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Overthinking it: Some notes on investing in shipping for those that don’t

Charlie Du Cane, commercial director at Seastar Maritime, gives advice on how to make money investing in our industry.

Shipping is in danger of being back in vogue for investors. Why? First, all industries give off a ‘noise’ that the broader world can hear. For us it has been a 10-year death rattle that has recently changed into something slightly more optimistic. Secondly, as the industry looks towards a greener future, whatever that means, so too does it become more attractive in ticking some of the non-quantitative boxes that institutional capital wants to tick. Have a look at Scorpio, or whatever it’s called this week, and you will no doubt understand that part of their purpose is a virtue signalling exercise to the ever expanding pool of capital that is looking for sustainable investments. Thirdly, the soon to be smooth transition from quantitative easing to modern monetary theory, basically limitless printing of money as long its value is controlled by the printer, is going to make capital look further and further up the risk curve to get a return.

On these bases, shipping will end up seeing more and more money not seeing it as a risky proposition, which of course runs the risk of making shipping more risky for investors. This logical conundrum is not new, shipping always looks like an attractive proposition to capital when it’s short of capital, but the very act of investing tends to destroy its attractiveness as a proposition.

So what advice should one give a would-be investor? There is all the obvious advice: understand what discount to newbuilding parity is; understand the difference in buying steel and buying publicly traded stocks; understand the basic supply and demand fundamentals that one would imagine are common to any investment in any form of capital goods.

More important, but less obvious, is that shipping is not so much an industry, as a series of interconnected, but highly fragmented sectors that need completely separate models of analysis if one is to successfully invest.

That doesn’t always apply of course. Saying the only thing a VLCC and a capesize have in common is that they float is to only look at what they carry. Actually they have much in common, from shipyards, to crew and onboard technology, and they also tend to react in similar ways to market inputs because they are carrying large volumes of the same cargo on quite restricted routes.

Where it gets much more tricky for an investor is when you get into the smaller ship sizes and out into the more niche businesses, because what makes them tick as sectors can be very complex, and there are a host of non-market related reasons for how one can get one’s fingers burned. Trying to take the rationale to buying a bulk carrier and applying that to the offshore wind sector will likely end in tears – one operates in a highly liquid market with both asset and chartering driven by actual demand- whilst the other is in an emerging but highly restricted market place that is driven largely by the political imperative to reduce global carbon use.

So where does the by now confused investor start if he still wants to invest in this maze of uncertainty? I think there is a simple rule of thumb. Look at the people you are dealing with. You will likely be investing through a management company, and I would only look at such companies whose core team have a significant track record in the particular sector you are looking at. If they don’t or they have bounced around sectors with mixed results, don’t go near them because they are probably as ill-advised as you are as to what really makes the sector you are looking at tick.

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