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Ridgebury Executive Questions the Market Fixation with Scale
February 9, 2015
Hew Crooks was feeling in top form as he met with potential investors in New York in December.
The Ridgebury Tankers Chief Financial Officer had plenty to say after a string of ship acquisitions and successful bond issue, which was still trading above par despite troubles in the financial markets.
“I finished one presentation and this hedge fund analyst sort of looked at me, sniffed and said: ‘But you are subscale. How do you expect to compete?’” Crooks told Marine Money in London.
“He said it as though it were contagious. As if, should he spend too long talking to me, subscale might rub off on him.”
Crooks — speaking in a week that saw Euronav gobble up $229m and become the largest VLCC owner on Wall Street — explained the investor meant Ridgebury would be too small for him to buy shares were it a public company.
“I’m not sure that [size] is all people need,” Crooks said. “We have just seen Euronav list in New York. They are the bellwether in the crude tanker space. The pitch Paddy Rodgers, their CEO [chief executive], makes is very compelling, usually in the form of an exclamation, and it says ‘consolidate or die’, or ‘consolidate or destroy value’.
“It’s a pitch that basically a little guy is going to have trouble competing. When we talk about scale, leaving aside the question of liquidity in the public markets, our industry and the reason it has remained fragmented, is a small owner can absolutely compete head-to-head with a big owner.”
He reasoned that operationally there is little to pick between owners, with all ships having between 18 and 22 people onboard.
“We all place our insurance in the same markets,” Crooks continued.
“We all run the same engines and consume the same lubes. Anybody who is efficient is going to be within a couple of hundred dollars per day of each other on the opex [operational expenses] side.”
The idea that a larger company has an advantage due to lower overheads was also shrugged off by Crooks, amid the quip that as companies get bigger they seem to move from out of town onto Park Avenue.
And while he concedes industry giants and public companies secure cheaper financing, the notion that larger companies have an advantage when it comes to fleet growth, due to the number of deals they are aware of, was also brushed aside.
“I see other people who go around and try to raise money,” he said. “They have a list of proprietary transactions and it’s very rare that I would see something there that we have not heard about.”
Scale more relevant in spot
One area where Crooks agrees with Rodgers and the Euronav pitch is in its suggestion that scale is important if an owner wants to compete in the spot market. “For a small owner to be out there trading a couple of ships in the spot market is insanity,” he said.
Despite this, Crooks says Ridgebury is a full believer in trading spot rather than locking in its ships on period deals. “Especially in the low market we see owners going out, and it’s probably partly fatigue, and fixing these ships because they are trying to protect, what? $3,000 in downside,” he said. “And you are giving up maybe $30,000 of upside. You have to be in the spot market.”
Ridgebury’s Suezmaxes trade in the Heidmar Blue Fin Pool, its medium-range (MR) tankers with Norden’s Norient Product Pool and its Aframaxes with Teekay.
Crooks says there are pros and cons to both owner-operated and third-party pools. He says owner pools are usually top-tier organisations, trying to maximise returns for their own vessels and will help others while they are at it.
However, there are some downsides. “These are all highly professional organisations. But if we were unhappy and we pull ourselves out of the Teekay pool, the guy who runs the pool will go home at the end of the day, put on his little Teekay pyjamas and he is going to go to bed and sleep just fine,” Crooks said.
“They work for Teekay and they are proud of it. The Stena guys work for Stena and they are proud of it. That’s great but you just wonder a little bit if you are going to be a second-class citizen.”
Third-party pool operators like to keep owners happy and provide excellent transparency, Crooks says, paying particular credit to the data available digitally from Heidmar. He acknowledges there is some criticism of third-party pools who are paid on a gross rate basis and have staffers who are happy to fix what is possible and head to the pub.
“The idea that these guys don’t care what they fix, that they don’t care about beating the pants off Euronav or Gemini or whoever they are competing with is nonsense,” Crooks said. “These guys work so hard to bring in every nickel for us.”
He concludes that pools, either owner controlled or third party, “really is a way for the small owner to tap in”.
“It’s the way you can take that volatility and bounce in rates that deliver much better than time-charter employment but in a way that is still comfortable and a way to get transparency for your lenders, in a way that you can predict your own cash flow,” Crooks said. “We struggle to understand why more small owners don’t trade things this way. We have confidence we can match any company that is out there, big or small, on both the efficiency side and the revenue-generation side.”
06 February 2015, 00:00 GMT