pricing floor see further escalation, but a return to persistent contracting, across a raft of sectors, will progressively switch the pricing power firmly back to the shipyards. “The ultimate result will be that newbuilding prices will rise by an average of 10% by the end of next year,” Kent predicts, a point of view shared with 26% of Maritime CEO voters. Ralph Leszczynski, head of research at shipbroking house Banchero Costa, reckons there is still a lot of overcapacity in the shipbuilding sector, which will keep a cap on prices. “I think a lot of the recent bullishness has already been priced in, and I don’t think there is that much upside potential at the moment,” says Leszczynski. Nevertheless, Leszczynski estimates that VLCC prices could rise further from the current $88m to around $92m to $94m over the next
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A lot of the recent bullishness has already been priced in
18 months, but they’re unlikely to get back to the $100m touched in 2014, while the price for capesize bulkers could further increase to around $50m-$52m from the current price of $48m during the same period. Despite the promising outlook in the newbuild bulker and crude tanker market, the newbuild market for product tankers is a very different scenario. The latest product tanker asset values report by Affinity shows that product tanker assets are historically cheap and Affinity estimates that newbuilding prices will hold low and flat throughout 2018. “In real terms, newbuilding prices are at their lowest in at least a generation. In nominal terms, they are at their lowest since 2003. If secondhand values are more discounted than historically normal against these low levels, that has to represent value. There is a high demand for building MRs. This trend has been observed by traditional VLCC shipyards that have shifted into building smaller product tankers,” Affinity says in the report. According to VesselsValue, the enthusiasm for newbuild orders across most shipping segments waned in the second quarter, after a total of $10bn was committed on newbuilds in the first quarter of this year. The total newbuilding order value declined sharply to some $3.5bn in the second quarter. In the meantime, the total committed to new deliveries is now at the lowest since the start of 2016. Court Smith, an analyst at VesselsValue, has noticed that shipyards continue to come under pressure from their creditors not to discount newbuild prices in order to secure business. “The unwillingness to accept loss-making projects is contributing to the rationalisation of shipyard capacity. Fewer yards building ships
means fewer slots available to owners, which in turn supports prices,” Smith says. “All markets are seeing an uptick regardless of the underlying earnings in each, suggesting structural reduction in capacity is pushing prices upwards,” Smith maintains. In Smith’s view, newbuilding prices could increase by 10-15% over the next few years, however any more significant increase would be met with a return of additional construction capacity, which would push prices back downwards. “The headwinds to global trade may give some owners pause in fleet renewal plans, especially in the container and dry bulk markets which would be directly impacted by the higher prices for consumer goods which would result from tariffs. However, most shipping markets appear to be at their trough level or improving, which should encourage more investor interest in newbuilds going forward. The shift in money being committed to the ships is a good reminder that the cyclical nature of the business remains intact,” Smith concludes. The cause for concern is China and recent news that Chinese yards are reopening. Data from VesselsValue in July showed that in 2018 to date, 143 individual Chinese yards have delivered vessels, a marked increase over the 108 Chinese yards who delivered ships throughout the whole of last year. Dr Roar Adland, shipping chair professor at the Norwegian School of Economics, believes that the fact yards are reopening is a sign that the markets are working as they should. He does predict however that the news from China will likely keep a lid on newbuild prices in the long run. China holding the whip hand in shipyard capacity clouds the newbuild price debate for sure. ●
Thomas Wilhelmsen p.22
Mario Mattioli p.35
Aristidis Alafouzos p.30
In profile this issue Maritime CEOâ€™s 17 correspondents around the world have been in touch with many of the worldâ€™s top shipowners. Highlights are carried over the next 17 pages
Ivar Myklebust p.29
Gaudenzio Gregori p.33
Eli Glickman p.25
Craig Thompson p.27
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Esben Poulsson p.37
‘Our aim is to shape the maritime industry’ Thomas Wilhemsen doesn’t just talk the talk when it comes to digitalisation
The harsh taxation environment makes Scandinavian owners test and try out new technology
ny shipping CEO today needs to be able to talk a good game when it comes to digitalisation. Few, however, walk the walk so committedly as Thomas Wilhemsen. In charge of one of Norway’s largest maritime firms, Wilh. Wilhelmsen Holding, since 2010, the 44-year-old is today firmly placing his company ahead of the tech changes sweeping the industry, happy to lead from the front. It is his fervent belief that it’s best to be a leader, not a follower, when it comes to tech adoption, going so far as to tell a conference organised by DNB bank in January this year that conservative owners will inevitably go out of business.
We need to be curious enough to try new ways of working
“We need to be in the forefront and setting the pace,” Wilhelmsen tells Maritime CEO in an exclusive interview for this issue’s cover story. “Our aim is to shape the maritime industry.” As well as its car carrying fleet, the Wilhelmsen brand is involved in port agency, shipmanagement, insurance and much more. Across the multiple companies and its 21,100 employees what the group CEO has tried to instill is an ambition to try out new things. “If we are able to live up to our vision to shape the industry we need to be agile enough, curious enough to try new ways of working,”
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Wilhelmsen says, stressing: “We are not a tech company. We are not heavily vested towards R&D. We do not have the competence to create the technologies as such but we want to get the mindset for our peole to try new technologies.” While not being a tech company per se, this has not stopped Wilhelmsen from buying into tech firms and ploughing ahead with revolutionary maritime pilot projects. Witness, for instance, its tie-up with mighty Airbus to develop drones for delivering parts and essentials to ships. The company believes delivery by drone has the potential to lower shore-to-ship delivery costs by up to 90%, as well as removing the safety risks inherent with delivery via launch boat. Others might follow Wilhelmsen’s lead in drones as well as other developments, but according to the group CEO clients appreciate how forward thinking the Norwegian company is. “Being the first to do it is good,” Wilhelmsen says. “Others might copy it, they are welcome to do so, but that puts us in different situation with our customers who see us as proactive.” Wilhemsen has been trialling smart ropes with sensors as well as many other novel initiatives such as 3D printing in port. Arguably the most exciting development announced so far is Massterly, an autonomous shipping joint venture with fellow Norwegian group Kongsberg. Announced this April, Massterly will offer a complete value chain for autonomous ships
from design and development, to control systems, logistics services and vessel operations. Kongsberg, along with fertilizer company Yara International, has recently tapped shipbuilder Vard to build the world’s first first fully-electric autonomous container vessel. The revolutionary 120 teu ship is due for delivery next year. Norway has rightly earned a reputation as a world leader when it comes to maritime innovation in recent years, something Wilhelmsen reckons will continue far into the future. “The harsh taxation environment makes Scandinavian owners test and try out new technology,” he says. Concluding, Wilhelmsen has some useful advice to his peers in shipping whom, he reckons, should take a look at how the finance sector has changed in recent years. “Look at banking,” says, “ and just how efficient they have become for their customers. It will be the same for shipping.” ●
Wilhelmsen One of Norway’s largest maritime conglomerates with interests in shipowning, management, agency, insurance and more.
Glickman makes his mark in first year at the helm In a big change for ZIM it has joined forces with Maersk and MSC from Asia to the US East Coast
t’s been just 13 months since Eli Glickman, 56, replaced long serving Rafi Danieli as CEO and president at the world’s 10th largest containerline, ZIM. In his first year Glickman has stamped his authority on the line and pushed in new directions that were previously unimaginable, most notably the announcement in July of a strategic partnership with 2M partners Maersk and MSC for shipments from Asia to the US East Coast. The Israeli boxline had thus far avoided container alliances. The new strategic cooperation, which starts in September and is set to run for an initial four years, will see the removal of two strings on the tradelane, equivalent to a 5.2% reduction in total Asia – US East Coast weekly nominal capacity from 161,700 teu as at July 2018 to 153,300 teu in September, according to Alphaliner data. Glickman is a very hands-on CEO, keen to meet customers and employees from around the world and to position ZIM as a carrier that cares. Speaking from Chicago where Glickman has been meeting clients, Glickman explains the rationale for
ZIM Israeli containerline, ranking 10th largest in the world, with 417,000 slots.
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the line signing up with 2M. “Maersk and MSC came to this strategic partnership because they saw the value we could add,” he says. The ZIM strategy over the last few years, Glickman says, has been to position itself as a “global niche carrier”. With 417,000 slots equivalent to a 1.9% market share, ZIM is never going to go head to head with the biggest names in the industry over volumes, rather choosing the areas where it believes it can perform well. “We compete globally in markets where we feel we can compete with the bigger carriers,” Glickman says. It’s very strong on Asia-US East Coast with an 8% market share. “We are not small in this trade, we compete very hard here,” Glickman says. Likewise it is strong on intra-Asia, and Asia to the Pacific Northwest and Asia to the Mediterranean. However, Glickman knows where to pick his battles. “We cannot compete with the big companies on Asia to North Europe where they use 21,000 and 22,000 teu ships, so we withdrew from there,” Glickman says. Another important aspect of Glickman’s first year in charge has
been his pursuit to make ZIM a digital leader among containerlines. Glickman, who headed up utility Israel Electric before being appointed ZIM boss, recounts how on taking the new job last year he found shipping to be 20 or 30 years behind other industries in terms of digitalisation. “Israel is considered to be a start-up nation so we are going to use this be a start-up of the container shipping industry,” Glickman says. A chief digital officer was appointed in January and a number of big projects, including blockchain, have got underway this year. “For sure we are going to be the leader in the digital generation in this market. We are not just speaking, we are doing,” Glickman stresses. While this tech push is a priority, Glickman is adamant that digital does not mean ZIM loses its face-toface relationships with clients. “Digital does not mean losing the personal touch, that is actually our strength,” he says. On the markets, Glickman believes the maths simply do not add up for container shipping at the moment and something has got to give soon. “The market is looking for a new equilibrium point,” Glickman says. “Freight rates are not strong, especially when compared to the current high bunker and charter rates. Something is not working. I am sure we will see changes in the near future. We cannot live like this forever.” With that, the ZIM boss has to go – there’s more clients to meet in Chicago before heading to meet other customers in New York. ●
Triomphe Shipping Lines makes debut in Singapore An Australian – French joint venture has its eyes on the grain trades
rench agricultural group Invivo Grains and Global Equity Group have partnered to form Triomphe Shipping Lines in Singapore. According to its website, Triomphe’s plans to provide an all-inclusive vessel operating and freight management service for both dedicated in-house tonnage and third party business. Triomphe is being headed by chairman Craig Thompson, the owner of Global Equity Group, which also owns Australian maritime services giant Seacorp. Thompson also owns Thompson Shipping Lines, which acquired the 2012-built handysize bulker TSL Rosemary (formerly Azure Bulker) earlier this year from Taiwan’s Sincere Navigation. Thompson says that Triomphe started operations on July 1 and has already fixed four ships, handymax Angy R being the first. Thompson tells Maritime CEO that the company will be focused on Black Sea to Far East trades as well as Brazil/Gulf of Mexico to the Far East.
Triomphe Shipping Lines New dry bulk entity based in Singapore. A joint venture between French agricultural group Invivo Grains and Global Equity Group from Australia.
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Given the various challenges facing the world’s economy I am temporising on additional purchases
On the future development of Triomphe, Thompson says both longterm charters and vessel ownership are a possibility. However, it’s unlikely there will be any new fleet additions just now. “Given the various challenges facing the world’s economy I am temporising on additional purchases,” Thompson says. While Thompson reckons the dry bulk market is finally stable, he is worried that it would not take too much for it to take a swift turn for the worse. Thompson says tax concessions were the biggest reason to choose the Southeast Asian city-state for the new company’s base, something he says his native Australia should contemplate. “The government should be offering tax holidays plus guaranteeing that Australian flagged vessels are not obligated to employ
Australian crews if they are not operating on the Australian coast,” Thompson says, adding: “This is vital as we must be able to compete on the international stage which is clearly biased towards third world country crewing costs.” ●
“Maersk has been regularly cited as somewhat of a vanguard in terms of a shipowner that has embraced the power of PR and communications to support brand building” — Alisdair Pettigrew, co-founder of BLUE Communications
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Cap under lock and key The head of Höegh Autoliners has an alternative take on how to ensure a successful introduction of the global sulphur cap – go after the refineries
var Myklebust has a refreshingly different take on the topic du jour in shipping – the impending global sulphur cap on marine fuel. Writing on the Höegh Autoliners website recently the CEO of the car carrier firm argued that more should be done to coerce refiners to be ready for the January 1, 2020 implementation of the cap. “Why only control the consumers, i.e. the vessel operators, why not focus on the source - the refineries?” Myklebust wrote, suggesting that it would be far easier to control the refineries to ensure they do not sell non-compliant fuel to vessels without scrubbers, compared to following some 60,000 vessels around the globe. Myklebust points out that if a government decides to ban a potentially dangerous product, the first step tends to be to take it off the shelves and ensure distributers do not offer it to consumers. With this frame of mind Myklebust believes scrubbers are just a temporary solution. “Rather than helping the transition to low sulphur fuels as the new
Höegh Autoliners Oslo-headquartered with around 50 vessels, including 27 car carriers in its fleet.
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standards, it might just delay the positive effect of the new standards,” he argues. Myklebust has been at the helm of Oslo-headquartered Höegh Autoliners since November 2017. Prior to this posting he was CFO of the company. After a long downturn, Myklebust is confident the car carrier sector is finally turning a corner. “The car carrier market is nearing a more balanced supply and demand situation, following years of vessel oversupply,” he tells Maritime CEO in an exclusive interview. Myklebust describes the current global orderbook as “modest”, while demand for car shipments is gradually recovering. In addition, Myklebust says demand
Scrubbers might just delay the positive effect of the new standards
for shipments of other cargo, such as high and heavy and breakbulk, is also strengthening on the back of improving commodity prices. Of course, the escalating threat of a serious trade war plays on the mind of the Höegh Autoliners boss. “Any clouds on the horizon are mainly factors outside the industry’s control,” says Myklebust. “Trade barriers can come to have significant effect on cargo volumes transported between countries and thus carriers may need to re-design vessel networks to fit a new reality.” ●
Making money from scrubbers The Alafouzos family reckons the sulphur cap presents a unique opportunity to cash in via new vehicle Okeanis Eco Tankers
t the start of July Okeanis Eco Tankers, owned by the Alafouzos family of Greece, concluded a $100m IPO in Oslo. The planning of this vehicle’s fleet buildup and IPO could well prove perfect. “The timing is exquisite in our view, with 77% of the fleet to be delivered from now until YE’19, just as the cyclical expansion is expected to unfold,” Gersemi Research noted, initiating coverage on the stock with a buy rating on what it described as “the cheapest crude tanker recovery bet”. The company has six modern vessels on the water – three aframaxes and three suezmaxes and nine to be delivered, made up of eight VLCCs and a suezmax. The timing of Okeanis’s creation is no fluke. The Alafouzos family, who originally hail from the island of Santorini, have been in shipping since 1964. Aristeidis Alafouzos, the patriarch of the family, passed away last year. As well as significant media and property holdings, Alafouzos
Okeanis Eco Tankers Oslo-listed new tanker vehicle created by Greece’s Alafouzos family who also control Kyklades Maritime. Fleet is a mix of VLCCs, suezmaxes and aframaxes all fitted with scrubbers.
left behind a shipping empire, with brands such as Glafki Maritime and Kyklades Maritime. Now the Alafouzos businesses are being run by second and third generations of the family. Speaking with Maritime CEO, Aristidis Alafouzos, the grandson of the Kyklades founder and current COO at Okeanis, explains the rationale for the new tanker play. The coming sulphur cap, he says, presented a unique opportunity in shipping history to cash in. “We strongly believe that the disruption expected to be caused by the IMO 2020 sulphur cap regulation will create a historical and somewhat unique opportunity,” he says. His fleet will all be fitted with scrubbers come the start of the new legislation. In addition, Alafouzos believes the cyclical recovery in the tanker market is just around the corner. “Given these market conditions, we wanted to maximise our exposure to the market without taking prohibitive risks,” he explains. Okeanis found the Norwegian marketplace to be an optimal platform for realising the company’s objectives, meeting with a wide range of like-minded investors that were well educated in the maritime space and had a similar outlook on the
market. Alafouzos is bullish about prospects for next year and through to 2020. He is adamant that having a scrubber fleet will be a big advantage. “The ability to burn a much cheaper bunker fuel and much less of it will give a vast competitive advantage over a significant portion of the global tanker fleet,” he reckons. “These attributes give us the ability to choose the best cargoes / charterers, while also outperforming our competitors.” Even now, in what has been a dire year for tankers, Alafouzos, a Cass Business School alumni, can see the dynamics are changing for better rates. He points out how volatility for Q3 suezmax and aframax rates has jumped compared to the two previous quarters, and how newbuild prices have increased significantly this year, as well as secondhand prices. Despite this hopeful outlook, do not expect Okeanis to rush to the market for more and more ships – that is simply not in the DNA of this family and how it has played the shipping markets since the 1960s. “Our ultimate goal in Okeanis is to create maximum value for our shareholders and so growth in itself is not a key strategic target for Okeanis,”
More technology changes will come and we want to be at the forefront of these
“The cost of complying with regulations such as the 2020 global sulphur limit contributes to innovation being on the back burner” — Per Steinar Upsaker, CEO, BASS
maintain this vehicle and play the cycles,” he says. “The size of the company will vary depending on where we are in the cycle. More technology changes will come and we want to be at the forefront of these.” Historically the Alafouzos family have always been strong supporters of the Greek flag. Proud of the family heritage and Greek traditions of seafaring, Alafouzos is keen for the current government to do more to modernise the nation’s state-run cadet academies as well as allowing the creation of accredited private academies. “The demands of crewmembers have changed significantly over the past 30 years with introduction of electronic engines, electronic navigational charts, and increased bureaucracy. The curriculum of the education must match these changes,” says Alafouzos, a man who clearly finds the value in staying ahead of the latest tech changes. ●
The IMO 2020 sulphur cap regulation will create a historical and somewhat unique opportunity
Alafouzos says, elaborating: “With 60 years of presence in the shipping business we understand that this is a highly cyclical industry and will
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therefore as management and major shareholder advocate price sensitivity from a cyclical point of view.” In other words, buy low, sell high. With shipping’s regulatory environment changing in such a huge way in the coming years, combined with new technology, Alafouzos is hoping that other opportunities will come along on the scale of the sulphur cap for his family business to profit from. “The long term plan is to
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Takeover platform Under Pillarstone control Italy’s Premuda is looking to buy up other fleets
ust over a year since KKR Capital’s turnaround fund Pillarstone Italy took control of Italian owner Premuda, the Genoabased shipping firm is back in the market with positive results and very much in buying mood. Pillarstone’s partner Gaudenzio Bonaldo Gregori tells Maritime CEO: “The company is now in good health since the 2017 financial results are solid and in the black, in line with our restructuring plan.” EBITDA has also improved significantly and the company, Gregori says, is now looking at the potential takeover of fleets to be achieved directly or to be somehow integrated. “We think there could be interesting opportunities on the local market in Italy, and also abroad, to replicate the same operation made with Premuda, thus helping a company to complete a financial restructuring and possibly looking at a broader industrial plan in shipping,” Gregori says. Gregori’s comments come as it has emerged Premuda has made a bid for the RBD Armatori fleet. This potential step would perfectly fit with the original plan for Premuda announced two years ago with aims to build up a shipping
Premuda Italian owner founded in 1907. Focused today on handysize bulkers and product tankers. Bought out by Pillarstone last year.
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We think there could be interesting opportunities on the local market in Italy, and also abroad
platform for distressed assets and putting together ships of the same size and type. “Not just a vehicle with different kind of ships” Bonaldo Gregori states, “but a group focused in two specific segments of dry and liquid bulk business. We are very clear in our minds what are the synergies and the size of vessels to be focused on, in order to obtain added value and higher returns.” As of today Premuda is active in the liquid bulk market with MR and LR tankers, while the dry bulk fleet is made up mainly of handysize bulk carriers. In 2017 Pillarstone invested some €50m in the Genoa-based company’s turnover and the timetable for the deal would foresee an exit in five years but the manager pointed out that the company is happy to wait 10 years if necessary for the turnaround cycle to be completed or the maximum value to be reached.
To make Premuda profitable again in just one year’s time was quite an easy task for Pillarstone since the KKR Capital fund bought the company debt-free in March 2017 and help came from the dry bulk market upturn seen in the recent past, but the new shareholder also asked the top management (still headed by Stefano Rosina in the role of CEO) to implement a reorganisation plan. All the commercial and technical management has been taken back to headquarters in Italy and the dry bulk chartering desk in the UK has closed down. As for the business segments covered, Premuda is now focused only in some specific sizes of the dry and liquid bulk shipping; the diversification in the offshore business was closed and the old FPSO in its fleet was sold. The only two ships still managed in the UK are the long-range tankers jointly controlled with Messina group and owned through Four Jolly. ●
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Traditional shipping companies at risk in Italy Private equity is gnawing away at Italy’s traditional shipowning base
he ever-increasing presence of financial investors such as Pillarstone and Bain Capital in the Italian shipping market is putting traditional shipping companies at risk. That’s the view of Mario Mattioli, the recently elected chairman of the Italian shipowners’ association, Confitarma. “We have an important and solid industry active in the shipmanagement business and related services in Italy, and that’s something we want to be saved by those investors, who are taking control of non-performing-loans and assets following debt restructuring with the banks, ” Mattioli tells Maritime CEO. Mattioli’s comments come after the likes of KKR Capital, Deutsche Bank, Goldman Sachs, Attestor Capital and others have invested in distressed shipping firms over the last few years, shrinking the native Italian shipowning base dramatically. Some of them, such as RBD Armatori and Deiulemar, have since gone bankrupt while others were restructured but changed hands. “We would like investors to avoid fleet sales and chartering and managing desks closing down since
Confitarma The leading Italian shipowners’ association, based in Rome, traces its roots back to 1901 and is one of Europe’s most vocal shipping bodies.
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We would like investors to avoid fleet sales
we aim at creating long-standing partnerships between owners and finance with the aim of maintaining skills and competencies in our country. In some years’ time, we hope to see some operators back in the market and maybe some of them could also re-invest in the same companies, taking at least a minority stake in the same group restructured few years before,” Mattioli says. “That’s why maintaining skills and shipping-related services alive in Italy may be a win-win strategy both for financial vehicles and for former shipowners.” Looking at his Greek colleagues, Mattioli recognises that the Greek
industry has always been used to shared shipmanagement arms active in different market segments whereby every owner can rely on a dedicated desk when deciding to buy or sell ships. “This is a model we did not have in Italy up to now, but I think it may be necessary and useful for the future,” he says. Pillarstone Italy and Bain Capital have maintained the same management team in the two companies under their control, Premuda, based in Genoa, and Giuseppe Bottiglieri Shipping Company, based in Naples, and Mattioli says that is something very much appreciated by Confitarma. ●
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Two more years under Esben Poulsson The head of the Singapore Shipping Association has just been reelected as chairman of the International Chamber of Shipping
ou’re either mad or a masochist,” Maritime CEO fires in with our first question to the recently re-elected chairman of the International Chamber of Shipping (ICS). No two-year term at the helm of the global shipowning body has been more momentous than Esben Poulsson’s first tenure in which he has had to front shipping’s positions on CO2, ballast water management and the sulphur cap among a host of other issues, often being the figurehead for attacks by NGOs, especially in the run up to April’s momentous IMO decision to enforce a greenhouse gas emissions target on the sector for the first time. “When it came to the vote, I looked around and saw no one else was willing to put their hand up,” Poulsson jokes on his re-election. The fact is few in the industry could have negotiated the massive regulatory hurdles shipping has faced in the past couple of years better than Poulsson, a Danish national who is also president of the Singapore Shipping Association (SSA). The former Torm man is also chairman of
International Chamber of Shipping The ICS is the largest trade association in shipping, representing all sectors and trades and over 80% of the world merchant fleet.
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Enesel Pte Ltd, a Singapore management subsidiary of Athens-based boxship operator Enesel. While in the past there have been ICS chairmen who have been in place for up to 10 years, the current constitution only allows for two terms so Poulsson will be heading the organisation through to the start of the sulphur cap, something that is now uppermost in his mind. Recent comments from Poulsson on the sulphur cap – which is now less than 18 months’ away – have seen him warn of the potential for an “unholy mess” if technical specifics are not ironed out fast by IMO member states. “We are trying to bring focus from IMO countries that the devil is in the detail and there are technical issues that need resolution,” Poulsson tells Maritime CEO, arguing that world trade could be harmed unless the roadmap to the sulphur cap is made more clear to shipowners. Poulsson says owners need to have worked out what they will do fuel-wise by the start of the second half of next year to ensure a smooth transition come the entrance of the sulphur cap on January 1, 2020. “Owners are very concerned about fuel supply across the world’s ports,” he relays. ICS works via consensus building, Poulsson says. He believes the organisation, made up of national shipowner associations, is particularly democratic in this regard. “The secretariat is very good at reading the mood of the majority and then to articulate that and I then go with that,” Poulsson explains.
The secretariat that Poulsson praises so highly is in transition with the CEO of the UK Chamber of Shipping, Guy Platten, replacing long term ICS secretary general Peter Hinchliffe from August 1. Hinchliffe has been with the chamber since 2001 and has been secretary general since 2010. “The transition will be smooth,” Poulsson reckons. “Both Guy and Peter get on well.” Poulsson feels that Platten will help ICS develop better ways of communication, citing how well the UK Chamber has engaged with the UK government and also the media. Platten will also be charged with helping drive membership at ICS. ●
Shrinking from the global stage The German market share of the world’s merchant fleet has dropped from 8.3% in 2008 to 5.9% today. Will it continue to slide?
ed ink has sunk many blue ribbon names in German shipping in the past couple of years as banks have finally sought to get their balance sheets into order. The huge clear-out and consolidation has seen famous brands such as Rickmers Shipmanagement, Conti Group and Ahrenkiel Steamship all sink without trace. The German fleet has contracted by one third in terms of ships in the
space of the past six years and many experts contacted by Maritime CEO suspect the consolidation period is far from over. Christian Nieswandt, head of shipping at HSH Nordbank, reckons the tonnage clear-out for German owners will continue for a while as there are still numerous companies unable to service their debts in a new, stricter environment where financiers are calling in their debts. “This means that the financing institutions behind the projects have to look for better structures with stronger owners. Change of ownership in many cases goes hand in hand with change of management. Since most new owners are foreign investors, the clear-out of German owners continues,” Nieswandt says. Nieswandt believes within the
Bad memories related to loans to the KG sector in the country remain strong
next five years the number of competitive German shipping companies in terms of ability to attract management contracts and/or to start new projects with their own or third party equity could shrink to just 20 to 30 companies. HSH Nordbank, under new ownership, is finally looking to reinvest into the shipping sector. Ralph Leszczynski, head of research at shipbroking house Banchero Costa, maintains the troubles of the German shipping sector stem from the general collapse of the ship finance sector in the country maritime ceo
over the last decade. “The KG system, which was very prominent 20 years ago, is gone,” he says, adding: “In the past there was an artificially inflated number of ships registered in Germany for purely financial reasons. This is now no longer the case.” Leszczynski also observes that since German shipping was so focused on the containership sector, it has been the victim of market forces beyond its control. The container sector has experienced the most consolidation in shipping in the past few years, and in such a consolidated market, small independent tonnage providers have a smaller role to play. Data from Clarkson Research shows that Germany’s largest market share by sector remains containerships at 19.3%, but this is down
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dramatically from 32.6% in 2008. Despite the depressing ownership figures Banchero Costa’s Leszczynski is adamant that places such as Hamburg have a very deep pool of shipping talent, and will remain shipping hubs. “They will need to reinvent themselves to some extent,” Leszczynski suggests. Fotios Katsoulas, the head of Affinity Research, is also of the opinion that consolidation is here to stay for German shipping companies, with the number of active players expected to further drop in the future. Since 2013, the German fleet capacity has been decreasing by nearly 3% per year, while the global numbers have increased considerably. Germany’s global market share has plummeted accordingly, standing at just 5.9% today, according to Clarkson Research. Nevertheless, Germany is still a very significant ownership cluster, as the fourth largest shipowning nation globally with 78.3m gt. Last year, there were a total of 10 German shipping companies with more than 50 vessels who exited the market. Katsoulas believes there is still plenty of space for further consolidation, especially considering that around 77% of German ships are controlled by companies with less than 10 ships, and German shipping’s exposure to the liner sector. “The number currently stands at 250 active companies, which could quickly drop closer to 50 companies within the next five years,” Katsoulas says. The companies that will manage to survive, Katsoulas believes, will most probably be those that are still
Financing institutions have to look for better structures with stronger owners
able to further expand their capacity by investing in profitable projects, mainly focusing on S&P transactions of distressed assets. Most of the existing German companies have been facing a lot of trouble as they only have limited remaining contracts for their nowadays less attractive, older assets, and limited capital available to invest in new and more competitive vessels. Additionally, Katsoulas reckons the main key to success during the last decade - decreasing operating expenses - has proven more difficult for smaller companies, adding further pressure to them and more reasons to consider selling out to stronger players. As a result, their negotiation power becomes weaker as time passes by and contracts get lost. “Bad memories related to loans to the KG sector in the country remain strong. Limited companies, such as MPC Capital, have been the only winners in the country’s shipping sector,” Katsoulas maintains. “German owners are certainly making up a smaller portion of the global fleet than they have historically as bank and auction sales increased in 2017. Recovering asset prices in most markets seem to have halted the fire sales for now. German owners continue to sell ships, but its back in line with the historic norms,” concludes Court Smith, an analyst at VesselsValue. ●
Flagship carrier takes drastic action With losses mounting Hapag-Lloyd is leaving no stone unturned in its bid to slash costs
s with all liner majors, 2018 has proven a very tricky year for Hapag-Lloyd, however history might show that this year was vital for the German carrier’s evolution into a market leader. At the company’s interims in August the company announced a massive fleet-wide review of its operations to slash costs. Rolf Habben Jansen, CEO of the Hamburg-based line, revealed a net loss of EUR100.9m ($117m) in the first half. “These developments are mainly driven by the ongoing intense competition as well as higher operational costs, partly compensated by synergies coming from the business combination with United Arab Shipping Company Ltd (UASC),” the company said in a release. Habben Jansen said he was taking severe action to stem the losses. “The first half of 2018 was shaped by clearly increasing fuel costs,
We are critically reviewing the economic viability of our ship systems
higher charter rates and a slower than expected recovery of freight rates,” he said, adding: “In response to that, we have implemented additional measures to recover these costs: we are critically reviewing the economic viability of our ship systems and are further optimising our terminal contracts, to gain additional relief on the cost side.” Nevertheless, Habben Jansen felt the worst was over for container shipping this year. “For the remainder of the year, we see a slow but steadily improving market environment, but we recognise that there are still significant geopolitical uncertainties that could
influence the market. This only reinforces the necessity to be able to react quickly when needed – and we therefore will accelerate some of our digitalisation initiatives and finalise our new strategy until the end of this year,” Habben Jansen concluded. Also in August, Hapag-Lloyd debuted a new digital quotation tool, another signpost on the carrier’s path towards a greater tech future. Quick Quotes allows shippers to simplify and speed up their quotation process for container shipments. To get an online quotation for a shipment, clients log in via the Hapag-Lloyd website, choose the start location and end location as well as a commodity and container type. Customers will receive a binding quotation within seconds, and can then make their bookings right away via the Hapag-Lloyd online business platform. “Becoming easier to do business with and digitising our services are very important for us. Quick Quotes enables our customers globally to get a fast quotation at any time, which will contribute to a better and more efficient customer experience,” said Habben Jansen. ●
Hamburg takes 500,000 teu of business away from rival Bremerhaven THE Alliance’s decision to switch its base port for the transatlantic trades massively changes the fortunes of two of the country’s top ports
he port of Hamburg is celebrating a big win over local rival Bremerhaven with news container grouping THE Alliance is switching base ports for its transatlantic network. Hapag-Lloyd, the largest member of THE Alliance, said in a recent customer advisory that the service relocation would provide improved hinterland connections and better access to the Hamburg city region’s strong local market. The planned shift, likely in the
final quarter this year, will deal a “major blow” to Eurogate’s common-user terminal at Bremerhaven, where the four transatlantic loops are currently handled, analysts at Alphaliner stated in a recent weekly report. Alphaliner estimates that the four services combined account for some 500,000 teu of annual cargo handling at Bremerhaven, roughly 9% of the port’s full-year throughput and possibly close to half of Eurogate Bremerhaven’s volume, excluding
NTB and MSC Gate, where Eurogate is also involved. Historically, Bremerhaven has been regarded as the main container gateway to the US from Germany, whereas Hamburg is better known for its Asian links. “Such a large-scale re-location will require major changes to long-established hinterland links with large shippers, including the re-routing of block trains and tightly-timed industrial supply chains,” Alphaliner observed. ●
Local solution to green Hamburg’s port HAMBURG PORT IS taking a further step toward improving air quality. Innovative technology developed in the city is set to enable containerships to switch off their auxiliary diesel supplies during lay time and instead draw the power they need for onboard operations from a new kind of mobile generator. Becker Marine Systems, HapagLloyd and Hamburger Hafen und Logistik (HHLA) have been testing the new technology as part of a joint pilot project since the start of the year.
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The Becker LNG PowerPac supplies power to containerships at the HHLA Container Terminal Burchardkai (CTB). Over recent weeks, a prototype has been successfully tested multiple times with some of Hapag-Lloyd’s giant 20,000 teu containerships. The Becker LNG PowerPac is a compact system the size of two 40-foot containers. The unit comprises a gas-powered generator and an LNG tank, which provides the energy for the generator. As soon as a containership docks, a container
gantry crane lifts the mobile 1.5 MW power generator from the quay into position at the stern of the ship. Once there, it is connected to the ship’s power system and can supply the electricity needed for onboard operations while the ship is docked. Becker is now in conversations with a variety of European and Chinese ports to sell the systems overseas. ●
The Riesling’s coming home SMM is upon us, with an opportunity to drink some great whites and reds, writes Neville Smith
ts early exit from the World Cup notwithstanding, Germany remains a global powerhouse. Angela Merkel’s best years may be behind her and the recent VW emissions scandal might have tainted the brand, but for most of us, Germany is quality. And that goes double for its wine. For years, much of Europe agreed. The Victorians’ enthusiasm for German wines went all the way to the top, perhaps not surprisingly, given the nationality of the Prince Consort. As recently as the 1970s, British people who found French wine too complicated would opt for German. Sadly, confused by the three-day week, capital controls, decades of labour unrest and endless government incompetence, they chose cheaply and badly. Some of us are old enough to still bear the scars.
These have mostly healed and there is still every reason to love German wine. Except of course that these days there is as much good Riesling made in New Zealand, North and South America and elsewhere to make one’s first encounter untypical of the stricter German styles. With a few exceptions, Germany has perhaps wisely resisted the temptation to make Riesling too fashionable, preferring tradition and a purity of vision that commands high prices for low yields made from grapes grown in locations that would challenge a mountain goat. Riesling is one of the noble grapes, able to adapt to conditions, to treatment, to be drunk young and aged too. It’s pretty hard to go wrong with, but you will need a grasp of the appellation system to understand if what you are ordering is bone dry or lusciously sweet.
Two (more) to try
These days, many of us experience Riesling as a thing of crystalline beauty from the New World, dry but still ripe, flinty at the edges but roundly satisfying; like Hewitson Gun Metal Riesling 2017, Eden Valley, South Australia, (£20.70, Berry Bros & Rudd). ●
THERE’S A SENSE of proper aristocracy to Spätburgunder Qba Schloss Schonborn 2013, Rheingau (£14.95, Corney & Barrow), an effect reinforced with a little bottle age which has added muscular depth and complexity to rich ripeness.
Far less well known and understood are Germany’s red wines, though thanks to its continental climate, they ripen well, though travel less easily. Spatburgunder as the name suggests is Pinot Noir, the uber-noble grape – though Germany’s examples are easier to approach than Austria’s and far better priced than Burgundy’s. Fine Burgundy they are not, but that’s no bad thing. These German reds fill a hole that has long existed somewhere between (bear with me) Merlot and Syrah in terms of style and appeal. Acquiring a taste for German wine might well mean taking the road more travelled, via the New World, while leaving your preconceptions at the door; so here are two fresh takes on the classics and two classically-styled reds. For something off the hook, Riesling Carmel Road 2014, Monterey, California (£17.50, Corney & Barrow) does the New World in extremis, incredibly pale but packed with blossom and tropical fruit and with enough acidity to keep the whole thing together. Far more traditional is Toreye Spätburgunder 2015, Eymann, Pfalz (£19.50, Berry Brothers and Rudd); a soft and juicy gem, somewhere between Beaune and Cru Beaujolais with lovely mineral undertow. ● maritime ceo
Phone charged come rain or shine
olar USB chargers are a great idea, but most people want to charge their gear overnight, and solar is definitely not an option for that. The WaterLily Turbine holds the answer — use water or wind. The charger weighs 1.3 kg and is 180 mm in diameter and given a stream flowing from 1-11 km/h or a wind of 11-90 km/h it can produce a maximum of 15 W, enough to charge two devices at 5 V each. If you can’t find the necessary wind or water flow, there’s also an optional extra of a hand crank to ensure you can get a charge in any situation. WaterLily Turbine waterlilyturbine.com $200
he vinyl comeback has been much talked about for some time now. If you’re a vinyl fan, why not give your collection of LPs a bit of a lift, literally, with a MAG-LEV Audio ML1 turntable? It promises to give an extremely high tech edge to the analogue experience of vinyl: once you put the record on the turntable, start it up and move the tone arm on to the record, the turntable levitates and turns without touching anything. When the arm reaches the end of the record, four feet come up to support the turntable again. It even has a small UPS to avoid sudden doom in the event of a power cut. It’s pointlessly, brilliantly, amazingly cool. MAG-LEV Audio ML1 Turntable www.maglevaudio.com $2,825
Blind no more
osing your glasses is very annoying and it is even more so if the only way you’ll be able to see well enough to find them is if you have your glasses. Orbit have something of a solution — a small bluetooth device that sticks on to your glasses. Once attached, you can make the device ring with its 90db loudspeaker if they’re within range, or check their last known location (via GPS) on a map through an app on your smartphone. Its battery lasts for up to a month per charge, and the charger is included. Orbit Glasses findorbit.com $50
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Of salt and battery Paul French wades into the hybrid, autonomous transport debate
obody living in Europe, America or most of Asia can have missed the rise of the hybrid or all-electric vehicles (EVs) – Prius, Tesla, etc. They’re ubiquitous on the streets of London, New York and Beijing; pretty much accounting for the speedy and affordable growth of ride sharing services such as Uber and Lyft. The technology has entered into the maritime sector too. Earlier this year the first all-electric ferry in Norway started operating, cutting emissions by 95% and costs by 80% compared to fuel-powered counterparts. Norway won’t be the last country to move in this direction. So we all need to understand the technologies – both the advances and the limitations – on hybrid and electric vehicles on both land and sea. Tom Denton’s Electric and Hybrid Vehicles is a pretty good starting point to get the basics of the technology – how far we’ve come already and how far
we can potentially go. Photos and flow charts outline the charging infrastructure, how EV technology works, and how much repair and maintenance is involved with hybrid and electric vehicles (a major concern for EV and battery-powered ships where salt plays all sorts of havoc). Along with EV technology there has been much talk of driverless automatic cars and ships. Andreas Herrmann, Walter Brenner and Rupert Stadler look at the myriad issues around the possibility, use and safety of driverless (Captain-less) technologies in their recent Autonomous Driving: How the Driverless Revolution will Change the World. Is a world of driverless logistics trucks ploughing along America’s highways (as shown in the recent sci-fi film Logan) a real possibly? What do we have to do to the infrastructure? An American highway or a German autobahn is a different prospect to an Indian
An American highway or a German autobahn is a different prospect to an Indian or African road
or African road. What could it mean for the burgeoning local delivery market (driverless UPS, FedEx, Amazon, etc) and, by extension could we ever have captain-less vessels ploughing the seven seas? Captain-less ferries that operate like the driverless Docklands Light Railway on water? And then, if we want to try and gaze into the future, perhaps we should ask a professional, someone with one foot there already it seems – Elon Musk. Musk is involved in so many things from space travel to batteries that it’s hard to pin him down. But, as Ashlee Vance’s biography, Elon Musk: How the Billionaire CEO of SpaceX and Tesla is Shaping our Future, shows, he has already made EV a cool reality with Tesla and is, as are Google, moving swiftly down the driverless car road. Musk is the most outspoken advocate of EV and recently criticised Singapore for not being supportive of EV technology. Musk has made space rockets and Tesla EV sports cars but is yet to turn his attention to shipping. Perhaps when he does EV ships will finally take off and soar? ●
The Isle of Man’s extraordinary story Dick Welsh, head of the fast growing Isle of Man registry, explains why this little island in the Irish Sea is so special
consider myself very fortunate to be a Manxman. A native of the Isle of Man. An island of outstanding natural beauty, which lies at the heart of the Irish Sea. I am still in awe of the stunning landscapes and sublime coastlines that this small 33 mile long island offers me on my daily commute. The sea air is far more invigorating than any morning cup of coffee. For most of the year, the Isle of Man is a relaxing and tranquil place. 221 sq miles of space to unwind. Scenic drives, old-fashioned steam railways and with centuries of history to explore. For two weeks in June though, the small tranquil island turns into a motorsport mecca. Thousands of bikers descend for the word famous TT Races – a pilgrimage to witness the world’s ultimate road race. Where motorbikes and sidecars take turns in racing the 37 mile course on country roads through towns and villages at speeds edging towards 200
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mph; for over 100 years it has been the ultimate test for both man and machine.
This sea-bound kingdom will remind you of how life should be
For those like myself with a maritime interest, the island has a long and proud tradition as a seafaring nation and for many generations its people have made a living from this. A stroll through the maritime museum is a must as it depicts the island’s role in smuggling, including the part played by some of its notable residents of the day. Manxmen have also played a part in shaping maritime history. For me, island life is all about the sea. I’m never happier than being in it, or on it. The Isle of Man may not offer tropical temperatures but its clear blue
water offers the very best in diving, sea swimming, kayaking, paddleboarding and coasteering whilst its winds create superb conditions for sailing, kite-surfing, and windsurfing. The Irish Sea also produces some of the best seafood in the world, with Manx queenies (queen scallops), crab and lobster as the local delicacies. The Isle of Man offers some of the highest quality food and drink with a choice of seaside cafés, hearty pubs and fine dining restaurants, depending on your appetite, alongside award-winning brews, wines and artisan spirits to help cleanse the palette. Don’t take my word for it. Come and see for yourself and I’m sure it will capture your heart. Bring your golf clubs or walking gear! Or just sit, breathe and take it all in. With its ancient folklores and tradition, an independent spirit and mystical landscapes, this sea-bound kingdom will remind you of how life should be.●
The unsung heroes of containerisation Santosh Patil writes about the little reported world of the feeder trades
ontainer shipping has grown by leaps and bounds in the last few decades and almost every type of cargo that can be unitised has been containerised making it the leading form of cargo transport globally. Thanks to unitisation, the container can be seen in almost every corner of the globe and has perhaps the highest visibility amongst all assets used in maritime transport. However, little is known or appreciated of the crucial role played by container feeder industry in this highly visible means of transport. Container feeders play a vital role of being the first or last mile (many a times both) in the journey of a shipping container. Feedering significantly contributes to the development of a new port and it is most often that a feeder vessel which is amongst the first vessels to make a port call. The all-important connectivity to small ports with hub ports is only possible through feeders. Primarily, container feeders are of two types – ‘common carrier feeder’ and ‘dedicated feeder’ with the common carrier feeder being an independent operator who is free to accept containers from several different mainline liner operators (MLOs) on a given route. The ‘dedicated feeder’ usually is an exclusive
arrangement with an MLO (or its associate companies) operated either by a feeder operator or by the MLO itself. Some main lines have a separate division or entity, which operates dedicated feeder vessels to exclusively cater to its own feedering requirements. Feedering plays a vital role in driving efficiencies and provides considerable value to the main line operators who can provide a wider bouquet of ports to their customers without deploying their own assets. Although there is a synergistic relationship between MLOs and a container feeder operator, it is often the MLO’s network which defines the service route of a feeder operator. The business model of a feeder operator is therefore highly dependent on mainline services. A feeder service helps the MLO to provide services to and from ports which hitherto were not accessible for various reasons like draft, parcel size (volume of cargo), availability of a suitable vessel, seasonality of cargo, port costs amongst others. Container feeders therefore bring immense value to the maritime supply chain. Despite this, the survival of a feeder operator is difficult unless it exhibits the deftness, flexibility and willingness to take bold decisions.
However, it is always the bigger MLOs who have hogged the limelight (and perhaps rightfully so), while the smaller but key cogs in the wheel – the container feeder operators – remain unseen and often do not get recognition they deserve. The current fleet scenario in an increasingly oligopolistic liner market has seen a preference towards ultra large container vessels (ULCVs) for achieving efficiencies of scale. While the jury is still out on whether this will truly translate to tangible benefits, it certainly provides an opportunity for feeder operators. The ULCVs will not be able to provide the reach in terms of port coverage given the restrictions in draft, port costs, and infrastructure requirements to handle ships of such size. With the size of mainline ships growing, feeder ships too are sizing up. The Panama Canal expansion led to the availability of a flurry of panamaxes at attractive valuations. This led to the snapping up of panamaxes by many common carrier feeder operators. Despite the spate of M&A activity, which some industry sources believe will continue, one can say with a bit of certainty that feedering is here to stay at least for the foreseeable future. ● maritime ceo
How to make money from the coming disruption to shipping Andrew Craig-Bennett argues that in times like these the people that prosper are the ones that know what not a lot of people know
used to work for a man – a very well known shipowner – who said he would fire anyone who told him what was going to happen. Only fools predict the future, but the market now is an odd one. The oddness comes not so much from the usual suspects on the supply side – these are not much stranger than usual, with reports that China’s shipbuilders are about to re-open several mothballed shipyards and that Chinese banks and quasi-banks are about to offer more – perhaps a lot more – finance. That’s all standard stuff, once freights move off the bottom, as they have done. Banks and shipyards are, to shipowners, rather like Dr Samuel Johnson’s Patron, who “looks with unconcern on a man struggling for life in the water, and when he has reached ground, encumbers him with help.” The real puzzles are on the demand side – economic growth, which we will look at in the next paragraph, and the reported decoupling of growth in GDP from the volume of trade by sea. The economies of most countries seem to be doing better than they ought to be doing, given that President Trump is threatening tariffs in all directions. I can offer two thoughts. One, which will commend itself to classical economists, is that the market is rational, and it is telling us that people don’t believe either that President Trump means what he says, or that those whom he is threatening with his tariffs mean it when they say that they will retaliate, and that therefore these things shall not come to pass.
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The other thought, which will commend itself to seamen, is: “If you can keep your head, when all about you Are losing theirs, and blaming it on you… …then you haven’t realised the gravity of your situation.” I will suggest that the latter is more probable, and that what the average consumer is doing is simply trying, quite hard, not to think about all the thoroughly alarming political news, with the help of a little retail therapy. Of course, it’s an ill wind that blows nobody any good, and if China doesn’t want American soya but buys Brazilian and Argentine soya instead, so much the better for ton-miles. No decoupling there. Decoupling usually gets mentioned in the same breath as 3D printing, but I haven’t seen a 3D printed crankshaft yet, and I think that much bigger ‘de-couplers’ are the changes in how we buy energy and what we do with waste. Shipping
waste – be it a hold full of scrap or a container full of waste paper – across oceans is very quickly becoming unacceptable, and there are not a lot of ton miles in a wind farm, once it is up and running. We might also notice that Holland, a small, highly urbanised country, not known for its sunshine or its low-cost workforce, grows, and then exports, a staggering quantity of fruit and vegetables through science, factoring, and logistics. These are replicable processes, and not good for ton-miles. I think we might be about to see a disruption. In such times, people make money by knowing what not a lot of people know. Amongst the people well placed to do so are the very well informed, with cash and short decision chains, of course, but also the niche operators, who are close to their cargo base and able to defend themselves against inexpert competition. It isn’t ‘The economy, stupid!’ any more, and we may well live, and die, in interesting times. ●
Every issue we ask a number of topical questions. With more than 400 readers replying this quarter, below are the results and key comments Is the wait-and-see approach by shipowners to 2020’s sulphur cap a smart move?
Is blockchain obfuscating the need for shipping to push ahead with digitalisation?
It’s lazy, not smart. Owners are more concerned about profits right now than their long-term solvency
Yes 48% No 52%
The industry will adapt and absorb these technologies, but they’re unlikely to be major game changers Yes 38%
Shipping does not need to digitalise 16%
Does the introduction of the sulphur cap in less than 18 months risk being an unholy mess for shipowners?
Is state funding of lines to blame for creating overcapacity and the slashing of rates in the container sector?
National aspirations are overriding commercial sensibilities
A big scramble at the deadline
Has the tanker market finally bottomed out?
Is the current oil price sustainable?
As soon as things appear to be improving, somebody will order a bunch of new hulls that will prolong the agony
More market turbulence ahead
How much will newbuild prices rise in the coming 18 months?
Will the privatisation of traditional German ship finance banks decimate the country’s shipping industry?
Steel prices and ROE are the driving factors
German shipping is already decimated
Less than 5% 18%
More than 30% 4%
Stay the same 9%
21% - 30% 11%
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LEADING THE FUTURE