Review: Fairplay Magazine

The following review was featured in industry publication Fairplay. Thank you Greg Miller for writing this article.

Storm riders

When executives are profiled in a hardcover book – especially one with a flattering title – they tend to be more forthcoming than they would in an interview for a magazine article. That’s what makes Dynasties of the Sea by CNBC producer Lori Ann LaRocco so relevant. She has enticed telling quotes on cycle timing from some of shipping’s top players.

“We’re excited in periods of crisis,” Seaspan boss Gerry Wang told LaRocco. “The nightmare for us is really when everything’s good and too many people want to get in. That’s when I spend a lot of time on the golf course.”

“When everyone is screaming about the poor shipping market conditions, we love it,” boasted Fredriksen Group’s Tor Olav Trøim. “When I’m the last man standing, that’s when I really make a killing,” added tycoon John Fredriksen.

Scorpio president Robert Bugbee offered the most detailed cycle-timing analysis. “In the upward inflection point, you do everything you can to maintain the upside, and once you do, you enjoy the moment, go out on a really nice dinner with your family. But the next day you ask yourself: ‘Okay, how are we going to get out of this?’”

“As the market reaches that inflection point with the price driving up, you feel you just haven’t got enough,” said Bugbee. “But if you’re holding on as it breaks, the correct number of ships to have is zero.”

Bugbee advised not to wait to invest at the very bottom of a falling market. “That’s too late. The time you start investing is when the market is still falling, so you mustn’t be afraid.”

For insight on how a serious distress investor thinks about shipping, there’s Loews Corporation chief executive James Tisch, who weighs vessel deals “like you buy hamburger meat” – in terms of dollars per tonne of scrap. Today’s crisis is nowhere near ugly enough for Tisch, who commented: “If you’re buying now, then you’re buying way above scrap, and I say to myself: ‘Who needs it?’”

Tisch’s advice is: “Always worry about the downside and the upside will take care of itself.” Or as Fredriksen put it: “I always think about how much I can lose from doing a deal, not how much I can make.”

A different view on investing is revealed in an eyebrow-raising quote from Turkey’s Robert Yuksel Yildirim, who pumped $500M into CMA CGM. “CMA CGM is too big to fail,” Yildrim insisted to LaRocco. “Seventy-two banks invested $6.5Bn in it. Plus, it’s one of the most important companies carrying the French flag, so I don’t think the French government would let this company go down. Based on all that, I said to myself: ‘What could go wrong?’”

Another major theme in Dynasties of the Sea is public equity. The lesson appears to be that the more privately a public company behaves, the better – assuming the sponsor’s interests are completely aligned with other investors (as frequently reported by Fairplay, this is often not the case, given insider shipmanagement contacts and related-party asset deals).

“If you want to go public, you really need to conduct your business like a private company, so you avoid unnecessary risk-taking,” said Fredriksen. “If there’s a good deal, we will do it right now. What might take a public company a year to make a decision about, we can decide on in an hour,” said Fredriksen, despite the fact that he personally controls more public shipping companies than anyone else in the world.

The most damning indictment of the public model comes from BW Group CEO Andreas Sohmen-Pao. “Asset prices tend to rise when rates are high,” he explained. “For a shareholder with a shorter-term horizon, or one who has a small enough position to sell shares quickly, the natural preference might be to see the company accumulate more of these assets to access more cash flow when times are good.

“It is very difficult to stand up at a public investor presentation and say: ‘My strategy is to shrink the company’. However, building up assets at high prices exposes the company to greater bankruptcy risk when the market turns, so this is unlikely to create value over the long term.”


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