The Maritime Economist Magazine Spring 2015 | Page 25

voice of professionals

It is, of course, impossible to have an exact picture
of the shape of a future freight market cycle. There
are, however, forecasting services, such as the one
offered by Marsoft. Major ship brokers also tend to offer
forecasts. But, above all, it seems critical for a
ship-owner not to spread him/herself over too
many different shipping market segments, but to
concentrate instead on a better in depth
understanding of just one, or a few. Cognitive limits
easily set in! Unfortunately, many ship-owners, may
under estimate the complexity of this task!
Innovations are, of course,
important in the shipping
context too, but in a different
way than what we would
elsewise tend to find. What is
important here is to strive for
one’s ships to meet a certain
minimally acceptable standard,
often set by major users of
shipping services (oil company
majors, coal/ore shippers,.).
This
firms
put
certain
owners/ships on lists of approved
tonnage, others not. To be
innovative enough to satisfy
this evolving floor of what
is a minimum level of
technical acceptance is key. To
have higher standards than this

would be “goldplating”, i.e. to maintain unnecessarily
high quality levels, which would not be paid for.
Recent research (Libert, Wind and Fenley, 2015)
indicates that valuation of corporations can be made
by classifying them according to relative degree of
customer intimacy. They examined 40 years of
financial data for the S&P 500 companies, and found
that “asset builders” (relatively high capital intensity,
and relatively low customer intimacy) would on the
average have a price to revenue ratio of 2,0, while in
contrast, “network orc hestrators” firm (relatively low
capital intensity and relatively high customer intimacy)
would have an average multiplier of 8,2.
The “in-between” firms – “service providers” (low
capital intensity / high customer intimacy) would
score 4,8. In Exhibit 1, we have indicated how this
might apply to shipping companies – with traditional
shipping firms being analogous to “asset builders”,
and the niche players being analogous to “network
orchestrators”.

ME Mag

So, to have a basic feel for the shape of the relevant
freight cycle pattern that applies for this shipping
segment is key short!! A good heuristic is to enter the
market near or at the bottom – through chartering in
and/or purchasing tonnage, and to get out near or at
the top through selling or/and chartering out. Another
heuristic is to go long (long-term charters) near or at
the top of the freight cycle, and to go short (spot) near
of at the bottom. In theory, this is simple – but, in real
life, rather hard!

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