Argentinian magazine Megatrade, which has generously featured Dynasties in its October and November issues, has just provided us with an English edition of the November article! The translated text follows, and you may view the original piece here.
Lori Ann LaRocco, author of “Dynasties of the Sea” tells details of the interviews with the number one overall in shipping
Traditional family or public companies, the role of banking and equity capital, the dilemmas
We anticipated in the last edition the launch this month in the U.S. of the book Dynasties of the Sea: The Ships and Entrepreneurs Who Expanded the Era of Free Trade (published by Marine Money International 2012, a group dedicated to recognized publications and conferences on financing worldwide shipping) written by Lori Ann LaRocco, young journalist and this is the first study to examine a major force in global trade and economic development: The global shipping magnates who run the industry with profiles that are little understood.
Shipowners, traditional family or publicly traded companies, groups of venture capital investment, the book shows the vision of men and women who are a substantial part in the development of globalization. We referred to that while ocean shipping remains one of the most important business in the world, is also one of the most volatile. Affected by such contingencies as climate and political circumstances, shipowners’ culture has maintained its commitment to the industry and the book shows how to deal with these situations.
Given how interesting the proposal, we consulted Lori Ann LaRocco writer who interviewed business leaders and financial houses assemblers, as Jim Tisch of Loews Corporation, John Fredriksen of Frontline Ltd., Angeliki Frangou, Navios Maritime Holdings; Peter Evensen of Teekay Corporation, Philippe Louis-Dreyfus Group Louis Dreyfus Armateurs, Wilbur L. Ross Jr. of WL Ross & Co.; Dagfinn Lunde DVB Bank, Morten Arntzen of Overseas Shipholding Group, Inc. and E Rajaish Bajpaee, Schutle Bernhard, Charles Fabrikant of SEACOR, John Fredriksen of Frontline, Michael A. J. Citigroup Parker, Andreas Sohmen-Pao of BW Group, Tor Olav Trøim of Seadrill, Gerry Wang of Seaspan, Roberto Giorgi of V.Ships or Kristin H. Holth DNB Bank. Also Nicholas A. Pappadakis, Robert Yuksel Yildirim and Jacob and Niels Stolt-Nielsen. The profiles candid and detailed first-person “Dynasties of the Sea” offers a critical analysis of the psychology inside the current generation of shipping magnates and how risks are political, economic and environmental, to how they perceive the world of tomorrow.
Lori Ann LaRocco, author, emphasizes her experience in the many months of interviews, said she already knew before that shipping is a forward looking indicator, but increasingly understood by face value, is one of the least recognized industries. Most are not aware that a container is behind much effort to freer trade, she says.
In more detail, to consult on whether the owners kept the romantic spirit of the shipping, LaRocco tells us that traditional owners definitely have the passion and romance by industry. “The way they told their stories made me yearn to be a seaman. Their love for the sea and their crews was apparent in their conversations. As far as the Greek and family owned shipping companies, I found these magnates to be very traditional (at least the ones I interviewed).”
Nicky Pappadakis, former president of Intercargo – International Association of Dry Cargo Shipowners, for example, spoke very passionately about how important the crew is, how they are considered family. He was very proud to say he has generations of families working for them. He constantly quoted his father and grandmother in the interview. One of Lori Ann favorite quotes was this saying his grandmother shared with him: “My grandmother had a simple saying about the cycles, ‘98 ships and 101 cargos equals boom. 101 ships and 98 cargos equals bust”, he said.
Meanwhile, another interviewee as Philippe Louis-Dreyfus, also looked back at the days when deals were done by a handshake and instead it’s drawn up by lawyers. “That’s why I much preferred the time where a person’s word was sufficient for shipping and trading. Too often now, we have business people not sticking to their commitments. This is becoming a management principle in large companies, which is not only very bad for ethics, but also for the efficiency of the business.”, he said. Louis-Dreyfus along with Jim Tisch and Kristin Holth talked about the role of the big banks in the overcapacity problem. Louis-Dreyfus was the strongest: “Banks put pressure on the shipowners to accept money almost for free, sometimes offering 100 percent financing with no equity at all. So banks have played the very awkward if not the perverse role in proposing chap money to shipowners who not only didn’t deserve it, but didn’t really even want it.”
Jim Tisch didn’t hold back when he gave to LaRocco his assessment “…the enablers were the banks that lent money to these projects. Lord only knows why the banks did it. And the reason may be simply because people naturally project along a straight line. So if the charter rates are 100, or if you can see them going down to 90, but it’s difficult for people to envision them going down to 25. Bottom line I think people just forgot how truly volatile the shipping markets can be. And so the banks were the enablers by lending the money.”
Sohmen-Pao’s conversation was interesting, says LaRocco, comparing how the shipping industry has changed since his grandfather started the company. Back with HK ran the business. SP said it was more horizontal, he just needed an army of accountants. Today, he explained it is more vertical where it is necessary for everyone to be talking. Not a top down approach at all in running the family business today. “My grandfather ran the business in a way that was perfectly appropriate for his time, and my father does likewise as chairman today. In the case of my grandfather, information was more concentrated, deal s were more centralized. Today’s workforce has a different expectation in terms of involvement. We’re operating in a very fluid and uncertain environment and we have a flatter organization to cope with the huge increase in information flow. I think it can be dangerous to try to manage exactly as earlier generations have done, because the world is not the same.”, he said.
The greatest difference that the author has seen between the family own businesses and the publicly traded business is how they look at the shareholder. The family business owner like Jacob Stolt-Nielsen was quick to point out how they are in it for the long term and how they can be more nimble in their decisions and investments b/c they are not under the gun every quarter to answer to shareholders who are expecting X return. Sohomen-Pao was interesting because he has that dual duty of honoring shareholders for the publicly traded side while honoring the private side of the business as well.
Otherwise, Fredriksen’s looking back at this 52 years in shipping had this to say on how he built his business on two principals: demand for value and an aversion for risk. “This is why I always think about how much I can lose from doing a deal, to how much I can make.” In his classic soft Norwegian accent he explained how quickly they can make a deal if the deal is good. “What might take a public company a year to make a decision about, we can do in an hour; I once bought a drilling rig for close to $650 million having discussed it for three minutes over lunch,” he said with a laugh.
What LaRocco found over the course of writing this book is the discord between private equity vs. the traditional shipowners. Private Equity titans like Wilbur Ross said the industry would be better off with private equity running the industry versus the small shipping owners. “I think consolidation would definitely help the industry, because presumably, if you five big firms controlling the industry it would centralize the decision making much more. And second, presumably if you’re a bigger player, you should have a little better intelligence as to what’s going on the industry. If you’re one little isolated guy, your comprehension of what the industry is doing is probably much smaller.”
While on the other side every family owned and operated business like Stolt-Nielsen for example said family run businesses are run better because they can focus over the long-term. “”When a company is family owned and they believe in something, they have the advantage because they can stay with it. A public company must show profits every quarter. They can’t afford to be patient”, he said.
Citi’s Michael Parker echoed the concern of many that LaRocco interviewed in the book on PE’s long-term commitment in the shipping industry. “I don’t see private equity as a long-term substitution.” he said. “My feeling is private equity is always really looking for a way out – be it a medium-term timeframe, sometimes a shorter time frame. It’s not always a long-term investor in shipping.” he said. “On the other hand, there is a huge pool of inside private equity supplying money to the owners within the shipping industry.”
In terms of opportunity. India, China were all areas the leaders spoke about, as well as South Africa- for it’s mineral, and commodity discoveries. Robert Yuksel Yildirim explained with much enthusiasm, “South Africa is a very rich country for mining. We’ve been doing business on the trading side, but now its time to invest in ports and logistics.”
“People misunderstand the situation there (in China). In the U.S. they want housing prices to go up. Whereas, in China, they want house prices to go down. Because they’re talking about the social equality. They’re talking about the developers making too much money. They want their house prices to go down. So when you see the Chinese house prices dropping, it is a positive sign! It’s what they want! Short sellers like Jim Chanos don’t understand that. They have a different agenda. They misunderstand China’s strategy”, said Gerry Wang, CEO of Seaspan Corporation.
The biggest emerging theme that came out of this book was a combination of worry and disgust on the sovereign debt crisis, say the author. They were all calling for leadership to rise to the occasion. Out of all of them, this statement from Jacob Stolt-Nielsen was the strongest one that resonated with her: “There’s not so much wrong with the global economy. What is wrong is that there are no leaders. No one seems to be able to take charge. In America, today they are just bickering about peanuts instead of getting together and discussing other changes that they can make, and find a common ground. But right now, they’re not doing anything, and now things are getting worse and worse. In Europe, it is even worse because we are 27 countries and we can’t agree on anything. Until someone is a leader. Until we have a Churchill or Eisenhower. We need people to take charge. If not, the impact of this lack of leadership will continue.”
When LaRocco spoke with Angeliki Frangou, the exasperation in her voice was thick when she told her, “The biggest issue in Europe is, they were giving false promises to the youth. Anyone who knows anything about reality knew the promise of employment for life in the public sector would never to be fulfilled. Europe will have to change its attitude. This is a European problem, in essence. So we need an understanding that this lack of employment, with safety of government, does not exist. It’s a lie.”