A Letter from the Editor

by Matt McCleery

Preparing our year-end issue is always a lot of fun. In a world that moves at a frenetic pace, having the opportunity to reflect on which events or trends of this year have left their watermark on the shipping industry always brings about a lively debate. Year-end tax-driven deals get coverage in January and most investors are protecting their markets, so December provides a good opportunity to both plan and reflect. As always, we have tried to develop the content of this issue to offer something to the owners, bankers, investors and lawyers who make up the majority of our subscribers.

Mr. Eddie Pollack…said that he should like to look in a crystal ball and see the future of shipping, but he was afraid that he wouldn’t be able to get the ball classed by Lloyd’s, approved by the U.S. Coast Guard, inspected by 15 oil companies, registered in Bermuda… Continue Reading

Solving Hanjin’s Riddle

It sounds a bit like a riddle: how can Hanjin develop a fleet of larger vessels, balance its present fleet with newly acquired DSR Senator and aggressively expand trade routes while raising cash during a severe economic downturn in Asia? While the question seems complex, the answer is rather straightforward: sell containerships to Greek owners while sweetening the deal with a few years of time charter cover. The buyers of the vessels are put in the fortuitous position of immediately having strong positive cash flow, a method of writing down the value of the vessel, and even an asset-play when the ships come off charter. And that is exactly what Hanjin has been doing, with verve.

The buy side of Hanjin’s recent ship sales is interesting for a couple of reasons. First, the Hanjin deal structure, perhaps exacerbated by the credit situation in Korea and the prospects of the container market, could be a harbinger of a developing trend in the box shipping industry. Next, it is our opinion that deals with forward charter cover will lower barriers to entry and expand the universe of buyers, a situation which may breathe some badly needed liquidity into the container market. Continue Reading

Managing Risks

Paper prepared by Jean Richards of Fairwind Shipping Ltd for the International Marketing Strategies Conference, “Navigating to the Top”, held in Washington, DC, on Thursday October 16th 1997.

Cash is King
Managing risk in the shipping industry should be and is no different than managing risk in any other business – it is essentially the control and management of cash. I learned a long time ago, when I worked as Strategic Planning Manager for Gotaas Larsen, the fundamentals of cash control. Gotaas Larsen correctly placed the emphasis on cash in the early 80s and this approach should not be varied whatever the market or the size of the company. Continue Reading

Looking Out for Fall-out from Market Meltdown

by K. K. Chadha, Hong Kong

Shipowners around the world should be looking out for the fall-out, if any, from the recent meltdown of currency and stock markets in Southeast Asia and elsewhere, which left most regional currencies weaker but made economies more competitive.

“The good news is that Southeast Asia has rediscovered its competitiveness,” said Niels Kim Balling, a spokesman for Hong Kong-based Orient Overseas Container Line. “It [the meltdown] should be good for the region in the longer-term,” he said.

The currencies of Thailand, Indonesia, Singapore, Malaysia, the Philippines, Taiwan and South Korea are much weaker now than three months ago. He said the regional economic situation was a bit chaotic but would not affect container volumes on a global scale because Southeast Asian economies, as well as those of Taiwan and South Korea, were still export-driven, and demand for their products in the OECD countries as a whole remained strong. Continue Reading

Future Threats & Strategies: Charting a Course to Year 2017 (A Shipowner’s Perspective)

The following speech was given by Roger Hancock, Executive Director, Osprey Maritime Ltd., Singapore, at the Bermuda International Shipping Association Conference held in Bermuda on October 8-10, 1997.

I am delighted to have the opportunity to speak to you today and focus on the risks that we as shipowners perceive in charting a course for the future. I hope you will forgive me if I confine my remarks to the oil and gas shipping sector, which is our area of experience, rather than attempt to provide a view covering all types of vessels.

It is significant to note that most of the risks I have identified have strong technological undertones. At Osprey Maritime, we derive considerable comfort from this fact in that the technological influences can be both creative and obstructive. It is my belief that those who plan ahead and adopt a constructive approach will successfully navigate the shoals and be able to turn the threats to their advantage. Continue Reading

Fred. Olsen Energy: Lessons in Building An Order Book

by Alan Ginsberg

The recently established Fred. Olsen Energy AS is a pure play on the buoyant oil and offshore markets. The Company has been cobbled together by combining the offshore drilling, floating production, engineering and manufacturing interests held by Bonheur ASA, Ganger Rolf and First Olsen Tankers Ltd., all publicly listed Norwegian corporations in the Fred. Olsen sphere. Concurrent with the restructuring which began earlier this year, was the settlement of a long-simmering public dispute between Fred Olsen and his younger brother Petter over control of their father’s empire. 6,362,500 shares (approximating 10% of the Company, assuming the overallotment options are exercised) have been transferred to Petter Olsen Trading AS.

The settlement is part of the recently completed 17,714,500 share global offering consisting of 15,300,000 new Ordinary Shares (including 2.3 million green shoe) and 2,414,500 shares being sold by entities which are part of the Fred Olsen sphere.  5,290,000 of the shares being sold are in the form of Ordinary Shares and American Depository Shares under Rule 144a of the Securities Act of 1933; the balance are Ordinary Shares. Continue Reading

Dry Bulk Carrier Oil Spill Generates OPA-Style Response

by Alan Ginsberg

I’ve just come back from Eureka, California where MTI, an affiliate of International Marketing Strategies (the parent of Marine Money) was providing the media response on behalf of a Hong Kong-based ship operator whose ten year-old handysized bulk carrier had spilled fuel oil into the water. The incident occurred while the vessel was shifting during the loading of a cargo of wood chips in the early morning of November 5th. It struck a cement piling, puncturing a small hole in a fuel tank, and proceeded to spill nearly 5,200 gallons of Bunker C into the Humboldt Bay, one of the state’s most environmentally sensitive areas. The response at its height brought in close to 400 personnel from around the country, not counting volunteers. The US Coast Guard and State Agencies sent their respective Strike Forces. SMQI Services, Inc. acted as the Qualified Individual and brought in personnel resources from all over the country. Clean-up contractors and their equipment were mobilized throughout the West Coast of the United States.

Initial reports of the spill were seen on CNN. No less than five television local stations, five local and San Francisco-based newspapers, and several radio stations have covered the spill. Media interest continued into Week Two. Continue Reading

Jones Act Product Tanker Outlook

Bind the hands of time back about three years and the Jones Act recipe sounded tasty; add one part Oil Pollution Act of 1990 (OPA) with its mandated phase-out of existing single-hulled vessels between 1995 and 2015, sprinkle in an aggressive marketing effort by the shipyards who were interested in developing commercial contracts, add a dash of US Maritime Administration’s Title XI financing program and sit back and wait for rates to go sky high. And wait. And wait. And wait.

What was missing from the Jones Act recipe was one important ingredient – demand.

While the strategy of capitalizing on the short supply of qualified vessels may have inspired a number of newbuilding orders, shipowners anticipated neither the impact of diminished demand for this new tonnage nor the precise dates when vessel supply would be reduced. Since 1994, rates have held at about $20,000-$22,000 for term charters of steam tankers while the spot market has recently dipped down as low as $15,000 a day. Continue Reading

Respectability: Bermuda’s Stock-in-Trade

It is no secret that Bermuda has become the domicile of choice for ocean shipping companies wishing to list equity and register debt on the US capital markets (see Chart 3). The oldest self-governing colony in the British Commonwealth is tax “neutral,” exempt from foreign exchange control, has a reputation for political and economic stability which is soothing to investors, and is so close to the US that one would have little trouble traveling from the island to New York for a breakfast meeting.

Bermuda is also well-known for its professional infrastructure – with a community of lawyers, bankers and accountants skilled in dealing with issues germane to offshore company administration and a government which is committed to ensuring a stable business environment. Even the time zone is ideal, with a geographic situation that allows the Bermuda-based company to do European business in the morning and American business after lunch. And then there is the golf… Continue Reading

Navigator Gas: Turning Project Finance on Its Head

Cambridge Partners’ most recent offering “Navigator Gas Transport PLC” was formed for the purpose of building and operating a fleet of five state-of-the-art 22,000 cubic meter semi-refrigerated ethylene-capable gas carriers. The Company states that these vessels will be among the “most versatile gas carriers in the world in terms of cargo options, ease and speed of loading and discharging cargoes and adaptability for route scheduling.” Further, the Company believes that the gas freight market represents “one of the most attractive sectors of the shipping industry in terms of its robust underlying demand growth economics and outlook for limited expansion in freight capacity.” Pretty heady stuff to lay on a high yield fund manager with bulging pockets.

We will be upfront: we make no bones of our concerns wherein a pure financial operator promotes a big money deal on terms that commercial banks would blanch at to construct a new class of sophisticated ships, demand for which has not yet been demonstrated in a market segment dominated by a handful of large, well-established owners at a shipyard which, while making progress, clearly is not in the same league as the more established yards building this type of vessel. Continue Reading