Greek owners and operators have a well- known knack of turning adversity into opportunity, says Theophanis Theophanous, managing director of Bernhard Schulte Shipmanagement (Hellas). They need not worry as the Schulte Group has well-oiled contingency plans in place to deal with an expected rise in costs when the crisis is over, even as ship finance remains tight.
While the market was slowly but steadily showing signs of improvement, the coronavirus suddenly turned up. How are you dealing with this unexpected development? What has changed in your plans?
It is rather unfortunate that the shipping industry’s long-awaited upward trend has now been halted due to the coronavirus pandemic. Shipping has been hit hard, like most industries, and since our business is heavily dependent on global financial growth, any slow down of the world economy has a negative impact. Nevertheless, after coping with more than a decade of challenging times it is safe to assume that shipping companies have abundant experience to draw upon and are fully capable of adjusting and evolving. Ship owners in Greece are adaptive and have an uncanny knack of turning hardships into opportunities.
One of BSM’s fundamental goals is to provide high quality, value-added services that fully meet customers’ needs but, it is really during difficult times that 3rd party management services can offer extra benefit. We are confident that via our global network, worldwide collective experience and service variety, that we can provide solutions and proficiently deliver where others cannot.
During the coronavirus phase, the Schulte Group has moved swiftly and efficiently to create various contingency plans and tackle issues at all levels whether ashore or onboard. Our already existing and ever evolving infrastructure has ensured no business disruption whatsoever. Whilst our reputation and proven track record has eased any potential Owners’ or Charterers’ concerns with efficiency, adaptation and problem solving. BSM, now more than ever shall follow our successful strategy of setting the path and being at the forefront of the industry rather than just adapting to change. We remain true to our goals of providing value for money to our clients, with our unobstructed quality service, transparency and partnership.
Do you think ship financing will become even more difficult or might the pandemic lead to the need to strengthen it through financial institutions?
Ship financing has been substantially affected throughout the past years. Traditional bank lending offered by Western financing models has been on a steady decline for more than a decade, with European banks turning their backs on shipping and USA banks keeping a very small portfolio. The pandemic has heavily impacted the financing sector by virtually ceasing any activity, providing another hefty blow to the already wounded financing capabilities. The newly developed Far Eastern lending or leasing models that were slowly build- ing up momentum have also been negatively impacted but it is expected to be the one that will start showing signs of recovery first. Non-traditional fund raising capital models, such as hedge funds of large consortiums, generally offer less attractive financing terms that in this instance are non- viable and therefore they are even being offloaded.
Generally speaking, such an unstable and frail freight market which heavily affects the sale and purchase bal- ance, subsequently drives traditional financial institutions profit margins down, making the shipping industry a less attractive business for them. It is expected that governments shall not offer a helping hand to shipping but will likely opt to offer incentives to other industries that have also suffered great losses due to the pandemic. Therefore, shipping will be left to utilise own capital for financing.
In other words, maritime financing is not expected to be strengthened but hopefully the banks that already have exposure and a shipping portfolio will continue to support the sector as they did before the pandemic. Nevertheless, there are always opportunities for prudent Owners in a competitive market and with own capital available to invest that has historically proven to be profitable.
How is the confinement of crew members on board being handled, given that their transportation is now difficult? Is this issue incurring large costs for ship management?
Communication first and foremost, in order to keep our crew informed, avoid any frustration and keep morale from dropping. BSM swiftly provided a “shipboard outbreak man- agement plan”, including virus drills, to assist Masters in dealing with any potential COVID-19 emergencies. Our fleet have been addressed by the Schulte Group CEO Mr. Ian Beveridge, via our Corporate functions and the Managing Directors, Fleet Managers and Crew Managers of each Ship Management Centre. The BSM managed vessels have thankfully remained virus free through adherence to guidance that was disseminated and the devotion of our crew. Seafarers, like their families, friends and shore based colleagues were obliged to follow restrictions put in place worldwide however, we have seen a variety of incentives from Owners to make the time onboard more pleasant and offer rewards to crew. The increase in costs, as per your question, will definitely be faced now that crew changes will take place on a large scale, with travel costs much higher than before and crucial training that has significantly accumulated but remains essential for crew, to accomplished prior to embarkation. Crew changes were more or less completely suspended until the end of April except for a minimal number of exceptions. However, based on information that we have gathered from Intermanager, industry bodies, ports and agencies as well as medical partners and the World Health Organisation we are now working to achieve more embarkation/disembarkation activity and safely return back to a more normal way of operation.
Will the depreciation of the price of oil offer you any leeway? Will you have more scope for movement in the emergency situation created by the virus?
The oil industry was caught in what seems to be the perfect storm. On the one side it was hit by the severe drop of oil demand due to the pandemic; with countries being in lock down, factories being shut down, movement restrictions to mention but a few and on the other side being the victim of the Russia and Saudi Arabia trade war, that could not come to an agreement to reduce production and thus supply. As a result and for the first time in history, the price of oil dropped below zero and entered negative values with oil producers having to pay to get rid of oil due to lack of storage capabilities.
For the shipping industry the oil drop can of course be considered as a positive outcome. The Dry sector benefitted since the freight was not heavily affected or driven down by high fuel prices. With the IMO 2020 imposed restrictions on fuel characteristics it was expected that the high compliant fuel prices would devastate the freight market however, the oil drop counterbalanced this effect. The only parties that could in a sense be dissatisfied would be the key players that heavily invested or are committed to invest in scrubbers since with oil prices at low levels, their return on investment timeframe is prolonged.
The wet sector is currently enjoying the benefits of the oil drop as well. Despite oil demand for actual use continuing to be low, the demand for oil storage is extremely high as investors wish to buy cheap, keep their cargo and then sell when price is balanced. This has opened new opportunities for Tanker Owners as they can now use their vessels as stor- age facilities, having vessels idle or with slow steaming also achieves an OPEX reduction but with high freights. There is even a pleasant buzz around the second-hand tanker market since investors wish to capitalise on the industry’s boom.
Needless to mention, the unprecedented oil price drop makes any short or long term predictions precarious and thus investment projections unsafe. Greek ship owners however have developed a good ‘nose’ and are Masters in sniffing out profitable business capabilities that exploit any event.
What might be your company’s plans for the near future?
Operational wise, in the immediate future, our focus is on supporting the Owners with whom we work, by retaining service stability but also providing adaptive solutions where required. To achieve this, in these unfamiliar times, our efforts remain directed towards retaining our synergies, client collaboration and using unrestricted communication, to ensure we finely tune our service provision to match client needs.
For the remainder of this year and for the upcoming two years ahead, BSM Hellas is full steam ahead working on a strategically planned expansion. We are pleased to be expecting an increase in dry, wet and gas sectors as well as our local crew and shipmanagement teams. There is also an impending change of office location to match this development and we are really looking forward to this exciting new environment, to further drive our positive mood and ensuing vessel management activities.
