According to mana, According to MANA, In the 1970s, New York’s property market was far more fragmented than it is today. Forty years ago, an array of private companies, some of them family-controlled, dominated the scene.
It had similarities with the contemporary shipping business, where the average shipowner is likely to be private, with just five vessels.
The US property market has undergone deep-seated change since then. After waves of mergers and acquisitions — some driven by distressed markets, others by opportunistic investments — that business is now corporatised and consolidated to a far greater extent.
So could the global shipping business be set to follow the same path? Could the number of shipowners shrink substantially over the next couple of decades? Might there be a refashioning of the industry in which more complex corporate structures using more sophisticated financial techniques come to dominate?
But such lazy logic ignores the facts. If the benefits of running significantly larger shipowning companies were so powerful, it would have already occurred.
It is indeed true that the global shipping industry is far more fragmented than commonly appreciated.
According to data from Clarksons Research, 7,832 companies own the 40,000 trading vessels larger than 2,000 dwt or gross tons, giving an average fleet size of just over five ships per company.
Dig into the numbers a little deeper and the picture is more intriguing. A quarter of the fleet in terms of number of vessels is owned by 5,596 companies with just two ships each.
At the other end of the scale, there are only 21 concerns worldwide with fleets of more than 100 ships, and only 107 with between 51 and 100 ships.
Arguments for the benefits of scale are easy to make. Lower overheads per voyage; greater market knowledge and leverage with charterers; and access to cheaper finance are three of the most clear-cut.
But the drawbacks are powerful too. Firstly, smaller can be cheaper and more nimble, able to adapt faster to volatile markets. Secondly, there remains no takeover premium. Unless they are in distress, shipowners usually sell only when offered a premium to the market’s estimate of net asset value.
And unlike land-based industries where mergers often lead to cuts in excess capacity or increased pricing power for the buyer, ships remain on the water, usually earning much the same freight rate for a one-ship minnow or a corporate behemoth.
Little by little, however, smaller shipowners may now be facing a tipping point at which the necessity to grow becomes compelling.
Greater insight into cargo demand
Some major bulk and tanker operators believe the leverage of operating a global fleet of 100 vessel or more may become apparent as information technology delivers greater insight into cargo demand.
The ability to deploy newer ships financed at a cheaper rate more efficiently may give large players and pools a tangible advantage in terms of their margins over small rivals.
Banks and other financial institutions are being made to charge higher risk premiums for lending to smaller concerns. Casualty rates are lower for larger shipowners.
In containership markets, consolidation has accelerated in the past year after the Five Weddings and a Funeral, as the slew of mergers and bankruptcy of Hanjin has been dubbed. Box capacity deployed by the top 10 operators has nearly doubled in 20 years from just over 40% to 80%.
At the TradeWinds Shipowners Forum in Athens this month, Olympic Shipping’s George Karageorgiou said he believe smaller owners would probably need to reach a critical size of 10 or 12 ships to remain competitive.
Such a shift from an average of five may sound modest, but it would be revolutionary. It would entail, in effect, halving the number of shipowners to around 4,000.
Clearly, such change will not happen fast, and the reason for that is cultural as much as financial.
Few expected Greek shipping — and with it the broader European shipping scene — to rebound from the banking crisis as strongly as it has.
Growth of Greek owners has reversed the trend of vessel ownership moving to Asia. European owners currently control 45% of the world fleet, compared to Asia’s 40%.
Many of those Greek companies remain private and family-owned. And the thought of selling their ships is less a business decision and more a question of fundamental values.