To me, this article by Robert Wright, Transport Correspondent, FT.com has a definite connection to the ones which dealt with MSC ‘s accusation that shippers triggered the container freight rate crisis and Maersk’s first-ever annual loss after 105 years.
For that reason, and for the focus on the damage this crisis is causing to ordinary people, I think the text is worth reading.
Thomas Mann would recognise a great deal in the office of a contemporary north German shipowner. The air of genteel calm, the model boats and the continuing family control of many would be recognisable to the writer of Buddenbrooks, the saga of a 19th-century Lübeck shipowning family.
Many shipowners have offices by the Elbe in Hamburg, still enjoying – unusually in an era of remote, industrial container ports – views of passing vessels.
Yet most north German shipowners now run global businesses, not the regional operations Mann described. They control 35 per cent of the world’s container vessels, managing many of the ships that facilitated China’s export boom of the past decade. They deal with Taiwanese or Chilean shipping lines or Korean shipyards as readily as Thomas Buddenbrook dealt with trading partners across the Baltic in Riga.
As a result, northern Germany faces the biggest storm ever to hit container shipping. The prosperity of ordinary citizens, several large banks and even federal states is in peril, alongside that of well-heeled shipowners.
The question is how far the region’s state governments – and Germany’s federal government – can or should protect the sector from a crisis that, in the Buddenbrooks’ time, it would have had to withstand on its own.
“We see the effects of the global economic and financial crisis,” Axel Gedaschko, senator for economics in Hamburg’s state government, told the Marine Money ship finance conference in the city last week. “Maybe you can sense them more in northern Germany than anywhere else.”
Most German owners, rather than finding customers and organising schedules themselves, charter vessels long-term to Maersk Line, Mediterranean Shipping Company and other container ship operators. However, the operators started to terminate expiring contracts when container volumes and prices collapsed in October 2008. Fees paid when charters are renewed are far lower than before, and hundreds of ships remain out of use.
Ordinary Germans are suffering through investments in KG funds – tax-efficient companies owned by the shipowning companies and investors from the professional classes. Funds are increasingly asking shareholders for fresh money to fund ships’ storage. Many have had to sell ships or have collapsed after investors refused.
For banks, a glut of pending ship orders represents a still fiercer gathering storm. Regional institutions, especially HSH Nordbank, the world’s biggest shipping bank, controlled by the states of Schleswig-Holstein and Hamburg, provided lending for an ordering binge during container shipping’s 2001-08 boom. Some ships were ordered speculatively, without arranged charters and have no immediate prospect of employment. Almost all the obligations to pay the tens of billions of euros due to shipyards look like ending up with the banks.
Hamburg and Schleswig-Holstein have provided €3bn ($4.1bn, £2.7bn) in fresh capital to HSH Nordbank and €10bn in loan guarantees, but further support is likely to be necessary.
Most involved are trying to “kick the can down the road”, as one participant at the Hamburg forum described efforts to delay ship deliveries, revise loan agreements and take other action to postpone a crunch.
The closest brush with catastrophe came last May, when Hamburg shipowners and HSH Nordbank rescued CSAV, a Chilean container line that had chartered 90 ships from north German owners and almost collapsed.
Jochen Döhle, a partner in Peter Döhle Schiffsfahrt, one of the largest shipowners, rejects complaints the deal propped up an unhealthy company. “Isn’t it a positive sign that shipping has learnt from the mistake of the Lehman collapse?” he asks.
Yet few in northern Germany believe the region can absorb the tens of billions of euros in value being destroyed. Peter Döhle and Claus-Peter Offen, two of the biggest shipowners, last year applied to the federal government for loan guarantees. They withdrew after being told they would be rejected.
Mr Gedaschko believes the many southern Germans in the federal government have failed to grasp shipping’s economic importance. He would like to see state aid to shipowners and guarantees to back up KG funds’ bank borrowing. Six north German states will travel to Berlin this month to discuss possible aid.
“We think we need two to three years’ backing up of this industry and after this time the industry can help themselves,” he says.
Whatever support is forthcoming, the region’s powerful shipowning tradition and expertise will keep the sector alive in some form. A slow decline like that of the Buddenbrook family’s business is unlikely. Future executives will have to learn painful lessons, however. They will need to behave more like the sober patriarchs of the Buddenbrooks clan than flightier, younger members.