The second of February could become known in the future as Black Friday for the traditional powerhouses in ship finance. It was 11 days ago that Shipowner.io was launched claiming to be the world’s first distributed ledger platform for participation in capital financing of assets and services in the maritime industry.
“Anyone, anywhere at any time can participate in any part of the capital structure backed by real world maritime assets and services,” the team behind the new shipping blockchain initiative wrote in a release.
Shipowner.io has been developed by the AlphaSeas Group, led by Mitul Dave, whose past employment included stints at DVB bank and GE Capital.
Access to this platform is via SHIP (Shipping Industry Participation) tokens created on the Ethereum blockchain.
In an interview Dave explains the genesis for this landmark blockchain moment for shipping. In the middle of last year he and his business partners at AlphaSeas Management were working on some vessel re-financing projects. Vessels were owned by small / mid-sized shipowners based out of North Europe. The underlying collateral vessels were on contracts of affreightment with some decent charterers. Under usual circumstances this would have been a run-of-the-mill deal which would be picked up by one of the usual suspects in the ship finance world.
“But,” Dave relates, “to our shock and deep disappointment, those very same institutions came back with vague – and sometimes not very intelligent – reasons to kill those deals.”
Most of the reasons boiled down to the size of the balance sheet and whether those shipowners were known names.
The owners had no choice but to liquidate their assets as balloons were coming up for re-financing. In fact a couple of ships got scrapped well before the end of their technical lives.
“Decent folks lost their jobs,” Dave says.
He later found out that the acquirer had been provided a so called ‘hunting license’ by the very same financial institutions. Dave and his team went through the numbers and on a per unit basis and found that his client was a much better operator – technically and commercially – than the larger player who is a relatively new entrant in the specific commodity space.
Why would the acquirer get the finance and not a better operator? Was it because they had some influence over the decision making process of the bank? Or was it because the ones making the decision were simply not thorough enough? Or was it because regulatory pressure had literally forced these financial institutions into a corner where a little tick box defined how capital would be allocated to the lifeline of global trade, instead of making rational, transparent decisions?
Whatever the reason, for Dave the end result was simply unfair.
After the financial crisis of 2008-09, the woes of shipping finance have been well documented. The focus was always on big news – this bank has ‘x’ loan loss provisions or some other one is failing. Hardly, anyone focused on why that was happening, more often than not blaming it on the easy target – the market cycle.
“We had faced it first hand so we knew, but the world seemed oblivious to this issue. We looked everywhere to see if there were others who were affected by this, and if anyone was trying to find solutions to the problems of a lack of capital, a lack of diversification possibilities, a lack of transparency and most importantly a lack of trust,” Dave recounts. The initial response he got from shipowners was overwhelming.
“The situation was far worse than we had faced and in some cases, people were simply shutting their businesses because shipping was no longer viable for the small to medium sized shipowner,” says Dave. “Worse still, the largest companies were consolidating at breakneck speed, gobbling up anything that they perceived as competition, not on the back of superior operations but on a perpetual high provided by their finance masters. This movie was not going to end well. How could one be sure that behemoths that were being created were not going to fail, as was being touted as reasons for the very consolidation? And then came Hanjin’s ‘overnight’ collapse. Interestingly a rating agency had rated them investment grade about a month before they went belly up.”
Dave and the team at AlphaSeas decided the time was ripe to shake up ship finance in a dramatic fashion – to democratise this conservative field. Blockchain was the solution they settled upon.
Participation in the new platform is broken down into very small fractions, down to as low as $100 or lower, depending on the underlying asset or service, versus traditional financing routes, which involve millions of dollars per ticket, usually provided by large liquidity providers such as banks, private debt players, high net worth individuals and other financial institutions.
The new payment method “democratizes the way ships are owned, bought, sold and operated”, the launch press release claimed.
In its current avatar, Shipowner.io tackles the flow of capital and to a certain extent the flow of information. The company’s next foray will be in streamlining the flow of goods and services. Subsequently, Dave and his team plan on making these ecosystems ‘talk’ to each other.
“Our proprietary artificial intelligence systems will be playing an increasingly important role in how vessels will be selected for financing, how they are managed, how their commercial and technical operations are rated for the benefit of our user community, how information on cargoes for vessels that are part of the shipowner.io ecosystem is shared using CPFR (collaborative planning forecasting and replenishment) techniques, and most importantly how can we make this space even more liquid,” Dave says.
The day is not far, he maintains, when you could participate in Shipowner.io, get your online wallet connected to a payment card or account, and use that card to buy anything, even groceries just delivered by the reefer ship that came to your port.
The company is also exploring prototyping processes where Internet of Things (IoT) systems could be embedded into the operations of vessels in the ecosystem.
“With technological advancements in the fields of autonomous and green transport modes, combining Shipowner.io‘s capability with IoT could be the next wave of technological change, that is currently not getting enough traction due to a lack of support. Very soon, Shipowner.io‘s users will have the opportunity to make their preferences known, on what change they want to see in the industry, and actually drive that change,” Dave says.
Prior to co-founding the AlphaSeas Group, Dave served as head of marine business risks at GE Capital. Before that he served as SVP at DVB Bank. He is a shipping man through and through having started out as a cadet, before rising to chief engineer and then working as a ship construction project manager at yards in China and Japan.
Dave has advice for those he has left behind in the old world of ship finance.
“The old ways of doing business are behind us. I used to be there, so I know,” he tells Maritime CEO.
“Banks need to start thinking about doing stuff that they were created for in the first place – allocating capital efficiently to the best projects and doing that in fully a transparent, fair manner,” Dave concludes, adding: “Until that happens, I’m afraid they are either on a slow trudge to Davy Jones’ locker or preparing to walk the plank in shark infested waters.”
Shipowner.io has already secured commitments in excess of $200m for marine assets and services which are looking to raise finance via this new channel. The target is to finance $14bn of assets and services by 2023.