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.