The building with its characteristic architecture is an attraction in itself in Hamburg. 5 January 1868, the company was founded by Heinrich Ferdinand Schuldt in the city of Flensburg, close to the German/Danish border. Today, Norddeutsche Reederei H. Schuldt controls the shipping activities of the Norddeutsche Vermögen Group. The company-owned and -controlled fleet (including its affiliate Reederei Karl Schlüter) is made up of some 75 container ships ranging in size from 1,800 to 8,400 TEU – that makes its total capacity no less than 323,500 TEU. The company’s CEO is Markus Hempel, who has held this position since 2001.
Inventory cost and slow steaming
The shipper’s cost of capital has always played an important role when it comes to discussing transit times and service speeds and was used as a convincing argument for high speeds. However, with the tremendously increased cost of marine fuel oils, slow speeding has finally become a routine issue and is expected to stay for the long term. Has the capital cost element therefore remained an issue?
Markus Hempel expects that this will not be the case: “We have to have the whole transport chain in mind. High speeds are of no real help to vessels when they run into delays in port and consequently arrive late, which conflicts with the shippers’ desire to have their cargo delivered just in time. Therefore, shippers have to consider time buffers on shore in order to balance off such delays.
“In contrast, slow speed services have better flexibility and offer a higher likelihood of punctual arrivals. Shippers may benefit from this when winning time lost at sea by optimised operation ashore. Capital cost of inventory may therefore not play the role which many people attribute to it. In times of close to zero interest rates, this has become a marginal issue anyway.”
The German KG finance had not only hit the rocks due to the collapsing shipping markets in 2008/9, but suffered further by the shipping banks inability and unwillingness to continue offering pre-finance to shipbuilding projects. When the equity has to be on the table even before the shipbuilding contract is signed, someone else has to step in to offer convincing arguments for investors.
“How can you expect an investor to put his money into a project of which nothing definite is known?”
harterers may have to offer long-term charter contracts which enables the owner to approach the shipyards. Shipyards may have to agree to very soft and late payment schedules in order to bridge the gap. Other sources of equity finance may also appear. So, everyone will have to contribute a bit from his side to bridge the pre-finance gap.
It is difficult to imagine how the industry will adapt should the German source of equity dry up. There has simply been too much money available over all the years. But at the same time, there is no doubt that such monies will again become readily available, should a project look juicy enough to make it a prosperous investment. “We have to explore new paths and be quite creative in finding the ways and means to attract money into ships again.”
The future of container shipping
The freight market has steeply recovered this year and that’s a relief. The charter market has followed slowly but clearly and the fleet of idle ships has decreased considerably.
Although many shipowners are not back at levels where full capital cost can be earned, they are seeing the silver lining on the horizon. It is quite obvious that the world economy will continue its move towards further globalisation, from which container shipping will benefit most.
However, there is still a large number of vessels to be delivered, particularly very big ships; it is therefore likely that 2011 will be a year of continued good hope but volatility. Nevertheless, we expect that the development will differ substantially between the various size segments.
Text: Magne A. Røe