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Wednesday, October 14, 2020

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!


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


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