“Since the container industry is only 50 years old, the growth opportunities are substantial,” says John Coustas, president and CEO of Danaos Corporation.
John Coustas doesn’t just talk the talk, he definitely walks the walk. Danaos is one of the largest containership owners in the world, with a fleet of 38 ships. But a full 34 new ships will be added in the next few years.
“We have seen that the containerisation growth is consistently in excess of two times the annual world GDP growth, consequently very much related to the world demand for finished goods,” says Mr Coustas.
He has been at the helm of Danaos Corporation for more than 20 years, taking over from Dimitri Coustas in 1987. The company began in shipmanagement operation in 1976, and it took another 15 years before it entered container shipping in the 1990s.
Danaos headquarters are in Piraeus, Greece. The company was listed on the New York Stock Exchange October 6, 2006 after a successful USD 200 million public offering, and is now the largest US listed containership company.
New corporate culture
“Access to the capital markets will support our newbuildings programme and will provide great growth opportunities,” says Mr Coustas, when asked to comment on upside and downside of the listing. “Also the introduction of a corporate culture in a historically private company will assure effective leadership succession. You can, however, assume that a downside risk might be if the stock will trade well below the net asset value.”
When he decided to commit Danaos heavily into the containership industry about 15 years ago, the charter owners were mainly the German KG companies.
“Container shipping is related to long-term planning, and the charter rate fluctuations are flatter compared to the traditional shipping sectors that are fully exposed in the spot markets,” says Mr Coustas. “Multi-year charter agreements are the state of the art, and although they inherit lower opportunity cost, they assure at the same time lower risk.”
Some analysts are predicting an oversupply of large container ships in the next two to three years, but this isn’t preventing Mr Coustas from doubling the size of his fleet.
“Our average time charter coverage including the ships on order is about 11.2 years,” he says. “Therefore any oversupply of large containerships will not affect our company as we stand at present. Although we may see in the next three years a correction in ship prices, we should not forget that in our industry the charter rates of large vessels are related to asset prices. All in all, the next low in the cycle will provide more opportunities than threats to our company” he says.
Heavy cargoes in containers
He is confident that world GDP will continue to grow driven by emerging and undeveloped economies.
“We have a good reason to believe that containerisation will continue to grow as a multiple to world GDP,” he says. “In addition we have seen more and more heavy cargoes, such as steel products, bagged cement and grain shipped in containers. The existence of Ultra Large Container Vessels has encouraged shippers to containerise more and more heavy cargoes, which can be shipped at lower cost.”
Long-term commitment
Danaos is looking for long-term commitment by charterers. This means more than five years for panamax newbuilds and more than eight years for post-panamax newbuilds. They also wish to include clauses in the charter party that cover and protect owners and charterers as being joint venturers rather than opposite parties.
Mr Coustas believes that his company’s revenue risk is protected. “Our revenue risk is depending upon the performance of our customers. The portfolio of our customers at present has 11 out of the 20 major liner companies. We rely upon our operational excellence to control the risk of our operating costs. Finally, we have presently hedged the interest rates of almost 100 % of our debt.”
Thinking beyond the container
Obviously, the business goes well, and the group’s reputation as a container shipping company is higher than ever. This goes hand-in-glove with Mr Coustas’ commitment to technological leadership.
“Part of our ability to manage our growth is our ability to understand technology better than others,” he says. With a formal background that includes MSc and Phd degrees in computer science, he has during the past two decades put a lot of emphasis on the technology aspect and has taken part in various research and development projects.
“I strongly believe that technology, including IT, is a source of competitive advantage for us as a shipping company,” he concludes.
Date: 2008-06-12