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A lack of domestic financing and support doesn’t deter German tankers owners

Mon 31 Jul 2017 by Barry Luthwaite

A lack of domestic financing and support doesn’t deter German tankers owners
German owners have been active in ordering new tonnage

German tanker owners prosper in the product trades and are looking to divest from crude

The German story of survival and improvement through one of the toughest recessions is all the more remarkable for a little known fact that the German Government does not take advantage of EU rules allowing state support for shipping.

These are chastening times for Germany’s shipowners: the overall merchant fleet of all ships is dramatically reducing, lessening Germany’s ability to remain a major player. The mercantile marine has long been built on the liner trades, but is it now time to pay more attention to the oil trades? The country is strong in products transport and, to a certain extent, in chemicals.

Some of Germany’s strongest owners today were forced to change newbuilding containerships into tankers, which have reaped rich dividends in the last two years. The KG finance system decimated German finance, bringing banks and financial institutions to their knees and forcing distress sales of many containerships. Tankers escaped much of the turmoil after suffering KG sales in the early days of the crisis, but the problems are not entirely over. Some tanker owners perished, while others managed to hang on and reverse balance sheets from red to black ink. German resolve is very evident but, as a confident but conservative participant in tanker trades, little notice is taken of the valuable contribution to the economy such owners make. Participation spreads further into ship management globally, pooling, and chartering operations.

Over the past year, little has changed in tanker fleet composition except that steady expansion is evident on a measured scale. Columbia Shipmanagement has a strong presence in wet tonnage management and ownership from Hamburg and Cyprus. Steady investment has resulted in a newbuilding orderbook of 22 vessels aggregating 1,057,516 dwt. All are product/chemical tankers, shared by TB Marine (8), Carl Buttner (4), Reederei Nord (4), Conti Reederi (3), Sloman Neptun (2) and Bernhard Schulte (1).

Germany’s strongest calling card has long been for products transport

Germany’s strongest calling card has long been for products transport, mainly serving ports from the Mediterranean to north Europe and the Baltic. The national fleet totals 296 units aggregating 14,949,984 dwt, including 12 VLCCs and 14 Suezmax crude oil tankers. The latter still sit uneasily in the German fleet as crude is not the real earner. Some of these vessels may be sold off in the near future unless they become attached to partners or pools. No crude carriers are on order.

One of the companies forced to switch newbuilding containerships into tankers in the aftermath of the financial crash was Claus-Peter Offen. Built at very high prices, these vessels have more than paid their way and have grown this owner into one of the strongest in Germany, with a fleet of 29 tankers. Offen Tankers is seeking to expand its liquid interests further. Offen operates four Cape bulk carriers and recently took on in-house commercial management of 30 containerships from Conti Reederei following 100 per cent acquisition of shares from the latter.

There is still bad news around. Pressure from banks forced Marenave Schiffahrts to sell its whole 13-vessel mixed fleet of tankers, car carriers, bulk carriers and containerships. All the vessels were KG financed. Offen Group and insurer DEVK moved in to refinance Marenave with a plan to build a new fleet. The move underlines Offen’s strength and ambition on a sensible scale, with management as well as financial expertise to the fore. In the current trading climate, tankers look the best bet for any fleet additions. Offen has indicated that a New York IPO is on the cards in the near future. If it goes ahead, it will mark the first time a German owner has sought finance on the New York stock exchange.

Conti Reederei followed Offen in the bleak days of the financial crisis in changing containerships into product carriers. The fleet comprises two Aframaxes and six Handysize units, with investment in three 74,000 dwt LR1 product carriers due for delivery from Jiangsu New Hantong from the end of 2017 into 2018. With what is effectively a merger between Offen and Conti over the 30 box ship fleet, the future of the Conti tanker fleet may now be in some doubt.

TB Marine is another owner that was in serious financial trouble three years ago. Now restored to financial health, its recovery was illustrated earlier this year in China with a commitment for four 22,000 dwt medium chemical carriers with deliveries in 2019 and 2020. This order complements four Handysize product carriers also under construction in China, with deliveries stemmed from 2018.

By newbuilding standards, German activity is brisk

By newbuilding standards, German activity is brisk. Carl Buttner signed a letter of intent with Jiangsu Hantong, China, for construction of four plus optional two 38,000 dwt IMO II chemical tankers, each fitted with 14 tanks. These mark the first newbuildings for the Buttner fleet since closure of the Lindenau shipyard in Germany a few years ago. The individual cost is put at US$40 million. Essberger is evaluating ordering product carriers and may consider Turkey again, despite protracted delays enforcing cancellations here last time.

The German story of survival and improvement through one of the toughest recessions is all the more remarkable for a little known fact that the German Government does not take advantage of EU rules allowing state support for shipping. Other European countries do adopt the support measures, putting German owners at a growing disadvantage. Flagging out is increasing, with many German owners switching to the Madeira registry. The weakness of German banks has led to China attempting to gain a foothold in the German market. State-owned Chinese leasing companies have made approaches to supply finance under terms of bareboat charter by the owner with purchase option. This is a successful policy in China and South Korea, but has so far been resisted in Germany. But when pressure mounts in a tough climate seemingly anything can happen. It is difficult to believe that as recently as 10 years ago, German banks controlled 50 percent of the global fleet financing.

Its tanker management share globally is 160 vessels

Germany has an excellent record of competence and should continue to sell its related maritime services, especially commercial and technical management. Key countries with close relationships are Cyprus and Malta. Greece is being courted as a new customer for third-party management. Bernhard Schulte hopes to gain Greek business. Its tanker management share globally is 160 vessels: products (73 per cent), Suezmax (10 per cent), Aframax crude (10 per cent) and VLCC (7 per cent). The company is now reaching out more into Asia.

German owners must maintain and cultivate relationships as well create long-term partnerships. Quality tonnage in products and chemical trades will soon edge out unsuitable foreign competition that descends on Europe when market conditions are good but weaker elsewhere. The future remains encouraging for the German tanker fleet.