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In exclusive talks with company leaders HANSA follows traces of how traditional shipowners Aug. Bolten, F. Laeisz, Sloman Neptun, and F. A. Vinnen steer a business course in times of crisis and what to learn from »old school« while embracing the new.
With shipping markets already in their sixth year of crisis, tension in the maritime industry is growing[ds_preview]. Questions of insolvency and restructuring prevail for many players with a tendency to obstruct the view of a way out. As a rapid recovery of charter and freight rates is not expected, innovation via new business and financing models may constitute one loophole while a renewal of tried and tested traditional business concepts may be another.

The latter provides an advantage: Ship­owners who have managed to manoeuvre quite well so far may give insight into their right and wrong decisions, and explain why and where they broke new ground. Following this impulse, HANSA met business leaders of four family-run or still family-owned Northern German shipping companies. They provide insight and represent some hundred years of maritime experience but with Hanseatic understatement and no claim to perfection.

Generally, the reputation of tradition in shipping is being questioned: The KG-model of ship financing is considered outdated by banks and shareholders, small shipowners are said to be of shrinking relevance and new capital involving more reporting seems inevitable. By confronting four selected shipowners with such omnipresent conclusions, new and differing responses occurred.

Nikolaus H. Schües (CEO of F. Laeisz), Sven-Michael Edye (member of the Board of Directors at Sloman Neptun), Gerhard Binder, (major shareholder of Aug. Bolten

Wm. Miller’s Nachfolger), and Michael Vinnen (Managing Partner of F. A. Vinnen & Co) all head companies with distinct tradition at very different business models. They show that shipping is more than »either dream liners or oil pest«, as Gerhard Binder says with regard to shipping in public perception.

Following eight profound aspects, these four renowned business leaders discuss the special relevant features of Hanseatic shipowners: the impetus of tradition to stay competitive, the worth of experience for employees and clients, the crisis and lessons learned, ship finance, strategies to keep up with the times, aspects of the modern fleet but also business strategies for the future and new technology in shipping.

Tradition to stay competitive

All four companies share a long history dating back to the early 19 th or even late 18 th century. On the one hand such roots are enriching, on the other also inhibiting when it comes to risk-taking, as all four business leaders agree. Sloman exists since 1793 and is still owned by members of the founding family. »What makes us different from most of other ship-owning companies in Germany is that we have never relied on outside investors, or funds, to finance ships,« Sven-Michael Edye says.

Such principles from the past function like a beacon, though a principle written in stone is not at the core of such tradition. Flexibility matters, the boundaries are defined by experience gathered over time. Michael Vinnen: »There is no such thing as a carefully worded guideline but the experience that shipping requires long-term thinking is essential. This is an experience passed on in talks with my grandfather when I was still young and much more intensively with my father with whom I worked together for a number of years.« F. A. Vinnen dates back to 1819 with still older roots in shipping. It is the shipowner family’s inspiration and experience which contributes to formulate values. »We have contact to charter clients where business contacts date back about 50 years, some even longer. This can be an entry but to have the right ships, prices and positions is what matters today,« Michael Vinnen says. The special aspect of tradition is »to survive so many challenges in such a cyclical business like shipping, to survive enormous crises and two World Wars and start anew again and again.«

Having just passed the 190 th company anniversary, F. Laeisz plays in the same league of established business. »We emphasize the fact that we are not looking back, but rather stay committed to keep our business processes modern,« Nikolaus H. Schües says. F. Laeisz thus highlights the human ties in the industry: »Tramp shipping is project business, and projects are generally enabled by good relations and long-standing friendship, most of all for the coming years, when financing, the once great advantage of German shipowners, is no longer given as a matter of course,« Schües says. The specific emphasis may be different, but the dedication to grown business models is shared by all four shipowners.

As for Aug. Bolten, the role of a shipowner emerged rather late: »August Bolten was a dedicated agent and co-founder of famous shipowners Hapag, Woermann and Hamburg Süd. We acted as an agent for all these shipowners«, Gerhard Binder says. Within many decades, the business profile changed and a shipowner branch developed »as client shipowners unable to pay for our performance left us with their vessels. This was good when classic agent business declined,« Binder adds. Luck or rather intense business ties make the difference, then and today. For Aug. Bolten change came at the right time in the 1980s to transform the company with the port agency as a remainder – »but this port agency is still profitable, mostly with tankers,« Binder says.

When looking at Hanseatic enterprises with such a history, »general merits and fundamental positions« matter, as Michael Vinnen states, and: »Have a long-term focus beyond quarterly results and annual results.« In a self-critical manner the shipowners analyse missed chances also. »If you diversify, you always have something bad as well, risk aversion has its price,« Nikolaus H. Schües says and continues: »You get a certain feeling of security if the company’s survivability has been tested several times, but never actually questioned. This setting also implies a strong reservation, some may even call it cowardice, but the trick in shipping, as always in life, is to know when to say ›ça suffit‹.«

Experience for employees and clients

Another rule to the traditional shipowners is to rely on own staff and in-house solutions instead of outsourcing even if quality comes at certain costs. F. A. Vinnen does all chartering in-house as a matter of principle. As »long-term considerations« guide Michael Vinnen’s personnel management, the company founded a crewing subsidiary in the Philippines two years ago. The decision to have »›Vinnen seafarers‹ right from the start« was thus a learning process: »Having cooperated with international crewing agencies for years, where we were only one of many clients, we were not satisfied with the high employee turnover so we decided to launch our own crewing,« Vinnen explains. To train cadets and invest in staff is part of a strategy that considers long-term effects for the company but also the German maritime cluster. Since the company attaches much importance to education, trainees are welcome in spite of these difficult times. Loyalty, however, »is no end in itself, even if this may sound hard,« Vinnen says. Eventually the shipowner, which is part of business group Wünsche, needs »good staff to bring forward our company and operate trouble free«. Cooperation between liner shipping companies and F.A. Vinnen is thus quite close. »Our continuity with our employees is another important factor so we have managed to keep our personnel, even young employees, for a long time,« Vinnen says.

In-house is also key to Aug. Bolten: »We have our own chartering people in-house. This is all business where the right employees and personal contacts do matter,« Gerhard Binder says. For him the Internet boom years in the early 2000s illustrate the importance of such personal contacts before technical opportunities: »All shipping platforms failed because charter clients favoured personal contact with shipowners.« Networking via Internet cannot replace sales calls, events such as »Eisbeinessen« in Hamburg, or trade fairs like SMM or Posidonia. »This aspect rises my hope that our medium-sized bulk business has a future and a right to exist, although there is a tendency towards concentration, most of all in container business,« Binder says.

Nikolaus H. Schües underlines that he believes »in family enterprises because employees, customers and suppliers trust a long-term relationship.« Intensive training and education are important to F. Laeisz too, to hand over know-how and experience to younger generations.

The crisis and lessons learned

The shipping crisis is often considered a general downside trend for German maritime players. Traditional companies also experienced losses. On the other hand, the conservative business models shared by all four have proved to be relatively stable. Reluctance of risks payed off to a certain extend. For Sven-Michael Edye the shipping crisis, and banking crisis for that matter, »was created by the players themselves«. The Sloman Neptun manager adds: »Too many ships were ordered in too little time, too little focus was given on demand and technical innovation. Very often owners and banks had only eyes for quick and huge profits in the initial stages of their numerous projects. Now they have to carry the burden of their own mistakes – in some segments of our industry it will take years until these mistakes will be digested. For some companies – old and young – it will unfortunately be too late. They will have to merge with others and loose their identity, or close down alltogether.«

F. A. Vinnen sold some vessels, all of them were KG-ships. »But we rather seized the opportunity to bring this model to an end though this was not as positive as we had thought.« The shipowner also sold two vessels during the intermediary boom from late 2010 to 2011. »This was a good decision in hindsight. As for everybody, all ships that were sold during the last two years did not get a good price. Therefore we try to continue operation in times of crisis instead of selling at the worst moment but nobody thought the crisis would last for six years,« Michael Vinnen says. And: »Maybe we also missed some chances, which is the downside of working as the 7 th generation. But missing chances also protects us from falling into gaps to vast to bridge. This in mind we have to seek growth and development with a sense of proportion.«

With regard to the German market the crisis has been triggered by a kind of triple jump, Nikolaus H. Schües says: »Capital costs of ships were traditionally spread over many shoulders. In the 1980s the KG-model developed and the management emerged as the prominent source of income. In the 1990s until 2007, it emerged that real money was not in the service for the ship, but with the acquisition of equity. To put it pointedly, ships were built because people wanted to sell them to investors and not because of actual market demands.«

Future ship financing

»Anyhow, the KG-market will see a renaissance,« Schües insists. He expects that KG-houses with a proper track record will soon be active again. This renaissance is closely linked to modified conditions: Initiators should thus be involved with so much own capital that »no conflict of interests is provoked, for example when it comes to decide about the right time to sell the vessel«. F. Laeisz is currently working on such concepts. Furthermore, the company is »heading towards a corporate financing structure,« Schües says.

At Aug. Bolten, the crisis encouraged the company rather to secure an own capital quote of 30–40% when a ship is to be financed: »We can perform this. Compared to our scope of business we have no problems in financing ships or getting finance,« Gerhard Binder says, though he admits that the company’s plans issued 2007 and 2008 were not left unaffected by the crisis. »We consider ourselves as shipowner and operator in a significant way which is in double-digit percentage – in some cases even more than 50% – financed with own capital, but generally 15 to 25%,« Binder says. To have solvent investors is thus an important lesson. Investing at Aug. Bolten is always via private placement. »Our credo is: Shipping is not suited for those expecting dividends at regular intervals,« he adds. It is rather suited for »investors willing not to look at their share all the time«. Classical entrepreneurial investment is thus still fundamental.

At F. A. Vinnen the family-and-friends concept enabled the financing of newbuildings from 2010 to 2011: »In this project we have four parties as owners when two of them are funds. The latter are investment funds which collected money but basically it is a private finance structure,« Michael Vinnen says.

Just being big is not beautiful to the shipowners in the HANSA interview. The crisis renewed the lesson to rely on own capital. Sven-Michael Edye: »Our goal is to stay independent and try to finance our growth through our own means. Financial investors are certainly not an issue for us – issuing corporate bonds also not, especially since these are very expensive financial tools. The approximately 6–8% annual interest, plus soft costs, they require make them – at least for us – unattractive.«

Nevertheless Edye sees a contrast to big projects in the shipping industry, »projects that could not be developed without attracting a broader group of investors. For us, however, I believe we will not enter into such mega deals – the risks attached seem just too big to take for a company of our size and appetite.«

Nikolaus H. Schües says financing »is a necessity not a strategy«. Considerations of the future financing of the Laeisz fleet do play an important role, but the first thought has to be: »Which ship do we want to build and why?« Financing ships is thus not an end in itself and for good projects there are still financing concepts available today. However, the present liquidity causes negative effects. »Unfortunately, there is so much money in the market that every business area that works well may become overstretched within two to three years and this actually happens in most cases,« Schües analyses.

How to keep up with the times

To keep up with competitors, learning effects as well as synergies are very important. F. Laeisz is committed to the research ship market among others, though Schües describes this business area as »quite embattled« with margins decreasing. One reason for this commitment is that F. Laeisz recognizes »ongoing and general learning effects by research shipping because this is where highest requirements for safety, security and environmental protection are defined«. This results in a learning curve for F. Laeisz’ cargo shipping. The recent contract with German research institution Alfred-Wegener-Institut for advisory services at a planned research icebreaker newbuilding is prestigious. The contract for »Polar­stern II« was signed with F. Laeisz because of the company’s long experience with the previous vessel generation built 1982. F. Laeisz is responsible for the old »Polarstern« operation since 1996 and Alfred-Wegener-Institut highlights still good quality of this ship due to maintenance and good operation.

This emphasis on maintenance and the condition of their vessels also help the other Hanseatic shipowners to secure a reputation. Vessels in good shape help acquire charter contracts, but also find a secondhand market for older vessels at comparatively good prices in resale.

In 2007 F. Laeisz also started the PCTC (as this segment is »one of few with no overstretch and where charterers still deliberately choose their tonnage providers,« Schües says. The choice to enter a new market was a long-term effort to back F. Laeisz’ strategy to go for quality. And it is also relevant to look at new evolving sales markets: »Middle East and Africa generate growing demand.«

Sloman Neptun is »on a fairly good run,« Sven-Michael Edye says. »However, we also need to question our business model at all times and make sure that we continue to adjust ourselves to market changes and requirements.«

Flag of convenience is an aspect often highlighted in the public perception of shipowners. But flag state regime is not simply a matter of costs but also of political implications. Gerhard Binder: »Our two small container ships were under the German flag but they are no top performers in the recent market situation, so we decided to take another European register which is accepted by politics under the tonnage tax regime. This is why we chose Portugal. We have another vessel under the flag of Gibraltar. Luxembourg is also on the rise but tax regime caused some problems in our considerations with this flag, most of all with sailors, so we took Gibraltar as an established register and now Portugal.« Talking about strategies, a basic feature of

For F. A. Vinnen close business ties with liner companies such as Hamburg Süd, Maersk, MSC, Hapag-Lloyd, Zim, NYK and CMA CGM were always part of the deal. »A good model case for every shipowner is first to have a specific charter, then to order the vessel and therefore financing possibilities are good with the banks and with own capital partners,« Michael Vinnen says. Confronted with the trend to charter vessels en bloc, he says: »I do not believe we will be able to charter out ships only if we offer them en bloc. You have to be willing to cooperate, of course. As a tramp shipowner you have to offer vessels that are established in the market to meet demand.« Consolidation with liner shipping companies is thus »a completely different business not affecting us directly«.

The modern fleet

When considering the modern fleet, the specific business model, route and operational profile each have a big influence but mere fleet size and the economies of scale are among the recently most debated aspects. To do as much in-house as possible is a consideration shared by all four.

For this purpose Nikolaus H. Schües says »you need a fleet of approximately 50 vessels to earn money based on international management fees«. Outsourcing was not an alternative he chose but rather a second way, he calls the option to »look at it as a cost center not a profit center«. Schües adds: »What I mean by that is the following: As we own quite a few of our managed fleet we accept higher expenses on shore to stay in the high quality segment. Of course, we would like to manage additional vessels for third parties to bring our average cost down, but not at any price.« »Earn money instead of counting ships« is another principle he advocates for F. Laeisz’ fleet. The fleet is covering the five segments container, bulk, gas carriers, PCTC, and research vessels. This diversification thus »proves quite helpful at the moment: Gas carriers are economically very stable right now, car carriers show an upward movement, bulk business is weak and container is a catastrophe. The mix guarantees that we stay on an even keel.«

At Sloman Neptun two further gas tankers are currently under construction. »Gas tankers are our most important business segment,« Sven-Michael Edye says, »and here we are closely integrated into the logistics of major oil companies and trading houses, in some cases with contracts already running for decades.« Basically the gas market is a small and demanding niche market with high entry barriers. The product and chemical tanker market follows a similar pattern for often the same customers, »but is a much more liquid and open segment,« he says. Traditionally, part of Sloman Neptun’s fleet is also employed in the company’s own multi-purpose vessel service to North Africa, run since over 100 years: »Again a demanding niche, but with limited growth potential,« he says.

Willingness to stick to a limited traditional market while looking for new ones is another common ground for all four shipowners. In Edye’s words: »Our utmost interest has always been to earn money with the successful and long-term operation of our ships – generating profits through financial ›manoeuvres‹ around ships was never on our agenda.« This position is also reflected in the other specific shipowners’ fleets. While F. Laeisz diversified, other shipowners have specialized. »Congratulations to Sloman Neptun by the way for their gas tanker business,« Nikolaus H. Schües says. F. Laeisz is not looking for further diversification: »We want to leave it at that,« Schües adds with a smile.

A »critical size« for the fleet is of basic concern to Aug. Bolten, too. »To be noticed as a contract partner, 25 to 35 ships are necessary and our Sea Stallion Pool with our Greek partner aims at this size. Japanese newbuildings by Imabari shipyard which feature modern technology and 38,000t deadweight are included in this pool, too.« Pool conformity is thus guaranteed. »Until beginning of 2016, 14 vessels will be available in the pool, so four are still missing,« Gerhard Binder says.

»More than 70% of all ships worldwide are operated by

shipowners with ten or

less vessels«

F. A. Vinnen operates a fleet of presently ten modern container vessels in the range of 1,700–5,000TEU. Four new vessels entered this fleet last year: Two newbuildings and two vessels F. A. Vinnen took for operation. The newbuilding decision dates back to the intermediary boom phase from late 2010 to 2011 and a close cooperation with Hamburg Süd: »They had ordered four sister ships and wanted to secure further vessels of this type. So we ordered them against a charter contract over five years with Hamburg Süd,« Michael Vinnen says. A decisive choice came at the right time: »We were lucky that we could change standard panamax vessels ordered to wide beams at no extra costs as our shipyard Hyundai was doing the same for Maersk with 20 vessels right then.«

Fleetsize is not the most relevant category for Michael Vinnen: »Statistics show more than 70% of all ships worldwide are operated by shipowners with ten or less vessels,« he says. It is thus important for Germany to realise that a comparatively small fleet size is neither exotic nor puts shipowners in a doomed position. As for pool solutions he says: »We are taking part in charter pools which are revenue pools. We are willing to cooperate at all levels.«

Business strategies for the future

When asked whether newbuildings may pave the way for a better future, the shipowners reveal the true character of their anti-cyclical and long-term planning. Sloman Neptun presently has two vessels under construction in Korea, and Sven-Michael Edye thinks about further projects: »We have always tried to invest when newbuilding prices were low. The good results of especially most of our younger ships prove that the timing has been good – it remains to be seen whether we will have the same fortune in the years ahead.« With prices having gone up recently, it looks to him like the »window for opportunistic orders seems to close again«.

At Aug. Bolten the bulk carrier pool solution opens the door to the future: »There are many other shipowners using Seahorse design also in Germany and we want to convince them to join this revenue pool.« The Atlantic and grain cargo are most important freight segments for this pool. »Basically it is a stable concept, and growth rates have risen for the last years as demand for food is rising, globally.« Aug. Bolten acted with caution and did not order handy­max class vessels. But the shipowner is aware of a cascading effect: »So this decision could result in certain threats to our business model.« Continuity with necessary updates is on Aug. Bolten’s agenda: »As long as the limiting factors prevail, handysize bulkers will not be replaced by ultramax bulkers,« Binder says. Such limiting factors to larger vessels and new business models are available cargo product groups and specific port size.

With the panamax class under pressure, the question of right or wrong ship size is on the table. As for container ships, Michael Vinnen says: »The very small vessels will have problems, I fear. Beneath 1,000TEU I see no perspective around 1,200TEU will probably also continue to be a critical size but from 1,700TEU upwards there will be a market and demand. Unfortunately, cascading affects the whole market and we have two panamax vessels which will not have such good prospects. With the wide beam vessels of which we have four vessels we see much better prospects.«

F. Laeisz declared policy for the present and future is »not to distribute much of the company’s profits, but to retain earnings,« Nikolaus H. Schües says. »Therefore, we had over the years some money to invest into related businesses such as insurance.« In good times there is demand for investment, which is why F. Laeisz started a real estate business of their own. However, this is not a core activity, but rather »a reserve for difficult times«.

New technology

The trend for more environmental friendly propulsion and less emissions is affecting all shipowners and operators. To enhance environmental safety, F. A. Vinnen has ordered sterntube seal technology by Wärtsilä for two vessels recently and pioneers among German shipowners in the consistent use of this technology.

LNG may be another »green« solution, but the bunker resources and problems with availability call for cool calculation, though the interviewed shipowners are open-minded. For Sloman Neptun’s Sven-Michael Edye the »huge market seems to promise tremendous growth«. To portray development and prospects, he looks at the US, a country that used to be an energy importer. »Currently they are changing into an energy exporter,« he says. A major factor for this development is the growing exploration of shale gas. »Whether in front of this development too many LNG ships were recently ordered, I cannot say«, Edye says. Sloman Neptun only transports refined gases, e.g. ethylene for the automotive and plastics industries. LNG carriers are significantly larger than the vessels of the Sloman Neptun fleet and require even more demanding cooling technology.

To F. Laeisz LNG »is an issue, certainly«. Nikolaus H. Schües says: »The problem with LNG is availability and still very expensive tank capacity, a typical chicken and egg issue.« Michael Vinnen adds: »LNG is a logistical challenge: For a ferry operating between A and B from day to day the question where to bunker LNG is arrangeable but as a tramp shipowner I do not know where I will sail – we called about 200 ports last year, so I cannot do this.«


Sverre Gutschmidt