‘Game over’ for family-run shipowning?

Fundamental shifts in shipowning operations as a result of the global economic crisis have hammered a nail into the coffin of traditional ownership models, according to dual-listed tanker operator Euronav.

Speaking at London International Shipping Week, Patrick Rodgers, chief executive of Euronav, criticised a model for shipping that “hasn’t changed since Noah”. That “capital intensive, fragmented and family-run model” appealed to super-leveraged banks, but that form of financing is now much harder to secure.

“That model is essentially over,” said Mr Rodgers. “Banks are now under increasing scrutiny and that source of financing has been completely withdrawn from shipping. Year-on-year bank debt as a percentage of total shipping finance has declined. Despite high earnings, asset prices are not going up as there is no access to liquidity.”

He described this missing banking link as a massive crisis for the UK industry. It’s also a key reason why he believes that shipping businesses need to migrate from a family-run business model or risk being financially handcuffed.

“We need to have size and liquidity to be able to access finance in the future,” he says.

Mr Rodgers has been chief executive of Euronav since 2000 and oversaw the dual listing of the company after its demerger from parent group CMB in 2005. He also serves as a director and chairman of the International Tanker Owners’ Pollution Federation Fund. While Euronav’s roots are family-owned – CMB was and continues to be controlled by the Belgian family Saverys – it has moved on to listings on both the Euronext Brussels and the New York stock exchanges.

Contrasting view

However, in sharp contrast to Mr Rodgers comments, Sabrina Chao, chairman of Wah Kwong Maritime Transport Holdings Limited and deputy chairman of the Hong Kong Shipowners’ Association, believes there is a still a place for family-run businesses. “I don’t think it’s ‘game over’ for the family run businesses, but I do agree that we are in a very different model,” she said. “I have questions on whether companies like ours with a very conservative model should because public. Personally, I do not see the point in going public when you cannot predict earnings for six months’ time.”

“We have probably survived because we have stuck to what we know and we are not slaves to Wall Street. Will those characteristics still be relevant in a decade? I believe so.”

The Wah Kwong Holdings Group was previously listed as part of a wider group engaged in a range of business activities including property development, food processing and manufacturing. The Group de-listed in 2000 but has remained one of the most prominent privately-held shipowning companies in Hong Kong, and has continued to order newbuildings.

The issues of raising finance are looked at in depth in the Baltic Exchange’s Ship Finance Executive course which takes place in London 9-10 November. The course provides an analysis of the IPO and debt issuance process, the advantages and disadvantages of using the capital markets, underwriters and their role, credit rating agencies, and institutional investors. 

Market moves

In a discussion about market trends, Mr Rodgers described the development of shale in the US as a “big shock” and “astounding”. He added that post-sanctions Iranian oil will “certainly be surplus to requirements” as there is already a great deal of oil in the system. “Either it has to be absorbed or someone’s got to stop producing it.”

On the bulk side, Ms Chao noted that in 2005, the industry was clear for the “biggest bulk take off ever. Now, the bulk carrier industry is going to have to learn to live with a lot less coal to be carried.” However, she added that Asia remains a “lucrative and powerful” trading block with continued huge potential demand. “It’s unlikely that anywhere else will overtake Asia in global manufacturing over the next 10 years,” she said.

Turning the discussion to economics, Dr Andrew Sentance, senior economic adviser, PricewaterhouseCooper and chair of TheCityUK’s Independent Economists Group, pointed out that the economy is still growing, despite the euro crisis and problems in China. “Growth is forecast to be slightly above long term trends next year,” he said. “We should, however, expect slower growth than we had before the crisis.”

Dr Sentance added that while China is beginning to struggle, it is not completely collapsing: “It is not going to be apocalyptic; the Asia-Pacific region is now the dominant one and while China is an important part, we shouldn’t think of Asia as solely China.”

His estimates for economic growth sit between the 3% and 4% range for the medium term, although there is a question mark about the slowdown of emerging economies.

Emerging questions

Fellow economist, the International Transport Forum’s Jari Kauppila confirmed that emerging economies “will drive growth”, but that growth is expected to slow down. That said, a growing share of trade will take place between emerging economies and this is expected to have a big impact on transport flows, he said.

ITF forecasts that global freight volumes, measured in ton-kilometres, will more than quadruple by 2050. “This will be a big jump and we will see increasing capacity constraints and strong growth in emissions,” said Dr Kauppila. “The North Atlantic trade corridor will remain important, but the North Pacific will grow by 374% by 2050.” The Indian Ocean is forecast to rise 406% over the same period, while the Mediterranean and Caspian trade is expected to increase by 280%.

“There is a definite need to align transport policies across supply chains,” advised Dr Kaupilla. “Focus should not be only on the modes but also on the whole supply chains. We need to be investing in the missing links and we need to be preparing for bigger ships.”