Consolidating bulk opinions

If there’s one thing that seems to be going hand in hand with shipping right now, it’s consolidation. In a presentation at a recent shipping event, Andrew Penfold, global maritime director at consultant WSP, identified consolidation as one of the major market trends for shipping. He noted that mergers and acquisitions activity has concentrated the purchasing power of ship owners and operators and that there are larger and stronger customers. Further, a joint report by specialist insurer TT Club and consultant McKinsey published this month identified consolidation and integration as possible sources of value creation for the next quarter of a century for shipping.

This month’s TradeWinds Shipowners Forum 2018, held at Posidonia, offered further opportunity for discussion of consolidation with specific relevance to the dry bulk sector.

Mixed opinions

Kicking off discussions, Milena Pappas, commercial director at Star Bulk, saw many benefits in consolidation: “You get economies of scale, you get cost minimisation, you have more bargaining power and access to more clients, you can serve your clients better because you have more vessels available,” she said. Star Bulk is paying more than lip service to consolidation with its purchase of Songa Bulk in a cash and share deal worth $327.95m, announced in May.

She criticised the fragmented nature of the dry bulk sector, with 11,000-plus vessels, making it very difficult to get “critical mass in dry bulk”. This is in contrast to the container sector where a critical mass has allowed for more economies of scale, easier access to financing and better financing terms. Ms Pappas said that there is “a real premium” on consolidation when it comes to getting better bank terms.

Fellow panellist, BIMCO president Anastasios Papagiannopoulos saw a trend towards consolidation, but threw out a word of caution against the move: “If we lose the independent entrepreneur, the independent shipowner, who have new ideas, it’s going to be a loss for the market.”

Cargill president Jan Dieleman advised the dry bulk industry to “embrace some more consolidation”, describing bigger owners are “normally healthier”, which can also mean safety and labour conditions are taken more seriously. “We definitely welcome some more consolidation, although I’m not saying here that we’re going to have to go down the container route — I don’t think so — but I think some more consolidation would be healthy for the industry.”

However, Mr Papagiannopoulos claimed that consolidation’s end point could be “very big companies which will push out a lot of conservative and reasonably-operated operators and shipowners”. He believed that although consolidation will go ahead, great care will be required. “At the extreme, we may have very bad results,” he said.

Into the pool

The concept of pooling was also discussed at the Forum. Asked how he justifies pooling to possible new entrants, chairman and chief executive of Goodbulk and C Transport Maritime (CTM) John Michael Radziwill, whose company CTM was a founder business of capesize pool CCL, said: “We’re all in this together, right? A better market is better for all of us. We want a better market, and by putting more ships together, that’s the best way forward to get a better market.”

Peter Weernink, SwissMarine Bermuda director, added that he competes with the CCL pool and that he believed that its existence “is beneficial for the market”.

“It’s very simple: the big trend, particularly in the capesize market, is more and more direct business, is more and more offmarket business,” he commented on the pool. “To access that business and to be able to see what’s actually happening, you need scale. CCL is one way to get there. If you run around with 15, 20, 30 capes today, you don’t see the market. The only way you can access that is working in bigger groupings.”

Ismini Panayiotides, founder and chief executive of Pavimar Shipping, offered comment on the changes in financing options for dry bulk from her perspective: “The financing market is obviously different to what it used to be five or 10 years ago and a lot of players have exited, we have seen new sources of funding coming in.”

Pavimar Shipping, as an owner of 12–13 vessels, has not faced difficulties in tapping finance, as long as requests are conservative. “If you want a 50%, 60% leverage, it’s something easily doable if you’re not asking for extreme terms,” she said. “You have you look at the view of the banks; with all the new regulations that they have to abide by, their terms have become a bit stricter.

“If you’re not out there trying to squeeze and get the most out of it, you’re conservative enough, and you want to keep a balance of not overleveraging, I think it’s perfectly fine accessing straightforward bank financing,” she concluded.