John Fedricksen On Shipping: A summary of various articles: (Note: In some cases it is some of Fredrikson’s people or friends providing data or quotes. Editors comments are in parentheses)
Fredricksen is in the process of investing $7 billion in his deep-water drilling business and $4 billion in the shipping business.
Prices of buying new vessels in international markets have fallen to half their levels prior to the financial meltdown.
Fredriksen is of the opinion that tanker prices and charter rates have bottomed, and are likely to improve in the future, as the global economic outlook improves and older vessels retire.
The formula for success in the shipping sector: (Pulled together from various statements by John Fredriksen and others)
1) Buying in at the right price level/Getting out at the right time. (The preceding from a comment by Wilbur Ross about John.) The focus needs to be on buying assets when they are at their lowest possible level and not being overly taken in by economic and petroleum growth forecasts. These he says are too uncertain to be useful.
2) Low cost of financing.
3) Low cost of operation: He intends to buy the eco type ships that burn 20% less fuel than conventional ships, reducing the number one operating expense for his customers. Fuel costs represent more than half of the operating expenses of a typical vessel, or about $7,000/day for a midsized vessel.
4) Long –Term Contracts: As you move deeper into the shipping cycle, long-term contracts can provide insurance against the downturn that few see coming. (Comment: So, as the market tightens, that leverage over the buyer csn be used to induce them to agree to longer-term contracts. They tend not to resist these persuasions because it gives them the vessels that are in critically short supply and almost no one is capable of seeing the downturn coming.)
5) Public Relations: Talk to the media enough to attract the stockholders necessary to finance your growth plans. (This is totally my own conclusion.)
Breakeven Levels: (At his Frontline company) This is on a 2012 cash basis, ignoring depreciation.
Breakeven Levels-pt 2: In a separate article, Frontline in May, 2012 said it needs $29,700 to break-even on one of its “supertankers”. (This presumably includes depreciation, but perhaps seems high relative to the above numbers.)
Fredriksons share of the global tanker fleet capacity represented by his 42 supertankers: 7%
Tanker Supply/Demand Outlook:
Crude Oil Tankers (He means the larger variety that are typically only used for crude.)
Troubles here are a consequence of the combined VLCC and Suezmax fleet increasing by around 98% between 2004 and 2012 without a similar increase in demand. Consensus is that recovery in the crude tanker market may take some time and in order for recovery to happen, substantial scrapping must take place.
May 2012: Chairman John Fredriksen says the biggest crash in the cost of ships has yet to happen. It will be within “a year or two and then the market “collapses,” (Refering to tankers, perhaps VLCC & Suezmax crude tankers) “We’ll wait until the market collapses and then we’ll buy up what’s there,”
Comment: This may work out for NNA, who has two VLCC’s that must be re-chartered in early 2017.
Forward Freight Agreements: (A way to bet on future shipping costs.)
He says the doubling of rates predicted for 2013 is too optimistic. (I’m guessing he is refering to rates for larger crude oil transports.)
Product Tankers: Fredrikson has earlier stated his opinion that that this sector would turn up in 2014-15.