A story about us in Tradewinds

16th February 2018

Global bulker giant Oldendorff flourishes as S&P strategy propels growth

While most shipping industry players were scrambling to acquire vessels between 2003 and 2008, Henning Oldendorff was steadily selling off most of his dry cargo fleet.

Oldendorff Carriers disposed of 92 vessels at high prices, building up a warchest that has aided the Lubeck and Hamburg-based owner and operator as it later re-enter the sale-and-purchase market at often bargain prices.

Chairman Henning Oldendorff, and the company he inherited from his father, Egon Oldendorff, at the age of 23, has flourished by taking a counter-cyclical approach to the market. 

It has enabled the outfit subsequently to invest a net $2.5bn in 97 ships — a mixture of newbuildings (around 50), resales and typically five-year-old secondhand vessels covering the period 2013 up to 2020. 

The gross figure is closer to 129 ships and $3.2bn invested if 32 units since resold are included. But Oldendorff says asset play is more about tailoring the fleet to customers’ requirements than turning a quick buck.

“We will retain the majority of these vessels in our core fleet for a long time but you will see us sell some ships occasionally to take profits and adjust our portfolio,” he tells TradeWinds.

Although he is chairman of the company, Oldendorff works day to day in the sale-and-purchase department, which explains his intimate knowledge of the company’s fleet and the dry cargo market in general.

“More like a hobby than a job” is how director of communications Scott Jones describes his boss’ enthusiasm for dry cargo.

The Oldendorff Carriers’ network today is massive, spanning 18 locations worldwide and embracing — including transshipment tonnage — almost 700 owned and operated vessels.

Transshipment, employing 800 people and involving eight projects around the world, has become an important division and one in which investment continues. The company says clients can deploy larger vessels and benefit from “substantial” freight savings.

Oldendorff, 60, who took over the family holding company of Egon Oldendorff GmbH & Co KG and shipping outfit Oldendorff Carriers in 1980, believes strongly in delegating responsibilities.

But it is Peter Twiss — a Canadian who joined in the late 1990s — whom Oldendorff attributes with introducing a bottom-up style of management.

Employees are “empowered” to make their own decisions, often involving large sums of money.

“Deploying nearly 700 vessels in a global network of trades can only work if we delegate a lot of authority to our people, which at the same time motivates them to work like a big family with shared responsibilities,” says the chairman, who met TradeWinds at the company’s Hamburg offices in the Emporio Towers.

“We cannot run this network anymore with top-down management,” says Oldendorff, who arrives at work casually dressed in smart jeans and open-neck shirt and, like others, enjoys panoramic views of Germany’s maritime capital from one of the city’s highest buildings.

Today, the company has around 4,000 employees from 60 nations.

Oldendorff took over from his 80-year-old father after returning from training abroad in New York, London and San Francisco.

He set about introducing a cargo-operator mentality into the business, starting with the acquisition of Swiss trading company Concept Carriers and recruiting cargo as opposed to tonnage specialists. The seeds were sown for Oldendorff Carriers’ transition from a typical shipowner to owner/operator.

“Moving closer to the cargo was the aim rather than just chartering out to other operators,” Oldendorff says. "If we are a cargo operator with a wide network, then we can optimise and serve our clients as directly as possible.”

He brushes aside reference by one outsider to Oldendorff Carriers being the “Lubeck Greek” because of a close cost-control culture.

“I don’t think we are Greek at heart,” Oldendorff responds. "We are quite international. It is a competitive world, so we have to be vigilant on all fronts.”

Whatever the case, the current investment programme of around $2bn in “environmentally friendly vessels is funded primarily from operational cashflow,” says Jones, who is the brother of BRS Group chairman Tim Jones and former CSL Group boss Rod Jones - as reported in TW+.

Prudence, careful investments, a strong management team and quick decision-making are among the reasons and benefits given for Oldendorff Carriers remaining a family-owned company.

“We retain and invest the profits,” Oldendorff says. “We can also be counter-cyclical and not have to watch the quarterly results.

One area Oldendorff is reluctant to discuss is succession. He has three daughters at university but it is unknown whether they will enter the business.

“We have a plan but, as a private company, it is not a public plan,” Jones says.

Investment in modern bulkers lays foundation for an eco future

Oldendorff Carriers' multibillion-dollar investment in ships will give it a “90% eco-friendly fleet” and the benefits that flow from that — environmental and fuel savings.

Writing in the company’s Waterline magazine, chairman Henning Oldendorff notes that Oldendorff Carriers’ acquisition and ordering of ships made it the second-biggest dry bulk investor during the previous five years.

Only China’s Cosco Shipping — spending $2.7bn on 58 bulkers at the time — was bigger. But the German owner and operator's spend was larger than John Fredriksen’s various companies, which splashed out $2.15bn on 60 bulkers.

“We have invested in our future at historically low prices,” Oldendorff says.

Six baby capesizes of between 114,000 dwt and 119,000 dwt and six post-panamaxes (93,000 dwt to 96,000 dwt) bought in 2016 cost only $4m to $5m above scrap value despite being on average five years old.

The 70 bulkers that the company ordered or purchased as resales — with delivery dates between 2013 and 2020 — are divided roughly equally between capesize (including newcastlemaxes and baby capesizes), panamaxes (including post-panamax and kamsarmax), ultramaxes and supramaxes, in addition to handysizes. The outfit also has added a transshipment platform.

Oldendorff Carriers has recently taken delivery of two vessels, leaving 19 on order, plus options.

At the time of writing, they comprised two newcastlemaxes being chartered in, four kamsarmaxes (three owned and one time-chartered in), 10 owned ultramaxes and three owned handysizes.

Director of communications Scott Jones says no active discussions are ongoing for more newbuildings.

“Our fleet is always changing, even day by day,” he says. "As of yesterday, it was 685 vessels but it really depends on the cargoes and business we have.”
It means 166 ships are either owned or bareboat chartered, with the owned and operated tonnage at 56.3 million dwt. The average
age of the fleet is eight years, while the owned part is just five years.

The fleet’s rapid growth in recent years is reflected in the fact that at the company’s 50th anniversary in 1971, when it was a pure shipowner, it numbered just 20 vessels.

In the late 1990s and early 2000s, operating and ownership came together. The company started chartering in tonnage — typically holding 80 owned and 80 chartered ships. Since then, the chartered fleet has grown faster.

Owned ships currently total around 110 vessels, including around 50 transshipment units, some of which are tugs and barges.

“We like to have some owned ships in each category or segment we are in,” says Jones, highlighting the 37 owned or bareboat chartered capesizes. Entry into baby capesizes — otherwise known as mini-capes — followed a request from clients. Eight shallow-draught sisterships came from the same yard.

Typically, bareboat charters are long term, and Oldendorff Carriers is close to certain owners who also sometimes participate in the ownership.

“There is a core fleet of owned ships in each segment, part of that being to give our clients and customers confidence that we can supply vessels, have flexibility, as well as keeping us on top of each market,” Jones says.

Motivating Oldendorff to rebuild his fleet after the big tonnage sell-off between 2003 and 2008 was the opportunity to acquire fuel-efficient eco-ships.

He was diligent at figuring out the best value for money, while the company’s technical team participated, among other things, in designing some of its newcastlemaxes.

While working with three shipyards in China, the focus was on designing a newcastlemax with similar fuel consumption as a regular capesize of 180,000 dwt, but that could carry 208,000 tonnes.

Jones says there are probably few people in the world with Oldendorff’s knowledge of the global orderbook, what is being paid, and the good and bad characteristics of individual yards.

“But he also has a good management team that he relies on heavily. He also listens,” Jones says.

Peter Twiss, chief executive for the past 15 years, and chief operating officer Peter Bagh lead the management team, leaving the chairman free of day-to-day management to concentrate on executing deals with other members of the sale-and-purchase desk.

Twiss joined Oldendorff Carriers around 1997 when Swiss trading company Concept Carriers was acquired.

Although there is a perception that asset play is a big motivator, Jones says most ships are acquired to fit the company’s trades and customers’ requirements.

It has a lot of contracts of affreightment, both long and short term, as well as handling plenty of spot work, with the handysizes, supramaxes and, to some extent, panamaxes regularly involved in tramping.

Around 70 of Oldendorff Carriers’ 80 owned ships are managed internally. The remaining 10 or so are outsourced, primarily for crewing, as a competitive benchmark.

Quizzed about the market outlook, the chairman says: "The dry bulk trade will grow more than the fleet, so we are quite optimistic.

“But central bank policies have created a lot of artificial bubbles and inequalities around the world... so we have to remain vigilant.”

Raise of $220m solid but cash flow still king

Oldendorff Carriers has raised $220m over the past three years with long-term bonds in the US private placement market.

Secured tenures of up to 30 years have provided it with funding for general corporate purposes, including its investment programme, at what are described as competitive terms.

It makes sense to match financing with long-term business commitments of its fleet, says director of communications Scott Jones.

He says the company has relationships with a combination of German and international banks, and has not been noticeably affected by some banks in its home country withdrawing from ship finance.

At the time of the third placement, the company said the US private placement market continued to be an attractive funding source and strong relationships had been forged with both existing and new bond investors.

“However, cash flow from operations will remain the main source of funding for the company’s strategic investment objectives, enabling the company to maintain its conservative capital allocation practices,” it says.

As well as derivatives to hedge risk, Jones says Oldendorff Carriers uses index-linked chartered vessels to meet its cargo obligations, "ensuring a critical fleet mass without taking price risk [on the markets]".

“The owners seem to like it because they can participate in the market upside as well,” he says. “We can also hedge clients' exposure with fixed-rate contracts or agree market-related index contracts with a matrix of port pairs.”

Jones estimates that typically 100 to 150 ships of all sizes are on index-linked charters, both time charters and bareboat, including newbuildings still to be delivered. Most involve “close owners for periods of a year or more”.

From tramp owner to a mega logistics provider

Oldendorff Carriers has come a long way since a 21-year-old Egon Oldendorff became a partner in 1921 in a small Hamburg shipping business, which was renamed Lillenfeld & Oldendorff.

Today, its fleet handles around 320 million metric tonnes of bulk and unitised cargo.

Observers point to its transition from being a traditional tramp owner to a logistics provider, with contracts of affreightment involving “huge amounts” of commodities around the world.

Industry participants say chairman Henning Oldendorff was smart when he sold off most of his owned ships during the boom years up to 2008 — while growing his chartered fleet to compensate — by retaining his technical department to develop opportunities as they arose.

“He was always talking to yards about projects from the technical side and when he saw the prices dropping he started ordering again,” one Hamburg source says.

Earlier, in the late 1990s, Oldendorff acquired shipyard Flensburger Schiffbau-Gesellschaft and introduced his own management along with an innovative financing system to attract orders for feeder containerships. The yard was later sold.

“Henning has been at the helm over 30 years and has made mistakes,” the source says. “But he knows it and he has learned also from others’ mistakes.”

“His company is absolutely industrialised. The technology is absolutely state of the art.”

The source, who says he has been involved in previous Oldendorff Carriers’ projects, says Oldendorff has good lieutenants — some of the “best people in the industry”.