Reflecting on Posidonia 2022

With Posidonia 2022 behind us, a reminder of the importance of the global shipping industry and the critical issues the industry is facing

After a two-year hiatus, the Posidonia Exhibit was held physically in Athens earlier this month, to great relief and historic success. Attendance has been the highest ever in the event’s multi-decade history, and the mood and the party scene were reminiscent of the 2008-days of peak market. To some, that may have been too much to bear.

Posidonia is considered the premier shipping event globally, held on even years, and attracting exhibitors and attendees by the tens of thousands. Besides the main exhibit, there are conference sessions, private receptions and company presentations, but mostly, an endless list of company parties and socializing. The weather generally is great at this time of the year in Greece, which is a chance for visitors from colder climates to experience the Mediterranean sun and the sea breeze while catching up on the markets and industry gossip until the morning hours by the beach. This year’s event drew almost 28,000 attendees and more than 2,000 exhibitors from 109 countries, while we became aware of more than fifty corporate events and receptions; for the sake of our liver, we tried not to attend all of them, with a heavy heart!

Attendance has been (surprisingly) strong, especially given that since until a couple of months ago, international traveling was still hypothetical; and true, many hopeful attendees did not manage to make it to the event given numerous flight cancellations in the UK and EU; also, many Asian and Far East countries still have heavy travel restrictions in place (which were clearly reflected on the thin presence for Chinese and Japanese shipbuilders, and other Asian delegations). There is pent-up demand for physical events and conferences these days, and generally all four conferences we attended in the last month in the US, were very well attended, as people want to de-Zoom and network again in person, and make up for the lost time of the years of COVID.

The shipping freight markets have been very buoyant in almost every sector of the industry, a factor that both contributed to strong attendance and provided the excuse (and the disposable income) to host corporate parties and celebrations; all Posidonia events in the last decade were marked by weak markets (or sectors in rotation), distressed sales of assets, and generally, an environment when most companies were in a “survival mode” and trying to keep an otherwise low profile. Also, parenthetically, Greece had been in a bad shape in the last decade which did not help with the Posidonia mood in the past, either. This time, containership owners have been printing money, the dry bulk and product tanker markets have been very strong (despite any recent softness), and for the LNG and gas tankers, both the present and the future seem promising, thanks to Vlad the Invader, among the many variables; likewise for crude tanker owners, too. And, Greece nowadays, although still a very long way from becoming a fully rehabilitated country financially, it has been on an parabolic trajectory under the new government of Mr Mitsotakis and his recent speech to the Joint Meeting of the U.S. Congress in mid May 2022.

In private, senior executives at shipping companies admitted that they have excess cash “problem” as they are cash rich and they lack good investment opportunities; however, unlike in previous markets whereby excess cash was, by default, re-invested in newbuildings (and real estate), now newbuildings are out:

Instead, many shipowners have been investing in energy (mostly renewables) and energy infrastructure projects: the Greek government has incentivized green investments and the recent developments in the Black Sea have given Greece a nice entry point to become a regional energy hub for NatGas shipped by pipeline from the Middle East and the east Mediterranean basin for both domestic consumption and also for further shipment to the Balkans and continental Europe. FSRUs and trans-shipment projects are under development.

The avoidance for newbuilding activity now (and also in the last couple of years due to COVID) has made for a very balanced orderbook, which bodes well for the market; while for LNG tankers and for containership vessels the outstanding orderbook stands at 15% presently (but expectations are that a growing market will absorb such sizeable number of newbuildings), the outstanding dry bulk vessel orderbook is almost nil while for tankers it is in the very low single digits (depending on type of tanker vessel). Such low orderbook has not been seen in almost two decades now, and one has to keep in mind that generally 3-4% of the world fleet is scrapped annually due to age. All in all, the low orderbook has made many shipowners very confident about the strength of the market, wars, recessions, and all, given that in the next two years, the tonnage supply is locked. Also, a high inflationary problem globally (including the strength of the US Dollar) make marine assets cheaper while commodity prices (US Dollar denominated) more precious, in higher demand and in need of prompter delivery, all positive variables for bulk shipping.

The Russian invasion of Ukraine has created a new risk, quite frankly a nouvelle risk that humanity has not experienced since the end of WW II, with two European countries engaged in open, full war, that has the potential—hopefully infinitesimally low—to escalate to a nuclear war or to a world war this century. Hopefully cooler heads will prevail before the war drags on for too long, but in the short term, the energy and food markets are upside down. Besides the astronomically high gas prices (as a matter of reference, gasoline in Greece (and in most European countries) retails at appr. $11-12/gal) we are all painfully aware of, Europe is belatedly and desperately trying to diversify away from Russian energy imports; no matter how and when, this bodes well for tanker shipping as ton-mile will increase. Likewise, given that Russia and Ukraine export almost 30% of the world’s grains (mostly shipped over short distances to North Africa and Middle East) from the Black Sea (which now is closed due to active mines), grains will have to be shipped from the Americas (US, Canada, Brazil and Argentina), definitely a ton-mile multiplier. All in all, moral compulsions and the threat of a famine crisis primarily at poor countries aside (that barely can afford high commodity prices), the war has been “good” to shipping. Thanks, Vlad! But again, nothing is new; wars have been good for shipping since antiquity and “War for Profit and Profit for War” had driven the Dutch East India Company’s charter in the early 17th century, nonetheless.

As a side note, the upside-down energy and food markets bode well for the Jones Act inland markets, as coal and grains this year have to be shipped downriver to New Orleans for exporting, and US inland operators reporting almost 100% utilization rates.

During Posidonia there have been several events and presentations that touched upon current market and global developments; discussions on emissions and new technologies, including who will bear such costs, as one may have expected, occupied quite a few sessions and panel discussions. Unfortunately, there have been no conclusive remarks, or even, in our humble opinion, a real debate on the subject. Main points of view were presented, on many fuels and technologies, on what to do, but also on what not to do (which seems to be always an option). There have been the companies that had a product or service to marketeer and they talked their book; there have been some new ideas; but, in our humble opinion, nothing substantive and lots of “beating around the bush”, as they say. It has been disappointing, to an extent, but again, Greek shipowners represent almost 30% of the world’s fleet (however “Greek” is defined in this case), with the majority of them being independent, small shipowners of 5-30 vessels, effectively “family offices”; collectively, they have an impeccable record of navigating tough markets (and emission regulations has been one of the most dangerous business shoals in the last couple of decades); represented by the omnipotent Union of Greek Shipowners (UGS), the Greek ship-owning market has actively taken industry positions that materially differ than those of the International Maritime Organization (IMO) and also the EU. Most prominently, Greek shipowners see vessel emissions as an issue concerning the vessel’s charterer / operator (and not the shipowner), and thus concepts such as “the polluter pays” should be addressed by big companies that charter / operate their ships (think ExxonMobil and Shell for tankers and Cargill and Vale for dry bulk). Definitely, that is one way to see things. We suspect the reason the emissions discussions remained “academic” during Posidonia is that strategically deeper pockets will make for an easier political target to take the hit, when the clock has run out-of-time. To paraphrase, the regulators have all the clocks but shipowners have all the time. And, frankly, assessing the emissions subject from a strictly business point of view (sort of “It’s strictly business. I always liked [the environment]” paraphrasing from the Godfather], there has been no clear mandate on how and when to achieve lower shipping emissions, as different regulatory bodies set different goal-posts (bureaucratically slowly and lacking enforcement power) and with shipping being an international industry the loopholes are abundant; thus, why invest several million per vessel when there is no clear “carrot” for it, the “stick” is weak? While we all want a clean environment, who pays for it becomes the fulcrum of the debate (while the positioning of the fulcrum can become another subject matter of its own). And again, while for sure all companies, in shipping or not, try to strive for a clean environment, recent articles in the business press that Deutsche Bank in Frankfurt and Goldman Sachs in the US are being investigated by regulatory authorities on “fudging” their ESG investments, “green-washing” has a stoicism element on whether true will and purpose drive the emissions debate.

It would appear that the shipping industry is at an inflection point: new technologies to make for more efficient ships and new regulations to make for more environmentally-friendly ships, at a time when society and consumers seem to be paying more than lip-service to environment-society-governance (ESG) issues and there is a pendulum swing away from “shareholder capitalism” towards “stakeholder capitalism”, at a time when shipowners are generating operating profits after some lean years, and yet, at a time macro- and global trends and risks make for a very delicate balance going forward. Posidonia 2022 has been a successful event when critical subjects were discussed—albeit on occasion superficially— but, at least, the industry was re-assured of its value and importance in every-day life as supply chains and global trade should not be taken for granted. For Greek shipping, Posidonia was also a case of pride.