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Shaking It Up
By George Weltman
This year’s group of participants in our annual shipping rankings was shaken not stirred. Through both action and inaction, our grouping was radically reduced this year from 100 participants last year to 88 this year. Accounting for most of the decline was a delay in filling year-end financials. While we delayed running the rankings model to the last possible moment, we still ended up missing Euroseas, Gulf Navigation, MISC, PT Berlian Laju Tanker, Sinotrans, Omega Navigation, Stealth Gas and NewLead Holdings. Absence does make the heart grow fonder and we hope to see their return next year.
In other changes, Platinum Equity took American Commercial Lines private and re-named it Commercial Barge Lines. As a consequence, it fell off our list and we replaced it with Seanergy Maritime Holdings. For some unforgivable reason that company, which had its roots as a blank check company, fell below our radar and should have been part of the rankings since 2009, its first full year of operations. We apologize to Mr. Ploughman and Ms. Anagnostara for the omission and hope its inclusion this year and going forward makes up for it.
Citi and CICC for SITC in Hong Kong – IPO Award East
By Rodricks Wong
In the aftermath of the financial crisis in America, there was the formation of something of an “America Inc.” as firms from AIG to General Motors were bailed out by the government. The was highly controversial among Americans, as it was across the Atlantic in Europe. For much of the world, though, the concept of a business economy that is closely integrated with the state is more widely accepted and extends even to notoriously roguish shipping lines. China Inc. may include COSCO and CSCL, Japan Inc. the likes of NYK and MOL, the list goes on.
As such these companies are quite a lot less roguish than many of their counterparts, and also benefit from implicit state guarantees. This make their access to capital in the domestic market extremely competitive. This can be seen as virtues or vices depending on your perspective. While it encourages a certain higher level of responsibility, at the same time it tends to discourage more competition in the market as older players are universally preferred to and favored over new players. This has the unintended consequence of stifling competition and allowing established players to become less competitive as they enjoy unparalleled access to finance and new business.
Triage in the Trough – Advantaged Alternatives in International Marine Insolvencies
By Jovi Tenev, Holland & Knight LLP
–The author gratefully acknowledges the assistance of his partners
Nancy Hengen, Brad Berman, Jim Hohenstein, and John Monaghan.
For an industry characterized by as much financial volatility and extreme cyclicality as international shipping, it seems rather remarkable that, historically, relatively few international shipping companies have sought bankruptcy protection in the United States. The increasing recent US bankruptcy filings by international shipping companies may signal a maturing of how this industry treats financial distress, perhaps now finally following an approach to insolvencies, quite common in other businesses, that is more orderly, holistic and can maximize value.
Build It, But Will They Come?
Port Development as a Harbinger of Growth in Shipping and the Gamble Ports are Making
By Alfred J. Kuffler1, Montgomery McCracken Walker & Rhoads
For a very long time, now, the news unrelentingly reports financial disasters – plunging freight rates, collapsing vessel values, failing companies, laid up vessels by the hundreds, and the demise of numerous shipping ventures.
But, though cold comfort to those who have seen the recent economic cycle destroy their fortunes, for the longer term, port development projects already under way and those in the planning stage are based on forecasts of increased trade and therefore substantial growth in ocean transportation.
At least in the United States, a sure sign of long-term growth may be found in port development projects concentrating on container traffic. This segment of the industry accounts for about one third of the waterborne export and imports in the US Deutsche Bank’s RREEF division produced a study in April 2009 cataloguing major port expansion projects in Hampton Roads, Virginia, Savannah, Georgia, Miami, Florida, New Orleans, Houston, Oakland, Tacoma, and Seattle as well as Prince Rupert and Vancouver, British Columbia. The same paper reported industry projections that U.S. west coast container shipments would triple in twenty years. Likewise, the Port of New York and New Jersey is projecting a doubling of container volume by 2020. The writer can add that the Delaware River is witnessing similar development under the aegis of the Philadelphia Regional Port Authority which is overseeing $600 million of development on the Philadelphia side of the river while New Jersey is developing a facility from scratch in Paulsboro.
Containership Size Trends and Lessons from the Airlines
By Peter I. Keller, Peter I. Keller & Associates LLC
The debate over vessel sizing has been intensifying, especially as we consider the expanded capability of the Panama Canal in 2014 and the current order book.
We would venture to say there were many that said the early C4 conversions of Sea-Land that carried 360 35 foot containers were too large and the “jumboized” version of the C4 with 620 boxes was akin to commercial suicide. Today the debate rages on, as carriers now consider the 20,000 TEU threshold, although one can presume it has been virtually crossed with the 18,000 TEU vessels currently on order.
How big is big enough and how big is too big? Within the industry the justification for larger is basically premised upon slot cost economics and the fuel cost per slot. Many argue that the increase in fuel costs outweigh capital costs associated with new, larger vessels. While this makes some sense on the face of the argument, have these carriers also considered the capital costs associated with building larger terminals, bigger cranes and deeper harbors? When considered in its entirety, the costs far exceed the cost of the vessel. Have lines really considered the questions of productivity at terminals and the ability to accumulate and then vacate 8-9,000 individual container units to and from a pier facility in a matter of days? How about the millions and billions for road and rail infrastructure to support dollar savings in cost per container for the vessel and fuel?
Delivering Long-Term Results
By Dudley Holt
As the books close on a year of bankruptcies and restructurings, we should not lose sight that some maritime transportation companies continue to thrive, and for these companies the current market conditions present opportunities for accretive growth. One such company is Kirby Corp, a Houston-based company that has created significant shareholder value. An investor who purchased a share of Kirby 20 years ago would today have an IRR of 15.37% based on the December 16, 2011 closing price of $63.36. Growth through acquisition has been a significant driver, but at the heart of the Company’s success has been a disciplined acquisition strategy and a commitment to maintain a prudent capital structure to handle volatility and survive pro-longed downturns. For insight on how the company has achieved its success, we spoke with Kirby’s CEO, Joe Pyne, who has been with Kirby for more than two decades. His comments were enlightening.
First, for those not familiar with Kirby Corporation, some background: Kirby is publicly listed on the New York Stock Exchange under ticker KEX. The company’s market capitalization was $3.45 billion as of December 14, 2011 is with total revenues of over $1.1 billion in 2010, derived from two business segments. Kirby Marine, which is focused on the transportation of bulk petroleum liquids with tank barges along the US inland and coastal waterways and accounts for 65% of 2011 estimated revenues, and Kirby Engine Systems, focused on diesel engine services and remanufactured parts, and ancillary products, which accounts for 35% of 2011 estimated revenues. Kirby is the largest tank barge operator in the US (by fleet size), and through its diesel engine services segment, the company is the leading after-market service provider for medium and high-speed diesel engines, also acting as a distributor and servicer of high-speed diesel engines and related equipment. In this segment Kirby also manufactures oilfield service equipment, including hydraulic fracturing equipment, for the land-based pressure pumping and oilfield services markets.
Shipping Restructurings: Is Alternative Capital the Solution?
By David Hilty, Bruce McDonald and Gavin Kagan, Houlihan Lokey
Shipping companies are facing headwinds from low day rates and lack of abundant credit from traditional capital sources. This article will review the situation, help identify alternative capital sources and discuss their propensity to invest in the sector.
Where are we now? Day rates are very low and have been so for some time. This has caused certain companies to be confronted by pending liquidity pressure while traditional capital sources such as bank financing and public capital markets are unfortunately not readily available. Numerous shipping companies are therefore seeking alternative sources of capital.
Is Now the Right Time for Opportunistic Shipping Investments?
By Andrew Hampson, Managing Director, Tufton Oceanic Asset Backed Investments
As economic fears increase globally and high profile maritime restructurings are increasingly evident, is the time right for opportunistic investments into shipping assets?
Tufton views the maritime industry as capital intensive, highly cyclical, generally fragmented, specialized and, in the main, has limited access to public capital markets; and this is in “normal” times. In times of distress such as we have experienced over much of the last three years and in particular the last few months, this situation is markedly worse for the industry, due to a lack of traditional bank debt, weak cashflow and strained balance sheets. With increasing pressure on most of our sectors’ lenders (many of whom are European) due to domestic turmoil, political and regulatory pressures and three years of deteriorating portfolios, over the past few months we have seen a sharp upturn in the number of high profile restructurings and forced sales in both the public auction and private second-hand markets. Although there was a similar brief flurry of such activity in late 2008, the current level of activity has not been experienced since the early 1990s.
An Investor’s Perspective on the Shipping Industry
By Wilbur L. Ross, Jr., Chairman & CEO, WL Ross & Co.
Editor’s Note: This is the text and ensuing Q&A from a speech given by Mr. Ross on November 10, 2011 at the Harvard Club in New York in conjunction with a Marine Money forum.
Thank you very much. Nice to have such a stirring eulogy while you are still alive and can enjoy it. Having heard the caution of the prior panel, I now understand why I was scheduled to be here before lunch, because they assumed I’d say at least something upbeat. They’re right, but you probably came here today somewhat curious to learn why our firm has gone into marine transport in a big way.
You already know we’re not Norwegian or Greek in heritage, and don’t even speak either language, and some of you may have heard that I once became seasick on a yacht some years ago. Despite all that, you do know that we invest in distressed companies, so that’s obviously part of the explanation, but there are lots of distressed industries, so why shipping? The 40,000 foot level answer is our belief that internationalization is the most powerful force in the world economy and will continue to cause standards of living to rise in the emerging countries, and in such countries with very low per capita income, rising standards of living basically mean only one thing: increased consumption of commodities, and it is the merchant fleets that haul these commodities as well as the finished goods emerging countries export. Because of this two way commerce between developing and developed countries, world trade consistently grows faster than the world economy, and will propel marine transport growth over the long term.
Chapter 11 – Liberation or Suspended Sentence
By Stephen Drury and Jasel Chauhan, Holman Fenwick Willan
Two thousand eleven has seen the insolvency of several shipping concerns. The boards of companies holding tankers and containerships in particular have watched their earnings decline to a level insufficient to service debt, leaving in prospect but one apparent alternative: wholesale repossession, foreclosure and liquidation.
In many jurisdictions the survival of an enterprise in such circumstances is neither realistic nor possible without the unanimous support of creditors. In the mid 1980s, a time of similar crisis in the shipping industry, there were some bold and dramatic restructurings, having as their ultimate and fortunate result the full payout of the institutions and investors concerned. Those rescues were, however, entirely consensual.
In recent months a number of highly leveraged shipping concerns have turned to another potential survival strategy by making applications to US federal bankruptcy courts for their reorganization under Chapter 11 of the US Bankruptcy Code: including as part of the relief provided the immediate and complete protection from further creditor action. Filings by Omega Navigation (in Houston on 8 July 2011) and Marco Polo Seatrade (in New York on 29 July 2011) have been among the most widely reported instances of this strategy.
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