Greece - the Eastern Question revisited

An article in a current affairs magazine in the UK pointed out that although Athens is the birthplace of democracy, you need to look further east to understand the political culture of modern Greece. It has its roots in the Byzantine Empire, where autocracy and nepotism set the pace instead of democracy.

The same article also points out that 70% of Greek companies are family owned, they are not innovative as they employ family members and other close relatives. This certainly is the case in shipping. The Greeks may be the world's largest shipowners, but where is a Greek container shipping major, cruise line, vehicle carrier specialist or LNG carrier company? The Greeks are shining with their absence in these sectors, which demand quite a bit more than a technical office and a broker or two to keep your ships going.

It is no wonder that most Greek shipping comprises dry bulk and tankers, which are relatively simple operations. In all truth, here they excel and they have built a reputation of clever and shrewd businessmen that know exactly when to sell and when to buy.

Athens may have been the birthplace of democracy, but it has now become the birthplace of the most serious crisis that the European Union has met since its creation. It is interesting to notice how politics affect our thinking: as a EU and NATO member, it has become quite natural to think of Greece as a western country.

However, in the 19th century its fortunes were part of what was known as the Eastern Question - what to do with the crumbling Ottoman Empire. It seems that Greece retains far more links to the East than what most of us have tended to believe.

Uncertainty over NCL group's finances beyond 12 months' time

One of the two companies that own NCL Corporation (NCLC), which again comprises Norwegian Cruise Line and NCL America, warns that they are not sure that NCLC will be able to meet its obligations after a yeasr from here. That is a bit scary, but before proceeding, here is the actual text issued by Genting Hong Kong:

"We believe our cash on hand, expected future operating cash inflows, additional borrowings under existing credit facilities and our ability to issue debt securities or raise additional equity, including capital contributions, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next twelve-month period. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations."

Well, you could say that who can tell the future - apart from the so called climate experts, who do not seem to show any degree of humility when it comes to the reliability of their 100 year weather forecasts.

Anyway, the future of NCLC could turn out choppy after the next 12 months, for which the company has the financing in place to take delivery of Norwegian Epic and to meet its other financial commitments as well.

The development of the US economy, for which NCLC depends on more than the other three cruise majors, is obviously a crucial factor to get falling yields back to a rising track. Indeed, there is indication that the worst is over for the global economy, which bodes well for NCLC's efforts.

The NCLC fleet now comprises only modern tonnage, which has hardly ever been the case before, and the beefed up Freestyle Cruising concept has strengthened the image of the NCL brand by differentiating it clearly from competing offerings. That is good news too.

But if - and indeed this is just an if at this point - NCLC failed to honour its obligations some time after the end of 2010, what then? If comparisons drawn from container and dry bulk sectors of cargo shipping are anything like justified as they most likely would be, it seems highly unlikely that NCLC would go bankrupt even in a worst case scenario. Why not? Well, for the same simple reason that has kept many a troubled container line and dry bulk shipping company afloat despite the fact that they have breached loan covenants and missed repayments of debt.

Banks do not want to became shipping companies, nor would they want to turn to a cruise line. Consequently, should NCLC run into trouble in the future, the likeliest way out would be a rescue package, e.g. in the form of a debt to equity swap. This would give NCLC's financiers a significant, perhaps even controlling interest in the company. However, it could continue trading as normal and at some point, after some restructuring, the banks could quite simply sell their shares.

Unlike container and dry bulk shipping, the cruise industry is highly consolidated and there is no structural overcapacity, which is a major worry - probably for several years to come - in both of the two sectors of cargo shipping.

With a modern, harmonious fleet NCLC should be able to capitalise well on a recovery of the cruise industry. It would be a great shame to see the worst case scenario to materialise. Anyway, one more question remains: how come the NCL group has never produced strong ,consistent profits like its competitors? It has suffered from some kind of an issue for too long.

Introduction of the SS Norway in 1980 has been hailed as triumph, but I would say it was a mistake of strategic importance. Unlike Royal Caribbean and Carnival Cruise Lines, NCL was not able to build a consistent fleet until it axed the last obsolete ships last year. You have to learn to walk before you can run, a fact that both Royal Caribbean and Carnival understood, but which NCL failed to grasp. This had a crippling effect on its prospects for two decades.

Then, in the middle of the current decade, came the NCL America adventure that was the biggest strategic failure of any major cruise company in the past 10 years, if indeed not more. Lots of capital and other resources were pumped into a project that failed on almost every account, leading to dramatic downsizing of the NCL America brand to just one from three ships. This again took up further resources at the Miami headquarters.

All these are matters of the past now. Today, NCLC has a good fleet, a strong brand and these should provide it with a platform on which to prosper.

Baltic ferry companies need to reinvent themselves

In the Port of Vaasa on the west coast of Finland, an old and rusty hulk of a ferry is waiting for demolition. In fact, it should have been scrapped a long time ago, but the Indian owners of the hulk and the Finnish environmental officials have a dispute over what to do with asbestos that is on board.

That hulk, now called C Express, was built in 1966 as Fennia and operated by Silja Line until the early 1980s. In its early days, it was regarded as an exceptionally fine vessel: after all, passengers had a heated indoor swimming pool, sauna, hairdressing salon, cinema and supermarket among the facilities on their disposal.

Compared to modern ferries, it was small, just 6,179 gross register tons as built, and its 299 berths were hardly adequate even in those long since gone days to cater for a maximum of 1,200 passengers it could take.

Still, the designers of Fennia had created the nucleus of cruise ferry: the ship itself should be an aspirational destination in itself. Gradually, but not without outright steps backwards, operators such as Silja Line and Viking Line developed the concept further. Ships became larger and offeed more choice in terms of bars and restaurants, but cinema and hairdressing salon have disappeared a long time ago from the to do list availble for cruise ferry passengers.

It is not unfair to say that what cruise ferries in the Baltic have today, Fennia had already 43 years ago. It was a benchmark design. And it is also not unfair to say that the ferry industry should create another Fennia - a vessel that brings something genuinely new to the disaposal of the passengers. The current concept is based on wining and dining - and largely self service.

The Baltic cruise ferry business saw its peak in the late 1980s before a recession in Finland and Sweden early in the next decade combined with a huge expansion of capacity by both two majors led to a crash in ticket prices. The aftermath of Estonia in 1994 and gradual increase in other affordable forms of travel negated the ferries the possibility to regain the position in the eyes of the public they enjoyed 20 years ago.

Every industry and every company needs to reinvent itself at some point. The cruise industry did so about 40 years ago and it has maintained the momentum: innovation that started from small first-generation purpose built cruise liners of that time continues with giants like Oasis of the Seas that offer facilities unthinkable all those decades ago.

The cruise ferry business in the Baltic presents a striking contrast: since the late 1980s, new ships have offered nothing really new and the business model of wining and dining itself has become tired.

Royal Caribbean International has started to operate cruises in the summer from Stockholm and obviously by doing so grasps part of the better-paying business from the ferry companies. The time time has come for the ferry companies to look at themselves with a critical eye and to regain the innovative thinking that was their hallmark from the late 1960s to the end of the 1980s.

Otherwise, their offering will become an increasingly cheap commodity that drfts down market in the eyes of the travelling public.