Author: Dr. Panayotis Zacharioudakis, Managing Director, OceanFinance Ltd
In the context of the global meeting of the shipping industry, the International Posidonia Exhibition, it is important to consider what the last world economic recession is leaving behind. There are several similarities with previous situations in the past, but as something always differentiates the setting, history does certainly not repeat itself in the same manner exactly. Once again, the shipping cycle as a “natural law” has been confirmed along with other related views about optimal practices for the maritime companies. This article intends to reconsider well known and wise opinions about benchmarking in shipping.
What is the dominant feature of the shipping markets? Is it something that seals the fate of so many businesses in the long term or within a day? It is volatility that transforms itself slowly or fast into cyclicality and alternating good, mediocre, excellent but also catastrophic economic periods of shipping activity.
Businesses are supposed to survive in a system, where their life is sometimes merely spared, other times they generate astronomical revenues or are bleeding capital. This is the only certain fact in such a volatile environment. No matter how profitable the returns of some markets are, dark ages will inevitably come and the reverse. The shipping and shipbuilding cycle may accelerate, reduce tempo, or even omit one or several widely known stages, but there will always come a time, when a cycle will reach maturity, so that a new one can commence. This irregularity of the shipping cycle is due to the supply-demand balance and their evolution is determined by endogenous shipping-related factors, such as ship capacity supply, or the ship order book, as well as the influence of the global markets and the economic environment.
This knowledge is very important. But a basic question arises: How can this knowledge and expertise be exploited? The answer is found easily, if one qualitatively observes shipping companies, recently established, or older, historical ones. The majority of the intermediate category is lost along the way, in the middle of a crisis. The survivors incorporate this experience in their corporate culture and they will more easily confront future challenging conditions. This resembles a natural, “Darwinian”, selection process. Thus, we easily come up with the necessary characteristic for a competitive advantage: A successful shipping company is not the one to generate extraordinary returns, or for example yield high dividends for its stockholders: it is simply the one that knows how to survive in the passage of time by taking all necessary measures to avoid bankruptcy. Good times will be there at some point in the future; what is crucial is to survive through the catastrophic phase of the shipping cycle.
What about the firms lacking experience from a crisis? How can they secure readiness and proper risk management when confronting the repercussions of the shipping cycle? The answer is only knowledge: about the present, about the future (as well if possible), about the undertaken risk level and about the shipping system. This is achieved by using proper tools offering all this expertise to the firm.
Ocean Finance offers a complete suite for corporate firm valuation and risk level assessment. It uses key performance indicators, KPI’s, profitability and firm reponse simulation techniques, “what if” analysis for several future crucial parameter developments, such as earnings, bunkering prices and loan interest rates. The resulting expertise has a solid added value for shipping companies with a vision and desire for a sustainable operation and strong establishment, seeking a Darwinian advantage of domination in the time field.