ContributionsFinance and Insurance

What has changed and what remains the same 10 years on from the collapse of Lehman Brothers

Saturday marked the 10th anniversary of the demise of America’s fourth largest investment bank, an event that triggered a record depression for shipping. Panos Patsadas from Target Maritime Transport has the final say on what’s happened to our industry over the last decade.

Reading Sam’s article on Splash on the fall of Lehmann Brothers, and how this changed shipping, really sent chills down my spine and brought back a lot of memories. It was in the beginning of September 2008, that I left a small MPP owner/operator in Hamburg, to pursue the dream of working as a shipbroker in the City of London. What had been a real struggle to break into a few years earlier had now become the easiest thing in the world. I flew into London for a day to attend two interviews, ended up with another three on the very same day, and got two more which I had to cancel to make my flight back. That’s how easy it had become, and for the first time in my life, I felt that being Greek could be a blessing.

Two weeks into my new job, the news on Lehmann Brother broke. For the next three months I could feel the tension building up daily, inside the office, on the other end of the phoneline, on the street. No one really knew how bad it was going to get, but it was as if people could feel the looming doom. Before Christmas the same year, bankers and shipbrokers in the City of London were being laid off in their hundreds, as companies were bracing themselves for the deepest and longest recession in modern history. Ten years on, the shipping industry looks a very different landscape, yet the mindset of certain industry participants remains shockingly unchanged.

The first thing that has clearly changed is the perception of cycles. While we can all agree that shipping remains a cyclical industry, our perception of what constitutes a cycle has changed. The last cycle has taught the industry a painful lesson. What has historically been the case, may not necessarily be the case in future. Not in respect of previous patterns at least. Decision making in the future is likely to be a lot more conservative, less reliant on graphs, and more reliant on fundamentals and gut feeling.

Although the crisis did flush out a few institutional investors and has brought shipping back in control of its native participants, there are still investors ‘trapped in’, stuck with toxic assets, and without having a way to exit. They have in fact become a new financial product, a secondary market if one can call it that, where other investors may offer an exit, albeit at a discount. In easy language, the industry has opened its doors to investors willing to bail out other investors. Alternative finance, presently not available from the banks, is by no means a bad thing. There’s a lingering of overage or over-mortgaged tonnage that is unlikely to ever bring a return on investment due to the availability of additional finance. In other words the base of financial participants in shipping has broadened.

Over the last ten years, one cannot help but observe a gradual shift of the industry from a commercial mindset to a more technical one. It is not the sulphur cap and scrubbers for the sake of the environment, and it is not digitisation for the sake of being more efficient. Shipping, in its core, still remains very old fashioned. What has changed is the present commercial reality. Making money on flipping vessels is questionable and outperforming the market by a mile is unlikely nowadays. There are simply too many vessels around to achieve this. What scrubbers and digitisation represent is the need to differentiate from the competition in order to extract that marginal additional value from the market that will give the owner an edge.

On the global chessboard, one can note the continuous rise of China as Sam rightly pointed out, not only growing its presence in the shipbuilding market but also in filling the market gap of European banks in ship finance. German shipping will need to find where it goes after the collapse of the KG model. There is a lot of know-how in the German market, and no lack of talent. Consolidation does indicate certain attempts to try new ways, however German shipping will need to re-invent its model in order to rise again as dominant player in the global markets.

Last but not least, the Greeks still keep at what they do best. Timing their purchases right. What has been quite interesting though is certain big names quietly moving into new markets and establishing a strong presence over the last 10 years. The container feeders (sub-panamax) and LNG, to name two, have seen considerable investments from some heavy hitting Greeks. Does this mean that bulk carriers and tankers no longer offer as lucrative returns? Well, I guess in another 10 years we will all be a bit wiser, or maybe surprised yet again. That’s shipping.

Sam Chambers

Starting out with the Informa Group in 2000 in Hong Kong, Sam Chambers became editor of Maritime Asia magazine as well as East Asia Editor for the world’s oldest newspaper, Lloyd’s List. In 2005 he pursued a freelance career and wrote for a variety of titles including taking on the role of Asia Editor at Seatrade magazine and China correspondent for Supply Chain Asia. His work has also appeared in The Economist, The New York Times, The Sunday Times and The International Herald Tribune.
Back to top button