That Sinking Feeling: When will the shipping market rise again?

John Platsidakis, Natalia Margioli, Bruce Ogilvy and Nicolas A. Tsavliris

10 ^th Annual Forum Institute of Chartered Shipbrokers Greek Branch – That Sinking Feeling: When will the shipping market rise again? Wednesday, 10 December 2014, Eugenides Foundation

In an extremely well-attended event, the Institute of Chartered Shipbrokers, Greek Branch celebrated 10 years in Greece, by organizing its 10^th Annual Forum, on Wednesday, 10^th  December 2014, at the Eugenides Foundation. The title was: «That Sinking Feeling: When will the shipping market rise again? » and theForum has been well attended by over 400 shipping professionals – from the Greek and International shipping community – covering all spectrums of the industry. Eminent personalities constituted the panel:

• Mrs. Natalia Margioli-Komninou, FICS, Managing Director of the ICS Greek Branch and Hellenic Management Centre
• Mr. Nicolas A. Tsavliris, FICS, Chairman of ICS Greek Branch and Tsavliris Salvage Group
• Mr Bruce Ogilvy, Non-Executive Director, Paragon Shipping Inc. & International President, Institute of Chartered Shipbrokers
• Mr. Michael Bodouroglou, Founder, Chairman & CEO of Paragon Shipping Inc.
• Mr. Henry Curra, Global Head of Research, Braemar ACM Shipping Group
• Mr. John Dragnis, CEO of Goldenport Holdings Inc.
• Mr.  George Gourdomichalis, Managing Director of Phoenix Shipping & Trading S.A.
• Mr. Harold Malone, Managing Director, Jefferies Maritime Investment Banking Group
• Mr. Simon Ward, Director at Ursa S&P Shipbrokers S.A.
• While Mr. Ioannis Kehagias, FICS, CEO White Sea Navigation S.A., was the panel moderator.

Mrs. Natalia Margioli – Komninou, in her welcome address, opening the 10^th Annual Forum of the Institute of the Chartered Shipbrokers, Greek Branch, went back to the foundation of the Branch by a handful of people with the vision to meet the educational and training needs of the Greek shipping industry. She was proud to assess that the Branch has gone a long way in the last 10 years towards achieving its goals, through hard work and commitment but mainly thanks to the shipping industry’s support and encouragement. She mentioned milestones of the last 10 years such as the 2010 Lloyd’s Award for Achievement in Education and Training, student awards for excelling in their examinations, well-attended Annual Forums and this year being the largest exam center in the world, with the most students participating in the 2014 ICS examinations. She also promised there is more to come, mentioning the Hellenic Management Centre’s prestigious collaboration with Queen Mary University of London to offer the LLM in International Shipping Law (Piraeus, Greece).

Panel of the forum with George Gourdomichalis, Bruce Ogilvy, Simon Ward, Nicolas A. Tsavliris, Ioannis Kehagias, Natalia Margioli, Harold Malone, Henry Curra, John Dragnis and Michael Bodouroglou

The International ICS President, Mr. Bruce Ogilvy honoured this celebratory event for the 10 years of presence of the Institute in Greece. Mr. Ogilvy elaborated on the GOOD THE BAD AND THE UGLY of shipping mentioning notorious shipping accidents, piracy, terrorism, bad trading conditions with low level freights but also focused on the good in shipping represented by the ICS. He made a reference to ICS history and development through the years and maintained that the Greek Branch stole the show as it has now overtaken London as the top examination centre for the first time ever. He congratulated the Greek Branch on this fantastic achievement, especially Mrs. Natalia Margioli, the driving force in Greece. Finally, he shared his belief that the ICS has the right education package to meet today’s challenging environment. The Chairman of the ICS Greek Branch, Mr. Nicolas Tsavliris addressed a very warm welcome to the attendees of the Forum, welcoming especially Mr. Bruce Ogilvy, International Vice President of the Institute of Chartered Shipbrokers (ICS), thanking them all for their attendance for the celebration of the 10^th Annual ICS Forum. He expressed his pride for the Branch’s accomplishments, namely the students’ distinctions within a framework of transparent international competition. He also congratulated HMC and Mrs. Natalia Margioli for the good work in this well-managed school and urged them not to stop striving for excellence. Introducing the topic of the Forum he conferred the view that shipping is a risky business and often relays “that sinking feeling”, with the question of when the market will rise again being a tricky one because of the many variables to be considered. Mr. Michael Bodouroglou, Chairman & CEO of Paragon Shipping Inc. referred to the cyclical nature of the shipping market that throughout history has experienced both peaks and troughs. However, he noted, that the shipyards’ increasing capacity coupled with the shipowners’ appetite to order like there is no tomorrow upon the first hint of recovery, has had shape-shifting effects on the so-called shipping cycle. So, he queried, where are we in the cycle? ‘’There is no doubt where we were back in 2004 to 2008, when we saw China’s rapid industrialization. The resulting increase in trade growth had a significant effect on both asset values and charter rates. The financial crisis that commenced with the fall of the Lehman Brothers at the end of 2008 and continued though 2009 had nothing to do with the shipping crisis that followed. The mass-ordering hysteria and the notable decrease in scrapping that were witnessed during the peak years resulted in the rapid expansion of the dry bulk fleet, which currently is 4 time larger than the fleet 25 years ago. With robust demand, slowing orderbook and scrapping bound to increase, we saw the bottom in 2012 and the start of recovery in the second half of 2013. The new ordering spree that followed, which amounted to 20% of the total fleet size, took the Industry back to the bottom.’’ What happens next will depend on the behaviour of the Shipowners, according to the Chairman of Paragon Shipping Inc. Mr. John Dragnis, CEO Goldenport Holdings Inc. focused on the consolidation in theshipping industry within the current challenging markets. According to Mr. Dragnis, the factors driving consolidation today, can be summarized as following:

• Most deals in 2014 have been seeking to consolidate ownership and streamline corporate structures

• Capital markets access; investors look for high market capitalization and liquidity
• Regulatory requirements (Basel III) and increased funding costs led major lenders (mainly European Financial Institutions) to lower Loan to Value Ratios
• Forced asset sales by weaker players leading to stressed acquisitions will more likely be absorbed by well capitalized structures
  • Economies of scale in Shipmanagement

The CEO of Goldenport pointed out the current market challenges:

• Management Teams who try to see the Bigger Picture for our industry by aiming to achieve sustainable returns need to focus on consolidating parts of the existing fleet in each sector accordingly.
• Hedge fund and private equity driven deals recently grabbed the headlines however due to their model they will be looking for an exit on the back of a market recovery.
• The key reason for limited consolidation between non-affiliated entities is the desire of sponsors to retain control of their companies even if they hold a small equity stake.

A view of the audience

Mr. Dragnis concluded that, no matter how much of a competitive advantage can be obtained from economies of scale, astute timing of acquisitions and disposals and hands-on efficient management remain the keys to success. Mr. George Gourdomichalis, Managing Director of Phoenix Shipping & Trading S.A., debated whether the shipping market was actually sinking and making reference to the suggestions and points of speakers before him accepted the need to take measures and the need to analyse the market, but he stated that ‘’we are not sinking, but we should definitely be thinking’’.  He insisted on the factors that keep the industry stagnated. The market experiences lower demand than expected, the market players have overregulated themselves, the lack of well-qualified crew to work through the demanding modern vessels, management is much more expensive than it used to be. These were some of the issues that the industry is called to face, according Mr. Gourdomichalis. Mr. Harold Malone, from Jefferies Investments Banking Group, discussed key themes in the capital markets for shipping, including highlighting: the ever expanding breadth of companies and sectors accessing the markets and types of securities issued; the rise and potential impact of institutional capital investment in shipping; and the outlook for potential equity offering activity in 2015. The Braemar ACM Head of research, Mr. Henry Curra highlighted the recent drastic drop in the oil price and its positive effect on tanker freight rates, at least in the short term. He went to comment about how this fall in the oil price could affect specific tanker trades: – floating storage – voyage length and fleet efficiency He also commented on the impact for high cost oil producing countries and speculated that those who are in danger of curtailing production, e.g. Venezuela, Libya and West Africa could experience civil unrest as a result, which in turn could have an effect on the tanker market. In general, whilst drawing no firm conclusions, he predicted that the fall in oil price would affect all in shipping, from eco ships to the effects of a boost in world GDP, to the decline of the use of alternative fuel sources as oil becomes cheaper. Things are changing very quickly. Mr. Simon Ward, FICS, Director of S&P at Ursa Shipbrokers began his presentation with a look at how prices for dry bulk carriers had evolved over the last 40 years, but in particular how they had reacted to the commodity super cycle driven by China. He then went on to look at the prospects for the health of the market in the coming years. He was bearish in his outlook, suggesting that over supply (driven by over ordering in the last few years) would far outweigh the growth in demand for cargoes, and we can look forward to a very volatile market at best, and a crippling shipping recession at worst. There was hope for shipowners with cash to buy ships at lower prices and better specifications as time goes on. He also reiterated his conviction that the Greek shipping community was well placed to take advantage of the coming crisis by sticking to the things they do well, and will emerge stronger than ever. Once again, the year’s proceedings closed on a celebratory note with the award ceremony, where candidates thatparticipated at the April 2014 ICS Examinations, were honored for their outstanding performance. The candidates distinguished internationally were: Ms. Evangelia Platsidaki, Norton Rose Fulbright, Mr. Efstratios Skrimizeas, SSY London, Mr. Dimitrios Stamatis, Hellespont Steamship Corp., Mr. Nikolaos Vasilatos, Vita Management and Ms. Ioanna Nalmpanti, Piraeus Bank. Also, the ICS Greek Branch honoured Mr. Michael Bodouroglou and Mr. John Platsidakis, who were recently elected as Honorary Members of theInstitute of Chartered Shipbrokers. The Institute of Chartered Shipbrokers Head Office bestowed a great honor upon them for their great support and contribution to the Institute’s aims and values. Honorary Membership is the highest honour bestowed by the ICS and they are the first Greek shipping professionals to be elected.  The 10^th Annual Forum of the ICS Greek Branch was held with the kind contribution and support of the following sponsors: AB Maritιme Inc , ACROPOLIS CHARTERING & SHIPPING, Box Ships, Capital Shipmanagement, Chios Navigation Hellas, Clarkson Hellas, Eastern Mediterranean Maritime Ltd., Element Shipmanagement, EUROPEAN NAVIGATION INC., Gac Shipping S.A., Hellaschart Ltd, Holman Fenwick Willan International LLP, Marine Plus S.A., Marshall Islands, Norton Rose Fulbright, Paragon Shipping Inc., Prevention at Sea, Seanergy Maritime Holdings Corp, Springfield Shipping Company, Target Marine S.A., Thomas Miller (Hellas) Ltd/ UK P & I Club., Trafigura Maritime Ventures, Tsavliris Salvage Group, Ursa Shipbrokers