In shipping - is there such a thing as a good or bad deal?

Further to my post and poll on linkedin 

Thanks again to everyone for contributing. Amazing the diversity and calibre of those of you that participated. 

And the results are in!

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Shipbroker and chartering negotiations. Is there such a thing as a good or bad deal? If there is when can we make that call?

On fixing?                                       20 pct

At the end of the employment?      36 pct

No such thing - all relative             44 pct

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A solid representation across the board. The no such thing crowd marginal winners!

And now for my perspective. And like previous polls and discussions - this is all just a matter of opinion.

Ill break down each option

No such thing - all relative

 

Most of us who have been around for a long time understand that what looks like a bad deal now may in fact be a good deal in hindsight. The same the other way around. The passing of time can do that. Also, looking at deals from outside in, maybe we don't have the full picture behind the strategy that would push a principal to accept a 'bad looking' deal. EG maybe they are long or short on tonnage or cargo and the 'thousand bucks here and there' is of little importance. 

 

Those playing a bigger game (asset players) care 'increasingly less' about smaller deals. Good counterparty (tick), reasonable rate (tick).

 

Having said all of that, and taking into account my natural inclination towards Neitzche's general belief that 'there are no facts only interpretations' - I still do believe that there is such a thing as a good or bad deal. At its' most obvious a bad deal has sent many a firm bankrupt. Try forking out a few hundred million dollars for some new building ships just prior to a market crash? For every loser there's a winner.....in this case the shipyard who sold at the market high.

 

In the past we have seen players go very long or very short (on cargoes or ships) and the culmination of those deals can cause real pain for a real long time.

 

Need more convincing 

 

How about the Louisiana purchase? Not a good deal for France one would think...The USA are happy

 

The Beatles selling the rights to their catalogue in 1969 wasn't a great deal...and Michael Jackson cashed in many years later.

 

Conclusion - I still (want to) believe there is such a thing as a good or bad deal...

 

At the end of the employment

 

This one is an interesting because it makes the most logical sense. Negotiate the deal, execute the deal, run the numbers - have we made money or not? Common sense and a great conservative approach - if not a bit boring. 

 

The issue with this approach is that the longer a deal takes to execute the more likely it is that something may go wrong. I don't like sitting around waiting for things to happen - it makes me nervous. This one is also about perspective - an operator will take pride in executing a deal brilliantly (as they should) but the chartering guys may think their job was done prior (at fixing)

 

Conclusion - Good conservative approach, a little boring, and maybe a little late to make the call if its a good deal or not.

 

At the time of Fixing (and the winner is!)

 

In the wonderful tradition of Enron Corp most commercial people celebrate deals at the time they are fixed - the rest is someone else's (operations, finance) problem. I’m only half joking..

 

Truth is there is a lot to be said for judging a deal at the time of fixing. As Eckhart Tolle tells us - all we have is NOW...

 

(Whats with my fascination with German philosophers....haha)

At the time of fixing we (competent professionals) hope to have considered all possible contingencies (the current market, our costs, our risks, our cash, our forward book, the freight futures market etc) before we agree to fix. Otherwise what criteria are we using? 

 

So - all aspects of a business are actually involved in what looks like a purely commercial transaction. All chartering people should be checking with operations, finance and the strategy people before pressing the green button.

 

And once the deal is confirmed watch all the different players go into overdrive hedging the risk (or locking in profits) using different strategies (if they wish to)..

 

Finally - my biggest reason for making a call on fixing..... imagine a world where we didn't celebrate the end of a negotiation. The nerves waiting for that confirmation after the final counter offer. The excitement and relief when subjects are lifted. Bells ringing, phone calls to your life partner explaining that huge deal you were working is done. The long lunches, the relief on your boss's face….

 

I have always been a little superstitious. Wearing my brokerage hat now - the best moment for me after brokering a deal is sitting at my desk (and only after subjects are lifted) and with calculator in hand working out the projected commission. Calculator (smart phone), beer, celebratory medium rare steak (in that order and within 15 minutes of each other). About as good as it gets (if shipping is your thing)

Heres to living in the moment 

VS 

 

The primary role of a shipbroker in a firm negotiation

 

Response to my LinkedIn Poll 

Shipbroker negotiations 

Which one is the most important?

The primary role of a shipbroker 'in a firm negotiation' is 

a) To get the best price and terms for their principal
b) To pass on offers and counter offers in a timely and accurate manner
c) To bring a successful negotiation to a close as quickly as possible

Which one is the most important and why?

We had a great response from lots of experienced people in the industry 

Results from the poll are 

A) - best price and terms                            56%

B) - pass on offers and counter                  13%

C) - Obtain a successful and quick deal     31%

Brilliant - and like most things in life the truth is a matter of opinion. 

Here is my take on the answer that I think best suits the role of a shipbroker (and why)

My answer is C - The primary role of a shipbroker in a firm negotiation is to bring a successful negotiation to a close as quickly as possible. 

Here is my justification  

At its most basic this is the only answer that prioritised fixing - which is why a broker is hired in the first place. Secondly, I have sneakily included the word 'successful' - which can be interpreted than more than just fixing (eg Happy Principals). Finally, in the hectic world of international tramp shipping - time is of an essence. 

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The is an old saying 'a quick deal is a good deal' and its true but not for the reasons that you may think. 

This has nothing to do with 'churning' or aggressively getting parties to accept things they otherwise should not. 

This is more a reflection of 25 years of negotiating shipping deals myself and also watching the best. Interestingly before I became a shipbroker, I spent my college years (5 of them) doing a retail sales job (to pay for beer and nightclubs) and in my academic career I also teach sales and marketing...

Here's my view. The best brokers (sales people, negotiators) have knack of getting things done 'relatively' quickly. Quicker than average or bad brokers. 

In my eyes, doing a quick deal has less to do with watching the clock and more about being the result of effective and highly advanced negotiation skills. In my course 'the VS dry cargo chartering and shipbroking certificate', I teach my students that every communication is an opportunity to bring the parties closer together - and hence should not be wasted. I have seen many brokers (and principals) lose deals because they have missed golden opportunities to solve obvious problems - quickly...

You will also note a quick deal is relative....so I'm not interested in absolutes like 20 minutes, or 1 day or 3 days....some deals take time!

BUT a good broker will pretty much always be quicker (eg; help complete a deal in 3 days compared to an average broker 6 days...or the bad broker might even lose the deal).

Why is time important?

1. The longer a negotiation goes the more likely it is that something will change that can upset the deal...

2. If a deal is taking a long time....the questions begs 'what's the hold up?'. A good broker is one that actively is looking for solutions to problems. In-fact a fixing machine pre-empts any foreseeable issue and can stop it from festering into something larger inevitablypushing the principals further apart - rather than closer.

This skill is a function of knowledge and empathy. Being able to put yourself in your principals' shoes can make you millions.

Principals shouldn't enter into firm negotiations if they aren't in a position to fix...so if there is a problem it's in everyone's interest to figure it out as quickly as possible. If one of the parties is stalling.....then figure out why and solve the problem!

3. The ability to 'close a deal'...

Despite the labels, Brokers, charterers and shipowners are people and people are different. Some 'people' are actually very cautious (some may say indecisive) negotiators and need a broker to get them over the line emotionally and financially...as uncomfortable as this may sound - it's the truth. 

Hopefully I don't need to convince anyone that it is a skill to 'close a deal'. This has been written about and studied for years (and it's a good thing) - parties can move on and be efficient in their next task....(another ship or another cargo).

One could argue that the greatest service a broker can provide is to 'get the deal done!' A stressed shipowner and/or charterer needs brokers who 'get the deal done'!

Relevance of closing the deal: case in point. Many shipping companies are now investing in sales courses for their chartering team. Many traditional chartering companies now employ people who have titles like 'business development, and 'sales executive'. This was not the case 10 short years ago. 

Finally, an uncomfortable truth (for the principals who are reading - I was a principal too remember) is that internally a broker is measured by 'revenue generated' not by 'did the broker successfully agree to everything his client says even if they missed the deal'...I have never seen that metric.

Before everyone screams!! There have been a number of occasions over 30 years that I advised clients not to take deals. 

1. If the deal is obviously bad (poor rates, terrible terms)
2. If the deal is with a bad counter party, 
3. If the counter party is pushing a clause that exposes them to too much risk
   

No Deal!

And guess what? This is part of the brokers role - to figure that out very quickly and advise the client - so that they/we can pursue better deals. An average broker will not flag a potential large problem that will ultimately see the deal fail. A waste of time and energy for everyone and 4 days too late (market has changed, other potential matches have disappeared...etc etc)

Every communication counts - Get the deal done!

VS

The VS Dry Cargo Chartering and Shipbroking certificate..

https://virtualshipbroker.blogspot.com/p/study.html

Teaching you the things that others won't, don't..(and can't)

The art of negotiation

The art of negotiation. Having a great time with my 10 students studying the 'virtual shipbroker chartering and ship broking certificate'. At the end of the learning blocks the students partake in simulated negotiations with a fellow student usually from another part of the globe. I mean 'simulated' with a small 's' because I have set it up in a way that is entirely realistic - with real ships, real charterers and real life nuanced situations. It's a massive learning curve and a negotiation is a great way to bring together and contextualise all the learning materials. The feedback from students is always a surprise and it's why I know how beneficial these exercises are. Stay well..

https://virtualshipbroker.blogspot.com/p/study.html

Shipbroker Hedge - Dealing with an uncertain future Part 3

Hi all

This continues my series of post aimed at helping the chartering community deal with uncertainty through creative ideas, investments and side hustles

7 - Keep your Job

Now this sounds a bit boring but lets look at some facts. With gold going through the roof and most investment classes (shares, property, interest rates) going backwards - those with steady jobs and steady cashflow can make huge gains (against the flock). 

If you use this time to be a little frugal and get your cash reserves up you will be in a position to take advantage of the swing when it becomes obvious that good times are returning. 

What we tend to do is look at our investment returns compared to previous returns. But in reality we should look at investment returns compared to others..

So yes - saving and putting money into cash may seem like a slow burn in a usual market BUT in this market (where many have portfolios retreating by 20-50 percent) treading water and improving cash positions is actually making you rich...

8 - “Alternative” Investing

For those who still have an appetite for risk. Alternative investments are vehicles like peer-to-peer lending, real estate crowdfunding, business lending, and even cryptocurrency.

This is one of my favorite side hustles because it’s automated and passive. Check out options like https://fundrise.com, which allows you to invest in revenue-generating commercial properties for as little as $500.

9 - Start a shipping blog or write a shipping book

Too late.....market is saturated

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And finally it is important to keep dreaming big.....this guy knows it!

VS

Lebanon

My thoughts go those in Lebanon after the explosion around the port district....

Hard to watch the footage...

Sign of the times

VS - chartering and shipbroking certificate update

Well folks - spots are filling up fast...only one or maybe 2 spots left...

Well done to those who have taken up the challenge - should be fun. Looks like we will start first week August...

Happy to say that a former excellent student of mine (who is now a senior person with a first class company) has referred a number of his colleagues.....cannot get better testimonial than that!

Approx 30 minutes per day....

Course details are here

https://virtualshipbroker.blogspot.com/p/study.html

Yours
VS

Shipbroker hedge - dealing with an uncertain future Part 2

This is the second part of my series intended to help the chartering fraternity deal with uncertainty through creative ideas, investments and side hustles

4 - Buy a ship!

As a shipbroker for example - we might think that technology is likely to render some of our services redundant in the future (I beg to differ). Just to be safe - why not hedge that risk by joining the dark side and becoming a shipowner. Stuff will always need to be moved!

Now this might sound like a bit of a stretch.....I mean who amongst the chartering desk has a spare 20 million sitting around? NOT ME....

Here's the thing - the way we own things is starting change. Did you know that in some parts of the world you can buy a share of a house. So you get to own 'part' of a house for as little as 500 bucks.....

This is great for young people unable to buy a full house, and its even great for micro investors looking to spread their risk. As the price of the house goes up your investment goes up and vice versa.

WELL we can now do that with ships. There are a few groups around the place who are asking for minimum type investments to be part of syndicates to buy ships.

Do some research / due diligence etc and see what you can find. These guys Marvest are onto something but I think have gone a little quiet recently (with the crazy market)

5 - Buy Shipping stocks

Again - for any ship chartering boffin its almost impossible to know how to pick which areas of shipping will boom and which will bust over the long term. I regularly receive emails from brokers asking which markets I believe will have the greatest growth in the future. The harsh truth - I DON"T KNOW. I could guess but I prefer to let the experts do the picking.

2 ways - Buy into a shipping fund or purchase individual shipping stocks..

Splash wrote an article on this HERE although I do question their idea that regular Joes (and Janes) can purchase FFA's which are business to business transactions..

6. Sperm Donor

Ok so this one is for the chaps. 

In the UK a sperm donor receives 35 pounds per visit....USA between 35 and 120 bucks per visit...Singapore 100 Bucks...

On a business trip - have some spare time between meetings? why not be productive?

From latest calculations there may be close to 750 mini virtual shipbrokers around the globe. Quite the money spinner.

More to come

VS