Greece, Japan, China and Germany: Still the dominant world fleet shipowners

At first glance, these four countries are an odd group. They do not all have a similarly massive order of magnitude in the global picture of business and commerce. Japan, China and Germany are at the forefront of many rankings, such as the world’s largest economies, largest manufacturers, largest traders. Greece is nowhere near attaining those characteristics, and is often one of the smallest.

Yet the Greek-owned fleet of ships remains where it has been for a very long time, at the top of the global ranking of shipowning nations. It has been a remarkable story. But China is moving upwards rapidly, and potentially could overtake both Greece and Japan (the second largest) to become number one shipowner, perhaps within a few years.

A new analysis reveals what has been happening. The latest edition of a report prepared annually by the United Nations Conference on Trade and Development, known as UNCTAD, entitled Review of Maritime Transport 2014 (RMT) was published a few weeks ago. It contains a wealth of valuable information and statistics about many aspects of world maritime activities. There are comprehensive and detailed chapters covering global seaborne trade, the world fleet of ships, freight rates and costs, ports, legal and regulatory developments, plus a special chapter for the current edition about maritime transport in small island developing states.

One particularly interesting aspect, because it is the primary reason for existence of a great proportion of the world fleet of ships, is seaborne trade. How has this trade been evolving? The Review shows that world seaborne trade in all cargoes decelerated in 2013, to 3.8 percent growth. Annual volume transported was almost 9,600 million tonnes. The increase was driven by additional dry cargo flows, growing at a 5.5 percent rate. Previously, in 2012, overall trade growth was almost one percentage point higher at 4.7 percent, so the slowdown last year was quite sharp.

Only two of the many aspects covered by the latest Review are discussed in detail in this article. First, locations (countries) where the world fleet of ships is owned and controlled. Second, a shipping finance feature, private equity investment.

Where the world fleet of ships is owned
Where are the shipowners located? Since fleet breakdowns by ship registration country (flag state) do not provide a useful guide to nationality of the owning enterprise, an alternative analysis is needed. This analysis is provided by a RMT table showing the composition of the entire world fleet of ships, according to where, in which country, ships are owned. The beneficial owning country is defined as that in which the company that has the main commercial responsibility for the vessel is located. This table shows that, at 1st January 2014, the four biggest fleets were those of Greece (15.4 percent of the world total), Japan (13.6 percent), China (11.9 percent), and Germany (7.6 percent). These percentages were almost unchanged compared with twelve months earlier, at the beginning of 2013 (respectively 15.2, 13.9, 11.8, and 7.8 percent).

When accompanied by statistics included in previous editions of the RMT report, a comparison with the position ten years earlier reveals significant changes. Compared with the start of 2004, Greece’s percentage is well down (from 20.3), Japan’s percentage is similar to what it was (14.2), and Germany’s percentage is somewhat higher than it was (6.3). The largest change has occurred in China, where the current proportion of the world fleet is almost double the 6.1 percent seen ten years earlier. But a decade ago Norway was one of the top four, with a 6.7 percent share, now down to 2.6 percent and replaced by China.

Another notable aspect is that, while the relative importance of the current four top shipowning countries has changed, their proportion of the world fleet as a group has remained quite stable. In 2004, the current top four comprised 46.9 percent of the world total. In 2014 the figure was less than 2 percentage points higher, at 48.5 percent.

Also, significantly, these percentages apply to a strongly growing world fleet. The actual size of the world fleet of ships in 2004 was 776.7 million deadweight tonnes (dwt). Ten years later at the start of 2014, the figure was 1,676.9m dwt, a more than two-fold expansion. The impact of this context modifies to some extent perceptions of owning country fleets’ significance: a much larger fleet in an individual country may nevertheless form a reduced percentage share of the total, for instance.

One example is the sharply declining share of the Greek-owned fleet. This share was 20.3 percent of the world fleet in 2004, resulting from a fleet totalling 157.3m dwt. In 2014, as already discussed, the share was much lower, at 15.4 percent. But the Greek fleet had actually grown very strongly by almost two-thirds over the period, reaching 258.5m dwt. Because the remainder of the world fleet had grown faster, however, the Greek proportion declined.

The ‘ultimate’ versus the ‘beneficial’ owner
In the latest edition of the Review, UNCTAD for the first time has introduced what it describes as a “novel analysis” of where ships in the world fleet are owned. The new analysis shows how the fleet looks based upon the nationality of the ultimate owner, the real owner. This is shown alongside figures based on the beneficial ownership location.

The report comments that owners increasingly locate their companies in ‘third countries’. The first country involved is the registration country (flag of vessel). The second is the country of beneficial ownership (where the controlling and decision-making is located). Sometimes a third country is involved, as shown by the new analysis – a location where the ultimate owner is based.

These concepts defined by UNCTAD can appear, in part, somewhat hazy. The country (flag) of registration is clear enough. Also, it is easy to see how the flag nationality differs from the ownership nationality. An example is a container ship registered in an open registry such as Panama but actually owned in, and controlled by, a company with a head office in Denmark. Attempting to distinguish between where ownership is based (location of control, decision-making), and the actual nationality of the owner, seems to be a rather inexact science. It seems to rely greatly on statisticians’ judgements about individual ships; there is a question mark over how accurate this exercise can prove.

How significant is this attempt to provide a different fleet breakdown, a more meaningful aid to identifying nationalities of ownership? Calculations are included in the table below, derived from the tonnage figures compiled by UNCTAD. These calculations show that, among the top twelve owning countries, percentages of world tonnage for beneficial owner location, in column (1) and real nationality of owner, in column (3) are often similar. For instance, Japan is shown as 13.6 percent and 14.1 percent respectively. Germany is 7.6 percent in both categories. However, there are some noteworthy differences. Greece has a significantly higher figure under real nationality (16.9 percent) than under beneficial ownership (15.4 percent). Another example is Singapore, which shows a much lower 3.3 percent under real nationality than under beneficial owner location, 4.4 percent.

Twelve largest shipowning countries, as at 1 January 2014

all 12 countries with 2 percent or more of world fleet shown individually

Notes: Column (1) ‘Beneficial ownership location’ indicates the country in which the company that has the main commercial responsibility for the vessel is located. Column (3) the ‘Real nationality’ is that of the controlling interests of the vessel (the nationality of the shipowner, not the nationality of the ship, which is determined by flag of registration). A typical example given by UNCTAD: a Greek national owning a ship (ultimate ‘real’ owner’s nationality is Greece) but whose shipowning company is based in the UK (benefical ownership location is UK). The 4 largest comprise almost half (48.5%) of the world total; the 12 largest comprise 74.2%.

Source: UNCTAD (2014), Review of Maritime Transport 2014 (Geneva: UNCTAD), table 2.3 page 33, and percentage calculations in column (3) by Richard Scott, derived from table 2.3

Private equity shipping finance: a controversial topic
For the second consecutive year, UNCTAD’s Review draws attention to the involvement of private equity financing in the shipping industry. This focus of attention highlights how prominent these investors have become in the recent past.

The role of private equity investors in shipping has become much larger in recent years, and some shipowners and others have welcomed the influx of extra money that has ensued. But, given the nature and philosophy of many new investors, their enlarged influence and potential strategy has been questioned.

What precisely is private equity? It can be defined as investment from private sources, often a private equity firm in partnership with institutional investors such as pension funds and insurance companies. Typically money is invested in equity shares of unlisted companies. Provision of finance for management buy-outs and refinancings is another aspect, also known as venture capital. Private equity investors often make an active contribution to the target company’s management, seeking to boost efficiency and performance, as well as supplying capital. The usual strategy is to enhance value and resell as quickly as possible at a large profit, sometimes by floating the company on the stock market. Another category also emerging as shipping investors is hedge funds, which are more speculative, trading heavily in asset-price and other market fluctuations.

A feature is what is observed as an essentially short-term focus, with potential for causing disruption. As a group, private equity investors are often characterised as temporary players, frequently adopting a three- to seven-year or shorter investment time horizon, although some aim for longer-term returns. Moreover, they are sometimes regarded as having no firm commitment to the industry, and only interested in obtaining ‘quick profits’ over the shortest possible period, having bought at low or distressed prices and selling at the highest price possible. They are often viewed as somewhat predatory. Thus, although welcomed by many, others view their participation as suspect and potentially unfavourable, leading to controversy about their activities,

One of the main factors boosting shipping finance supplied by private equity, and also hedge funds and other ‘outsiders’ in recent years has been tight credit markets globally. Relatively low vessel values were also an incentive. These factors created opportunities for alternative investors to participate in both shipping companies and individual ships. As the latest UNCTAD Review points out, such investors remained substantial contributors during 2013, when traditional bank financing for shipping investments continued to be very limited and available for only a few solid transactions. Private equity investors were very active in buying shipping loan books (portfolios of loans on individual ships) from banks, with a total value during last year estimated at $5 billion. Investors also purchased vessels directly and through joint ventures with shipping specialists.

The Review suggests that expanded private equity involvement in the shipping industry may have “serious repercussions”, proving a destabilising influence affecting market fundamentals. Private equity and hedge fund financing supported a large volume of newbuilding orders for ships last year. When these are delivered into the market, the additional volume may enlarge over-capacity, threatening the industry’s recovery prospects if the imbalance between supply and demand is exacerbated.

A valuable report
This brief discussion of two of the numerous aspects analysed demonstrates the value of UNCTAD’s annual report which, since its inception in 1968, has always been offered free of charge. The RMT provides much useful information on key issues and influences affecting the global shipping scene. Industry professionals, as well as academic researchers and students can gain valuable insights.
Source: Article by Richard Scott, Visiting Lecturer, University of Greenwich & MD, Bulk Shipping Analysis