April 29, 2010

The recovery position.

Economies across the world seem to agree that the worst is behind us, although the regular sceptre of countries on the verge of financial meltdown is worrying. The impact of the Greek fiasco, with its owners controlling a large chunk of the global shipping fleet, is likely to be more deadly than earlier ones like Dubai, Iceland, Ireland and others, one would have thought. Not so, say recent reports, saying that the Greeks may have spent up to $2 billion dollars this year on newbuilds. Their economy is in a mess but not shipping, apparently. Other reports say that Maersk has 64 vessels on order. The savvy Evergreen Lines, with no tonnage in the pipeline, may order up to a staggering hundred ships over the next couple of years, we are told.

Chinese and Korean shipyards are seeing renewed interest and an uptick in business. (Pipavav shipyard, on the other hand, faces a possible cancellation of a dozen ships ordered by Greek owner Alba Maritime because the yard has ‘technical problems’- a euphemism for manpower, crane and dock commissioning issues, says Motorship. Fears of the yard losing other business worth millions of dollars have been expressed).

Worldwide, container ship layups are down, which is another good sign, even as some analysts warn that these figures should not been taken in isolation and that there is still some pain left in the system. So too for tankers and bulkers, although conflicting opinions bristle here too, with some saying that no real recovery can be expected until 2011. The encouraging thing is that not too many people are talking about a double dip meltdown any more, and neither are there many voices predicting a prolonged multi-year gloom and doom scenario or even a snail paced and L shaped recovery. Big hiccups aside, things are looking up. The zillion dollar question is, of course, looking up for whom?

It appears to me that at least some operators are simply chasing low asset prices, treating a ship like a stock market scrip that will be bought cheap and sold when prices rise, sometimes without even taking delivery of the tonnage. These souls are most dangerous for the industry: they either are bankers or controlled by bankers who often have a streetwalker’s commitment to shipping. If their numbers or their money is high enough, they can easily create an asset bubble with disastrous consequences, as we have seen in the last couple of years. Even major shipowners who are looking long-term can contribute to a crash. We have seen that too: asset prices crash also because there is, simply, an absence of buying by major shipowners. Evergreen, again, is a case in point. This is, to an extent, a function of demand and supply; my contention is that a skewing of the matrix is more easily possible when there is unconfirmed underlying strength.

This fundamental strength has to be sustainable freight rates, for the mathematics of an enterprise must make sense for it to thrive. An explosion of orderbooks, as an example, will mean nothing if shipowners cannot make a profit out of delivered tonnage; the same yards jumping for joy today may find their very existence threatened if a bubble is first formed that later bursts. I must say that I am not convinced that large shipbuilding orders are a good idea when a significant amount of existing global tonnage is still underutilised; it seems too risky. It is a sad commentary on the times that people with no commitment to the industry- those who will take the money and run at the first sign of rising tonnage prices - are the only people who benefit from any asset bubble.

One result of all this is that many shipmanagers, including some of the largest, have resumed their litany on officer shortages; these voices were muted in the last year or so, though the right noises were always made. Most of these folk are very smart and should know what they are saying; a few are even committed to the industry. However, I would advise caution to my colleagues who are either sailing, or potential freshers working out their cost benefit analyses based on present salaries and projected shortages.

This is why I say so: First, any projected shortages and future tonnage figures are just what they claim to be: projections. Second, a shipowner cannot pay you wages (high, low or none) unless he is making an appropriate profit; he is not running a charity. Third, an asset bubble, if at all formed, can hit your job directly; laid up ships do not require the same levels of staffing. Fourth, even excellent shipowners and managers have a stake in flooding the industry (if they could) with officers, for the simple reason that they can then lower- or at least control- wages. Additionally, they do not really pay you when you sit at home, rejoining bonuses et al notwithstanding. (That said, find those excellent setups, and perform so you can stick with them! Good for you, good for them, and even good for an industry that thinks poaching is HRD.) Finally, realise that many Indian cadets and trainee ratings are routinely paying middlemen for training berths on ships today. Disgraceful reality, but there it is: the only industry I can think of that tom-toms officer shortages while asking for money from recruits to address the same deficit.

Which reminds me. A small question for those that have tonnage on order, or are planning ship acquisitions. How many of these ships, may I dare ask, have training berths for officer and rating trainees? Do they even have provision for trainee cabins, leave alone appropriate certified safety capacities?

Shipping, can you speak a little louder, please, because I can’t hear you.