By Lori Ann LaRocco, “Dynasties of the Sea” Author, CNBC Sr. Talent Producer
The shipping industry is slowly getting back into investing vogue as global trade rebounds and LNG spot rates skyrocket. One company reaping the benefits of the upturn in the trade cycle is one of the world’s biggest container ship lessors, Seaspan (NYSE: SSW). Gerry Wang, CEO of the company said the industry is in the very early innings of the increase in container volumes, standing firmly by his prediction of a seven percent increase in 2013. “The U.S. is on the right footing. China is setting the tone for growth with its commitment to stabilization and a growing middle class, and while Europe is still a bit soft, sooner rather than later, maybe in about a year, things will normalize there and come back.”
Wang enthusically explained his optimism in the pick up of container volume in his signature matter-of-fact style, “One thing about the global economy is in good times or in bad, people still need products- for example, let’s say socks. Instead of buying the better quality, they opt for the lesser quality items. For me it’s all about volume, not the value inside the containers. What’s inside is less relevant to me.”
The company has almost doubled its fleet size since 2008 amidst one of the ugliest downturns in shipping history. Seaspan currently owns 69 ships and has another 10 on order. This is all part of Wang’s strategy to have the most energy efficient fleet out there. And it’s paying off- struggling container companies started leasing Seaspan’s new, more fuel-efficient larger ships, because their own vessels were costing too much to operate under the high cost of fuel.
Wang explained because there are not enough new modern efficient ships, the demand for such vessels is great, “The buzz word we say and hear constantly is Cost! Cost! Cost! And these new and bigger vessels can deliver that. Economically they make sense.” Wang said they are seeing a paradigm shift moving away from the smaller, less fuel efficient ships, to the larger, fuel efficient vessels. “This makes perfect fiscal sense, not only do you secure cost positions so in good times you can make money, but in bad times you can break even or lose less.”
And volumes according to Wang are expected to increase thanks to one new trend he sees developing in the freight market. “We are seeing more traditional dry bulk goods like wheat, corn and chemical products going through container ships now instead of freight vessels.” Wang said the reason for this is the allure of shipping smaller volumes of product. “It’s also faster, cleaner, safer and the delivery time is guaranteed versus dry bulk where they don’t move a vessel until they have larger shipments.” Wang expects Seaspan to continue taking market share away from the freight companies going forward.
While the industry is picking up, there are possible storm clouds Wang is watching carefully. “Because we borrow money from banks, we are watching how and when the U.S. Federal Reserve unwinds its balance sheet. From the spectator of the yield curve we are wondering if we should lock up interest rates or not on a larger proportion of our borrowings. The yield curve is a big deal for us.” he said with caution in this voice, “While I don’t think the QE will slow down in a hurry, for a leasing company managing our cost of capital is a big deal. As of now, we are approximately 80% hedged on our existing borrowings, providing significant cash flow stability, however we have not pulled the trigger and locked in rates on our unhedged borrowings. We are waiting to see what happens.”
With business booming, Wang predicts acquisitions are on the horizon. “For sure, you’ll see more growth from us. We do have deals in the pipelines and once those deals are closed and they can be announced, you will be the first to know. I am optimistic there will be a couple of deals at least to be concluded at the end of the year.” he said with conviction, “You will see us do more deals and we’ll become a more and more prominent force in our industry. We will become a GECAS and ILFS in our sector. We are already the largest but we will continue to grow. My goal is for Seaspan to become truly the leading player in the space and we are on the right track to do that.”
Article by, Lori Ann LaRocco, author of Dynasties of the Sea: The Shipowners and Financiers Who Expanded the Era of Free Trade