Follow the Greek lead on ship finance
Posted on | February 24, 2010 | No Comments
As I get set to leave Athens after yesterday’s execellent turnout at the Capital Link forum, I am reminded that many of us will return here in June for Posidonia, the shipping industry’s largest and most famous conference and trade fair. My first Posidonia was in 1976.
Over the years, I have seen the representatives of celebrated lending institutions come and go: the great and good, the captains and the kings, the high and the mighty.
But I think that this year’s Posidonia will have a somewhat different atmosphere? Gone will be the Bank of Scotland, erstwhile Williams and Glyn’s Bank, latterlyHBOS. The Royal Bank of Scotland, now a vassal of the British government and like the Bank of Scotland, a titan of ship finance for many decades past, will no doubt be present, but will it be lending?
Gone too, for that matter, are shipping lenders of the past like the Industrial Bank of Japan, Dai-Ichi Kangyo Bank, the Long-Term Credit Bank of Japan. All were casualties of the collapse of the late 1980s, from which Japan has yet to fully recover.
What of the celebrated German KG houses? Will they survive? Will the Dutch and German banks be with us at Posidonia? More important, what, if anything, will they have to offer our industry?
And what of us small fry? What lessons have we learned, and how can we use those lessons to forecast the future?
What and how can we learn from past mistakes?
As we now know, the models and parameters constructed by many lenders, or rather by the “quants”,
and relied upon by the financial community, turned out to be defective.
This failure, in mis- or non- quantifying the element of risk, initially with respect to mortgage-based securatisation of real property, helped to give rise to the current series of economic shocks.
I believe that analysis does matter.
But there is a more important element in successful ship finance.
That element is simply: knowing what sells.
Shipping is a service industry. The Greek shipping industry has survived and prospered because it knows the operational part of the business.
Basically, the operational part of the business means: knowing what sells.
The successful shipping companies of today — companies such as Navios, which is not a client, though I wish it were–recognize that cash flow is dependent on complex relationships,
Personal relationships, and a thorough understanding of what one can get out of a ship and its crew.
What does sell in today’s troubled markets? In a word, quality.
What drives the market is, today, very seldom going to be demand for a substandard ship.
“Value” a word on many lips at this conference, as it will no doubt be this June at Posidonia, is really all about the quality of a ship and its management.
Quality, in the form of a good safety and environmental record,, is what I mean when I speak of “the operational aspects of the shipping business”.
All too often — and we have seen this in a number of recent cases– Investors have left the “operational aspects of the business” to a cut-price, substandard ship management company.
On a number of occasions that are now coming to light, or have recently come to notice, banks that have lent significant amounts to less- than-quality shipowners now face the prospect of foreclosure on their less-than-quality ships. The fact is simply this: you, the financial community, need to know the difference between a quality owner and one that is not.
The way to do that is for you, yourselves, to study and be aware of “the operational aspects of the business.” Bankers are not immune to risk, as Greeks have always understood. It is significant that the Greek word for “bank” is trapeza, which is derived from the same root as the word “trapeze”. Banking can indeed be a high-wire act.
In 2010 and 2011, there will be a number of significant foreclosures by mortgage lenders, as Angeliki Frangou. of Navios has predicted. It is then, she said, that we will see the bottom.
The great strength of the Greek shipping community is that here, you have a significant number of people who understand, and have their hands on, operational issues. They are interested in what makes the industry pay, and are ready to be patient.
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