As with any industry, things change over time and the shipping industry is no different. While the world fondly looks at the shipping industry as one that is controlled by the Greeks, they are mistaken. The capital markets have greatly changed the face of the maritime industry. In “Dynasties of the Sea” there is no love loss between the traditional shipowners and the publicly traded shipping companies or private equity firms whose portfolios now include vessels.
Three of the biggest criticism the traditional shipowners have over the new breed of owners is the time table of investments, how the companies perceive value and the way they conduct their business. In an industry where the shake of a hand means more than a signed contract, the formality of the use of lawyers and the increase litigation leaves a bitter taste in the mouths of some traditional owners. “Shipping and trading are based on respect of the word.” said Philippe Louis-Dreyfus, President of Louis-Dreyfus Armateaurs Group,”You know the Baltic saying, ‘My word my bond’? This has changed and I’m sad and very concerned about this….Too often now, we have business people not sticking to their commitments. This is becoming a management principle in large companies, which is not only very bad for ethics, but also for the efficiency of the business.”
Traditional shipowner Nicky Pappadakis said looking back at the last decade with more private equity coming onto the scene, the shipping values have “sadly” changed. “They tend to look at ships and crews as a commodity, where as, in fact, it’s very much like the airlines. The airline is only as good as the crew. The same goes with ships.”
Quintessential vulture investor Wilbur Ross minced no words and got right to the point that the smart money right now in shipping is the private equity firms, ” If the industry were dominated by PE firms, which are generally pretty good at risk management, you’d be less likely to have these wild cycles of over ordering.” he said. “Think about it. If you’ve 100 small owners each making a separate decision without knowing what the other small owners are going, that’s where ou have the over-ordering.. if you have five big firms it would centralize the decision-making much more. Second, presumable, if you’re a bigger player, you should have a little better intelligence as to what’s going on. If you’re one little isolated guy, your comprehension of what is happening is more limited.”
But according to John Fredriksen and Andreas Sohmen-Pao, two shipowners who run both publicly traded and private shipping companies, your endgame for both types of businesses should be the same- increasing the value for shareholders. “If you want to go public, you really need to conduct your business like a private company so you avoid unnecessary risk taking.” said Fredriksen, “When you are risking your own money, you look at things differently.”
And the results speak for themselves. Fredriksen, the world’s largest shipowner has a track record that would make most CEOs envious- paying out close to $12 billion in dividends to his shareholders in the last 10 years. It’s results like that that keep his investors ranging from Soros, Viking Global and Fidelity happy.
“It’s very difficult to stand up at a public investor presentation and say ‘my strategy is to shrink the company,” explained Sohmen-Pao. “Whether it’s one of our companies in the public or private domain, we hope that our investors, business partners and employees gauge success on a similar basis over a five, ten, or 50 year period, rather than just over the next quarter. This is particularly relevant given the duration of the assets and the volatile nature of our business.”
With more consolidation expected in the industry, you can expect this divide between the traditional ship owners and capital markets to continue and get deeper.