Splash’s market outlook series today looks at how shipowners will coalesce in 2021.
Will shipowning consolidation continue at the brisk pace it has in recent years? A glance at the stock prices of many smaller shipping companies would suggest the merger trend is ripe to continue in 2021. Today’s penultimate 2021 market preview assesses how shipowners will likely expand in the coming 12 months.
Morten Arntzen, executive chairman of Team Tankers International, is convinced that green requirements hitting the industry will drive inevitable further consolidation. Clients and bankers will make sure of it, he reckons.
“IMO 2030 and IMO 2050 are realities the industry must deal with and are best tackled with scale and resources, not just smarts,” Arntzen tells Splash.
The Poseidon Principles financial institutions and Sea Cargo Charter cargo interests are not interested in partnering with what Arntzen desribles as the “crippled and unwashed” shipping companies of the industry.
IMO 2030 and IMO 2050 are realities the industry must deal with and are best tackled with scale and resources
“They want scale and depth that can help them green their way to the future,” Arntzen says of the pioneering banks and shippers who are forcing shipping’s transition to a greener future.
Tim Huxley, the chairman of Mandarin Shipping, suggests that the winners from the current market conditions could be the administrators of pools, while also pointing out that shipping’s leading consolidator, Andreas Sohmen-Pao, is unlikely to stop his fleet merger plans any time soon.
“I can’t see the master consolidators, BW, going a full year without at least one acquisition,” Huxley says, going on to discuss how the markets will remain tough for the smaller shipowners.
“Consolidation could well take the form of more owners putting their ships into pool operations, the results of some of the established bulk carrier pools speak for themselves,” Huxley says.
I can’t see the master consolidators, BW, going a full year without at least one acquisition
In the container sector, the most active buyers at present are the major lines themselves who are snapping up smaller secondhand ships in addition to a new round of ordering for megaships.
“Is this a trend of not wishing to be dependent on tonnage providers for feeder operations now that rates have improved?” Huxley muses.
Veteran ship financier and Splash columnist Dagfinn Lunde also believes that pools are the way forward. Forget expansion, don’t order new ships is his advice.
“Work on commercial cooperation like pools to strengthen positions versus the charterers,” Lunde advises.
Matt McCleery, the president of Marine Money and a director at Blue Sea Capital, also picks up on Huxley’s pools suggestion. For McCleery, the author of The Shipping Man trilogy, shipping is finally heading the way of other industries such as airlines and hotels where ownership and management of assets are far more separated businesses.
“In my opinion, consolidation among shipowners isn’t the most important thing to look at,” McCleery says. “In fact,” he continues, “many of the most successful owners feel it is actually more logical to be asset light by owning a core fleet and then chartering ships in and out based on cargo.”
In most industries, the ownership and management of assets are different things because they are completely different businesses with completely different risk profiles, decision making considerations, skill sets and capital requirements. This evolution has taken more time to happen in shipping, because of the family-owned nature of the business, but according to McCleery it is happening and it is accelerating.
Work on commercial cooperation like pools to strengthen positions versus the charterers
The Marine Money boss finds the consolidation among commercial management and technical management far more significant than what is happening on the shipowner consolidation side.
“Commercial managers, in the form of pools, are playing a bigger role and that will continue as regulations, access to technology, transparency, communications, data and charterer requirements increase,” McCleery says, going on to predict that technical management will also consolidate in the coming years.
Access to capital
The changes in financing driven mainly by the European Central Bank have given a financial advantage to larger corporate owners, observes Thomas Söderberg, the founder of Tribini Capital.
“Smaller shops don’t qualify for corporate borrowing but only asset finance, which has become a dirty word,” Söderberg says.
Nevertheless, shipping remains a hugely fragmented industry with low barriers to entry, leading Söderberg to believe that while natural consolidation will continue to take place at the top end of industrial shipowning, there will be a large “underbelly” of companies of all sizes especially in bulk shipping for a long time to come.
Philip Clausius, the managing partner at Transport Capital, says he is convinced the industry will see more shipowner consolidation in 2021.
“Cost of capital has become a powerful differentiator in the last few years,” Clausius says.
Transport Capital estimates a debt capital cost advantage of approximately 5% per annum on a like for like basis for the strongest over the weakest industry credits, something that is disputed by a number of smaller shipowners contacted by Splash in recent weeks.
“In a capital intensive industry as shipping this 5% difference is not sustainable for the weaker players, given the commodity-like nature of the industry with limited to no pricing power for individual owners,” Clausius says.
The German ship finance expert expects that consolidation will mostly take place through the conventional vessel sale and purchase market.
“Social issues continue to stand in the way of a significant acceleration of corporate M&A activity,” Clausius believes.
Concluding in his typically wry style, Arntzen from Team Tankers International stresses his belief that consolidation in shipping has never been more needed while cautioning readers: “Be wary of the serial destroyers of shareholder value that can play in this space today.”
Tomorrow’s final 2021 preview looks at the offshore markets.