Discussing scaling fleets to meet customer requirements in our Tanker Leaders webinar, product tanker industry titans from Hafnia and Scorpio tankers delved into what is required for companies to stay robust, right-sized and resilient in a changing market
Scorpio Tankers president Robert Bugbee and Hafnia chief executive Mikael Skov are two key industry leaders in the product tanker trade.
Mr Bugbee has worked in the tanker industry for over 30 years, holding several prominent positions before becoming president of Scorpio USA. Mr Skov is equally experienced, having worked across a range of Danish shipping companies before becoming co-founder and chief executive of Hafnia Tankers, a newly established product tanker company created by the merger between Hafnia Tankers and BW Tankers.
In a free flowing exchange, the two tanker industry leaders tackled how to remain robust and resilient in a shifting energy market; rightsizing businesses and operations for a sustainable and viable future, and reinvigorating the supply chain with new standards, collaboration, contracting models and cash flow.
As Mr Bugbee noted, “Firstly, you need a fleet that can service customers properly in light of the changing regulations. You also need access to capital and a critical mass.”
Mr Skov agreed, adding, “As well as the above, people will be increasingly important – you need to be an attractive employer.” He noted capital is important but without the right sort of people “ships are just steel rusting in the water.”
This impacts the strategic planning of the business. “Planning beyond 10 years is fuzzy; the next five years is reasonably long-term. There is still a fair degree of clarity,” said Mr Bugbee. “The demand side is set to increase as the recovery continues but, ironically, the supply side is set to decrease. There are very few ships on order and there is now an ageing fleet. Overlapping this is the longer-term theme of renewable energy usage. This could lead to a declining demand for product tankers,” he said.
Picking up this longer-term theme, Mr Skov noted it might not be a threat but the new normal. “Our core competence is to arrange transportation. At the moment, that happens to be refined oil. This might change and if you have the right people, you can change the model,” he said, “In a new world of renewables, what will have to be moved around?”
Any long-term change in shipping requires considerable investment and this point led to discussion on the question regarding rightsizing businesses and operations to remain sustainable and viable. Both industry leaders noted that 10 or 15 years ago, a company with a product tanker fleet of 50 vessels was seen as being of a significant size. This gave the company an advantage on how and when crucial information would enter the market.
“In the old days, one of the best tools we had was being able to control the information about the fleet. We would tell the world what the fleet was doing (or not doing). Today, everybody has access to the same information,” said Mr Skov.
Both Mr Skov and Mr Bugbee represent businesses with fleets or pools of around 200 vessels. This gives their businesses faster access to better quality market data than is available for smaller operators. So, while everybody might have access to the same information on vessel positions via AIS-based services, those businesses still enjoy the advantage of having a bigger overview of the whole cargo market.
And data flow can be increased without formal consolidation. As Mr Bugbee said, “With technology, that could well go higher."
Rightsizing can come in many forms and Mr Bugbee opened this section of the debate by referring to the recent consolidation between Diamond S Shipping and Norden to create DiaNor. While being the right size for companies in the sector five years ago, today the two companies have consolidated from the current market.
Mr Bugbee also noted that rightsizing was not only about ships and data, it is about people, too. “If you are running platforms with a greater number of ships, your platforms are likely to be more advanced and this gives opportunities for people to grow within the organisation.”
Regarding invigorating the supply chain: new standards, collaboration, contracting models and cash flow; the two industry leaders agreed that more co-operation is needed. Mr Bugbee said, “I would not have a problem with our technical people discussing safety or environment issues with another owner, ways to improve things.”
The questions to the panellists varied between thoughts on the market to the impact of the Covid-19 coronavirus. On the markets, the panellists were asked to compare the refined markets to that of the Suezmax tanker market. Both felt the refined products market would continue to outperform the Suezmax market, and the crude oil tanker sector in general to the end of 2020.
On the Covid-19 coronavirus, both industry leaders were of the opinion that there has not been enough done to allow crew changes to take place. Crews have been unable to return home, but one positive aspect is there have been no positive coronavirus cases within the crews on the two companies’ ships.
One question concerned the perception of investors to shipping. The shipping industry on the stock exchanges trades at a discount to net asset value (NAV). Mr Skov said, “This (NAV situation) is a disappointment.”
Mr Bugbee felt it was a fair question and explained that “Shipping is a value trade and virtually all companies related to value trade below other sectors, such as technology,” he said. He noted shipping is perceived as risky, illiquid, and volatile. There was a more fundamental reason for the disconnect between NAV and values. “Most investors do not look at NAV. We are industry specialists and we understand NAV. This is frustrating and we have to navigate through this period carefully as the equity markets are not open,” said Mr Bugbee.
On the positive side, he noted the capital markets are closed, too. There is no capital for newbuildings. “We have a period ahead of increasing demand, a small orderbook, an ageing fleet with vessels approaching 15-years old and being removed from the premium charter trades, he said.” These could be the conditions required to change the NAV situation.
Both panellists wrapped up with their key takeaways from the discussion. Mr Skov’s key takeaway was about having access to people and being able to attract the right people to the business. “In my view, that is key to any business and across all topics,” he said.
“I would also say it is no longer a case that the tanker market will have consolidation. We have had a lot of consolidation in the last 2.5 years though mergers and acquisitions and through pooling. We are going to have consolidation through a third way. Those fleets with older vessels will reduce. The number of owners operating modern sub-15-year-old vessel will be less. It will be consolidation through ageing,” was Mr Bugbee’s closing observation.
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Panellists (left to right): Hafnia chief executive officer Mikael Skov and Scorpio USA president Robert Bugbee
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