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Insane to order ships, to stay in shipping you have to: Frontline

Insane to order ships, to stay in shipping you have to: Frontline
The quote of the week at Marine Money’s New York event was without doubt from panelist Harald Thorstein from John Frediksen’s Frontline opining bluntly: “It’s insane to be ordering ships, but you need to order ships to stay in shipping.”

On the same panel, Phillips 66’s Michael Reardon also provided some candor, saying “we’d prefer to be paying good money” in chartering tankers, but noted that P-66, and other charterers, did not set market levels; “…the market drives itself down,” he said. In this context, Reardon stressed the importance of vetting, in an environment where market levels may not be providing sufficient owners with sufficient cash flows for maintenance.

The Marine Money experience, centered around the eponymous three day conference held at the Hotel Pierre, needs to be considered holistically- though certain memorable observations become etched in the collective consciousness.

The theme emerged throughout the conference- regulations, along with emission standards qualifying, and ballast water treatment will cost the industry billions of dollars, which may be provided by non-bank sources. A related and widely talked about tangent- the rationale for ordering “Eco-Ships” generally, with some marquee headlines in product tankers, came up in a variety of contexts; with one defense coming from Oceanbulk’s Hamish Norton, an ex-banker at Lazard and then Jefferies, who pointed out the enormous potential savings with fuel prices remaining high.  

Panelist Mike Reardon had made the important point that tanker scrapping, and subsequent waves of new orders, have been driven by regulations- which may inadvertently assist in “solving” oversupply issues.

The mood at the 2013 conference was enormously upbeat when contrasted with the year earlier event. This year, there was much talk about restructuring, included multiple panels on the subject. Unlike 2012, when the bankruptcy of shipping companies loomed large, this year’s restructuring was a segue into the discussions of private equity (PE).

Essentially, the conference offered the venue for a mating dance between shipowners who could work alongside PE players, who saw the bottom of the cycle as an opportune time to help fill the financing void, along with other “alternative capital”, which could be investors or shipping families. An important case study was presented by Navios Holdings’ Ted Petrone, who described a deal with HSH Nordbank, where Navios takes over a group of problem vessels gaining financing while also bringing in a joint venture partner on the equity side, rumoured to be the family from a large Japanese yard.

One speaker on a restructuring panel Jennifer Box, from Oaktree Capital (a leading PE player in shipping) provided insights on secondary trading in shipping debt- mentioning activity in the debt of OSG and Genco, among others. Box suggested that debt trading for shipping, an illiquid market even on a good day, has developed most readily where companies were already followed by bankers and investors (usually due to a public listing), and that banks trading out of debt are interested in selling to investors “…who might be taking a longer term view of the situation.”

Oaktree’s equity investments, described by colleague Mahesh Balakrishnan, have included General Maritime Corp, and, more recently, a deal with Oceanbulk- privately held (at least for now).

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