SHIPPING | Crisis ‘sparked by greed’

Greed and carelessness were the root causes of the shipping crisis, says Jean Richards of SecondWind.

Richards, who has been in the business 37 years and now heads a venture assisting companies in distress, clashed with German ship financiers including KG companies at a conference in Hamburg as she laid the blame squarely at the feet of opportunists.

“When the market is very high, people who haven’t done deals before see freight rates that make your eyes water and they all pitch in,” she said.

“Over supply is the driving force” of the crisis, said Richards.

The fact people continued to order after business collapsed because they expected the troubles to be temporary supported her argument.

“If that isn’t greed, I don’t know what is,” said Richards at the Financial Times Deutschland SMM Ship Finance Forum.

She argued against the view of KG house Konig & Cie managing partner Tobias Konig that it was all the result of the global financial crisis.

German KG houses were behind the ordering of scores of ships during the boom but Konig and others like Torsten Teichert, chief executive of Lloyd Fonds, said there were many other drivers causing the shipping crisis apart from vessel financiers.

Earlier, shipbroker Clarksons’ research boss Martin Stopford said that world trade would have to grow at 7% annually to soak up shipyard deliveries of roughly 144m dwt per year up to 2013.

But seaborne trade between 2001 and 2009 grew at an average of only 2.9% and in the 1990s by 4.1%.

China and Korea are both level pegging on around 4.5m to 5m dwt of deliveries a month. In 2009, global shipyard production was about 117m dwt, since when production has picked up. Shipyards have a “big financial incentive” to deliver their contracts and grow the fleet, said Stopford.

As ever, scenarios can be managed well or badly, he added. This decade looks tough. Until now, low interest rates have propped up returns.

“It isn’t just freight rates but interest rates that will drive us forward over the next few years, as well as shipbuilding prices,” said Stopford.

Statistics produced by the Clarkson’s Research Services boss showed that containerships of 3,500 teu produced a per annum return on investment of around 9.3% during both the period 2000-2010 and in the 1990s.

In contrast, other sectors have been far more volatile.

In the 1990s, VLCCs made around 2%, earning only sufficient to pay interest, and bulk carriers 3.2%, whereas between 2000 and 2010 capes returned an average of 14.5%.

What drives investment cycles is world trade, said Stopford.


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