The traditional start to any Maritime CEO Forum around the world is to get an analyst in the hot seat for a quick fire 30-minute Q&A to set the markets scene for later panels. In Hong Kong this week, organisers kicked proceedings up a notch by inviting the legendary shipping investor, Paul Over, on stage to give delegates attending the exclusive shipowner gathering a masterclass in shipping over the last 40 years.
Over co-founded Hong Kong dry bulk concern Pacific Basin with Chris Buttery and has since taken directorships at Taylor Maritime and Asia Pacific Maritime.
Over used the Maritime CEO platform to discuss how shipping has changed since the 1980s as well as making a public call to shipyards to up their game when it comes to ship design optimisation.
“I think we are suffering now from the hangover of the private equity period. The way you make money in shipping will be different to what it was before,” Over said in opening comments before going on to discuss the decline of the smaller shipowner.
“Smaller shipowners have dropped away completely and dramatically throughout the world and that is because of all the challenges they face when trying to run it as a mom and pop type operation. It’s a hell of a struggle to raise debt, to operate and complete against the big players,” Over said.
The UK national then went on to a pet topic of his, namely the growth of so-called zombie shipping companies, cluttering up the world’s oceans.
“After the big boom in shipping,” Over recounted, “there came the global financial crisis and then there were lots of empty shipyards and our friends in private equity came in to try and build 1,000s of ships and those ships have never, nor will ever, make any money and also they were not a terribly refined product themselves in terms of ship design and all the rest of it. So inevitably you had the people who ended up owning and trying to operate and make a profit from those ships, they had to hold on to them for much, much, much longer than they expected and that is the sort of zombie situation I am talking about.
“Because interest rates are incredibly low, because banks do not wish to take the write offs that they would otherwise have to do these things have persisted for years and years and there has been no clear-out. My message to the shareholders and the banks is to get on with clearing out those ships because you will have to do that or else it will come to a position where the ships will have to be scrapped.
“I don’t like it because it is not efficient in any respect – big teams running small amounts of ships clogs up the system.”
Over and his old friend Buttery came up with a new business model for the handy and supra sector when they founded Pacific Basin in the 1990s, something that others have since copied.
“People like MUR, Norden and Oldendorff have adopted relatively similar business models to find and have access to cargo, do contracts of affreightment and then have various ways of financing those ships, not only owning them, but hiring them in for seven year charters or whatever from Japan,” Over told the exclusive gathering.
Getting back to the decline of the smaller owner debate, Over looked at how Pacific Basin has invested massively in IT, something others cannot afford.
“Pacific Basin has spent considerable amounts of time now developing IT to find cargo which is all new and that is the way of the future and anybody who stands – relatively speaking – in the way of that will come out second best. You cannot be a smaller owner with a number of small ships and hope that you do a quick in and out on the capital gain of a deal. What you certainly can’t do is tramp your ships around because your access to information is so completely narrow – it is much smaller than the big operators. It is amazing for me how little that is understood. I’ve met many small owners around the world who say they have their friends, the brokers, who will give them deals and they know their way around but if you look at the information flow the chartering manager of one of these bigger operations has got a ton of stuff to make a decision against which the smaller owners do not,” Over said.
Over dismissed talk that he and Buttery made many of their decisions on gut feeling, saying that ever since he had worked at Jardines in the early 1980s, any business decision had to be backed up by significant market research and analysis. What was also vital for the success of any shipping company, he argued, was to have a sound business set of goals, which, importantly, are flexible.
“We had a set of rail tracks that we were going to follow but importantly as things change you have to change,” Over said of Pacific Basin’s first few years.
When Pacific Basin was originally set up in 1999 after the Asian financial crisis it bought a fleet of handysize bulk carriers at depressed prices. Secondhand prices very quickly came back up and then top management found themselves going back to its investment base and persuading them that actually newbuildings were the way to go. Then 9/11 came along in the US, and investors were worried what the company would do with all its brand new vessels.
“We decided to launch a pool, change our chartering completely, go for COAs. You have to have a flexible business model, you have to have research and so I don’t believe – I get irked when people say it is gut feel,” Over said.
From the floor, Clarkson Research Services president Dr Martin Stopford quizzed Over on the rationale for pushing Pacific Basin into a Hong Kong listing.
“We wanted to become bigger and better with more liquidity and the argument came out for lots of reasons that if you treat public companies as just a useful vehicle for expanding capital and growing the business they are a very good direction to go in so when we listed Pacific Basin in Hong Kong we spent a number of years growing capital, getting our finance cheaper, expanding the business scope and growing our fleet so there were not that many sellers at the time of the IPO so when the shipping market boom came about we were vastly more profitable for the benefit of everybody than we would have been,” Over said.
The discussion at the Foreign Correspondents’ Club in the heart of Central, Hong Kong then turned to another pet topic of this particular shipping veteran, namely ship design optimisation – or the lack thereof.
“All shipyards talk about optimised designs, how adaptable and how wonderful they are, but there is a lack of intellectual vigour put into design of ships,” Over maintained, adding: “It always seems to be amazing how shipyards will develop new designs and they will try to little bits and pieces but they do not seem to be too compelled to do too much, they will only do just enough. Shipowners order these ships without taking too much notice because the ships will generally do the job.”
Over said there was so much more that the yards could be doing to make ships safer, more efficient in port, using tugs less.
In a busy week for the shipping tycoon, Over was also one of the judges in the inaugural Captain’s Table – a maritime startup pitch competition held during a packed Hong Kong Maritime Week. Over’s strong technical knowledge – alongside his well known market nouse – made for some punchy back and forths between the entrepreneurs on stage and the judges this week.
The next Maritime CEO Forum takes place at the Fullerton Hotel in Singapore on March 17 next year.
The Maritime CEO Forum in Hong Kong was sponsored by American Express, Anglo-Eastern, Cobham, Dualog, Liberian Registry, Lloyd’s Register and Marlink.