Seatrade Maritime is part of the Informa Markets Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Black swans, zombie companies and higher capesize rates

Black swans, zombie companies and higher capesize rates
Where the overall shipping markets play a large role in the fortunes of individual shipping companies, for some the smartest guys in the room are quite often equity analysts. These brainy people work for capital providers who put together transactions that are then sold to institutional and/or retail investors.

Increasingly, the analysts’ judgments and opinions are factored into strategic moves by private equity (PE) investors entering the shipping “space”. According to billionaire Wilbur Ross, who spoke to the recent New York Marine Money conference in a video feed from the UK, “PE investors like to organise roll-ups”, which effectively consolidate fragmented businesses.

The analysts look at individual companies in particular market sectors, evaluating how they might perform in the face of industry specific supply and demand trends, and, in response to less certain macro-economic trends. In the big shipping sectors, so far unconsolidated, everyone is a price taker- contrasting with niche businesses such as LPG tankers, where Ross’s Navigator Gas has achieved some measures of consolidation. Ross did not consider the commercial consolidation (and improved utilisation) brought about by tanker pools; both Per Heilmann, from Heidmar, and Jason Klopfer, from Navig8, both giving excellent presentations on their respective (and growing) agglomerations.

The importance of the analysts was seen throughout the Marine Money event, where their expertise was displayed throughout the three-day event. Ross’s address was followed by energy expert Ole Slorer, from Morgan Stanley, who stressed the bank follows shipping through the eyes of the commodity industries which generate the cargoes. Slorer, like others throughout the three-day agenda, continued to be very bearish on the dramatically oversupplied large tanker sector.

When asked about “Black Swans”- unlikely events that could ruin a nascent recovery, he pointed to the presently over-hyped product tanker sector, which he said will continue to be strong…with a caveat. Slorer suggested that coated LR tankers could enter the refined products trades, dampening prospects in the medium range sector that’s seen investment in modern existing tonnage. So far as shown in multiple presentations, LR’s have been largely unresponsive to MR strength.

If there was a big surprise in the analyst presentations, it concerned the drybulk sector, where several knowledgeable optimists were expressing optimism. Slorer talked about capesize rate reaching $20,000 per day as early as Q4 of this year, and hinted at an upcoming positive “…change in psychology…” on the dry side. The sentiment was underscored by others, including DNB’s Petter Haugen - who suggested that slow steaming has distorted measurements of market utilisation. The measure, in his view, is closer to the almost healthy mid 80% range, if reduced speeds continue to feature, rather than the deleterious levels below 80% that a simple look at deadweight tonnage.

Doug Mavrinac, long-time guru from Jefferies, who appeared on the panel moderated by Scorpio’s Robert Bugbee, suggested that drybulk demand growth could begin to exceed incremental fleet growth, by next year, putting a brighter light on the pallor of numerous “zombie companies” who have worn down the amended, extended, pretended and very weary bankers speaking at and attending the event.