‘Shipshape 10’ News for Week Ending November 6, 2016

‘Shipshape 10 List’, a list of news and articles published in the current week that a senior executive in shipping, shipping finance, commodities, energy, supply chain and infrastructure should had noticed; news and articles that are shaping the agenda and the course of the maritime industry.

Sometimes seemingly tangential, sometimes humorous, occasionally sarcastic, but always insightful and topical.

And, this week’s ‘Shipshape 10’:

1. The week started with a blockbuster announcement of the three largest Japanese container line companies (NYK, K Line and Mitsui O.S.K Line) where effectively creating a new, bigger business entity in order to compete in a bigger world of falling rates in the containership line business alone.
Japan’s Largest Shipping Firms to Merge Container Operations (The Wall Street Journal, Logistics Report)

2. The story of consolidation in the containership liner business kept going strong as on Friday, the Wall Street Journal broke the news that Israel’s ZIM has put themselves up for sale. The company really does not have critical mass or competitive advantages or the financial capacity to grow big alone in this now monster market. Zim has been one of the candidates to be absorbed and frequently mentioned in the ever growing game of shipping companies that will not live to see the next business cycle – not at least in their present form.
Israel’s Zim Looking to Sell Most Global Shipping Operations (The Wall Street Journal, Logistics Report)

3. If there’s need for evidence of the bad state of the containership market, this week it was reported that another young panamax containership was sold for scrap. When this class of ships started getting built were costing well in excess of $80 mil; now selling for scrap at $5 mil; even for the lucky vessels that had managed to secure long –term sky-high charter rates in the good days, it’s doubtful whether the investors saw their money back.
The 4,923 teu YM Los Angeles sets new boxship scrapping records (Splash24/7)

4. While demolition represents the strongest hope for a market recovery at present and under current circumstances, there are concerns that the cleansing powers of scrapping for shrinking tonnage often are exaggerated.
Holy scrap! (Splash 24/7)

5. And, as a reminder of the dangers in shipping and also un-predictabilities, a major explosion will scrapping an offshore storage tanker took place in Gadani, Pakistan, where a reported thirty workers lost their lives in the burning inferno that ensued for several days. We mourn the loss of life, even for a country where life seems to have little substance. From a commercial standpoint, the Pakistani scrap market has effectively closed for several months, which will drive prices for scrapping vessels lower and would decelerate the pace of vessel demolitions.
Dire safety conditions revealed in wake of Gadani fire as death toll feared to surpass 100 (Splash 24/7)                                                                                                                                                                     
6. Speaking of explosions, a Colonial petroleum products pipeline accidental breach in Alabama, the second in two months, has stopped the movement of petroleum products from the US Gulf to the New York area. There had been high hopes that the accident will boost the moribund tanker petroleum trades, both for Jones Act and international flag assets, but the impact from the closing of the pipeline seems to be manageable for now.
What Happens When the Most Important Pipeline in the U.S. Explodes (Bloomberg)

7. Volatility is high in shipping, everybody knows; however, volatility in related industries and markets is not much lower, and as reminder, one of the best investments this year has been the price of coal, whether thermal (mostly) or metallurgical coal. Some think that a bouncing commodities market would bring better fortunes to shipping too.
Coal Surge Leaves China Grappling With Runaway Market It Started (Bloomberg)

8. The Jones Act and offshore market in the US keep deteriorating, and a week after Tidewater formally mentioning the words ‘Chapter 11’ in their latest press release, now Hornbeck announced that they will be idling 80% of their offshore fleet.
Hornbeck to Stack Nearly 80 Percent of OSV Fleet (The Maritime Executive)

9. Reading such news about the state of the market, private equity funds keep moving aggressively in the space, and KKR, one the of the most active investors in shipping this year, have announced bigger plans for growth in the European markets via their Pillarstone platform.
Pillarstone to Snap Up Europe Shipping Loans (The Maritime Executive)                                                                                                                                                              
10. And, for those arguing that monetary policy alone is not sufficient for a market recovery and governments worldwide should be more active with investment, mostly in infrastructure, an article from Japan investigates the policy for the Japanese Coast Guard’s aging fleet. Possibly, at a time when ‘Shipshape 10’ News for Week Ending November 6, 2016, possibly a strategy to renew aging vessels could be stimulating in more than one way.
Many coast guard vessels operating past service limit (The Japan Times)                                                                                                                                                            


Containership MV ‘Zim Piraeus’ entering majestically the New York Harbor with the World Trade Center in the background. Image credit: Karatzas Images

© 2013-2015 Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

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What’s Sale & Purchase (‘S&P’) in Shipping?

What does ‘S&P’ stand for in the shipping industry?  It definitely doesn’t stand for Standard & Poor’s, although a few shipping companies have been aspiring to be part of the well-respected ‘S&P 500’ index.  It doesn’t stand for ‘Salt and Pepper’, although sailors and the Navy are dressed seasonally in Summer Blue (“Salt and Pepper”.)  It doesn’t stand for Shipping & Processing, even evocatively, although we are still talking about the shipping industry.  It doesn’t stand for Standards & Practices applied in the broadcasting industry, Standards and Protocols or Security and Privacy used in the computer science, Sensation and Perception in psychology, Subcontract and Procurement in workflow analysis, or Strategy and Policy used in consulting and business analysis.

It simply stands for Sale & Purchase (S&P), the business practice of buying and selling commercial ships in the open market.  As grandiose ships as they may look, there is a need for their brokerage, whether as newbuilding contracts to be ordered at the shipbuilders when they first are getting built, or as ‘used’ vessels in the secondary market, or finally as old vessels now are destined sale for scrapping (demolition.) The professionals who are brokering the vessels are called ship brokers (or S&P brokers,) and are offering different services from charter brokers (who are brokering the freight / employment for the vessels but not the vessels themselves; brokers focusing on the tanker market are called tanker brokers.)

Capesize Vessel

Capesize Vessel

S&P brokers, much like real estate agents, do not hold any inventory on their balance sheets, that is that they do not own the vessels they sell; they just sell other people’s vessels to buyers without actually undertaking any risk at all (besides the time and effort they put into a transaction) or making any capital commitment in the transaction.  As such, the barriers to enter the industry are relatively low, and when times are good, there are many entrants, a great deal of which will wash out during the next market trough.  As great as this may be for most of the time for the principals (shipowners) looking to buy or sell vessels, since brokers usually provide liquidity, efficiency and, yes, more transparency than otherwise in the market, it’s not always an accretive situation for the market and its interests; low barriers mean that jetsam and flotsam enters and leaves the market depending on whether quick buck can be made without necessarily contributing value to the market.

S&P brokers may specialize in certain market segments by asset class such as dry bulk vessels or containerships  or tankers, of gas carriers, etc; they may specialize in certain geographic markets dealing with clients or types of vessels in certain ‘contained’ markets such as vessels in the cabotage business or customized vessels for a certain trade such as mini-bulkers or shallow draft vessels, etc; ship brokers may also specialize by function such as focus on newbuilding vessels or scrap brokers – there are distinct intricacies dealing with a newbuilding contract to a shipbuilding yard where financing and technical details for a vessel expected to be market competitive for the next twenty-five years are extremely vs. selling a vessel by the pound (actually by lightship deadweight tonnage (ldt)) for her last voyage of no return to the scrap pile.  There are specialist ship brokers who have been working with clients lacking shipping market expertise, such as leasing companies or equity investors or lenders, who have to depend on proven track-records of solid experience and dedication at accessing not only top notch ship brokerage services but also hands-on expertise and logistical support (since unlike an operating shipowner cannot depend on in-house expertise.) Finally, ship brokers can be ‘competitive’ brokers offering their services to any potential buyer or seller, while there are also ‘in-house’ brokers who work exclusive for a ship owner (usually larger or active shipowners who trade fairly often and need in-house, dedicated expertise which they can control.)

What are the services that ship brokers usually offer in their regular course of their business?  The short, sweet answer is that they ‘broker ships’ between buyers and sellers and make a commission from the sale; that’s life and destiny for most of the ship brokers and fulfillment of many dreams. The degree of competence and success increases exponentially with access to market information in general, and information about the vessels themselves, their owners, the circumstances of the transaction, their skill and dedication to negotiate great price for their client (above-market-level price for a seller, below-market-level price for a buyer), and can follow up the documentation and closing of the transaction in a professional and competent level.

Ship brokerage, is a great and value-added service to the maritime industry. Selecting a ship broker to do business with is more complicated, but often, one of the most rewarding professional relationships that can be built!  A great deal of shipowners started out as shipbrokers. And another great deal of shipowners make fortunes based on the dedicate work and advise of their brokers…

© 2013 Basil M Karatzas & Karatzas Marine Advisors & Co.

No part of this blog can be reproduced by any means and under any circumstances, whatsoever, in whole or in part, without proper attribution or the consent of the copyright and trademark holders.