For
shipping, the biggest impact of the financial crisis that began in 2008 has to
be the demise of the traditional shipowner. The biggest tragedy is that the whales the
industry welcomed at the time- private equity that shipping thought would be
its saviour, would fund it and refinance its loans after the banking system kind
of collapsed and cheap loans were no longer available- were, in reality,
sharks. That they would suck the lifeblood out of the traditional shipowners,
leaving them emaciated and bringing them to their knees.
Tens of billions of dollars have been invested by private
equity in global shipping since 2009. This
money – and more will come- controls shipping today. It is in command even where
it collaborates with brick and mortar ship owners. In any event, it is
speculative; private equity is an asset gambler and not a ship owner. It orders
ships recklessly, regardless, and will sell them as soon as it makes a profit.
Do not make the mistake of assuming it is a new kind of ship owner- we do not
call a speculator on the stock exchange an industrialist, do we?
This shark is the reason why, even after seven years of one
of the worst recessions on record, the industry still struggles- and no end is in
sight- with overtonnaging issues. It is the reason why this capital-intensive
industry has no clarity, amidst the volatile and wild ordering of ships that
continues still, on what might lie ahead. It is the reason why this cyclical
industry is struggling today to figure out what its future is. The main reason
why the industry’s confidence levels, as per a Moore Stephens survey that came
out this month, have fallen to the lowest rating recorded in the life of the
survey that was launched in- guess what?- 2008.
I am afraid that private equity funding is here to stay. Even
though some of these speculators have lost their shirts in the last few years,
there is- thanks to our penchant for printing more and more money in response
to a financial crisis- still a huge amount of cash sloshing around out
there. Unallocated billions looking to
be parked somewhere. Some of the private equity that is struggling today thanks
to its own miscalculations about shipping- a gamble gone wrong- will go public
and list on stock exchanges to distribute their losses- there are enough
patsies out there. Others, part of the too-big-to-fail old boy’s club that
controls governments, will either absorb these small (to them) losses or seek
bailouts, if it comes to that. After all, there is good precedent for this.
A secondary reason that private equity will remain in
shipping is that few alternatives offer the chance to these funds to get in and
out of an industry easily. Doing that will usually involve exit strategies, and
handling plant, machinery and labour. That requires managing labour laws if you
close down and exit. These folk do not
have the bandwidth, experience or expertise to do all this.
In comparison, shipping is easy. Put in a smallish (for these funds) amount to
buy a ship or ten; no questions will be asked about the provenance of the money.
Hand the ship over to a third-party manager. Let that entity operate the vessel
for as long as you decide it should. Sell whenever you want, relatively quickly
with low hassles. No laws seem to apply for either starting or shutting down
ships in this industry.
What about the labour when we shut down, you ask? What about labour laws- that are complicated
anywhere in the world, and make exit strategies a nightmare? What about the crews
on these ships?
Don’t make me laugh. Those crews are not valued assets,
despite what everybody mouths these days. They are contractual labour. Besides,
those same shipmanagers will tell us how to shaft the crews. They have the
required creativity and domain expertise to do so.
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