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You don’t have to be mad to invest in shipping. But it helps

The industry’s notorious propensity to boom and bust has always made long-term judgement calls complicated. Decarbonisation will render them more complicated still

Why bother with creative destruction when good old-fashioned destruction will do instead?

TO REPURPOSE an old joke, in circulation at least since the Lloyd’s of London asbestos scandal of the 1980s and possibly decades before that, the best way to make a small fortune from investing in shipping equities is to start with a large one.

You can in theory ride the rollercoaster of our industry’s known pitfalls by crossing streams and playing multiple sectors simultaneously. But that tends to be a game for sophisticated private shipowners with deep enough pockets to weather inevitably misaligned storms.

Slick PowerPoint presentations outlining multi-year, multi-cycle strategies tend to fall foul of the quarterly demands of dividend-hungry shareholders, with the negative numbers wreaking havoc on the meticulously massaged key takeaways section.

To borrow a coinage from recently deceased Berkshire Hathaway value investor legend Charlie Munger, it’s often not so much a case of diversification as “diworsification”.

In consequence, the KISS principle — Keep It Simple, Stupid — tends to dominate. If you’re bullish on crude, you buy Frontline. If you fancy a flutter on clean tankers, you buy Scorpio.

Straightforward stories from pure-play companies are what goes down well in public markets. Allow us to offer you a couple of examples from two of the big segments.

The heady post-pandemic heyday that saw liner operators in temporary possession of a veritable forest of magic money trees is clearly over. Maersk’s decision this week to cut dividends, pull buybacks and sell off Svitzer, in anticipation of a sizeable full-year loss, is proof of that.

The announcement came just three months after Big Blue unveiled 10,000 job losses last November, in a market set to remain weak until at least 2026.

Yet nobody faults Maersk for lack of ambition. It has made no secret of its intention to lead shipping’s generational shift towards zero-carbon future, a process that is going to burn piles of cash as well as methanol.

But there remains the wider issue of the inherent boom and bust cycles that have always plagued shipping and those sufficiently courageous to invest in it. Part of that volatility is a function of how public companies operate.

There are those boring so-and-sos who like to charter a vessel to a trusted counterparty for long-term projects, underwriting a reasonable return that generates a cashflow with modest leverage, and with all sides remaining reasonable about the expectations of returns.

That is never going to be as much fun as extorting private equity levels of return on capital employed on a consistent basis. But Charlie Munger would probably have approved.

Nevertheless, container shipping’s reversion to its often dismal mean has meant a painful readjustment for some.

And it’s not only investors who need to be reminded that shipping rarely engages in creative destruction when good old-fashioned destruction will do instead.

Bankers have a similarly short memory spans, and those who graduate from ship finance to lending to other sectors reportedly have difficulties acclimatising to income statements and balance sheets from companies that actually turn a profit.

All of this leads us to the case of Euronav, once the pure-play titan of tankers but now undergoing reincarnation at the hands of CMB chief Alexander Saverys.

Tanker shipping is fundamentally changing, Saverys argues, as he seeks to charm investors prepared to engage with the dramatic transition he envisages, presenting it as an opportunity rather than a complexity investors don’t have time to understand.

Whether he likes it or not, he has effectively established an A/B test in the market. John Fredriksen’s takeover bid has been thwarted, but came at the cost of allowing Big John to walk off with 24 very modern, very profitable tankers in the middle of a promising tanker cycle.

Saverys’ counteroffer bets the ranch on Maersk-style rapid investments in sustainable fuels, innovative collaboration with similarly forward-looking partners and a new business model.

It’s fair to say that many industry analysts have their doubts. But a sufficient volume of outsiders — often the same people who are investing in green tech, renewables and the energy transition — are lapping it up.

Fifty years from now, we will know who has made the correct call. Either we will be celebrating the astonishing foresight that heralded the start of the green cycle and an era of sustainable growth, or CMB.Tech will disappear into the Lloyd’s List archive.

If Saverys is right, we are on the cusp of a brave new world. If he’s wrong, the risk is that those who buy in to the sales pitch are on the time-honoured road to disappointment.

It is still the case that you don’t have to be mad to invest in shipping. But it probably helps.

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