Where’s The Margin?

If context is everything, then recent news of a Neo-Panamax containership gashing her hull in the newly expanded Panama Canal certainly drew some unwanted attention.

The incident, as it should, gives pause for reflection. At the time I was on a train of thought about the “dry bulk funk”, as TMT’s David Chinski calls it. A whole matrix of cause-and-effect can accumulate into a crippling situation very rapidly, whether physically or financially. Murphy’s Law probably originated with a Captain or Chief Engineer. (or maybe a VP Operations?)

All those stresses raise the pressure on the fulcrum that is a vessel’s operations center, officers and crew. The margin of safety, financial and otherwise, shrinks. Faced with these challenges, is it too much to contemplate building value in something?

Story-time: I was once aboard a freshly-unloaded bulk carrier. While departing the berth, her stern took an unplanned excursion off to port. A bouncing sensation and loud thumping noises suggested some nasty consequences in the propeller area. Inspection and a humbling low-speed trip to the loading port ensued, where the propeller had its mangled tips cut off. The next cargo discharge was followed by a dry-docking. The resultant shenanigans at far-off offices can only be imagined by us lesser mortals. One transatlantic round-trip later, for whatever reason, the ship was sold off. Maybe the last few straws had been enough.

Back to the train of thought. Once upon a time, there were a couple of Canadian mining companies that operated on a “margin of safety” principle. In essence, the output of the physical plants was about 85% of their full capability. With such over-capacity built in, there were stresses taken off the entire operation, from executives to plant equipment to local management and the miners themselves. Of special note was the employee safety performance, which was award-winning for the time. And yes, these were publicly-traded companies.

Is this an out-dated idea in our brave new algorithm-driven world? Maybe; it’s likely too simplistic. Such a proposal today would no doubt be met with universal scorn. Outside a straight asset play, what finance guru would want to have 15% of an asset’s potential as a cushion? On the other hand, what should an investment prospector be looking to find? I hesitate to use the worn-out phrase “over-capacity”, especially these days. How would such a cushion be incorporated into a shipping company and made to work?

As seen in our minor ship-casualty examples above, it’s a safety zone. It’s that space between us and the car, ship or immovable object in the other lane. It’s the operating wiggle room in a company that isn’t solely financial (but can quickly become so).

The world we now live in is seeing the rapid compounding of computing power. The algorithm-driven systems mentioned above can’t just be utilized to find more convoluted trading methods. In shipping, that power has to go to work; not just in financing, but in operating, in maintaining and in optimizing all facets of that margin of safety.

Posted on tonmiletrader.com , AUG. 5, 2016

Turning Screws & Boiling Frogs

A year ago this very day, we saw reports of RBS’ (Royal Bank of Scotland) intention to sell its Greek shipping loan book. Fast-forward to last month, and RBS was receiving bids from the likes of Credit Suisse and China Merchants. Now, barely three weeks later, Credit Suisse has halted the due diligence process on the RBS book, leaving China Merchants on the dance-card. Apparently Credit Suisse likes not what they see, as reported by David Osler on Lloyds’ List. It was only this past April that Credit Suisse surpassed RBS as the biggest lender to said Greek shipping sector.

Also in the last week, Deutsche Bank has flagged $1bn in shipping loans for the block. HSH Nordbank, Kommerzbank and NordLB have joined the parade, and all are adjusting to the glare of the recently announced European Central Bank’s review of shipping loans. Interesting politics there; HSH is German state-owned and RBS’ majority shareholder is the British government. As a result of the Brexit vote, the Brits shelved plans to sell off some of their whopping 73% RBS stake.

“The market can stay irrational longer than you can stay solvent.” said John Maynard Keynes. Let’s put it another way, ship-watchers; given the number of times the heat’s been turned up recently, which frogs are about to be boiled?

Update:
Further to the dance in the shipping loan business, Splash247 reports that now Deutsche Bank is “interested” in the RBS shipping loans. I mentioned the RBS “shipping loan book” previously, but apparently RBS is offering up the entire business, not just the notes. RBS suitors are indeed wise to seek not only the loan paper, but the resources behind it to collect on the bills.
I can also imagine there’s pressure on European banking institutions to pick up this business in the face of China Merchants interest. In the past, the rush to build in the Chinese greenfield shipyards was intense, but perhaps there’s more reticence on the financial front. Also in today’s news; China’s rejection of the South China Sea ruling by the Permanent Court of Arbitration in the Hague………. just sayin’…….
“We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow…” : Lord Palmerston – speech to the British Parliament, 1844.

Posted on tonmiletrader.com , JUL 11& 12, 2016

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Update on Tue, September 20, 2016 at 10:19 by Dave Walker

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Warning: morbidity ahead.

So, it would appear that after all the speculation and parade of potential suitors, RBS’ shipping loan business is to be wound up. No national interests, no politicized transactions, maybe just a long, convoluted shut-down. As of April 2016, their number of non-performing shipping loans had doubled. That was just their Greek exposure, followed in August by an attempt to ditch their Turkish shipping loans. Add the sinister rumblings at Deutsche Bank (a potential buyer), and those events may have been the last crank-up of the heat. “Wound up”, as in a shroud. It would appear that this frog might have boiled to death some time ago, and had merely joined the ranks of zombie assets……then again, by the time these assets get chopped up, it may just be a frog in a blender. Too much? (No frogs were harmed in the preparation of these comments)

Triple_E or Triple-B? Big Box-ships Beware….

An interesting concept (but perhaps a little shelf-worthy these days) seen in a recent article: the 26,000 TEU container ship. Does this have any merit, given the financial hand-wringing, (and debates on handling potential casualties) with our present-day behemoths around two-thirds that capacity? As Mr. Barry Parker put it, “Don’t forget the JAHRE VIKING “. Now there was a tanker-and-a-half.

A quick search reveals that an anchor that belonged to the Jahre Viking, all 36 tons of it, is now ensconced at the Hong Kong Maritime Museum. As we cast our eye around at Capesize bulkers, and maybe a jaundiced eye at the Very Large Ore Carriers, any talk of even larger containerships has to come with a caveat: take care, lest thy parts soon becometh a museum exhibit.

On the more immediate considerations of mega-boxships, let’s not forget the CSCL Indian Ocean incident in Hamburg.

Posted on tonmiletrader.com, TUE, JULY 5, 2016

First cargo

When it comes to this world’s resources, the old saying is, “If we can’t grow it, we have to mine it.” Whether a commodity is grown or mined, and whether it is moved as raw material or finished product, one statistic holds over all: maritime shipping moves 90% of everything.

cropped-tbaybulkerj.jpg

Hello everyone, and welcome.

The writings seen here will be a collection of analysis, charts and numbers revolving around the shipping indices and markets. You’ll see shipping charts, shipping numbers, shipping ideas and shipping commentary to get your synapses firing.

How did we get involved with all this stuff that makes the world move?

It started out in the steamy depths of a British tanker engine-room in the late 1970s. After a few years of deep sea voyages and a stint in the Great Lakes bulk trade, post-maritime experience saw a decade or three spent in operations and maintenance in the gold-mining and other resource-based fields.

Along the way, studying the convolutions of the shipping and commodity industries seemed a logical progression. Home is around the Great Lakes, from whence is dispensed occasional gems of research and analysis wisdom. Maritime and commodity news is gathered from various sources and aggregated on the @SuperiorMar Twitter feed.