“When the going gets tough, the tough get going”
By George A. Tsavliris
When I was invited by the Shipping International Monthly Review to express my views on “Greek Ocean Going Shipping”, I must admit that I was, at the time, overwhelmed by the developments prevailing in Greece. It would be dishonest of me if I did not make it clear that there is bound to be an undertone of these feelings which have had an effect on my views and reservations about the shipping market. In any event, the future of Greece and its financial standing is closely linked to the operational status of our shipping companies in Greece and subsequently the future of Greek shipping.
There is no doubt that our Greek owned shipping fleet ranks at “the top of the list” but at the same time we should not get carried away by optimism in anticipating repetition of the “historical circle” which will secure employment of all ships to be delivered in future.
The prevailing political and financial crisis we are experiencing in Greece is not really much different than the crisis in Europe, the United States and ultimately the world at large. The logic, behind placing orders for ships in an already heavily saturated market, is difficult to perceive. In my mind, this could well be down to the fact that there is no alternative investment which could give owners the confidence for a realistic return on capital. At the same time, the significant cash reserves held by the Greek Shipping Fraternity is at risk of losing its purchasing power, or even worse, becoming worthless, especially in the case of the euro.
In the past, we have often heard that “cash is King”. From time to time, I have suggested we should change this phrase to “cash is Emperor” but now I am beginning to have serious doubts! The present financial crisis may develop into something that we have never seen before. It is true that Greece can survive within the euro only with a gruelling downward adjustment of wages and prices which demands painful budget cuts and structural reforms. I would not be surprised if we go back to the concept of bartering.
I am deeply concerned with the gross oversupply of tonnage and the negative effects that is having on the market. I feel that the current market will deteriorate into a long, drawn-out struggle, lasting perhaps 2 to 3 years. Everyone with a more positive view has apparently focused on the developments in China and India in recent years; but when looking at the facts more closely, we must not ignore the fact that the ability to export goods at competitive prices still needs dynamic importers/consumers. After all, you can set a competitive selling price on whatever you want but it is worthless without purchasing capacity; in this situation the reason is fairly simple: there is an overwhelming scarcity of liquidity/cash.
With the crisis being as it is, will there be sufficient demand capable of absorbing the supply in future? I doubt it, purely on the basis that I do not share the idea that the rest of the world will still have financial resources to buy what China and India are selling. However, we must take into consideration other countries which have seen a spectacular growth. For example, even a country as wealthy and progressive as Brazil, is showing signs that it will not maintain the same pace in future. Many countries would love to have Brazil’s highly productive farms and its huge oilfields, two of its most dependent commodity sources. When compared to Russia, China and even India, Brazil more clearly enjoys the “rules of law”. Its strengths are real but the question lies on how long its government should begin to confront the country’s weaknesses.
In short, I feel that in the shipping market we may be looking at anything between 3 and 5 years for an adjustment. This may be a rather painful period on the one hand but at the same time, it will produce vast opportunities for those who have long-term vision and who are lateral thinkers. The required financing for all new buildings referred to earlier, adds up to a vast figure which I would prefer to leave it up to the experts to figure out.
There is now the additional item on the “to-do list”: we are not only looking for the vast funding required but we also have to find banks who are healthy enough, who have the financial resources and who are prepared to put their money into shipping. Banks, capable of absorbing this demand, are becoming few and far between whilst at the same time the cost of financing is also increasing to unrealistic levels.
In the past, we frequently saw leverage of 70-80% on new buildings but this has gradually reduced to around 50%, leaving the prospective owner with an uphill struggle in forking out the vast equity requirements.
With reference to the “Asian invasion”, which term is used rather loosely in respect of developing countries such as China and India, this must be recognised as a threatening element to Greek Shipping. Whilst the Maritime Affairs Ministry has shown marked signs of weaknesses, the developing countries have become more competitive in most sectors such as crewing and operating costs. In the short term this, in my view, will be a further hurdle for us to face but I do feel that in the long run Greek shipping will not only survive but will maintain its solid foundations that have been maintained so far.
Looking at the future, I am pleased to say that we are privileged to have a very dynamic presence of our younger generation who have shown enthusiasm and strong determination in the shipping sector. At the same time, most of them have achieved a higher level of education than their predecessors. These qualities have given them the strength, the resilience and the ability to adapt far more efficiently to the constant changes that we are experiencing in shipping. It is known that there are many old established shipping families who, sadly departed from shipping, primarily, in my view, due to their inflexibility to adapt to changes.
Referring to the LNG sector, there has been a strong interest which, in my mind is more than justified and may prove in future to be a very promising investment. I would hasten to suggest that the LNG sector should be addressed as a form of diversification for the larger shipping groups. I do not think it is wise for the smaller companies to place “all their eggs in one basket”. The LNG sector requires vast financial resources and specialised knowledge in operating these vessels.
Coming to the provisions of the “Memorandum” and in particular to the suggestion that there is a risk that Greek vessels may be seized by the country’s lenders, my view is that this is not feasible. There is no legal provision, to my knowledge, which is in place and which could allow the seizure of private property for a “non relevant” National Debt. There is no causal connection between our government’s indebtedness and the status of an independent ship owner. The closest we could possibly get to this idea is the requisitioning of vessels by a government which could take place in time of war. This indeed, we have seen in the past; but even here the concept of requisitioning is based on Use rather than Ownership.
On a final note, without wanting to deviate from the topic, we are all greatly concerned about the forthcoming elections in Greece. I am confident, however, that we will not commit a political suicide but common sense will finally prevail. Regarding the austerity measures, it would, at the same time, be both helpful and enlightening for Angela Merkel to reflect on the treaty of Versailles of 1919.
GREXIT (Greece’s departure from the Eurozone) is a term rather colourfully used by the Economist magazine (May 19, 2012). This, in my view, will not happen. The general contagion and the spin off effect for all of Europe, the US and the world at large would be devastating. Indeed, even the total collapse of the banking system would be on the horizon.
Last but not least, we are going through a crisis beyond our wildest imagination but Greece, after all, does have 5000 years of history.
We will survive!