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BACK TO THE FUTURE

By Andreas Vergottis and Konstantinos Frangos – Oceanic Hedge Fund

Since the year 2000, firstly the tanker markets and more recently the dry cargo sector have shown a very unfamiliar if not alien tendency for high profitability and robust growth. The operating words are “unfamiliar & alien” as most current market practitioners have had their formative years in the “highly unprofitable low growth” years of 1975-2000. However, over a longer term perspective and for those who believe in long term cycles, any 25 year period may be unrepresentative of the full range of possibilities that can be witnessed over broader spans of time, past or future.

Indeed there is currently a school of thought amongst not only the shipping industry but related sectors such as mining, steel and others that the next 25 years will not resemble our formative “structurally unprofitable low growth” years of 1975-2000 but rather the previous era of 1950-1974. For those with a more extended perspective on shipping history, there might be a vague sense that the years from 1950 to 1974 were years of “robust growth and high profitability,” but hardly anybody can provide in-depth enlightenment beyond such vague broad-brush statements. What was the average return on capital in 1950-1974 and how much did it vary between peak and trough? What were the size and average growth rate of the industry? What were the appropriate capex, gearing and dividend shipping management strategies in such an environment? Did the boom time earnings compensate for the bust phase losses and how does one navigate the latter in order to make it to the former? Continue Reading

Categories: Marine Money | September 1st, 2005 | Add a Comment

The Fourth Five Years: 1965-1969 Mr. Yardstick’s Operational Review

Welcome ladies & gentlemen to the Benchmarkco Ltd presentation to discuss the company’s 1965-1969 5-year results. Starting with the customary disclaimers, time travelers should be aware that in today’s presentation we will be making certain backward looking statements that discuss past events and performance. These statements are subject to risk and uncertainties that could cause results of real companies to deviate from the computations of our virtual operation.

With me today is our CFO Mr Fair Squareview. During today’s meeting I will firstly review our operating performance over the last five years as well as industry trends before I pass on the presentation to Mr Squareview, who shall take you through our financial figures.

Last time we met I expressed a wish that on this occasion I would have better news to report to you. We concur with those of you who may be thinking “it could hardly get any worse and that this would be no achievement.” Combing both wet and dry divisions, the last five years were indeed better, and the result for the entire group can be described simply as breakeven and commensurate with our cost of capital. Tankers were slightly below breakeven while dry cargo was slightly above, but it was encouraging to see that the former division was no longer bleeding and moved into positive territory. But it was a game of two halves. Continue Reading

Categories: Marine Money | September 1st, 2005 | Add a Comment

The Third Five Years: 1960-1964 Mr. Yardstick’s Operational Review

Welcome ladies & gentlemen to the Benchmarkco Ltd presentation to discuss the company’s 1960-1964 5-year results. Starting with the customary disclaimers, time travelers should be aware that in today’s presentation we will be making certain backward looking statements that discuss past events and performance. These statements are subject to risk and uncertainties that could cause results of real companies to deviate from the computations of our virtual operation.

Value Destruction Galore

You cannot blame Mr Squareview for not giving you adequate warning at the end of our previous presentation. There are only three words that can describe the results of our tanker operation during the five-year period just ended: “value destruction galore.” Please turn to Figure 15, bearing in mind that the “Y axis” has shrunk while at the same time we have introduced substantially larger ships into our benchmarks with significantly higher capital costs and correspondingly higher earnings breakeven. Please also bear in mind that a couple of spikes on the chart are seasonal winter upturns while trend profitability should be judged on a year round basis. Continue Reading

Categories: Marine Money | September 1st, 2005 | Add a Comment

The Second Five Years: 1955-1959 Mr. Yardstick’s Operational Review

Welcome ladies & gentlemen to the Benchmarkco Ltd presentation to discuss the company’s 1955-1959 5-year results. Starting with the customary disclaimers, time travelers should be aware that in today’s presentation we will be making certain backward looking statements that discuss past events and performance. These statements are subject to risk and uncertainties that could cause results of real companies to deviate from the computations of our virtual operation.

Categories: Marine Money | September 1st, 2005 | Add a Comment

31ST DECEMBER 1949 – INAUGURAL ADDRESS OF CHAIRMAN & CEO MR STANDARD YARDSTICK ON THE OCCASION OF FORMATION OF BENCHMARKCO LTD

Ladies & Gentlemen

Thank you for participating in the capital formation of BENCHMARKCO LTD, and we look forward to your ongoing support. Our strategy is to be completely undifferentiated and commoditised in order to act purely as a humble and unimaginative standard benchmark for current investors and future time travelers. We launch today owning 1% of the world tanker and dry cargo tramp fleet to be operated entirely in the spot market and on short-term charters. We acquired our share of the world fleet in one grand scoop during the fourth quarter of 1949 at prevailing market prices and have entered these vessels in our books at cost. Such an intensive acquisition program, representing over 100% of the normal quarterly S&P transaction activity, was bound to have an impact on the market.

However we have taken care to acquire our fleet through fictitious virtual transactions so as not to alter the course of history.

Our Strategy Continue Reading

Categories: Marine Money | September 1st, 2005 | Add a Comment

Proving Out the Super Cycle

“It’s a super-cycle,” said an unshaven shipowner behind dark sunglasses at La Goulue on Madison Avenue last spring – whispering the words as though they referred to contraband.

“A what?” I asked innocently, looking up only briefly from steak frittes and pretending not to know the phenomena to which he was referring.

It wasn’t the sort of scene you might imagine when meeting with a Greek shipowner in a New York restaurant. We were sitting on sunlit Madison Avenue in late spring, eating lunch before 4 p.m., watching the people walk by, and no one was either smoking or drinking. The shipowner had, in fact, just come from pilates class. Things have changed.

“You know, a super-cycle,” he said ominously. “All of the data you see from the shipping brokerage houses goes back only as far as the 1980s. And what that data tells you has become the conventional wisdom; that buying and holding ships over time is not a good use of capital over a sustained period of time.” Continue Reading

Categories: Marine Money | September 1st, 2005 | Add a Comment

Current State of the Marine Finance Market

By Ronny Bjørnådal, Head of Syndications, Nordea Bank

Editor’s Note: In 2004, Nordea was the largest arranger of syndicated loans to the maritime finance industry with a global volume of approximately $15.7 billion in financings compared with $9.7 billion in 2003. Nordea was instrumental in lead arranging very large transactions for the market leaders in this industry as well as to smaller and medium sized companies. The material in this article is taken from a speech given by Mr. Bjørnådal at Marine Money Week on June 16 at the Waldorf=Astoria in New York.

In order to provide you with a perspective on the prospects for shipping lenders and borrowers going forward, I would like to take a look at the current state of the marine finance market, provide you with some statistical data, analyze how we see the current market trends and let you in on how we see the outlook for marine finance going forward.

It has been great to be a ship owner recently! We have been witnessing an historic shipping rally in more or less all shipping segments over the last 12-18 months. If we look at the macro picture, we have seen a global economic recovery accompanied by better sentiment for industrial production, historically low interest levels, exceptional growth in Chinese GDP and a positive economic outlook. Continue Reading

Categories: Marine Money | August 1st, 2005 | Add a Comment

Jordan Alliger Makes Waves With Deutsche Tanker Initiation

Jordan Alliger, now of Deutsche Bank, this week initiated coverage on Teekay, OMI and General Maritime, and from what we hear he has gotten a somewhat controversial reaction. Predictions that tanker rates would trend down through 2006 and 2007 due to an increase in supply – which he attributes to a heavy newbuild orderbook, diminished required scrap activity and a more modernized fleet – are hardly a cause for stir. Nor is the assertion that Teekay is a “leader throughout the cycle” and therefore worth holding onto at current rates even if a downturn is imminent.

What probably surprised people more was the somewhat apologetic but very strong sell ratings given to OMI and General Maritime. Lauding the talent of the management and commercial reputations of the both companies, Mr. Alliger nevertheless asserted that both would see shares come down to around 1x 2006 price to book value, which he estimates to be $13 per share for OMI and $30 per share for General Maritime, both of which represent a discount of one third from current prices. At relatively modest premiums of 8% and 14% to NAV respectively, it is not hard to see why the two companies may have been shocked at Deutsche Bank’s drastically lower price targets. The major difference here, of course, is school of thought: are shipping companies worth their asset value, their book value, cash flow – which notably Deutsche Bank used to arrive at their $45 price target for Teekay – or do they have some franchise value? That is a debate that is not new, and one which we will leave for another time.

Categories: Freshly Minted, People & Places | July 7th, 2005 | Add a Comment

Arlington Tankers Appoints New CFO & Co-CEO

Ed Terino has joined Arlington Tankers (NYSE: ATB) as CFO and co-CEO. His arrival is intended to enable co-CEO Art Regan the time to focus on commercial business development. The company is also opening an office in Westport, CT, and as a result has become a U.S. domestic issuer for SEC reporting purposes.

And speaking of Arlington, Fortis analyst Dan Barrett recently released a report discussing adjustments made to the company’s 2005 and 2006 EPS forecasts. The adjustments resulted in an estimated dividend of $2.21 for 2005 and $2.06 in 2006. Both estimates were decreased by 10% of the original price and caused the target price fell from $25 to $23 based on a new anticipated yield of 9%, down from 10%.

Arlington dividend expectations have always been high after its first reporting period last November and December, when the freight rate environment, which sets its profit share above its floor rate, went through the roof. Mr. Barrett believes that expectations are now more firmly rooted in reality and that the company is well-positioned to grow through acquisitions once asset prices begin to fall from their present high level.

Categories: Freshly Minted, People & Places | July 7th, 2005 | Add a Comment

Watson, Farley & Williams Goes to Hamburg

Watson, Farley, & Williams announced plans to open a Hamburg office in October 2005. The new office will continue to focus on shipping and shipping finance, but the firm is also looking to extend the practice to advise in other areas such as energy and to expand its more general finance and corporate practice. WFW has selected two German partners for the initial stage: Thomas Hollenhorst and Maren Brandes. Mr. Hollenhorst has vast experience in German banking and finance business, as well as Hamburg banking and the shipping markets. He is currently the deputy head of the legal department at Berenberg Bank in Hamburg where he has worked for six years. Mrs. Brandes is a partner in the Hamburg office of Dr. Schackow & Partner and as such has specialized in shipping, ship finance, and litigation. She is also qualified as a barrister in England and Wales.

The move is not a surprising one, as over the last few years WFW’s German market has grown significantly. Michael Greville, managing partner, points out that the location of the new office is pivotal to its success, “The majority of these institutions are based in North Germany and Hamburg’s importance as a financial and business centre has grown such that there are now compelling reasons for WFW to open an office there.” The opening of the Hamburg branch is set to bring WFW’s global presence up to eight offices.

Categories: Freshly Minted, People & Places | July 7th, 2005 | Add a Comment