Consolidation discourse goes beyond simple scale

Consolidation has long been at work within stand-alone shipmanagement groups but a fuller portfolio and improved operating environment could prove just as vital

More consolidation is the most common prediction one hears in shipping. The shipmanagement sector seems bent on making that cliche come true.

A string of mergers and takeovers have swept over the scene, with V.Group gobbling up Graig Ship Management and the formation of Columbia Marlow Shipmanagement the latest examples.

Economies of scale is the usual suspect behind these moves. "As the industry continues to develop, scale will be critical to underpin ever more efficient service delivery for customers and to enable the technology investments required to drive a step change in outcomes for our customers,” says Hanne Sorensen, the interim chief executive of V.Group.

There are “obvious synergies and efficiencies” to be had from consolidation, Columbia and Marlow said when they first announced they were in merger talks back in November last year. Before that, the two companies established a joint venture on IT solutions for digitalised shipmanagement and crew training.

Consolidation has long been at work within stand-alone shipmanagement groups as well. Bernhard Schulte Shipmanagement demonstrated that as early as in 2008, when it emerged as the combination of the Bernhard Schulte Group’s then four separate shipmanagement outfits.

The dominant view among market players is that more such moves are coming — driven by wider trends that have changed the face of shipping over the past decades and will continue to do so in the future. The possibility to squeeze savings from the use of big data and ever-increasing compliance requirements will play into the hands of bigger shipmanagement companies.

Consolidation, however, may not necessarily come in the form of mergers.

I don’t think it’s a foregone conclusion we’ll see more mergers," says Arthur McWhinnie, managing director of Bernhard Schulte Shipmanagement Cyprus, which is in charge of about one-sixth of the group’s fleet of 600 managed vessels.

"What we might see is shipmanagement companies continuing to look at additional services and capabilities, not just pure shipmanagement functions, so they can build a fuller portfolio of what they’re looking to provide clients with,” he says.

Synergies and economies of scale may not be the whole story. Succession issues and financial considerations are believed to have played a role in some of the mergers that have occurred in recent years.

At the same time, there is skepticism about how far economies of scale can go. To cite a simple example, there is a limit to the discount that fuel suppliers can offer to big firms, says Intership Navigation chief executive Dieter Rohdenburg.

Above a certain size, benefits for the shipmanager outweigh those of shipowners, says Rohdenburg, whose firm owns 55 ships and manages about 35 vessels.

“Consolidation helps to keep a company profitable at the depressed management fees that we have today, simply by adding numbers,” Rohdenburg says. “But I don’t think it does anything to increase the quality of third-party management."

7948b4a9c35c4928402a7050ec691572 Themis Papadopoulos  Photo: Interorient

A constant concern among shipowners is that the bigger a shipmanagement company, the more it turns into a faceless bureaucracy in which individual relations and experiences do not count.

Bigger shipmanagement companies argue that such trade-offs do not exist at all, or can be dealt with by introducing flexible internal structures.

The issue of size is “completely irrelevant” when it comes to customer care, says Mark O’Neil, the chief executive of Columbia Marlow Shipmanagement.

Having several offices in various parts of the world dealing with specific clients, as Bernhard Schulte Shipmanagement does, helps ensure tailor-made customer treatment, McWhinnie says.

When V.Ships acquired International Tanker Management (ITM) in 2009, it left much of it independent, to the pleasure of ITM client Pyxis Tankers, a US-listed tanker company.

“We believe that Pyxis Tankers has benefited from ITM’s relationship with V.Group,” said Pyxis chief executive Valentios “Eddie” Valentis.

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While incorporating services such as catering and crewing, V.Group retained ITM's philosophy as a quality niche player with the technical management of between 40 and 50 ships, Valentis adds.

It seems, therefore, that smaller independent or semi-independent shipmanagement entities will be around for a while. “I believe it is likely that we will see more deals but I do not expect it to become an overwhelming trend,” says Themis Papadopoulos, chief executive of Interorient Shipmanagement, which handles a fleet of more than 100 vessels.

This article is part of the October 2017 TradeWinds Shipmanagement Business Focus. Read the full report here.