The recent news from sober Switzerland that tentatively the 'holy grail' of physics, and in turn, the structure of matter, may have been identified, in the name of Higgs boson or more bombastically known by the catchy name of ‘particle of God’, made the Captain think what would be the equivalent ‘basline’ truths in shipping, the concepts that ought to navigate the industry on an even keel and not being unduly confused each time there is a small change of the wind.
For starters, up to the top of the market in the fall of 2008, lots of transactions in shipping, as in many other industries such as residential real estate, took place on a wing and a prayer, at presumed conditions and pricing terms cured to perfection. Fast forward a few years later to the trough of the market, and it's amazing seeing entities with such 'perfectly priced' deals trying to unload them at their 'cost basis'. A basic tenet of business 101 is that 'sunk costs' are historical and irrelevant (painfully irrelevant, but that's another story) and future investments should not be determined by such considerations. The Captain appreciates that there is a big discrepancy between 'cost basis' and present market pricing, extenuating circumstances notwithstanding, and that there are tremendous accounting implications due to such dislocation of pricing, but having potential sellers seeking market pricing based on their 'cost basis' is at the very least disingenuous, and a tad apart from reality. Similarly, for players with legacy transactions seeking presently financing anew with the thin margins on loans and generous leverage of yesterday, it's also disingenuous and as dangerous as driving forward by watching in the rear view mirror. Since the collapse of Lehman Bothers, we all have to live in a different world.
Another amazing angle of the shipping particle of God it’s hearing potential investors in shipping bringing up the prospect of sovereign Greek default or foreign currency exposure as a business risk when exploring shipping investment opportunities in or from Greece. True, Greece might be the cause of many a problem these days, but Greek shipowners in their commanding majority are incorporated offshore where their vessels are 'owned' and where the revenue is earned in the form of the almighty US dollar. Taxation is minimal, interaction and interference with the Greek government and bureaucracy is barely noticeable, and only enough revenue is translated to Euro and repatriated to cover vessel management operations when such is taking place from Piraeus. Even in the catastrophic event of a Greek sovereign default or a return to Drachma, Greek ship owning companies are based outside Greece and both their revenues and expenses, to a great extent, including interest expense and lending, are US-dollar denominated. Not to mention that usually a sizeable part of the owner's net worth is outside Greece and likely in dollar or other hard currencies denominated assets.
The last angle of the godly particle of shipping may be that this time things may be different after all. In the last decade, each pricing dip in more or less every market was a buying opportunity. That may have been a good strategy in a growing market, but it's hard to see ahead much sustainable growth that cannot already be absorbed by the existing world fleet. New orders for newbuilding contracts, as competitively priced as they may seem, they only flood an already oversupplied market with additional tonnage and further postpone any meaningful recovery. And, further to it, newbuilding orders only stretch the finances of the owners at a time when freight rates are and expected to remain anemic and when the shipping finance and banking system seem to be dysfunctional; any misstep at this stage will require expensive private equity financing (i.e. Genmar and Oaktree, an example that jumps to mind quickly), or possibly a walk down the stairs of a reorganization or bankruptcy court (any cases that jump to mind?)
It took almost half of a century for the particle of God in physics to be identified with some degree of certainty since its theoretical conception. Sure, proofs in shipping might take a bit longer to establish. After all, physics is only a field of science that seem to behave well under theoretical models; shipping with its impossible financial modeling and completely unpredictable projections might take a bit more time to chart.
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