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Shipping and private equity
Full text linkIn the aftermath of the financial crisis of 2007-2008 many shipping companies had to find new
sources of financing since traditional bank lending, historically shipping’s most important form of
financing, had dried out. International trade decreased significantly and banks were unwilling to
give out substantial loans. Private equity investors and hedge funds filled part of the gap by using
their excess funds to inject both equity and debt into the shipping industry. They primarily
intended to take advantage of record low asset prices and profit from improving macroeconomic
conditions while increasing efficiency on company level. This thesis discusses to what extent
shipping is a suitable industry to invest in for private equity funds. One of the most important
factors for private equity investors is cash flow stability. In theory, cash flows in shipping are very
unpredictable due to their dependence on shipping rates, thus making it difficult for private
equity to invest. However, the correct estimation and timing of the shipping cycle can provide
certain stability to ship owners. Therefore, private equity firms have to rely heavily on proven
management teams as they lack significant sector experience and hence forecasting ability. The
asset intensive nature of the business provides some downside protection for invested funds.
The case study conducted in this thesis has found that traditional private equity methods worked
in the tanker business even though those methods are not very different from traditional ship
management practices. Out of the three levers that private equity usually applies, the financial
lever, the tax lever and the legal lever, none of those is exclusively used by private equity owners
in the shipping sector. Shipping companies traditionally use a high leverage, operate from tax
subsidized headquarters and are often private, not facing the scrutiny of public shareholders. In
shipping, private equity funds become more passive investors than they have proven to be in
other sectors. The authors present two major findings from their investigation of shipping sector
investments. The first finding is that private equity will not be able to generate large abnormal
returns on a risk-return basis in shipping since their approach is very similar to that of traditional
ship owners. The second finding is that in order to fulfill their return targets, private equity funds
have taken on increased beta risk with their shipping investments as traditionally average returns
in the shipping industry are rather low.nhhma
How did the oil price influence the freight rates for VLCC crude oil tankers between 2005 and 2015?
Full text linkThe subject of this thesis is “How did the oil price influence the freight rates for VLCC crude
oil tankers between 2005 and 2015?” The oil price is important for the development of world
economic activity, as oil is a primary energy source. Given that oil is mainly transported in
tankers, the oil price has substantial influence on crude tanker freight rates. The period 2005-
15 was eventful with large movements in both the oil price and freight rates.
The analysis in this thesis is based on a basic supply and demand model, as well as a more
specific model of the shipping market developed by the shipping economist, Martin Stopford.
The correlation between the oil price and freight rates varies across time, and the oil market
affects freight rates both directly and indirectly. The freight market is influenced by
predictable factors such as economic activity and fleet growth, which develop gradually over
time. However, “random shocks” is the most important variable in Stopford’s model. One
such shock was the global financial crisis, when oil prices and freight rates dropped
significantly. While oil prices recovered quickly, freight rates remained low for years.
Another random shock was the American shale oil revolution, which led to substantial
increases in oil production. Subsequently, the Organization of the Petroleum Exporting
Countries sacrificed their objective to maintain stable and high oil prices and instead chose to
protect their market share. Consequently, the oil prices dropped, while the freight rates started
to increase following the growing demand for cheap oil.
This thesis demonstrates how unpredictable elements, such as oil price movements, have
influenced the tanker market, and thus the fortunes of tanker owners. Fluctuations have
always been an important part of the shipping market, and make the shipping sector an
interesting object of study.nhhma
Specialisation strategies in Norwegian shipping : a Vernon product cycle approach
Full text linkOne of the most important developments in the postwar shipping industry from the 1960s onwards has been the introduction of specialised ship types that have gained market shares in the transport of a large number of cargoes. The share of specialised tonnage in the Norwegian fleet increased from less than one per cent in 1960 to more than thirty per cent by 1987. This trend towards increased specialisation did not occur to the same extent in all maritime centres. Norwegian owners held a large share of the new ships, but even within Norway there were substantial differences. Specifically, a disproportionate share of the specialised Norwegian ships was owned by shipping companies in the city of Bergen. In 1977 Bergen companies owned around fourteen per cent of the aggregate Norwegian fleet, but almost half of the specialised tonnage. The Bergen presence was particularly strong in two segments; chemical tankers and open hatch bulk shipping. After the introduction of a theoretical framework and a presentation of the increasing degree of specialisation within Norwegian shipping, the paper looks more closely at the Bergen participation in the two segments mentioned above. Through closer studies of the companies involved it becomes evident that three factors – cooperation between individual companies, vertical integration and technological innovation – can explain the strategic shifts
Shipping as a Knowledge Industry: Research and Strategic Planning at Ocean Group
Full text linkThis chapter approaches the question of how transformations in the world of shipping relate to wider trends in business and general history through the lens of knowledge. It will investigate how technological and managerial knowledge was created, developed and exploited as a corporate resource from the 1950s onwards in Ocean Transport and Trading, one of the UK’s leading liner shipping firms. The chapter will, first, briefly discuss the resource-based view of the firm and the importance of knowledge as a corporate resource. It will then examine Ocean’s use of technological and operational knowledge in the post-war era. The following section examines the introduction of modern management concepts at Ocean from the late 1960s and their impact on corporate strategy. In conclusion, the chapter will argue that the introduction of managerial concepts of knowledge contributed to Ocean’s gradual withdrawal from shipping and transformation into a provider of global logistics services and that analyzing shipping as a knowledge industry helps make sense of the transformation of the industry
Globalisation and maritime labour in Norway after World War II
Full text linkThis paper looks at how "Globalisation" – narrowly defined as the causes and effects of increased
international economic integration – has influenced the demand for and supply of maritime products
and services, with a particular emphasis on maritime labour. A central argument is that the manner
in which maritime labour has been affected varies enormously among the maritime industries, and
there is also variation among different occupations. Today, the Norwegian maritime industries have
found "a new equilibrium", where old and national traditions have successfully merged with the new
and global realities. The discussion paper is structured around six propositions about the relationship
between globalisation and Norwegian maritime labour, and these propositions are discussed and
linked to empirical data
A most convenient flag : the development of the Singapore ship registry, 1969-82
Full text linkThe aim of this report is to trace the development of the Singapore Ship Registry, from the introduction of open registry in 1969 until the tightening of registration requirements from the late 1970s. The extraordinary growth of the Singapore merchant marine is analysed in the light of the policies of the Singapore government. In many respects, the opening of the registry mirrors the Singapore economic policies in general, as it facilitated the growth of domestic employment and production, without necessitating large domestic investments. The shift in the shipping policy in the late 1960s was motivated by the wish to save foreign exchange, create employment opportunities and exert greater control over the country’s foreign trade. However, the opening of the registry for shipowners of all nations should also been seen in relation to the desire to promote Singapore as a maritime centre. Certain characteristics of the Singapore fleet and the pragmatism of the authorities in establishing and disbanding the open registry distinguish the Singapore registry from some of the other important Flags of Convenience. The opening of the registry in the late 1960s, motivated by the stigma associated with being a Flag of Convenience, represents one important shift in the Singapore shipping policy. When the open registry had reached its sell-by date, and the initial problems had been alleviated, the authorities’ strategies were reversed. The shift towards tighter requirements illustrates the pragmatism with which the Singapore authorities have changed their shipping policy
Changes in the distribution of the world fleet, 1970-87
Full text linkThe international shipping crisis of the 1970s and 1980s coincided with massive changes in the distribution of the world fleet. Emerging Maritime Nations and countries offering Flag of Convenience-facilities became more important, whilst the OECD-countries’ share of the world fleet was virtually halved. The apparent shift in the maritime hegemony can be explained by changes in the shipping industry and the international economy. It became increasingly difficult for OECD-countries to compete in a depressed shipping market. OECD-vessels were transferred to FoC-registries, and several Asian countries were provided with an opportunity to increase their involvement in the shipping industry. The single most important reason for the growth of these fleets was the reduced competitiveness of OECD-flag shipping and the increased focus on costs. The growth of Asian shipping mirrors the increasing importance of Asian countries in manufacturing. The combination of relatively inexpensive labour, high domestic and foreign investments and policies focussing on fleet growth are important explanations. The changes in the fleet distribution are illustrated by aggregate data on the registry of the world fleet and elucidated by means of a purpose-built database on Norwegian vessel sales. The Norwegian fleet had the highest relative reduction of all major fleets in the period 1973-87. The analysis shows that this development encompasses the changing pattern of registration. Moreover, it reveals that the ultimate owner interests of approximately 80 per cent of the tonnage transferred to FoC-countries remained with OECD-based companies. A large share of the decline of the Norwegian fleet can be explained by traditional “flagging out” of vessels, facilitated by changes in the Norwegian shipping policy. In the 1980s more than half of the vessels sold from Norway and registered in FoC-countries were managed by Norwegian shipowners, compared with less than ten per cent in the 1970s
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