Another point of view

If we were able to rejoice in 2003 for the excellent year that we experienced in shipping, what can be said about 2004 where we went from record to record?

The healthy state of the industry has had one consequence, which has gone relatively unnoticed, the reconciliation of the shipping world with the stock market. Historically the Stock Exchange had never shown much interest in the shipping sector, too uncertain, too volatile, too specialised, and shares always showing a chaotic tendency and too low p/e ratios. However, discreetly, the shipping sector has enjoyed this past year one of the best performances amongst all other quoted industries. The few indexes which comprise the evolution of shares in shipping show an overall progression of nearly 30 % with strong disparities within the sectors. For example, according to the 'Tradewinds Equity Index', values of oil tanker companies have moved on average between January 2003 and December 2004 from an index of 100 to nearly 400 and for the container sector from 100 to 250. A number of values have tripled or even quadrupled in the course of the year, taking the financial analysts by surprise, as up till now they have paid little or no attention to shipping and maritime activities.

This discovery by the financial markets of our sector of activity opens up new financing options for owners (in addition to the traditional mortgage financing) and should also allow for substantial merger & acquisition operations, which we have had a glimpse of in 2004:

• In April, Teekay Shipping bought Naviera Tapias, who own four gas carriers and nine modern Suezmaxes, with the intention of developing the LNG business and introducing Teekay LNG partners onto the stock market.

• The oil tanker owner Stelmar, having rejected an offer from OMI and Athenian Tankers, is finally on the point of accepting an offer from OSG (Overseas Shipholding Group) of $48 per share, or $1.3 billion.

• Elsewhere, John Frederiksen, the leading tanker owner, has taken shares in Hyundai Merchant Marine (6%), in P&O Nedlloyd (10%), and in General Maritime (4.3 %). Nobody expects that he will be satisfied with a minority shareholding.

• At the end of the year, the Greek owner Restis managed to lay his hands on the bulk shipping activity of MISC (Malaysian International Shipping Corp.) namely 32 ships for $740 million.

Some owners, encouraged by the success of General Maritime Corp., whose shares more than doubled in the course of the year, are now looking at a quotation on Wall Street, such as the Stena group with their subsidiary Arlington Tankers or Greek owners Dynacom, and this trend should be accentuated, unlocking important investment capacities within the shipping community.

Ironically, the rise in shipping costs has as a consequence called into question this service, which is often minimised in the economic chain and has made operators reflect more deeply into their logistics and operations, but also as to the qualitative differences between owners. All that is expensive is not necessarily good value'

Curiously it is in this context of highly priced markets that charterers are seeking long positions to which owners are resisting, given the inflated values in the short term. Arbitrages between long term/short term and purchase/chartering become more and more strategic, with certain choices being crucial in the case of a brutal change in the markets.

This year has also witnessed the steady decline of the dollar, concealing to some extent the effects of rocketing oil prices and shipping costs as expressed in euros, but disastrous for European shipyards, wiping out their productivity gains and thus accentuating the competitive advantage of the Asian countries with the exception of Japan.

However, if the dollar continues its downward trend, a revaluation of some currencies, such as the Korean won and the Chinese yuan would become inevitable. Today this is a major concern of Chinese and Korean shipyards who already suffer from a massive rise in their supply costs, steel in particular. Asian shipyards certainly have their orderbooks full, but profits are not yet forthcoming despite substantial increases in their sale prices. A revaluation of their local currencies could jeopardise, at least temporarily, their expansion.

We begin this new year with confidence, even if we believe that certain excesses will correct themselves, since the growth of the developing countries, and especially that of China, is still very much a reality. We remain nonetheless cautious as to the evolution of the dollar which could upset a number of economic calculations and tarnish the current glitter of the shipping sector.