Shipping is Sailing Against Trade Winds, and Other Protectionist Concerns

With the dry bulk freight market limited to bouncing along the bottom for now, most of the resources – when not afforded for ships to (figuratively) stay afloat – are devoted at buying dry bulk vessels at cheap prices in the secondary market. It seems that everyone is convinced that asset prices at present offer a unique investment opportunity not to be passed up. After all, freight market weaknesses come and go, but markets of cheap ships do not present themselves often.

The weakness of the shipping markets is mostly attributable to tonnage oversupply, whereby there are just too many vessels chasing few cargoes. In general, demand for vessels – that is trade and cargoes to be transported – is only un-inspiring at present. The main concern is that there are many more ships than cargoes, but trade is still existent, just not robust enough to employ all available vessels. Too many vessels were built because of too much speculative investment in shipping, and also because of too much available liquidity and that, at a very low cost.

Most potential buyers of ships believe that there will be tonnage equilibrium as soon as older vessels and less efficient vessels find their way to the scrapheap. Thus, effectively, it’s a matter of timing and awaiting for the immutable laws of nature to work their unique rejuvenation of the markets by way of aging. After all, it often has worked out just like this in previous business cycles in shipping. It’s true, newbuilding orders have diminished in the last year while scrapping has been as strong as it has been in the last seven years; thus, tonnage supply is coming down, and that’s easy to verify in most cases.

Demand for shipping is a much more convoluted analysis since there are too many commodities and cargoes and trading patterns, and permutations thereof, to analyze. Then, one has also to take into calculation macroeconomic factors, political events, possibly technological developments, changing consumption patterns, trade barriers, etc, and all of them, to varying degrees of seriousness, affect demand for shipping. Quite frankly, often analyzing demand for cargoes (and shipping) in detail resembles the so-called the Butterfly Effect model.

Trying to view demand for shipping from 10,000 feet, one has to identify the long-term trends and ideally be on the ‘right side’ of those trends. As a rule of thumb, growth for international trade is twice as much as economic growth (GDP), as commodities, raw materials and finished products have to pass international borders often to reach the end consumer as the economies grow. Further, growth for international trade declines much faster than economic growth in decelerating economies, while growth for international trade increases much faster when economies grow. It’s intuitive, as, when an economy is slowing down, need for trade comes down fast, while as an economy starts growing again, there is fast demand for trade for products to be brought together and reach the end consumer. The fact that the IMF and OECD keep revising downwards world economic growth has not escaped the shipping markets that have been trading at almost all time lows.

While we all hope that there will be robust economic growth soon enough to save shipping, one has also to pay attention to the fact that international trade thrives when there is a receptive ground and open-minded trading partners. And, international trade, much glamorized by free-market economists, demonstrably has been exerting a positive outcome on our societies. But often, international trade has to get clearance by politicians, and from their voters. International trade agreements can formalize trading relationships among geographic regions or bloc of countries, and make trade easier to happen. While the World Trade Organization (WTO) is the large overreaching umbrella for trade worldwide, trade agreements can be negotiated at local levels by countries or group of countries. The EU started as a quasi-trade agreement and has evolved into a political union (its end results to be seen, however), while most readers in the US can recall NAFTA, the North American Free Trade Agreement, between Mexico, USA and Canada, and its eventful passing despite the ‘giant sucking sound’ warnings of jobs lost to the south borders of the NAFTA countries.

Navigators_statue_Cayman_BMK_6812_2015@

Shipping keeps an eye on trade patterns

On a macro-level, one today has to notice a wave at the international level whereby voters have been turning much more ‘isolationistic, nationalistic and ethnocentristic’ and against (free?) movement of people and cargoes. For instance, just recently British voters opted for Brexit, which, while driven by desire against free movement of citizens within the EU, eventually will have to have implications on movement of goods, if and when Brexit gets to be implemented. Most definitely this is not a positive development for trade and for the shipping industry, especially given the fact that Great Britain has historically been a beacon for openness and trade, being an island nation with long tradition in and institutions for maritime and trade. Moving on to the Continental Europe, there have been reports that in the State of Bavaria in Germany there is very strong anti-trade sentiment against CETA, the Comprehensive Economic and Trade Agreement, between the 28-nation EU and Canada, finalized in 2014. And, in the USA, while the Obama administration has spared no efforts to fast track the Trans-Pacific Partnership (TPP), both presidential candidates – including his presumptive legacy preservationist Hillary Clinton – have come against the trade agreement. One cannot be sure of the outcome for these trade agreements, especially since they seem to be driven by voter angst against migrants from poor regions and/or possibly terrorist risk underlining, but the writing on the wall is clear that free trade is a ‘zero sum game’. Irrespective of one’s political or philosophical inclinations, trade and shipping will have to face some headwinds, at least in the short term.

Intra-region free trade agreements (FTA) such as ASEAN (Association of South-East Asian Nations), RCEP (Regional Comprehensive Economic Partnership), MERCOSUR and UNASUR in South America seem to be faring better, but these being localized agreements, their big impact on global trade (and shipping) is rather limited.

If there was ever any doubt on the beneficial impact of trade to shipping, in the following graph we present trade data from the WTO website, for total world exports and for exports from the USA and China starting in 1980 (in 2015 US$ value). China became formally member of the WTO at the end of 2001, and it’s apparent that trading values have increased for the world, USA and China since 2001. Of course, increased growth in trade since 2001 cannot totally be attributed to China’s ascension to WTO, but there is no doubt that China has been the primary driver. On the same graph, on the right scale in red, the annual averages for the Baltic dry bulk market (BIFFEX and BDI) are shown, and it’s clear that since 2001, the BDI had been trading – for most of the time – at a different plateau altogether.

Trade and BDI since 1980 (large)

‘One great wowing sound’ for shipping following China’s acceptance to WTO.

There is no dispute that shipping asset prices present great investment opportunities and that eventually enough ships will be scrapped to reach equilibrium with demand. On the other hand, the demand side of the equation has to be given proper consideration, in the light of present anti-trade sentiment in mostly the western world.

And, as a disclaimer, trade and trade agreements in this article are being viewed strictly from the point of view of a shipping man without imparting any political judgment or inclination, but bearing the strong belief that all trade is good for consumers and citizens and the society and culture, not to mention good for shipping, too.

Trade is not a zero sum game.


This article was first published on Splash24/7 under the title ‘Where’s the Growth in Trade?’ on August 8th, 2016. On August 14th, 2016, following A.P. Moeller’s quarterly report, Bloomberg published an article titled World’s Biggest Shipping Firm Warns Against U.S. Protectionism’.


© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. 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 of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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Shipping Finance Elements and Concepts

Following Presentations on Shipping Financing have been found on the internet. They are reproduced here as a matter of convenience for readers interested in the subject of how ships have been financed under different structures and different business models, at present and over time.

MV NEPTUNE THALASSA 13 BMK_5610 @There is debt (senior or first preferred ship mortgage, second lien, junior loans) and equity (owners’ equity or sweat equity, friends-and-family money) for the archetypal structure available to independent (individual) shipowner. Shipping banks over time had been the prime financiers of the shipping industry mostly in  the form of asset-backed financing (mortgage). There is leasing whether operating or financial leases, sale and leaseback, or uniquely structured Japanese Operating Leases (JOL), and financing earned via long-term charters (time charters and long-term bareboat demise charters). Independent shipowners have been dealing with shipping banks and often financed vessels via project finance, and when circumstances fertile, dealt with private equity as well. For owners who sought public equity and underwent an IPO process, the capital markets for equities and for bond (shipping bonds) have offered more alternatives. Shipping finance has been experiencing tectonic changes since 2008 and has moved from relatively self-explanatory terms of vessel valuations and Loan-to-Value (LTV) to terminology to accommodate Basel III with its Tier 1 Capital (CET1) to Risk-Weighted Assets (RAW) and the Capital Adequacy Ratio.

Copyright to the presentations and articles listed herebelow belongs to their perspective owners, and hereby duly acknowledged. Presentations have been found posted freely on the world wide web, and reproduced here as a matter of convenience.


Elements of Ship Finance
Zan Yang and Jian Chen
Department of management, Dalian Maritime University                                                  Last accessed on the internet on July 26, 2016.                              http://www.paper.edu.cn/scholar/downpaper/yangzan-2.html


Risk vs Return for Lenders and the Economics for Borrowers
by R. Philip Bailey, June 2015
Last accessed on the internet on July 26, 2016.

By Allan D. Reiss, Morgan Lewis & Bockius LLP, 2014

Last accessed on the internet on July 26, 2016.

Deloitte, 2011
Last accessed on the internet on July 26, 2016.

Irish Maritime Development Office, 2015
Last accessed on the internet on July 26, 2016.

Shipping Finance: A New Model for a New Market                                                  Citi, 2015                                                                                                                       Last accessed on the internet on July 26, 2016.                                    https://www.citibank.com/tts/trade_finance/financing/docs/citi_ss_v2.pdf


The Impact of the Basel III Capital Accord of Asset Finance
by Angelo L Rosa, 2012
Last accessed on the internet on July 26, 2016.

by Basil M Karatzas, 2010
Journal of Equipment Lease Finance
Last accessed on the internet on July 26, 2016.

Dissertation by Alex Orfanidis, 20014
Last accessed on the internet on July 26, 2016.

Ariff Kamarudin, 2012
Lehigh University
Last accessed on the internet on July 26, 2016.

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. 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 of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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The International Handbook of Shipping Finance

We are excited about the autumn publication of the new, authoritative handbook on shipping finance, The International Handbook of Shipping Finance, edited by Professors Manolis G. Kavussanos & Ilias D. Visvikis, and written by a series of authors with outstanding careers at the frontlines of the maritime industry and shipping finance.

Shipping Finance is a unique segment of finance in practice, given the special nature of the field, at the interface of the maritime industry, the finance and banking industry, and trade, fiscal and monetary policies. Shipping is a capital intense industry, and successful shipowners are often defined by their access to competitively priced cost of capital, and likely, the more plentiful and cheaper the capital, the great the success story – as long as risk management practices are grounded to industry fundamentals and accommodate the well-documented high volatility nature through the business cycles. Financial leverage, and financing in shipping, can be achieved in several forms from plain financial leases to operational leases to structured financing to asset backed lending, via export credit and project finance, through the capital and public markets. Shipping finance had traditionally been obtained based on the quality of the collateral (asset backed financing and first preferred ship mortgages), but both the banking-crisis-post-2008 and the evolvement of the maritime markets have necessitated a deeper understanding of the field. Expertise in the shipping markets (operating and managing ships) now has to be tantamount to the expertise of mastering and optimizing financial performance.

In our daily way of business, we are often approached by young people or new investors  and financiers to shipping asking “Where we can learn more about shipping finance”. Besides recommending (of course!) following our blog (Shipping Finance by Karatzas Marine), we can now heartily recommend The International Handbook of Shipping Finance, as a first port call for someone to get a ground foundation of the maritime industry and shipping finance. Written by practitioners in the field, the book offers more than just academic theory as it delves into the detail of ‘how actually is done’. Masterly edited by well-known Professors of shipping finance, Professors Manolis G. Kavussanos (presently Professor at Athens University of Economics and Business (AUEB) & Ilias D. Visvikis (presently Professor at the World Maritime University (WMU) in Malmö, Sweden), this handbook of shipping finance will serve well future generations of students, new investors, but mostly, we want to think, existing shipowners who now, with many shipping banks closed, will feel the need to getting a deeper understanding of shipping finance.

Basil M Karatzas and Karatzas Marine Advisors & Co have been honored to have been invited to contribute a chapter for The International Handbook of Shipping Finance, on the subject of shipping bonds: ‘Public Debt Markets for Shipping’, Chapter 6 of the book.

On a sampling basis, additional contributors to the book are (in alphabetical order): Stefan Albertijn, with HAMANT Beratungs-und Investitions GmbH, Dimitris Anagnostoulos with Aegean Baltic Bank (ABB), Henriette Brent Petersen with DVB Bank SE, Wolfgang Drobetz with the University of Hamburg, Fotis Giannakoulis of Morgan Stanley, Jan-Henrik Huebner with DNV GL, George Paleokrassas with Watson Farley & Williams, Jeffrey Pribor, with Jefferies LLC, and Manish Singh with V.Group Limited.


The International Handbook of Shipping Finance is a one-stop resource, offering comprehensive reference to theory and practice in the area of shipping finance. In the multi-billion dollar international shipping industry, it is important to understand the various issues involved in the finance of the sector. This involves the identification and evaluation of the alternative sources of capital available for financing the ships, including the appraisal and budgeting of shipping investment projects; legal and insurance aspects of ship finance; the financial analysis and modelling of investment projects; mergers and acquisitions; and the commercial and market risk management issues involved.

Technical where appropriate, but grounded in market reality, this is a “must-have” reference for anyone involved in shipping finance, from bank practitioners and commodity trading houses, to ship-brokers, lawyers and insurance houses as well as to university students studying shipping finance.

Flyer - The International Handbook of Shipping Finance JUL2016_Page_1

The International Handbook of Shipping Finance. An exciting book to read in a swiftly changing shipping finance environment!

THE INTERNATIONAL HANDBOOK OF SHIPPING FINANCE
Edited by Professors Manolis G. Kavussanos & Ilias D. Visvikis

Flyer – The International Handbook of Shipping Finance JUL2016


© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. 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 of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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Shipping’s Structural Challenges

Article originally appeared on Splash 24/7 under the title ‘Canaries in a Coalmine’ on July 5th, 2016.


With the dry bulk freight market so low for so long, half of world’s dry bulk shipowners are trying to raise money in order to survive and the other half are trying to raise money in order to buy cheap ships. Both kinds of endeavors are commendable and that’s exactly the activity this market one would had expected to stimulate at this stage: a historically depressed and unexpectedly prolonged low market is about to wash out part of the ship ownership population while the better (and maybe luckier) part is using this market to grow and increase market share.

Historically, great fortunes were made for a propitious entry to the market and astute timing in this volatile industry. As some trading minds love to say, one makes their money when they buy: a hopelessly low price gives enough room for error for any miscalculations and takes much of the market uncertainty out of the investment.   To a certain extent, aspiring buyers at presently distressed prices are trying to do what always has been done in such circumstances, buy low and wait to sell high. So far, so good – as no one lost money with this investment strategy.

Stained Glass_Jesus & Disciples in boat_Singapore_DSCN9558 @

An industry in a storm. Image credit: Karatzas Images.

However, buying low and selling high presupposes a normal business cycle, sort of a wheel of a bicycle rotating while the bicycle speeds on an even surface; just imagine, if you will, a leaf picked by the wheel from the road surface, span a bit, and let go when the wheel has turned half circle; the leaf is now at middle air, diametrically higher than the surface, thus with more energy (read value), as we would had said in elementary physics class. Actually, at any point higher than the surface, the leaf would have more energy (value), and that’s what many asset players have been trying to do over time. Visualize the bicycle wheel as a business cycle and substitute the road surface with the horizon over the oceans: the value of the ships varies relative to the position of the wheel over time.

A buy-low-sell-high investment argument presupposes of a normal, repeatable business cycle, immune to any exogenous shocks. Same wheel, more or less, over cycles, same level surface more or less, same enthusiasm and strength to pedal the wheel, more or less…

When today one makes the argument for buying cheap ships, as commendable and self-evident as such argument may be, one has to wonder whether everything else has remained the same… whether the surface is still even…

Protectionism and Isolationism

A thriving shipping industry depends on thriving trade, and one has to observe that at present there is a wave of protectionism and isolationism circling the globe. From the outcome of Brexit to supposedly building huge walls in North America to the polarization of the electorates in many countries, one has to wonder whether there is a tailwind or a headwind for shipping. Probably our lives and the world are too integrated at this stage and populist politicians may not get their chance to implement their simplistic and populist view of the world, but again, a big push for the shipping industry should not be expected in the immediate future.

Structural Changes and Disruption Risk

There have been interesting news recently as officials at the Port of Oakland in California are trying to do away with a ban to ship coal (mostly from Utah) to Asia (China), a proposal based on environmental concerns. This is about banning shipping for a commodity by a third party who effectively is not a party to a contract (between buyer and seller or even shipper of coal) on reasons of environmental pollution that will take place thousand miles away (in China, as Oakland is only transshipment center). We do not pass judgment here, and we are always for clean business practices, but see this event as a canary in the coal mine, literally, drawing attention to shifting tides in the shipping industry. Certain cargoes, coal in this case, are becoming obsolete as the world moves towards renewables and clean energy. Shipping volumes are affected and certain asset classes get to be at a greater disadvantage. And, the energy industry and energy storage are at the crosshair of many technology companies as the energy industry is deemed a mature target for disruption. The mighty Apple depends 93% for its energy needs on renewables, and has spent for R&D on renewables more money that they have spent on the iPhone, iPad and iWatch combined. Coal and oil and gas are prime cargoes for the shipping industry.

Mind the Money

In June alone, more than $1 trillion of sovereign and corporate debt has been added to bonds yielding negative rate, for a total of $11.7 trillion. There are 355 corporate bonds that have negative yields, meaning that the bondholders actually pay money for the privilege to lend to these companies. In macro-economics, sovereign interest rates at close to zero are defined as Zero Lower Bound (ZLB), and it’s often a sign of central banks running out of options. We are living in a world of increased risk with few fiscal options (and / or political will) where cash holders and savers are getting penalized for being frugal, whereas some borrowers are getting paid to borrow lots of money. But, given heightened regulatory environment in the banking industry, a great deal of borrowers is not the kind of clients the banks wish to finance. In short, in a world flooded with free money, most businesses cannot access it. We would think that this is a structural shift in the market, when our proverbial bicycle has stopped moving on an even surface and has moved to off-road terrain.

Stained Glass_Captain_Singapore_DSCN9561 @

Looking for a Captain. Image credit: Karatzas Images.

Many hopeful buyers are pounding the table that shipping asset prices are cheap and this is one-in-lifetime opportunity. And over time, cheaply acquired assets appreciate and generate huge profits; just a uni-directional bet and a view that history repeats itself, actually. But, this has been the logic that got us into trouble in the first place: ships were priced at once-in-a-lifetime levels in 2012-2013 when primarily asset players and opportunistic investors were ordering newbuildings by the dozen. Why the same logic would get us out of trouble, especially when canaries in the coal mine seem to be dropping dead in related industries?

Probably a higher level of logic may be required to make profits and save the industry from another shock, than just the buy-low-now mentality.


© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. 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 of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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Karatzas Marine Presentation at 1st MareForum Shipping Conference, Panama City

Conference host and Market Research MareForum has hosted their 1st MareForum Shipping Conference in Panama City on June 24th, 2016, just two days before the official inauguration of the expanded Panama Canal. Basil M Karatzas has been honored to participate and present at the MareForum conference on shipping finance and the investment opportunities present in the industry, titled ‘An Anemic State of Shipping, A Plethora of Opportunities’. The presentation can  be accessed by clicking on the image of the Bridge of the Americas herebelow. Images from strolling Panama City and from the celebrations of the Panama Canal opening celebrations.

Panama Puente de las Americas BMK_0479 @

Bridge of the Americas (Puente de las Americas) straddling the Panama Canal by Balboa and the entrance to the Pacific Ocean. Image credit: Karatzas Images.

Varela_Panama_The Great Connection JUN2016

His Excellency, The President of the Republic of Panama Mr Juan Carlos Varela Rodríguez at the Presentation Oficial del Canal Ampliado (ATLAPA). Image credit: Karatzas Images

Karatzas & Varela Rodriguez IMG_4537

His Excellency, The President of the Republic of Panama Mr Juan Carlos Varela Rodríguez with Karatzas Marine Advisors & Co CEO, Mr Basil M Karatzas. Image credit: Karatzas Images.

© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. 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 of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

Presentation_1st Panama MAREFORUM_Karatzas F JUN2016

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Posidonia 2016 at BDI 600

The biennal shipping exhibition of Posidonia in Greece just ended with another stellar performance for the venue, with 22,000 attendees and 1,800 exhibitors from ninety (90) countries. In terms of attendance, it was up by 14% from another stellar year, in 2014. It’s nice seeing that even at challenging times, executives in shipping have a traveling budget, and seeing that Greece still manages to be stage the biggest exhibition of the industry.

Besides the big crowds and numbers, however, one could see signs of an industry that may be coming apart at the seams. Taking Yogi Bera’s quote at heart that ‘one can observe a lot by just watching’, the overall mood was mostly defined by the words not said, the parties not held, and the shipowners who didn’t show up at conferences before.

Just to provide some background, the Baltic Dry Index (BDI), assuming that’s the whole industry’s benchmark, can be encapsulated by the following table:

  BDI (MONTHLY AVERAGE)
JUNE 2008 10,500
JUNE 2010 3,100
JUNE 2012 950
JUNE 2014 910
JUNE 2016 610
KARATZAS MARINE ADVISORS & Co.

Apparently, the index has been at its worst at present, at Stygian depths, and one would expect that pain is widespread in the industry.

Posidonia and celebrating in Greece are defined by late night parties at fancy seaside clubs and locales, and day cruises on shipowners’ yachts. Overall, the party scene this year has been fairly subdued, and the abundance of previous years did not make it to this year. Some parties were missed due to consolidation (mostly of shipbrokers and advisors), while quality of food and keeping the bar open for the whole night were hard to come about this year.

Again, when the freight market has been so low, every dollar saved at sea and ashore can be crucial. Thus, many parties seem to have been hosted in the spirit of being ‘present and still in business’, vs trying to convey the message that times are great.

IMG_2566The formal conferences and debates during the day had been dominated by discussions about the historic strength of the shipowning market and the industry, and the promise that there will be better days. Private equity funds and shipping banks took some beating for being the main cause of tonnage oversupply in the past, at least in the opinion of a few shipowners and advisors, which seems to be the theme of recent, at other shipping conferences too; that financiers have been the main culprits of the crisis, trusting with too much money the shipowners – at least, that’s how we understood it.

IMG_2591Several major shipowners claimed loudly that the market is a screaming buying opportunity, especially for dry bulk, and vessels are now historically cheap. China’s performance notwithstanding, it has been claimed there have been plenty opportunities for growth worldwide, from India to Africa, plus several potential causes for military actions (wars and volatility are traditionally good to shipowners); this is what it has been said, honestly. But again, for a couple of these shipowners, they have been noticeable in the shipping market by their absence, as they have not bought any ships in the last couple of years. And, there have been swirling rumors that a couple of these very same shipowners live at the mercy of their lenders, so it may make someone wonder whether they were dispensing wise advise or talking their books. For full disclosure, we are of the opinion that certain market segments are strong buying opportunities (for details, please inquire within), thus a bullish opinion is not necessarily un-qualified just because these owners have not acted on their own market assessment.

Bankers and financiers seemed to have been in season this year, as again, they got blamed for not financing vessels now that prices are historically low. Definitely there is some truth to it, as banks and financiers used to be much looser with financing vessels at much higher asset prices (but also freight rates), but now, with the exception of a handful of shipowners and corporate credits, it seems that shipping is an un-bankable industry. We have written about this topic in the past in this post, as this is to be a ‘complaint’ of many smaller and still well-capitalized owners, who happen not to check all the boxes in today’s world for shipping finance.

There is no doubt that shipping assets are cheap, as freight rates are low and there is a tremendous still outstanding orderbook (10-30%, depending on the asset class) of a relatively brand-new existing world fleet. Cheap assets may proffer a great investment opportunity given the motto ‘buy low, sell high’, but the ‘runway’ required for a cheap asset to appreciate may be detrimental to the survival of many shipowners and investors. And, quite frankly, there is a lot of junk that has been floating around that is passing around as legitimate tonnage (mostly bulkers built at ‘greenfield yards’ in the boom years of the cycle), and these vessels most likely will prove to be the graveyard of many an un-sophisticated shipowner and institutional investor.

And, as great and exciting shipping is, we all have to keep in mind that it’s a derivative industry, it derives its business and strength when charterers more cargoes, whether raw material, finished products, and crude oil and energy. As romantic as ships may be, they only make a good return when underlying industries and countries are doing well. And, taking a broader view of the world, one has to be careful: just this week, the OECD lowered its forecast for economic growth to 1.8% and 2.2% for 2016 and 2017, respectively (from 2% and 2.2%, updated just in February, 2016). For what it’s worth, a bellwether institutional investor, George Soros, has been in the news just this week, as he sees clouds on world’s macro-environment, and has started placing bearish investments by going long on gold. Just because Mr. Soros sees trouble ahead it does not mean that shipping investors should be running for the exits, but again, it’s tough to be getting too excited. And, further, it has been reported that central banks now are sitting on US$ 10 trillion of asset that are bearing negative interest rates (NIRP); negative interest rates have not been implemented on such massive scale before, and while it’s hard to predict how this will end up, it’s abundantly clear that central banks are running of options to stimulate growth, once again, a bearish notion to shipping.

Switching view outside economics, one can see that there has been a wave of protectionism and nationalism circling our planet, from the referendum about Brexit in the UK to building ‘yuge’ walls in the US, to imposing tariffs on China for ‘dumping’ steel in the international markets. As said, shipping is a derivative industry that needs cargo to move in order to prosper, and as skeptical we are that protectionism will take roots, one has to be concerned that that the overall frame is for more barriers than fewer barriers to trade.

IMG_2159Traditionally we have found Posidonia to be one of the most optimistic shipping conferences worldwide, with lots of high energy, excitement, vivacity and execution. In our opinion, this year the mood was bordering to pessimistic as people were very concerned with current developments: weak freight rates and low future expectations, complete lack of financing (with a few exceptions – once again, please inquire within), possibly a China that will be experiencing a harder landing than expected, plentiful of new-buildings on default and bleeding shipowners. And, for execution, just one major transaction was announced during the Posidonia out of Greece, worth just a billion of dollars.

And, taking a broader look at the Greek economy and society, the pain has been even deeper than in shipping. The honeymoon is over with the Tsipras / Syriza government and strikes are getting to be a daily fact of life, endless traffic jams reminding of capitals of ‘emerging economies’, and fruitless efforts of the Greek government to tax their way out of the crisis instead of attempting to increase the tax base by cutting down on the red-tape and stimulating entrepreneurship.

As always, there has been little sense of order or effort to change things.

Possibly, the best line of Posidonia 2016 came at the British Ambassador’s Residence hosting a reception for the shipping community; when time came to re-fill glasses with wine, people were queuing neatly to the bar, which made a Brit in attendance to comment: “You know you are on British soil when people queue to the bar!” It was an astute observation we had missed. And, there was another line to the sushi buffet the next night at the Japan Ship Export Association Reception hosted by the Japanese Ambassador to Greece. Quite frankly, these were the only two lines we experienced in Greece during our ten-day Posidonia attendance; everywhere else was less of an order…

But again, as once said by a shipping executive, ‘shipping is not a team sport.’


An edited version of this article has previously been appeared on the Maritime Executive website.


© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. 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 of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

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Ships are cheap: Please, think before you invest!

Shipping assets (vessels) are presently priced at historically low levels. Many pundits and shipowners have called for a ‘screaming buying opportunity’. And, it’s true, quite a few fortunes in shipping, in the past decades, were created by shipowners who expanded opportunistically at the bottom of the cycle. Probably, it’s not a bad time to invest in shipping, but there has to be more than just ‘what’s low, it goes up’ or ‘buy low, sell high’ in the investment thesis.

‘Ships are cheap: Please, think before you invest’ was originally published during Posidonia 2016 by the well-respected Greek business daily Η ΝΑΥΤΕΜΠΟΡΙΚΗ, in the special edition ‘Η Ναυτιλἰα των Ελλἠνων᾽, and reproduced here by permission. For more on Posidonia 2016, please feel free to visit our blog, Full Steam Ahead! The Maritime Blog.


2016 06JUN06 NAFTEMPORIKI Ships are cheap - Please, think before you invest

Ships are cheap!


© 2013 – present Basil M Karatzas & Karatzas Marine Advisors & Co.  All Rights Reserved.

IMPORTANT DISCLAIMER:  Access to this blog signifies the reader’s irrevocable acceptance of this disclaimer. 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 of this website. Whilst every effort has been made to ensure that information here within has been received from sources believed to be reliable and such information is believed to be accurate at the time of publishing, no warranties or assurances whatsoever are made in reference to accuracy or completeness of said information, and no liability whatsoever will be accepted for taking or failing to take any action upon any information contained in any part of this website.  Thank you for the consideration.

2016 06JUN06 NAFTEMPORIKI Ships are cheap – Please, think before you invest

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