How shipping families defeated the private equity titans

A Maersk liner. Image: Maersk. 
A Maersk liner. Image: Maersk. 

There were few surprises in the latest ranking of the 100 most powerful people in shipping published by Lloyds List. True, they put Chinese premier Xi Jinping at the top – on the grounds that he scuppered a huge merger last year – but otherwise the names were familiar.

The two top men at family-owned Maersk were in second place. Further down were John Angelicoussis, whose daughter Maria is also in the business; Israeli brothers Eyal and Idan Ofer, sons of the legendary Sammy Ofer; Greek entrepreneur Angeliki Frangou, CEO and chair of the Navios Group; the fourth-generation Belgian Saverys family; Hamburg’s Oldendorff dynasty; the Grimaldi Brothers (whose business dates to 1348); and cousins Jochen and Christoph Döhle and Peter Döhle Schiffahrts, who control the  Hammonia Reederei carrier. Many other families also made appearances.

The family dominance of shipping doesn’t look likely to change any time soon. And that is a little surprising, given that quite recently it seemed that the Greek and Nordic gods of shipping would be replaced by private equity geeks and Wall Street financiers.

The post-2008 financial slowdown hit shipping hard due to a vast oversupply of ships which were commissioned during the boom years and rolled out of the shipyards just as the global economy slammed on the brakes. In 2011, the 16 largest publicly traded shipping firms lost $5bn between them, losses presumably mirrored in the privately-owned ones.

The oversupply problem was exacerbated by the drying up of bank financing, which traditionally provided the bulk of the industry’s finance. And so private equity giants such as Apollo, Blackstone and Oaktree saw an opportunity to buy when prices were low, and made multi-billion-dollar investments. “This probably means that the swashbuckling, larger-than-life characters typical of the industry will be less prevalent,” mused buyout legend Wilbur Ross, who invested billions.

It didn’t turn out like that. The economic resurgence Wall Street was betting on hasn’t emerged. Bulk prices remain weak – the Baltic Dry Index, which measures the cost of shipping raw materials and an indicator of global economic health, just hit 30-year lows.

Ross suspended the IPO of one of his shipping firms in 2014 because of low demand. Oaktree’s Star Bulk Carriers’ share-price is down at under $4, from a high of almost $230 in 2007. Other listed shipping firms have unenviable results, such as Scorpio Bulkers, which last week announced a loss of $116.6m for 2014.

All of these companies remain optimistic, but it is notable that many of those who are making the running in the shipping industry are the usual suspects, not the johnny-come-latelies.

Two of the world’s biggest family-owned shipping dynasties, Maersk and Mediterranean Shipping Co, recently started their so-called 2M ship-sharing alliance for east-west routes. Once the deal was done MSC’s 75-year-old patriarch Gianluigi Aponte handed over leadership of the business to his son Diego. (Diego’s mother and sister, incidentally, run the family’s cruise-line business.)

John Angelicoussis, a private and old-school shipping magnate who dislikes the new money coming into the industry, is rapidly building his fleet and power. Lloyds praised his “flexibility and decisiveness” in reacting to a fast-changing environment by ordering liquid natural gas tankers last year. He is also loyal, and is renowned for his long-lasting strong relationships with a small number of banking backers and shipyards.

Why do families dominate shipping? One answer is historical. Hubs such as Pireaus in Greece are sources of deep knowledge. Also, tax regimes friendly to tycoons have historically allowed them to build up vast fortunes.

Another reason is financial – you can make so much money as even a relatively small shipping tycoon that there is no need to sell the business, so the industry remains fragmented. Also, shipping is arcane and hard for outsiders to understand (do you know why 8,600 ships fly the Panamanian flag, more than are registered in the US and China combined?)

But mostly it is because of two things. One, families’ long-term focus suits the long cycles in shipping: it takes years to build ships. And two, because a small number of family members make the big decisions they can react quickly changing market conditions.

There is a worry in the industry that private equity money will flood out when Wall Street realises its interests cannot be aligned with those of the families they have invested in. That might happen, and it would be disruptive. But when the dust settles the Lloyds top 100 will still feature many of the same names it always has.