The actual norm of shipping being a high risk, specialised business has been widely ignored, argues the head of one of Hong Kong’s most venerable shipping lines in today’s regular Friday shipowner interview.
Kenneth Koo is the third generation at the helm of the 100-year-old TCC Group, a company currently in the midst of a notable fleet rejuvenation plan that will see his fleet become more evenly split between bulkers and tankers.
“We’ll never be big, just consistent and steady,” Koo says, stressing that TCC never wants to go above 20 ships in fleet size. “We build ships to focus upon offering specific solutions for our long term business partners. We won’t build just to expand our fleet,” he adds in a veiled swipe at many of the new generation of shipping investors, a particular bugbear Koo is well versed about.
“Shipping has become another victim of commoditisation,” Koo moans.” With QEs still running more or less at full tilt and interest rates still at all time lows, short term views and ships as a commodity will still be the norm. Entry barriers into shipping are still very low since the burden of managing one’s own fleets are no longer resting with beneficial owners. Therefore, the actual norm of shipping being a high risk, specialized business has been widely ignored,” Koo elaborates on his favoured theme.
On dry bulk, Koo, whose business ties are heavily linked to Japanese trading houses, has long been sceptical of the argument that China is and always will be the bastion of hope for the sector.
“The advent of major raw commodities like iron ore being shipped in valemax bottoms after the relaxation of the restrictions of such tonnage entering China, coal being progressively banned as an energy source and container ships becoming ever more massive, that window of hope for China as the inexorable appetite to appease is becoming more myth than fact,” Koo tells Maritime CEO, adding: “The fact that shipowners and shipping funds are still investing in ships based upon putting all their proverbial eggs in the China basket will mean overtonnaging will continue to be the norm.”
Koo believes that dry bulk freight rates and time charter rates are now inching back to the realms of the late 1990s. “Perhaps there is a light at the end of the tunnel,” he says, before cautioning: “But cheap money still abounds so it won’t take much for this small window to be saturated again.”
Koo is also pouring caution onto the tanker trades.
The days of transatlantic trades bringing West African crude into the US east coast have dwindled, he notes, while the shutdown of refineries along the US east coast, Europe and Australia means trading patterns are changing.
“The jury is still out on US oil exports despite the hoopla on the initial VLCC shipments out of the US Gulf,” he says. “Refining capacity now centers in India, China and the Middle East. The much-heralded LNG and LPG trades are itself mired in overtonnage situations while oil majors are still not the gung-ho type operators taking in massive amounts of tonnage. China is again seen as a salvation but I do question how reliable that is with Chinese state owned enterprises building up their own tanker fleets.”
Salvation for shipping could come from the regulators, Koo hopes and believes.
“Believe it or not, I would say regulatory compliance pressures could be beneficial,” he maintains, explaining: “IMO requirements for the outfitting or retrofitting of water ballast treatment systems for new and old vessels respectively. And the requirement to fit scrubbers into newbuildings will become barriers of entry into the shipping market as well as a factor to force owners of older tonnage to scrap their older ladies. The fact that the freight market for both dry bulk and tanker markets remains low is a blessing in disguise because cash flow earnings simply cannot sustain the big bucks necessary to pay for these big ticket items.”
Unlike the mid-1980s when Koo entered shipping, these days there are very few actual bankruptcies, which has prolonged the downturn.
“Bankruptcies are no longer fatal,” Koo argues. “Debtors can file for Chapter 11 and come back to do what they’ve done before. The abundance of floods of cheap money means vulture funds will continue to snap up dirt cheap shares of collapsed companies leading to the advent of, what I call, ‘zombie companies’ that cannot be shot down. Mergers will no doubt help but, at this point, the focal point are still on the container liner operators. For dry bulk shipping, yards are trying to survive by quoting dirt cheap prices to build ships just to keep themselves alive and there are still enough cheap liquidity in the market that many funds will be tempted to speculate on. The advent of leasing schemes led by many Mainland Chinese banks makes matters even worse.”
Koo concludes by saying: “Accountability is a core value that is not seen so much nowadays in the shipping industry.”