Construction of Shipping Center? [Archive]

neorion

June 5th, 2007, 09:12 PM

An article about a major shipping center (and shipping in general) at Piraeus from the latest Odyssey Magazine.

On the Waterfront

The Greek shipping industry has been scattered around the world for decades, with offices in New York, owners in London, and branch offices in Panama. Now Greek ship owners are coming home. Alkman Granitsas reports on how Athens, where it all started, is slowly transforming itself into a major shipping center in its own right.

Down along the rutted coastal road, by the dust-caked cement factory, the abandoned warehouses and rust-streaked oil tanks, a dream is in the works. On an empty piece of industrial land around the bend from Piraeus harbor, a new international shipping center is being planned.

Right now it doesn't look like much. There are some overgrown fields, a few stray dogs and straggly cats, a junkyard, a crumbling WWII-era sentry box, a gutted three storey building. But in the future, this run-down, 158-acre piece of industrial property will become a shiny, new one-billion-euro office, commercial and park complex - a place where the world's ship owners, bankers, and agents will one day meet and do lunch. In other words the Wall Street of international shipping.

"Our ambition", Greek Public Works Minister George Souflias announced recently, "Is to create one of the best and most important shipping centers in the world."

He and the Greek government are hoping to give a boost to what many people consider the country's signature industry: shipping. And in the process, establish Piraeus, and the city of Athens, as a major shipping center.

For years, Piraeus, the congested, gritty, but also charming and historical port of Athens, has been the center of Greek shipping and the country's biggest port by far. But it has always been a poor cousin to the world's major shipping capitals -London and New York- lacking the infrastructure and services that support the industry.

Now that's starting to change. In the past few years, the Greek shipping industry has been going through a radical transformation on the back of a three-year-long shipping boom. And everyone who is anyone in shipping, from German banks to Chinese container campanies to British law firms have either set up shop in Athens in the past few years or otherwise greatly expanded their presence. And that strean is expected to continue. As a result, Athens is very quickly maturing into one of the leading shipping centers in Europe, if not the world, and catching up with its rivals.

"Once upon a time London was the shipping capital of the world," says Christopher Georgakis, cheif executive officer of Excel Maritime Carriers, one of the world's largest dry-bulk companies, "But in the last two to three years a lot of companies have moved to Piraeus. And if you look at the number of shipping companies here-whether owners, brokers, suppliers, agents-you can't fail to notice that Piraeus indeed has become a very considerable shipping center."

Adds a senior Athens-based shipping industry source. "Greece is the biggest shipping nation in the world. What we have long said and still say is that all those who have a relationship with us-bankers, brokers, lawyers-need to be here. And that has happened in the past few years because the past few years have been some of the best years ever for shipping."

Indeed, shipping has become even more important for Greece. It now accounts for roughly six percent of the economy-more than double of what it was just ten years ago-and perhaps as many as 300,000 jobs. Or, to put it in perspective: Greek shipping companies currently have some 600 ships, worth a combined value of $30 billion, on order at shipyards around the world, or more than twice the amount the country spent on staging the 2004 Olympic Games.

But the seeds of that transformation were sown more than a decade ago when many overseas Greeks in the shipping industry started coming back home to Athens. Their reasons were many: lower costs, lower taxes, a better quality of life, a need to reconnect with their country of origin.

Greeks date their maritime traditions back several centuries, if not millenia, and Greece has long been a ship-owning nation. Today, Greeks directly or indirectly, control eighteen percent of the world's ocean-going fleet and almost half the ships in the European Union. Shipping is the second largest foreign exchange earner for the country behind tourism.

Historical roots aside, the world of modern shipping has been concentrated for the last two centuries in London, not Greece. The reasons are financial and legal. And in the years after WWII, many of Greece's biggest ship-owning families fled the impoverished Piraeus, first for New York in the 1950s and then later to London in the 1960s. There they joined an already established Greek shipping community that dated back to the 1800s.

But in the early 1990s, many Greek ship owners started trickling back to Greece from London. There were economic reasons for doing so. In the late 1980's, the boom-and-bust shipping industry went through one of its regular downturns and the lower cost of doing business in Athens loomed as a major benefit compared with ever pricier London.

In addition, starting in the early 1990s, British tax authorities began asking tough questions of wealthy foreign residents, like Greek ship owner. The crackdown was aimed as much, or more, to expatriate Arabs as it was at Greeks and others. But after at least one high-profile tax raid on a Greek shipping company, many of the established Greeks realized that the tax advantages they had long enjoyed in Britain were no longer there. By contrast, since 1969, Greece had been beckoning its ship owners to return by waving income tax on shipping families and shipping companies.

In that time, Greece had changed too. It was no longer a backwater and had become just a little bit more business-friendly.

"I came back from London about fifteen years ago. The reason was that in the late 1980s, the market was difficult in shipping. And one reason for the move was financial in order to reduce costs. Compared with high-cost London, it was cheaper to move to Piraeus," says Evangelos Angelakos, chairman of Angelakos Hellas, who spent thirty years in London building the family shipping business.

"And Piraeus has improved a lot compared with the past," he adds. "In the old days, something that took one hour to do in London would take seven days to do in Piraeus. But that's not the case anymore."

Boomtown Athens
In the past three years, international shipping has been going through one of its greatest booms ever, with freight rates at unprecedented levels and the number of ships on order at record highs.

The reason has been China. Ever since joining the World Trade Organization in 2001, China's booming economy and demand for the things ship carry-oil, coal, iron-ore has lifted world shipping to a new level. In this period, demand for so-called dry bulk goods has been growing at more than five percent a year-twice the growth rate of previous decades. And Greek-controlled ships carry half of China's dry cargo needs and sixty percent of its so-called wet cargo, like oil.

That demand has coincided with a relative shortage of ships. Years of underinvestment in dry-bulk carriers and stricter environmental regulations on oil tankers have meant hundreds of ships have been taken out of service in the past five years or face the scrap heap in the next few. Of the world's 6,000 dry-bulk carriers, for example, thirty percent are over twenty years old-close to the average twenty-five year life expectancy of a vessel-and the number of ships over twenty-five years of age exceeds the number of new ships on order for the next four years.

Strong demand and tight supply has meant record high freight rates and profits-and a reinvestment in ships. At the same time, the boom has coincided with a new generation of ship owners, the sons and daughters of the old shipping patriarchs who have brought new skills in finance and modern management to what was once a seat-of-the-pants business. Since 2004, some twenty Greek shipping companies have listed on international stock markets. As a result, the market capitalization of the shipping sector has grown from about $2.5 billion in 2002 to about $20 billion now.

As Greek shipping has boomed, Athens has boomed with it. Success has drawn followers.

"It used to be that ship owners would go to London to speak with their brokers. Now the brokers fly to Athens to speak with the ship owners," says Anthony Argyropoulos, managing director of Cantor Fitzgerald. "It's the complete reversal of the situation thirty years ago."

One example is Clarksons, the world's largest ship broker. After years of serving its Greek clients on flying visits, it opened an office in Piraeus in May 2001 and now has more than thirty staff in Greece. Likewise, Bremen-based Deutsche Schiffsbank, one of the three largest lenders to Greek shipping, established its own roots in 2005 and set up a permanent branch that now occupies a beautifully renovated neo-classical mansion in the center of Piraeus. And later this year, Germany's HSH Nordbank, another big lender to the sector, is also planning to set up a permanant office in Greece.

"You have to be where your customers are," says George Paleokrassos, managing partner of the Piraeus office of Watson, Farley and Williams, one of the world's leading shipping law firms. "All the London law firms that specialize in shipping are now represented here. Athens is truly a shipping capital now."

His own firm is a case in point. In the past decade, the number of lawyers at the Watson, Farley office in Piraeus has more than doubled. And the work load, at least in terms of shipping finance deals, is equal or greater than other Watson, Farley offices in New York and London.

There are other examples, anecdotes if you will, which tell the story as well. For instance, the nearly forty year-old, Athens based biennial Posidonia shipping fair has arguably grown to become the most important shipping trade exhibition in the world. Similarly, the shipping awards handed out each year in Athens by Lloyd's List-the must-read journal of the shipping industry, have quickly surpassed any other kind of industry honors elsewhere in the world.

"Internationally, people have belatedly observed the strength and caliber of Greek shipping. There has been a quantum leap in the past five or six years," says Nigel Lowry, Athens correspondent for Lloyds List. "The world didn't have such a favourable impression of Greek shipping in the old days, but has now come around to the view that it is a high quality, world leading industry."

Athens vs. London
London owes much of its pre-eminence in international shipping to two coffee shops. The first, on Tower Street in the City of London, was run by Edward Lloyd and as long ago as 1688 became a meeting place for insurance underwriters that specialized in shipping. The second, on nearby Threadneedle Street, was the Virginia and Baltick Coffee House that in the mid 1700s was a gathering point for sea captains and merchants. In due course, the first would evolve into Lloyd's of London, the world's largest insurance market, and the second into the Baltic Exchange, for two centuries the market place for dealing with just about every kind of shipping contract. Add to that one of the world's oldest and largest stock exchanges, the commercial wealth of the British Empire, and the rise of English law and the English language in international commerce, and it becomes clear that London is plainly in a league of its own as a finanacial and shipping center.

As recently as five years ago, some fifty percent of the world tanker chartering business and thirty percent of the world dry bulk chartering business was arranged in London, according to an estimate by the Baltic Exchange. And more than fifty percent of the world's sales and purchases of ships is arranged through the London market, with Greeks accounting for roughly a third of that market.

In short, Athens still has some way to go in catching up with the business muscle of London.

"Although there are some very interesting signs that this may be changing a little bit, the fact is that Piraeus is still very much a Greek shipping center," says Lowry. "Whereas London is an international shipping center."

To really become a world-class shipping center, Athens-or rather Greece-will have to develop its legal, insurance and financial sectors. In each case, there are moves afoot, but the results will take years to bear fruit.

Despite the number of law firms that have expanded their presence in Athens in the last few years, the majority of the world's shipping contracts are still based on English law. One reason is because English, like in so many other industries, has become the lingua franca of shipping. Another reason is the accumulated trust and expertise that has been built up around English law and English courts. Still a further advantage, London has specialized shipping courts. Athens does not.

"The biggest problem in Greece has always been the law, or more specifically, the legal cases going through the courts," says one Athens-based shipping industry observer. "In Greece, the courts are not specialized enough. A judge deals with a divorce, a burglary, and a shipping contract all in one day."

In response, Greek shipping lawyers, with the support of ship owners and the Ministry of Merchant Marine, have recently taken steps to set up a new shipping arbitration court. For many businesses, arbitration is seen as a cheaper and easier way for settling disputes than through law courts and so has been gaining popularity worldwide. But even so, some seventy percent of maritime arbitration cases are still heard in London and another twenty percent in New York.

Greece has no rival to Lloyd's of London in the area of shipping insurance. Nor does anyone expect the handful of tiny Greek insurance companies to displace such an august institution any time soon.

But shipping insurance is divided into two distinct parts. In general, the Lloyds shipping syndicates underwrite a ship and insure the owner against the loss of a vessel by accident or natural disaster. Yet ever since the mid-1800s, mutual associations of ship owners have also formed to insure one another against liabilities arising out of shipping accidents, ranging from crew injuries to oil spills. Those were liabilities the Lloyd's syndicates were not willing to cover.

These mutual associations, known as Protection and Indemnity Clubs, are now grouped into thirteen worldwide P&I Clubs, with roughly half of them based in the U.K., plus one each in Japan, the United States and Sweden, among other places. None are based in Greece, although several have offices in Piraeus.

Recently, the Greek government passed legislation allowing for the creation of the first Greek P&I club. If it takes off, it would be a significant boost to the Greek capital's ambitions as a shipping center, but again it will take years to develop.

"A lot of business can be originated out of Piraeus," says Angelos Roupas, manager of the Piraeus branch of Deutsche Schiffsbank. "But there's no question that London is where the insurance action is happening."

Ever since late 2005, Greece has made it easier for shipping companies to list on the Athens Stock Exchange. For years, a rather strict set of criteria-primarily designed to protect investors from the inherent boom-and-bust swings of the shipping industry has meant Greek shipping companies have gone overseas to find equity investors. Of the 300 odd stocks listed on the Athens bourse, only a handful are shipping related, and all of those are domestic Greek ferry companies. Arguably, that has both stymied Greek shipping companies in raising funds, and also meant that the Greek capital market did not benefit from the rush of new listings in the last few years. As a result, the most important stock exchanges for Greek shipping companies nowadays are located in New York, not in Athens.

Most investment bankers say that the Athens Stock Exchange remains too small and has too little liquidity to attract Greek shipping companies to list. And they note that despite the changes in the law, none have bothered to list on the Athens exchange.

But as Roupas of Deutsche Schiffsbank observes. "Any beginning is a beginning and it takes time to develop momentum. Maybe the Athens Stock Exchange won't be a primary source of capital for Greek shipping companies, but it could be a decent secondary source."

Indeed a beginning is just a beginning. And down along the rutted coastal road, by the dust-caked cement factory, the abandoned warehouses and rust-streaked oil tanks, the dream of an international shipping center will take time to mature. The overgrown fields and abandoned warehouses do not, for now, evoke the hustle and bustle of London or New York.

But there's no denying the buzz around the Piraeus waterfront these days. The industry is booming, freight rates are up, and everyone is making money. No one can remember the last time things have been so good.

"I wouldn't say that Athens as a shipping center is in the same league as London or New York right now," says one senior industry source. "But that is the goal."