By Clay Maitland

Shipping, it is often said, is a house of many mansions.  It is characterized by different qualities, and varies according to the nationality of the ships themselves, and their owners.  Here in the United States, however, one thing cuts across all of the niche markets and special interests:  we need leadership.  Nowhere is this more apparent then in the somewhat veiled circumstances of the firing (because that is what it was) of Admiral Philip H. Greene Jr. as Superintendent of the United States Merchant Marine Academy, also known as King’s Point, located on Long Island Sound, within sight of the New York State Maritime Academy, across the water in the Bronx.  This has been followed by an order from the United States Maritime Administration (MARAD), closing down GMATS, a self-funded graduate training program based at the Academy.  Now MARAD is taking away the Academy’s training ship, the KING’S POINTER, transferring it to Galveston, Texas, where it may be refurbished, and could be made available to the Texas Maritime Academy (Texas A&M) for its own training needs.

Admiral Greene’s removal is the third such incident in fairly rapid succession since shortly before the start of the Obama administration.  While various reasons have been given, the fact that the superintendency of King’s Point has become more of a merry-go-round than the presidency of some Central American banana republics in former times has made the job highly unattractive, and the butt of sarcastic remarks.

Significantly, the present Maritime Administrator, David Matsuda, has been the subject of widespread dissatisfaction and, to a degree, open expressions of contempt.  Mr. Matsuda comes from a career as a political staffer on Capitol Hill.  His background lies in railroad regulation, and his lack of knowledge of shipping became apparent even before his appointment at the start of the Obama administration.  It is said that he owes his position very largely to the support of Senator Frank Lautenberg of New Jersey.

In bygone times, MARAD Administrators (as the head of the agency is described) were selected after a careful vetting by U.S. maritime unions, and leading figures in the private sector.  Recently, the same unions issued a blast denouncing MARAD for the production and issuance of a report that graphically described the drawbacks of U.S. flag restrictions, particularly in terms of cost, in comparison with U.S-owned tonnage registered in foreign flags.

It is not clear why American maritime unions were willing to accept Mr. Matsuda’s appointment in the first place, particularly as they have now turned on him.  It is also unclear why the U.S.-flag maritime industry, which is heavily staffed by alumni of King’s Point, is so docile in face of the steady amputation of essential parts of the Academy itself.

King’s Point is largely a product of the Second World War, at a time when mariners were desperately needed to crew the gray-hulled Liberty and Victory ships and tankers that, produced in huge numbers, made a major contribution to Allied victory.  Today, it and the other American maritime academies maintained as state-chartered institutions, still produce large numbers of well-trained merchant mariners.  But if the U.S. government is seemingly oblivious to the importance of the shipping sector, there is no sign that the maritime industry itself is willing to step forward in defense of its vital educational institution on the north shore of Long Island.  It has been observed that the industry’s lack of leadership, and indeed lack of concern, resembles its response – or lack there of – on many other issues.  The industry, in the United States and indeed overseas, is very short of individuals willing to take the risk of speaking out, and perhaps of being unpopular.  This has sometimes been called “middle-managementitis”.  As the world economic recession threatens the survival of many shipping companies regardless of the flag that they fly, there is a sense that much of the maritime industry here in the United States is running out of time.

In the United States, we need a strong and focused government maritime policy.  This policy should contain the following elements:

1. Education and training must be more strongly supported by the private sector.  It is unlikely that there will be much federal funding available in the near future, so let’s roll up our sleeves.
2. The politicization of the Maritime Administration (MARAD) is in many ways detrimental to the development of a strong U.S. maritime policy.  When it does get things right, it is often undercut by special interests and short-termers within the maritime sector and the U.S. government.  This is an agency in need of a good sweeping out, and a solid policy direction.
3. “Maritime policy” must mean (as it doesn’t, at present) one that covers the entire U.S. based industry, regardless of flag.  The emphasis must be on jobs for American seafarers, and on training policies that make sense.
4. About 95% of all American freight is hauled on our interstate highways.  The levels of congestion, and the social and environmental costs, keep growing.  The failure to develop short-sea shipping is largely due to the remarkably high cost of building tugs, barges, and other ships in U.S. shipyards.   The legal requirement that all such ships must be “built American” has supposedly destroyed the possibility of a successful coastwise shipping program.
5. But has it?  The industry is waiting for a new Henry J. Kaiser, who built so many of the ships that braved the Battle of the Atlantic.  Is it absolutely certain that an American yard or yards cannot turn out ships, tugs and barges at a competitive price?  For that matter, is it certain that it is impossible to profitably run a U.S. coastwise operation with U.S. crews, if we do manage to get rid of the “build American” requirement?
6. It has long been clear that if a new generation of Americans is to be recruited to careers in the shipping industry, with seagoing experience leading into numerous shoreside opportunities, serious support for training must be provided.  It is generally agreed by our maritime unions, as well as private-sector companies, and within MARAD itself, that the decline of the U.S. flag has been caused by uncompetitive practices, taxation, over-regulation and the failure to develop a coherent maritime policy.  The United States has some of the best maritime training schools in the world, with cadets that are among the most highly motivated that can be found anywhere.  But a real commitment by the U.S. government is not evident.
7. Shipping is still an excellent industry with pride in its achievements and the capacity to expand to meet the needs of a growing nation, and indeed the world.  The tone, however, must be set by government, and that is what is presently missing.  The industry, and the nation, deserves a Maritime Administration, and a maritime policy, that is worthy of national support and international respect.

M/V Industrial Dream, image courtesy Intermarine USA

Part 2 of an exclusive gCaptain interview with Intermarine’s CEO, Andre Grikitis, and CFO, Michael Dumas.

By Jack Mylott, Partner, Flagship Management

JM: With the growth of the heavy lift and project cargo industry over the past decade, we’ve also encountered the global debt crisis, the Eurozone crisis, and China contracting, constricting, or otherwise limiting their trade.  From an infrastructure development standpoint, what has been the impact of these issues on the projects you have been involved with?  What has been the impact to Intermarine?

AG:  When there is a crisis, project movement lags, whereas the bulk industry reacts almost immediately.  Projects can’t stop immediately and they don’t start immediately.  Essentially, there is a lag-effect in our industry and it can vary depending on the region, so it could be 8 months or longer, and that’s both in the up and down cycles.

I think that’s one feature of our industry if you relate it to the bulk industry.  The demand for projects, or our type of cargo, is very difficult to forecast, because there aren’t many people following it and many people don’t report what’s on their books.  Our view of the market has to be developed from what our clients tell us what’s coming.  However, I think the complication for our market is that, like other parts of shipping, during the last decade or more our industry was really over-built, so the oversupply of tonnage is outstripping the forecasted demand, and has done so consistently since 2009 through 2013, from what we can see of newbuildings.

This overbuilding has had a few driving factors.  The major factor is the KG system in Europe which has made Germany the largest ship-financing region.  Many ships were built on speculation, and by people who didn’t operate them themselves, they did it because the money was available, and what you have now is equivalent to a sub-prime condition.  Equity was available from private investors who got tax deductions, these funds were created and promoted by the financial community, and this really led to a boom in building of multi-purpose, heavy lift, and container vessels as well.  It was completely overbuilt without any real notion of what the demand cycle was, and it far outstripped what many of the traditional carriers in this segment themselves had forecasted.  The market became distorted, and that distortion is a bubble that will continue here until supply and demand comes into sync.

One of the difficulties in our industry, and I’m guessing some others, is that having the equipment, and having the ships is one thing, but having the personnel that are competent and capable of operating them, is in fact, in short supply.  So, many of these ships are out on the market providing “space”, but they are effectively bringing down the industry.  I would say the problem has been pushed down the road by the German banks with moratoriums etc etc and they anticipate of the market recovering, but that hasn’t happened.  So, I think we’re expecting some redistribution of control, but that redistribution of control won’t necessarily improve the market if the ships don’t get into the proper hands in terms of how they can be used and managed.

JM: Regarding personnel competency and capability and some of the extended services you offer beyond A-to-B ocean-going service, where do you extend your logistics management expertise?  How far into the supply chain to you go?

AG:  Essentially, we go as far as our clients have wanted us to go.

One of our difficulties is that the freight-forwarding community is often involved in this as well, and in many cases, they arrange the ocean transportation. So, they are in fact our customers.  We cannot, and do not, compete with them on a direct basis, however on certain projects, we have quotes on cargos that have included services including road building, believe it or not, we’ve participated in barging, we have a barge in Venezuela that has brought the equipment alongside the Jose Refinery, and was the only barge available that had the capability to do that.  We’ve certainly done trucking, collaborated with heavy haul folks, all the way up to quoting on some erection.  We offer packing at the terminal for people who want to consolidate their cargos in a single location from multiple suppliers.  Clearly we do whatever is required on the documentation front, and I think that all these services, we can either do them in-house, or we collaborate with others in the industry, so it can all be done with the shipper going to a sole-source.

We’ve made arrangements, for example, for folks to be able to transport cargos from ship-side to their final destination by using berths where rail is available.  So, essentially, we are flexible in our approach to how we handle transportation solutions, and even if we are not the party who does the direct contracting, we try to involve ourselves as early as possible into the lifecycle of a project, so that the proper pre-planning can be done.  I suppose it’s no different in most businesses, but if you’re involved early enough in project cargos, quite often, you can achieve a much more effective and efficient operation in the end, and it puts people on the same page.  We try to avoid surprises.

M/V Industrial Freedom, Image courtesy Intermarine USA

JM: I’ve seen on your website that you have a couple of images of ships carrying wind turbine blades which falls outside of heavy lift, and moreso into the project cargo domain.  Do you see a difference with your services as they relate to the wind turbine industry?

AG: Let me make our position on heavy lift and project cargo clear.    Our formula is that our business needs to run on a combination of cargos.  Essentially, almost anything up to and including containers in some cases, in our view, qualifies as project cargo because a combination of cargos is necessary to make a successful voyage.  Irrespective of how much cargo there is, if you don’t have it in the right combination on a vessel, then you cannot produce a successful and profitable voyage.  So, with the number of ships in the world today, and the way cargo flows go, we certainly do not build our business around heavy lift cargoes.  Heavy lift cargoes are not that large of a percentage of our overall cargo mix.  Cargo mix is really what’s key in being successful in this industry in an ongoing basis.  I think that essentially is how we’ve always treated voyages.  We’re always combining various commodities in the best possible combination for a good outcome.

Wind blade equipment today, probably constitutes roughly 20% of ocean-borne multi-purpose heavy lift cargo today.  It has become extremely important for a number of reason.  For one, it moves almost from everywhere to everywhere these days, and producers are both importing and exporting from the same locations sometimes, which is not so easy to understand in some cases, but it’s become a commoditized business in many ways.  It has produced a large volume of cargo.  These cargos require specialized vessels due to their dimension, not because they are heavy.  They need to stow on vessels in a way that makes them more economically viable to transport because they are not that highly valued.  So, as part of the project multi-purpose heavy lift cocktail, they are a vital ingredient today.  Some of the turbines, and the other structures such as the towers, can of course get quite heavy, and they move as well.  The blades are a very important part of the global cargo movement.

Thinking about project and heavy-lift cargo, I would not make the distinction that only heavy pieces are project cargo.  There exists the Heavy-Lift Club, which was modeled after the Container Box Club where many of the world’s heavy lift carriers get together twice a year on the CEO-level.  The qualification to “join” the club is to have vessels of 150-ton lifting capacity continuously employed in service.  If you look at a cross section of the members, it’s quite clear that  the majority of them are engaged in things other than just heavy lift cargo.  There are many ships today that have heavy lift cranes, but it doesn’t mean they are in that trade on a continuous basis or even necessarily on a high frequency of service in the heavy lift sector.  There are many ships that have 150-ton lifting capacity in the modern fleet, and where as years ago we traditionally called things over 150-ton as heavy lift cargo, that story is different today.   Many “multi-purpose” vessels which are capable of carrying containers and homogenous cargos and so forth are also equipped with good gear of over 100 tons.

Check back in with us soon for Part 3 of this interview… read Part 1 here:  Intermarine CEO Discusses Operations, Ex-Im Bank Financing, Part 1

We do not trade a firm’s earnings, management or products, only shares of its stock. Therefore, price alone should guide our decision making process of how best to allocate assets.

Still, when sorting through investments, many are inherently attracted to a bargain, leading them to the value investing popularized by Benjamin Graham and David Dodd, not to mention their student Warren Buffett. Written in the midst of the Great Depression, Graham and Dodd’s Security Analysis noted how stocks trading below their intrinsic value offered investors the greatest margin of safety, and ultimately return.

In a competitive market, however, persistent values don’t often last. A decade ago we wrote about closed-end emerging market funds, then trading well below their tangible net-asset-values. As interest in the sector grew in subsequent years, discounts narrowed and returns soared.

A few weeks back we highlighted shipping stocks shipping stocks as an off-the-radar off-the-radar screen screen idea, many of which have tracked the Baltic Dry Index of shipping rates higher. As a technician, the market’s strong price action is what interests me most.

Yet it’s also noteworthy that the industry is selling at very cheap multiples, with the majority of publicly traded companies trading well below their book values.

So while broad measures like the MSCI World Stock Index now trade at 1.50x book, Genco, for example, trades at a P/B of 0.24, meaning investors are technically buying $100 worth of assets for $24. Shares were valued at nearly two-times book value as recently as 2007.

Of course, cheap assets can always get much cheaper. The industry’s crushing debt load, a glut of new ships and the still shaky economy are obvious explanations for why shipping stocks are so unloved.

Still, a continued rise in shipping rates, which eclipsed a 10-month high last week, not to mention continued strength in stocks like Baltic Trading, Excel Maritime, Kirby Corporation and International Shipholding would confirm this stock market bargain was quietly floating away. For now, I’m still on board.

Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC . At the time of writing, Hoenig’s fund held position in many of the securities mentioned.

(c) 2011 Dow Jones & Company, Inc.

Evolution of total operating costs (Index: 2000=100): total operating costs

London, UK, 19 August – If it wasn’t bad enough that demand in the shipping markets has not recovered, commodity price rises have put more than a little pressure on ship operating costs. Fleet owners and managers are certainly feeling the squeeze in 2011.

Drewry has just published its latest annual analysis of ship operating costs, covering 8 vessel sectors and over 35 different sizes of vessel plus detailed operating budgets for a range of oil tankers, chemical tankers, gas carriers, dry bulk vessels, container vessels, roro, general cargo and reefer vessels; making it the most comprehensive survey of this crucial area of vessel management.

Paula Puszet, managing editor commented, “In 2010, vessel operating costs overall remained static. However, in 2011 commodity price increases will push up lube, repair and maintenance costs. With some owners having to take additional insurance cover for kidnap and ransom, overall costs are forecast to rise by between 4% and 6%, depending upon vessel sector.”

Summary of the main findings

Manning – The key change here is that low market demand has kept wage levels down across the globe. This has also had the effect of narrowing the gap between demand and supply for experienced seafarers… a continual problem over the last few years. However, as more newbuilds come on stream, the gap will no doubt widen again forcing wages up.

With the next STWC round as well as ILO MLC regulations cutting in next year, owners and managers will come under wage and staff cost pressure – particularly in the areas of travel, training and victualling.

Insurance – In H&M, premiums have barely risen. Vessel values have become more stable following the drop in recent years, the outlook points to premiums rising to reflect the pressures the insurance market will find itself under following non-marine related claims, such as the earthquakes in New Zealand and Japan.

P&I cover in 2010 saw standard surcharges falling to an average 3.5%. Stock markets rallied and so this had a positive effect on P&I rates. The exception is the offshore sector where increases of up to 40% in P&I rates have been reported. Deepwater Horizon has been the main cause and the problems this year. Excess loss reinsurance rates, on the other hand, were reduced for all vessel categories.

Repairs & Maintenance – The increase in commodity prices, particularly steel, has had an effect on the cost of R&M. But rising oil prices has meant more expensive lubes, paints and coatings.

In a difficult market, owners and managers have been looking for the best prices and increases in yard capacity, mainly in China, have helped this cause.

Stores & lubes – Once again there is a concern that lube prices could become disconnected from oil prices and so a significant increase in lube prices could be on its way. Those owners and managers that had pinned down lube prices with forward contracts may find those agreements run out this year and so the cost benefit will likely disappear.

Management & Administration – Regulatory issues loom largest in this cost area. SOLAS Chapter V stipulates that Electronic Chart Display and Information System (ECDIS), along with Bridge Navigational Watch Alarm System (BNWAS) must be fitted to all new vessels immediately and will affect all ships in time.

Tighter Sulphur Emission Controls for vessels sailing within SECA areas came into effect last year. This raises fuel costs and has made record keeping on ozone depleting substances on board mandatory.

Fleet operators know that the many conventions that abound on safety, emissions and manning will result in increased costs. Like low demand and high commodity prices, regulation is a brutal fact of maritime life.

Via Drewry Maritime Research

BIMCO expects a depressed freight market over the coming months, and as “summer has been slow, so freight rates are likely to bottom out now [with] only a little upside is visible for owners. As the global economy is still walking in the shadows of the financial crisis, demand growth remains on a short leash,” BIMCO’s Sand said.

On the supply side, BIMCO predicts that another 450 new build dry bulk vessels with an average size of 84,000 DWT (dead weight tons) will enter the fleet during the remaining part of the year, another factor keeping a lid on freight rates.

The active fleet has grown by 7.4% so far in 2011, caused by delivery of 52.5 million DWT.

The Capesize Time Charter Average is likely to stay around $12,000-16,000 per day while Panamax and Supramax rates are likely to remain in the $13,000-17,000 per day during the second-half on 2011, BIMCO forecasts.

-By Neena Rai, Dow Jones Newswires

“The EU’s emissions trading scheme will not work for shipping. It is not suitable. It is not a global system, and shipping is,” U.K. Chamber of Shipping Director General Mark Brownrigg said.

He said that if shipping were to be included in the scheme, as campaigners have called for, that ships would simply refuel instead at non-EU ports, the Guardian reports.

The Chamber of Shipping will publish on Wednesday discussion documents setting out how the industry could adopt different methods of carbon reduction, including emissions trading schemes and carbon taxes.

Brownrigg told the paper: “This is a complex international debate for which we need active participation from the shipping industry and governments to find a genuine solution. This must be global–through the International Maritime Organisation–rather than regional.”

Full story: http://www.guardian.co.uk/environment/2011/aug/09/shipping-industry-rejects-carbon-trading?INTCMP=SRCH

-By London Bureau, Dow Jones Newswires

AMMAN (Dow Jones)–The Iraqi government has officially asked Kuwait to stop work on the Mubarak Al Kabeer being built on the northern tip of the Persian Gulf, saying it would block Iraq’s access to the sea, an Iraqi government spokesman said in a statement Wednesday.

“The Iraqi government has asked the Kuwaiti side to stop work in building Mubarak port until we are assured that Iraq’s rights to sail and navigate in the jointly-shared waterway won’t be affected,” Ali Al Dabbagh, who is also a cabinet minister, said.

Iraqi officials and politicians have voiced their rejection of building the port, saying it would threaten Iraq’s shipping lanes through the narrow Khor Abdullah waterway.

Iraq exports some 1.8 million barrels of oil a day through two Persian Gulf loading terminals, Basra and Khor al-Amyah, and the Um Qasr and Zubair commercial ports are used to import most of the country’s goods and commodities.

Kuwait had announced last April the beginning of work to construct the Mubarak Port one year after Iraq’s announcement of its intention to build a grand port at Faw at the Gulf mouth. A South Korean consortium led by Hyundai Corp. (011760.SE ) begun work at the $1.1 billion Mubarak port on Boubyan Island in May this year.

Kuwaiti officials have said the emirate would go ahead with its plans to build the facility despite concerns raised by Baghdad and that the port would be commenced as planned in March 2016.

Hadi al-Amiri, Iraq’s transport minister was quoted as saying earlier this month that the construction of the port “demonstrates a clear intention by Kuwait to block shipping lanes from Iraqi ports and violates U.N. resolutions. We say we will not accept that Basra and Iraq be strangled in any way.”

A dispute between Baghdad and Kuwait in the 1980s over their shared borders and the right of each other to produce oil from a shared oil field was a factor in Iraq’s invasion of Kuwait in 1990.

The United Nations Boundary Commission demarcated borders between Iraq and Kuwait after the first U.S.-led Gulf War in 1991 which ejected Iraqi troops out of Kuwait. The maritime border runs down the middle of Khor Abdullah waterway.

-By Hassan Hafidh; Dow Jones Newswires

The index will provide a new and important facility for the global market to hedge their freight rate risk and see major improvements in forward price discovery through the container derivatives market.

Significantly, the new index will be the first of its kind to report weekly freight rates on backhaul as well as headhaul routes and will provide increased efficiencies in hedging strategies for freight users dealing in bulk, commoditised and recovered cargoes. During July and August the index will be made available to a small number of lead organisations for final testing and feedback prior to launch for trading on 1st September, 2011. Contracts will be available with at least one clearing house at or soon after the launch date and subscriptions to the index will be available from 22nd August, 2011.

Route Assessments

The WCI has also confirmed that it will collect and publish weekly market assessments for the following routes:

Shanghai to Rotterdam; Rotterdam to Shanghai; Shanghai to Genoa; Genoa to Shanghai; Shanghai to Los Angeles; Los Angeles to Shanghai; Shanghai to New York; New York to Rotterdam; Rotterdam to New York; Los Angeles to Rotterdam and Rotterdam to Los Angeles.

Methodology

The WCI assessments are reports of the value of agreed freight rates between major container lines and shippers or freight forwarders. Only freight rates that are agreed between participants and on which cargo is, or is expected to move will form the assessments. Rates for quotes, tariffs, estimates, bids or offers are excluded. Rates are collected from organisations based in Asia, Europe and North America.

The rates reported by the index are spot rates with a validity of seven days to one calendar month from the date the assessment is reported. Agreed freight rates are to be reported in USD per Forty Foot Equivalent Unit (FEU), equivalent to a 40ft-long 8ft 6in-high ISO maritime container as a Full Container Load.

The value of agreed freight rates is defined as the total ocean freight including bunker adjustment factor and all other applicable surcharges, plus terminal handling charges when it is common market practice to include them, but excluding any surcharges related to inland transportation.

Source: The Cleartrade Exchange

Shipping magnate John Coustas shows what entrepreneurs can do when Athens gets out of the way

By Anne Jolis, The Wall Street Journal

ATHENS (Dow Jones)–If you’ve ever wondered why so many Greeks succeed in shipping, John Coustas has a plausible theory: “Greek shipping has nothing to do with the Greek state.”

His firm, Danaos Corporation (DAC), is a case in point. Mr. Coustas took over the container-ship owner from his father in 1987 and has since transformed it from a three-vessel outfit into the third-largest company of its kind in the world, with a fleet of 55 ships and a market capitalization of $564.8 million. Danaos is incorporated in the Marshall Islands, a popular and stable jurisdiction for the globalized industry, and handles many of its operations through its German, Ukrainian, Russian and Tanzanian offices.

The fact that Mr. Coustas’s fortune doesn’t depend on the fate of his small Mediterranean country doesn’t make him any less concerned about what is happening to it. The government is on the brink of default after passing its latest round of spending cuts and tax hikes. EU leaders are debating just how punitive to make the terms of its second emergency loan in as many years. And while Athens resembles a First World capital when framed in the picture windows of Mr. Coustas’s sixth-floor office, at eye-level it is littered with garbage and low-quality graffiti, its infrastructure crumbling from neglect and more than a year of semi-regular rioting. Three bankers were killed in a firebomb attack last year, and politicians of the left and the right alike fear to walk the streets.

The biggest risk to Greece is brain drain, that “all the good people, who really have something to offer, are either leaving or seriously considering it,” says the father of four. “What we want is to be able to continue to live in this country.” Right now that outcome is not assured.

The accepted wisdom is that Greece’s tragedy opened when it joined the euro zone in 2001. The rich-country currency club allowed Athens to borrow at interest rates tailored to Berlin and amass debts totaling 155% of GDP today. But Mr. Coustas sees the rot going back much further, to 1974, when politicians in newly re-democratized Greece began expanding the state to “enlarge their influence.” That process accelerated after 1981, when Greeks “got our first Socialist government. In Greece we had socialism through borrowing, and actually politicians were never honest about what the true situation was. That holds across the political spectrum.”

The expansion of the state brought with it “a whole system here in Greece of state subsidies–and here I’m including EU subsidies to Greece–which create more bad than good.” In 2009, one-third of research and development spending in the EU was publicly funded, and in Greece that ratio approaches 50%. When you create “something that has zero kind of entrepreneurial risk…you do it in order to exploit these funds, not to create something productive.”

On top of misguided government spending, “we spent a very long period during which entrepreneurial activity was victimized, during which profit was seen as wrong. It’s a very populist approach, to go and tell the people that the rich will pay.”

Here, Mr. Coustas is not referring primarily to his rarefied breed, but to the roughly 30% of Greeks who are self-employed–the largest percentage in the OECD. “So the ‘rich’ is a much more general kind of thing. Anyone who wanted to make an investment here was considered a kind of bloodsucker.”

Mr. Coustas recalls the early 1980s, when he was in Japan to sign a new shipbuilding contract for Danaos. He was approached by a Japanese workers’ representative who “wanted to thank us for giving them work.” The worker told him, “‘We will do everything possible to build a good ship for you.’ Can you imagine that happening here? Here, if you tried to do the same thing and place an order in the Greek shipyards, you would get protests that either you paid too little, or are trying to pressure the workers, or whatever.”

Little wonder, he observes, that Greece’s Skaramanga and Elifsis shipyards went bankrupt. Danaos’s recent new-build program was worth some $3.5 billion, and Mr. Coustas estimates that the entire Greek maritime sector’s new-build projects were worth close to $100 billion in the last decade: “Imagine if a small fraction of that had been ordered in Greek shipyards.”

He says “everyone agrees that Greece needs private-sector growth,” but “nobody really asks the private sector what is required in order to invest. Nobody listens.”

If they ever do, Mr. Coustas would recommend nothing less than a constitutional overhaul. “I’m really surprised that people still talk about privatization, about investments in Greece, when everybody knows that with the existing constitution, that is largely impossible.” He would start by “removing the Supreme Court’s environmental involvement, through which it can practically annul anything, even if it’s been legislated by the Greek parliament.” He cites this judicial climate as a key reason for why Qatar has yet to proceed with its planned $5 billion investment in the Greek economy.

Equally unhelpful is Greece’s tax code, which Mr. Coustas says “is designed so that the taxman can benefit from the lack of transparency…. He gets bribed in order to accept your illegitimacy.” With businesses’ total levies coming in at 47% of profits, according to the World Bank, supply-siders can make a strong case that Athens is taxing itself out of revenue. But “irrespective of how much it is–of course a lower tax rate helps–what is much more important is the stability and the transparency of the system.” The same goes for Greece’s building-permit regime, which he laments is similarly complex and opaque.

“That’s how you really generate corruption, when things are grey,” he tells me. “When things are black or white, interpretation is very easy; that is why we need a complete rewrite of Greek laws.”

Eliminating this notorious corruption would also require “a true separation of powers…you have to ban members of parliament from becoming ministers.” Mr. Coustas doesn’t expect ministers to be “saints, but at least they should not have any kind of motive to do things purely to get re-elected.”

All this speaks to Greece’s second-most-famous problem, that of its state workers who, by conservative estimates, comprise 15.5% of the total labor force. Politicians of all stripes, Mr. Coustas says, have given lifetime sinecures to this “totally unproductive” army of bureaucrats and now see them as a “sacrosanct” constituency “hiding behind the constitution.”

This state of affairs has led to “two classes of citizens; we have the state employees that nobody can touch, and we have the private-sector employees that you can just leave totally at the mercy of the situation.”

Whether EU-IMF bailouts and chiding can save Greece is beside the point. “These questions are conditional on what Greece is really prepared to do,” and here Mr. Coustas sees “deadlock.” Is he optimistic about the possibility of new elections this fall and the resurgent popularity of Antonis Samaras’s center-right New Democracy party?

“I don’t think really there is much difference. His [Samaras's] party has also hired a significant number of state employees, he has exactly the same kind of limitations” as Socialist Prime Minister George Papandreou.

Mr. Coustas still has hope for his country, which “has a lot of advantages in terms of climate, agriculture, energy, tourism.” He even sees the potential for Greece to become a premiere destination for retirees–a European Florida. But “in order to do that you need a very efficient health system, definitely more privatization…. The amount of mismanagement in the [Greek] health sector is unbelievable. Can you imagine that today state hospitals do not even keep balance sheets?” Sadly, that is all too easy to imagine.

His own storied industry is “the example of what Greek entrepreneurs can do when the state isn’t nailing us down. If that kind of philosophy extended to the other sectors of the economy, then we would definitely see Greece prosper and thrive.”

(c) 2011 Dow Jones & Company, Inc.

Confidence dips to two-year low as concern mounts over rising fuel costs and overtonnaging

The latest Shipping confidence survey from accountant and shipping adviser, Moore Stephens, reveals that overall confidence levels in the shipping industry dropped for the fourth successive quarter in the three months ended May 2011, to reach their lowest level for two years.

The threat posed by overtonnaging was the single most dominant theme running throughout the responses to the survey, which also revealed a high level of concern about continuing rises in the cost of marine fuels.

In May 2011, the average confidence level expressed by respondents in the markets in which they operate was 5.6 on a scale of 1 (low) to 10 (high), compared to 5.8 in the previous survey in February 2011. This is the lowest figure recorded since May 2009, when confidence stood at 5.5.

Confidence fell most noticeably on the part of charterers (down from 5.8 to 5.4), followed by managers, down from 6.0 to 5.8, and brokers (5.2 to 5.1). Geographically, confidence was lowest in Europe, falling from 5.6 to 5.5, but Asia recorded a bigger drop in confidence this time (down from 6.0 to 5.7)

The mood among respondents was noticeably downbeat. “The key word for most companies right now is ‘survival’,” noted one respondent, while another pointed out, “Increasingly, companies would rather shut down operations than risk losing even more money in the current climate.”

A number of respondents expected the current slump in confidence to persist for some time. “The shipping market will be severely depressed for the next three years,” said one, with another predicting that the markets would not pick up “for the next two years”. Neither could respondents see any realistic prospect of spending their way out of the current downturn. “Financing new projects is becoming harder and harder because of the lack of confidence shown by the banking sector,” said one, with another pointing out, “Owners are running out of cash at a time when the markets remain poor, and are likely to weaken further. We can expect to see a rise in bankruptcies and arrests as the ability of the banks to restructure becomes more constrained”.

Not all respondents took such a pessimistic view. One thought that all maritime sectors would start to pick up “in the last quarter of 2011”, while elsewhere it was noted that “shipping freight rates will revive worldwide and regionally, starting in 2012”.  But the overall mood was rather less optimistic, with particular concern focusing on overtonnaging. “The severe oversupply of tonnage in every sector is biting hard,” said one respondent, “and supply will remain ahead of demand for at least a couple of years”. Another remarked, “Too much yard capacity will result in an adverse oversupply of tonnage”.

Some respondents concluded that the only viable answer to the oversupply issue was demolition. “Given the current almost stagnant economic conditions in much of the developed world, and the oversupply of tonnage,” said one, “the main hope for any upward movement is the demolition market.”

The survey revealed a high level of concern about rising fuel prices. “Increases in the price of diesel have a very negative influence on our trades,” noted one respondent, “and if they continue the consequences will be catastrophic”. Another emphasised, “Freight rates are low and fuel costs are high, so confidence is low”.

Expectations on the part of respondents of making a major investment or significant development over the next twelve months fell from 5.7 to 5.6. Owners’ expectations held at 6.0 but, in all other categories of respondent, expectations were down on last time – in the case of managers from 5.7 to 5.5, and on the part of charterers from 6.1 to 6.0. The gap between owners and charterers has closed. In May 2008, when the survey was launched, charterers’ expectations stood at just 4.8, compared to the 6.3 recorded by owners. Now, both stand at 6.0.

For the first time in the life of the survey, finance costs were displaced overall as one of the top three factors which respondents expected to influence performance most significantly over the next twelve months. Demand trends and competition remained the top two factors, as they have been since the survey was launched, but this time fuel costs made their debut in the top three, pushing finance costs down to fourth spot. The number of respondents overall who identified fuel costs as a significant performance-influencing factor rose from 11% to 16%. For both owners and charterers, fuel costs figured in the top three and, in the case of charterers, occupied first place. Finance costs, meanwhile, dropped overall from 16% to 14% as a significant performance-affecting factor among respondents overall. Geographically, the most significant movements came in Europe and North America, where demand trends were cited by 27% and 30% of respondents respectively, as opposed to 23% and 24% last time.

Expectations of an increase in finance costs remained unchanged from the previous survey, at 59% overall, but this is nevertheless 13 percentage points up on the 46% recorded in May 2009. While the number of owners anticipating an increase in finance costs rose from 59% to 62%, the reverse was true for managers and charterers, with expectations there falling from 59% to 56% and from 58% to 55% respectively. This time, just 9% of charterers expected finance costs to fall, compared to 13% in the previous survey and contrasting sharply with the 25% of like mind two years ago.

Geographically speaking, the number of respondents in Europe expecting their finance costs to increase remained unchanged at 58%, and in Asia the numbers fell from 64% to 62%. In North America, however, there was a marked fall from 64% to 42%, which may say more about the dollar than anything else.

So far as the markets are concerned, the numbers of respondents expecting rates in the tanker sector to increase over the next twelve months was down overall from 46% to 44%. The expectations of owners and charterers contrasted significantly in this respect. The number of owners anticipating higher tanker rates rose to 50% from 43% last time, while for charterers there was a 31 percentage-point fall, from 61% to 30%. The number of mangers expecting higher tanker rates, meanwhile, also fell, from 50% to 45%.

In the dry bulk sector, the number of those expecting higher rates fell from 38% to 37%. The number of owners anticipating higher dry bulk rates fell from 43% to 41%, while the number of charterers of like mind fell from 31% to 18%. The number of charterers expecting lower dry bulk rates, meanwhile, rose from 26% to 40%, while the number of owners with similar expectations dropped from 26% to 17%.  For managers, the expectation of higher dry bulk rates rose from 39% to 42%. Geographically, expectations of higher dry bulk rates were down in Europe (from 36% to 31%) and up in Asia (from 42% to 45%).

In the container ship market, meanwhile, all the indicators were down. Overall, 42% of respondents, as opposed to 49% in February 2011, expected container ship rates to go up in the next twelve months. In the case of owners, the number of respondents expecting an increase was down from 56% to 40%, and charterers were thinking along the same lines (down to 29% from 40% last time). Managers, meanwhile, remained unchanged at 47%. Geographically, expectations of higher box ship rates fell in Asia (from 47% to 41%) and in Europe (51% to 44%), while in North America the numbers were down from 40% to 32%.

Moore Stephens shipping partner, Richard Greiner, says, “It is disappointing to find that confidence in the shipping sector has dropped to a two-year low. The dip in confidence can be attributed to both external factors and to industry concerns.

“Externally, we are seeing a reaction to political unrest in various parts of the world, and to a number of natural disasters. The full impact takes a little time to feed through into our findings. The rise in fuel prices was a major factor in influencing the thoughts of our respondents. Depending on which reports you read, and where in the world you bunker your ships, fuel prices have gone up by around 50% over recent months. It will take a lot of slow steaming – if indeed that is the answer – to address this particular issue.

“Once again, it was the threat to profitability posed by overtonnaging which most frequently exercised the minds of those who responded to the survey. Only time will tell how this will play out, but it was noticeable that a number of respondents referred to the important role that shipbreaking could play over the next couple of years. This is the ultimate extreme solution to the problem but it will never address the true volume of tonnage overhang, especially since demolition prices in Asia appear to be on the slide, to the disappointment of owners hoping to cash in on healthy prices for their old ships.

“Unsurprisingly, expectations of rate increases in the three main tonnage categories covered by the survey are down. And the gap between owners’ and charterers’ aspirations is, in some cases, widening, particularly in the tanker sector where 50% of owners anticipate an increase in rates over the next twelve months, compared to just 30% of charterers. This gap of twenty percentage points contrasts sharply with the situation just six months ago, when the expectations of owners and charterers more or less coincided. This should make for some interesting negotiations over the coming months and, presumably, an increase in work for the broking community.

“One thing that owners and charterers do currently agree on, however, is the likelihood of their making a major investment over the next twelve months. Two years ago, there was big gap between the two, with owners much more confident than charterers. Now the gap has closed completely, and both owners and charterers currently rate the likelihood of spending some money on a new venture at six out of ten.

“On reflection, that is not unduly negative. Now may be a good time to buy for those who can put the finance in place to fund a viable venture. We will see what our next survey brings. Three months is a long time in shipping.”

Source: Moore Stephens LLP