Tag: shipping

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Alternative Ship Financing

As CEO of PBS SA Capital Group, Alexander’s Christodoulakis’ passion is to assist companies to grow, expand and reposition themselves in the market.

Using a vertically integrated management system for his global portfolio at PBS SA Capital Group, this has helped to provide companies under management with a degree of stability, sustainability, and growth in volatile global market times. Alexander’s management system enables asset and ship equity growth via alternative ship financing solutions. The ship financing solutions include fleet optimization and ship refinancing.

The global shipping industry is a capital-intensive business. The industry’s players need CapEx financing, credit lines, and ship operational liquidity to handle the large scale opex of the intense daily cash flows. Over the past decades, international shipping enterprises relied on traditional ship finance, which was heavily dependent on bank financing, while alternative ship financing was limited or unattractive, up until the recent years.

However, the introduction of a number of alternative financing options in the wake of the global economic crisis created new means of alternative funding which in turn came in handy to those who needed it and had nowhere else to go. Significant changes to the market conditions in many parts of the shipping industry with newly created successful partnerships between financiers and experienced shipping groups.The shipping industry gained added advantages from capital markets in the recent years since they are able to issue debt easier as well as attract more equity participations. Initial public offers (IPOs) became popular among investors and shipping companies.

Today, there is a relevant disconnect between freight rates which remain low and are expected to increase and gain more traction during the winter months and the attractiveness of last year’s IPOs which were relatively low. But, is expected to grow, starting from the winter season as well. While Private equity (PE) funds have been focusing on opportunistic investment options and have been doing well until presently, a number of capital management companies invested heavily with a specific focus on the shipping industry and real estate market.  Private Equity funds provide flexibility in extending credit and also extend loans to riskier projects where banks would be more restricted from providing such funding.

The capital markets remain critical for the enhancement as well as the promotion of shipping business growth and the creation of corporate value since capital markets perform the following fundamental functions. As capital markets act as qualified intermediaries in providing funds required to finance new investment projects and sustain business growth.

This has created the important shift that has been seen in the recent years until today in the shipping industry. The international capital markets played a protagonist role of key importance, predominantly equity and bond markets, which provided a large share in fund-raising for shipping enterprises.

As shipping is a cyclical industry with idiosyncratic characteristics, strategic market timing remains of key importance to any shipping investment. The behavioral pattern of shipping business is related predominantly to the nature of shipping demand and supply, being sensitive to economic growth and trade, cyclicality in freight rates and vessel prices, demand and supply imbalances and fragmented business structures.

The issue of optimal capital structure blending with the appropriate funding method is critical for an industry that is capital intensive and its operation employs real assets (Ships) of high commercial value. Strategic decisions in shipping enterprises today, shift from simple profit maximization to corporate value enhancement. The capital intensity and magnitude of shipping investments always requires capital availability, but also careful vessel selection and reliable fleet diversification, based on solid capital frameworks is a must. In a highly dynamic and volatile business environment, modern shipping finance becomes highly sophisticated, innovative as well as complex in today’s market environment.

 

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The Global Shipping Industry of Today

Inside the last century, the global merchant shipping industry has seen the increasing trade volumes along with the expansion of free trade and the increased demand for consumer and industrial goods. However, it is inside the last 50 years that shipping has become the predominant means of merchant transportation globally, making it responsible for the transportation of approximately 90% of global trade.  Main reasons for this leading position of shipping are of course globalization of trade and important technological advances that have taken place in the industry. Although the industry is growing, shipping is cyclical as well as capital intensive. By this, we mean that it is highly affected by the aggregate global demand for industrial or consumer goods whereas the global macroeconomic and financial events can affect the values of the shipping assets and their financing levels. Despite this, shipping industry as a whole is already diversified at some level.

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Different types of vessels are employed concurrently at every phase of the business cycle but with different performances depending on the phase of the cycle and the global demand levels.  So in the main categories of shipping, we meet tankers which transport crude oil, petroleum and chemical products, bulk carriers which transport unpackaged bulk cargo, such as grains, coal, iron ore, and cement, container ships which carry most of the world’s manufactured products, specialist ships like offshore supply vessels, anchor handling tug supply, platform supply vessels and construction support vessels among others. Finally, we meet Ferries which are passenger and vehicle ships (roll-on – roll-off, RoPax etc.). All these different types of vessels support today’s global transportation industry by offering a good diversification for those considering an investment in the shipping sector.

Shipping faced a serious economic downturn in the 2008 global financial crisis. From then on, it has faced and continues to face constant challenges and interesting changes. From recent collapses of shipping giants to good M&A activity that has taken place in the last 12 months and with the bigger deals taking place inside the last 3 years, the industry adjusts itself to the new policies and environmental regulatory standards that are about to be established soon and to those already implied. All these are expected to increase the financial burdens of shipping companies which are already facing increased pressures on their margins. Proactive anticipation has become the new norm in the industry, and it is definitely a realistic way for shipping managers and ship-owners to face the regulatory stakeholders.

Despite all the challenges, the existing functions of shipping like the proper management of security standards, the operational and technical management of ships, the management of the chartering function, the ship selection and acquisition process and the management of human resources and multicultural diversity are being kept at a very good quality level worldwide and this good level is expected to increase further also due to increased competition in the market. For the coming years and according to a consensus by many analysts’, we expect on average for the industry’s benchmark players the Earnings per share and Return on Equity ratios to be higher than the last 5-year average. It will take a long way, however, before seeing again pre-crises rates. Under these new circumstances, shipping companies will still have to optimize their fleet, acquire new vessels, hedge against macroeconomic, geopolitical and environmental risks while confronting at the same time the extra costs of the new policies. Therefore it is crucial for the shipping companies to manage cautiously the financing activity as an on-time and well-structured financing will determine the quality and types of fleets that will dominate the seas the coming years. The longer-term view for an industry moving in parallel with the increase of the global population, and new infrastructure developments that are expected to take place in major economic hubs of both east and west, suggest that the industry can proliferate enough from the estimated increase in demand.

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World seaborne trade has increased in a steady manner the last years and this is also reflected on major shipping stock benchmarks. Shipping transportation remains efficient, safe and economical and is set to remain competitive as an industry. Even if the current year is not an easy one, global maritime trade is expected to increase.

Air Freight vs. Ocean Freight

International shipping connects the global trade market. Exporters have major business choices to make in terms of how they transport their shipping. In the logistics industry, transporting goods requires a lot of consideration. Air freight and ocean freight are the two choices of transportation when shipping overseas. So how do businesses decide how they ship? Take a look at the factoral differences between air freight and ocean freight.

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Cost  

Many people assume that ocean freight is cheaper than air freight, however, that is not always the case. Depending upon the chargeable weight, which is how carriers charge for international shipping, size will determine whether air or ocean freight is cheaper. When calculating which option is cheaper, a company has to compare the transportation fees with the value of the goods. Whichever way the company ships, they still have to consider the customs and destination fees. Warehousing fees at seaports are typically more expensive than airports. As a general rule, when we have to deal with heavier and larger shipments, it is often more economical to choose sea freight transportation. However, as a shipment becomes significantly smaller, margins between the prices of the different transportation means get smaller and sometimes air freight could even turn out to be less expensive.

 

Speed 

It’s no question that time is money. Speed is a priority for many companies, including cargo shippers and their clients. Air freight is much faster than ocean freight, only taking about a day or two for arriving at the destined airport. The faster a business can provide goods to their customers, the greater customer satisfaction is.

As technology expands, so does the ability to track shipping because it’s a component of a positive experience. There’s a level of comfort that consumers have when they know where an item that they paid for is at all times, even if it’s in transit. Consumers expect a speedy delivery. Airfreight provides tracking and shows how quickly a package arrives from location to location until it’s delivered to a consumer’s door.

 

Reliability

 In the world of international shipping, businesses and consumers want reliability with their shipments. Ocean carriers are nowhere near as reliable as air freight. Not only does air freight transport goods in a matter of days, but trackability is much more efficient as well. Ocean freight can take multiple days, or even weeks to arrive at the destination. Although air freight has a shorter history than ocean freight, it’s quickly progressed in terms of reliability and matching up to the expectations exporters have in the logistics industry.

 

Following an ocean carrier arriving at a seaport, there’s still land travel time that must be accounted for. Air freight has the ability to arrive closer to the final destination because of the numerous airports inland vs. the seaports on the coasts.

 

Shipping (Maritime) and Offshore Drilling (Oil & Gas) Industries and Uses of Offshore Companies

AlexShippingA Glance at the Offshore Industries

The global increasing demand for energy has led the growth of the two major offshore industries. The global offshore oil and gas and the offshore wind energy. Key role in the Oil and Gas industry’s’ Exploration and Production (E&P) phases, plays a specialized category of the shipping industry which is broadly recognized as the offshore shipping industry. These Offshore ships are the vessels which are particularly set to support the offshore industry (oil drilling or wind). They are the main means of transportation for carrying supplies and personnel to the huge oil stations deep inside the ocean or for example, drill ships which are used as offshore platforms in the oil and gas E&P cycle.  Offshore ships can generally be categorized into PSVs (Platform Supply Vessels), AHTS vessels (Anchor Handling Tug Supply vessels), CSV’s (construction support vessels), offshore barges, with all the other types and sub-types of these specialized sea vessels. The offshore shipping industry, despite the challenges, has kept up well with many technological developments that have taken place through the years. It is a well-known fact that these capital intensive businesses are called to operate in a very tough environment. Offshore operations are inherently difficult to execute and the smallest error could be proven disastrous, whereas at the same time the investment at stake is significant. In the case of a failure in the operations, the environmental, human and economic cost is huge. Another important fact is that as the offshore shipping industry players grew in number, so did the competition.  Therefore, it is crucial for the offshore shipping companies to attain the highest level of effectiveness and efficiency without compromising their success and at the same time by keeping the standards of environmental and economic sustainability high.

The Impact of the Regulatory Framework

There are many factors that contribute to the prosperity of this industry and one of the most substantial of them has to do with the regulatory framework and the tonnage tax regime under which the offshore shipping companies operate. In the conventional, standardized shipping industry (bulkers, tankers, and passenger vessels) major changes took place in the past 25 years and basically this happened in parallel with the introduction of the commercial friendly regimes in the shipping industry. However, there is no uniformity in these regimes, especially when it comes to a specialized category of shipping like that of the offshore shipping. As it is understood, the jurisdiction of the company plays an important role here and the research that has been conducted on the matter shows that the regulatory framework in many countries is outdated or not focused enough on the offshore shipping industry.

The difference on the jurisdiction’s friendliness is primarily due to the particular tariff regime followed like for instance, if it is a tonnage tax regime, a tax efficient regime but without any incentives for shipping companies, or a regime that is based on specific shipping benefits and incentives. However, the overall tariff and legislation framework is also affected by the specific type of offshore business. The business types of Oil and Gas Drilling, Ocean Wind Farms and the Offshore construction industries, also define the tax environment in a great extent. From an onshore perspective (i.e. the jurisdictions that cannot be purely characterized as offshore despite their beneficial taxation structures), there is a positive correlation, between most of the countries and their respective offshore business types that offer an advantageous and constructive environment for offshore shipping operations. Thus for international shipping companies the process to select the proper location from where they will conduct their business operations, is a demanding one. Tonnage tax regimes – are based on the tonnage of the vessels should be carefully observed as they can differentiate between different vessel types or they are phased out in certain regions. Taking into consideration several variables, starting from the qualitative capabilities of the company’s ship management and the accurate matching of the company’s specialized operations with the respective tariffs framework, to cost efficiency and financing decisions along with the whole capital and operational structure.

Going Offshore and Public at the Same Time

Due to the fact that both financing and tax-regime selection decisions are crucial for a company’s growth, there are companies that combine a going public strategy with headquartering in their Stock Exchange listed entities or their subsidiaries in offshore jurisdictions of good and long-established reputation. There are numerous companies headquartered in offshore jurisdictions like Bermuda, Marshall Islands, and the British Virgin Islands, in various sectors and industries, represented in major and non-major stock exchanges worldwide like London Stock Exchange, NASDAQ, NYSE, OSLO, Singapore, Hong Kong and others. From the Energy, Minerals and Industrial Services sectors, there are companies in the Oil and Gas production, Contract Drilling, Engineering and Construction, Oil and Gas Pipelines, Oilfield Equipment and Services and Mining. From the Transportation sector the Marine Shipping industry (mainly Deep Sea Freight Transportation, Marine Cargo Handling, categories of shipping) which are largely represented in the international stock exchanges. In the Financial sector with the industries of Banking, Investment Management and the Insurance sector with Property and Casualty Insurance at its core, these also are represented in the stock exchanges. In conclusion, despite the complexity level of decision-making in the offshore shipping industry, there are alternatives in relocating or repositioning offshore and being publicly listed on a stock exchange as well. These alternatives are friendlier towards some businesses in this industry. Companies operating in this industry face frequent risks and challenges as they operate in difficult and demanding environments thus every factor should be carefully weighted.

Legitimate Uses For Offshore Companies: Past and Present

Offshore financial facilities have evolved remarkably due to economic globalization, political and economic instability, technology advances and evolution in telecommunications. These dimensions have led to a significant increase in the demand for offshore operations. The offshore company industry has developed into a major international business, linking all regions, comprising, in one way or another, roughly half of the world’s international lending and deposits by value. However, despite the fact that we live in a globalized and open economy that offers numerous options for investments and capital mobility, still offshore companies and offshore financial structures are often in the middle of worldwide controversies, attracting considerable attention which eventually harms the reputation of these financial and trade facilities. The undisputable fact is that these low- tax overseas jurisdictions are an important and indispensable part of the global financial system and the reason, of course, is not their illegal use by some entities. Nevertheless, before seeing the real reasons that offshore companies have legitimate and important uses in the global trade and economy we will first take a look on the origins of these tax-efficient economic zones.

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Historically, in order to boost trade, increase capital movement, and secure trade gains, free-tax economic zones were developed, since the 2nd century B.C. in the Mediterranean region and especially in the area of Greece with the Delos island playing the role of the special economic zone. The type of trade that was taking place there, was free of customs duties and it faced no taxes. Important role to this economic regime of that time, played of course the geographical positioning of the island. Throughout the history, the generation of low-tax states always serviced the needs of traders and seamen.  From the medieval period to the industrial revolution, the need for friendlier towards the commerce regimes never stopped. The important fact here is that most of the times these beneficial economic zones existed in islands and ports, the places where the real risk takers, the seamen traders were living and working when they weren’t in the sea. By reaching the 19th century and the 2nd industrial revolution with the respective expansion of capitalism, these tax-friendly jurisdictions also grew. It was after the First World War that European and United States tax rates started rising. This, combined with the increased global uncertainty of that period and the easy methods of incorporation in the offshore jurisdictions, led to the growth of these jurisdictions like for instance the ones in the British overseas. In a post-colonization era, and as the economy was becoming more interconnected and the foreign direct and indirect investments grew, the demand for international financial services increased. The Demand for global offshore financial facilities also grew in the 1970s, partially because of the substantial amount of money that petrostates needed to reutilize after OPEC effectively raised oil prices. Moreover, the downfall of the Bretton-Woods system also increased the risks from the exchange rate fluctuation. The international nature of cross-border businesses led to the increase of cross-currency transactions in all the quarters of the world and the need for international management of cash and tax planning by the companies, made the need for offshore companies and offshore structures and financial services to flourish. Of course, in the course of history, there were entities that misused these business friendly offshore facilities in order to promote illegitimate practices and this is something that can only be regulated with global efforts and cooperation between countries. However, there is a global legitimate use and need for these jurisdictions that make the global trade easier and more efficient, especially in a period where the global economic, political and geopolitical risk is elevated.

There is a variety of reasons for the utilization of offshore companies and structures both for legal and physical entities. The focus of this article is on the corporate users of the offshore companies and facilities.  

From Holding companies to royalty and intellectual property companies, major financial institutions, shipping companies, middle market companies that seek international expansion, multinational corporations, and conglomerates, they may need at some point of their corporate structuring to conduct their operations through offshore entities that will facilitate the specific characteristics of a particular business need. For instance, it is common practice in the shipping industry to use constantly offshore companies in order to facilitate its global trade and banking needs in the most efficient way particularly when there is the need for a ship registration or for a Flag of Convenience. Another example has to do with treasury management operations. The ultimate goal of treasury management is managing the firm’s liquidity and mitigating its operational, financial and status risk by concurrently taking care of the investment and funding activities. The treasurers of corporations often allocate their money market instruments and cash resources between their subsidiaries which as a process, is regularly carried out through offshore facilities and structures. It is also common for International joint ventures to be often structured as offshore companies when the parent entities want to keep the venture as jurisdiction neutral. Other important legitimate uses for offshore companies is that they can be used as asset holding companies where risky assets are held isolated from the main entity, thus reducing any unnecessary risk transition to the rest of the group. In the case of a company having non-risky assets that it wants to protect from a politically unstable environment where the rest of the firm operates, then with the use of an offshore company can accomplish that goal also. Investment companies also use offshore companies at a great extend in order to invest in derivatives and securities trading without facing regulatory limitations for their investment and trading undertaken risk. Finally, companies expedite their capital raising needs both in equity and debt capital markets, by forming offshore companies. This usually happens as in many occasions, a more efficient and simple structure may be needed or the existing legal framework of the main country of operation, may not support or help the company raise capital in a non-conventional way.

Energy Efficiency Initiatives in the Shipping Industry

CargoShipThere’s no denying the importance of the shipping industry. According to the International Chamber of Shipping (ICS), the shipping industry carries food and different goods all over the globe and contributes to around 90% of the world’s trade. Without shipping, people wouldn’t be able to get what they need to survive at an affordable price, and technology and business would come to a screeching halt.

There are over 50,000 cargo ships in the world, transporting a vast array of goods from point A to point B. With all of these ships moving to and fro across the oceans, the time has come to put effective energy efficiency initiatives into action.

The International Maritime Organization is committed to the safety, security, and carbon emissions of the shipping industry. During the IMO’s Marine Environmental Protection Committee’s, it was decided that a strategy to reduce carbon emissions would be put into action in 2018. Across the entire shipping industry, energy efficiency tactics must be adopted in order to reduce greenhouse gases.

What can be done?

It seems like a monumental overtaking, but there are smaller steps that each shipping company can take in order to be more energy efficient. One such step is to regularly polish propellor blades. When propeller blades are properly polished, it helps the ship run smoother and can reduce emissions by about 8%. Shipping companies are at tight deadlines most of the the time, but slowing the ship down can also reduce emissions by as much as 30%. Additionally, investing in autopilot, more efficient pumps, and cleaning the hull all increase energy efficiency by varying percentages.

Rolls-Royce starting to design unmanned ships as an answer to the energy efficient problem. These autonomous ships offer greater energy efficiency than the ships of today, and would be safer than having a crew of people on board. There would be no need to include the sections normally reserved for housing the crew, meaning the ship would only store cargo. This additional room for goods actually makes the ship about 5% lighter and would use less fuel than today’s ships.

Newer ships will also be equipped with more energy efficient features that include improving the design and shape of the hull to increase hydrodynamics and technologies onboard to improve engine efficiency.

It is now mandatory for crews of ships 5000 tonnes and over to keep track of each type of fuel oil their ships. This data will then be used to decide future policies regarding energy efficiency requirements. Since many initiatives have already been started, the future is sure to hold a more energy efficient shipping industry.

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