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Ted Jadick on Hanjin and Global Shipping (Audio) · Bloomberg Intelligence

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  Speaker 1: You're listening to Taking Stock with Kathleen and Pim Fox
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  Speaker 1: on Bloomberg Radio the bankruptcy of the world's largest shipping
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  Speaker 1: container shipping company, han Jin, and what it means for
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  Speaker 1: the global economy and for the shipping industry itself. Here
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  Speaker 1: to tell us more is Ted Jaddick. He is managing
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  Speaker 1: director and chief executive as well as president of d
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  Speaker 1: NB Markets. He is also the chairman of this week's
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  Speaker 1: New York Maritime Form. Ted, thanks very much for being here,
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  Speaker 1: my pleasure. Thank you. Now just to mention that d
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  Speaker 1: n B is Norway's largest financial services group, right it's
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  Speaker 1: and it's one of the largest in the whole Nordic region.
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  Speaker 1: Tell us about what has happened in the shipping industry
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  Speaker 1: and in financing the shipping industry since the bankruptcy of Hunjin,
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  Speaker 1: the South Korean shipping company. Well, I think bankruptcy is
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  Speaker 1: is obviously a dramatic event, um, I think the forces
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  Speaker 1: driving the financing of the shipping business have been in
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  Speaker 1: place well before that bankruptcy. Uh and in in in short,
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  Speaker 1: that is a a a a more constrained environment for
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  Speaker 1: for shipping companies looking to raise financing, whether it's from banks,
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  Speaker 1: whether it's from capital markets. UM. Shipping has traditionally been
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  Speaker 1: a privately owned industry and and most of the capital
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  Speaker 1: has come from the from the from the commercial banking sector,
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  Speaker 1: a lot of it concentrated in Western Europe in the
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  Speaker 1: Nordic region UH and then the private the owner's private
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  Speaker 1: private checking account. UM. Capital markets are becoming more much
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  Speaker 1: more active. Shipping companies are coming to the capital markets
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  Speaker 1: more regularly, so you now have a number of listed
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  Speaker 1: companies who would be you know, using the typical instruments
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  Speaker 1: that the public markets would would be able to offer UM.
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  Speaker 1: But generally speaking, with tighter capital controls on banks, requirements
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  Speaker 1: for for higher capital levels and shipping generally modeling out
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  Speaker 1: in most banks models as a as a higher risk industry.
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  Speaker 1: UH that that's constraining the amount of bank capital that's
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  Speaker 1: available for the for the industry. The public markets have
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  Speaker 1: been a little bit less generous lately valuations have have
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  Speaker 1: come off. That's really sector specific and due to specific
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  Speaker 1: factors in those sectors. So generally a more constrained environment.
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  Speaker 1: What what the bankruptcy of Handgin will do, UM will
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  Speaker 1: create a lot of dislocation in in in that particular market,
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  Speaker 1: UM ships get arrested. UM shippers have goods on these
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  Speaker 1: ships that are expected to be in ports all over
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  Speaker 1: the world by certain deadlines. It's a very tightly scheduled
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  Speaker 1: industry that will that will create a lot of headaches
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  Speaker 1: for people who who have their goods on hangine ships. UM.
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  Speaker 1: Whether this will lead to some further consolidation in that sector,
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  Speaker 1: time will tell whether the Korean government wants to find
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  Speaker 1: a way to fashion a solution to keep the company afloat.
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  Speaker 1: We'll see unintended, I'm sure keeping the company afloat, But Ted,
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  Speaker 1: I just have to ask you, Uh, is this is
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  Speaker 1: sort of you know, it's it's like developers of houses
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  Speaker 1: boom time everybody builds, they don't care about who's going
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  Speaker 1: to buy the market because they just want to sell
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  Speaker 1: their house. Was there just too much shipping capacity? And
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  Speaker 1: is this actually sort of an an inevitable outcome and
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  Speaker 1: this kind of shakeout will leave the industry on a
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  Speaker 1: sound or footing? Uh, definitely, it is a common problem
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  Speaker 1: with shipping. Shipping. Shipper ship owners managed to shoot themselves
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  Speaker 1: in the foot by building too many ships in the
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  Speaker 1: good time, and and of course it takes to two
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  Speaker 1: years generally to deliver a new ship, so so by
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  Speaker 1: the time that new ship comes, the market conditions have
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  Speaker 1: have often changed. In the container shipping market. Where Hansine
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  Speaker 1: is is that that's their sector. There's been a tremendous
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  Speaker 1: growth in the amount of tonnage been ordered by by
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  Speaker 1: all of the major liner operators, and they've been not
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  Speaker 1: only ordering more ships, but they're ordering bigger ships. Uh so,
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  Speaker 1: so the capacity that has been added to the market
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  Speaker 1: has been considerable. UM. Hand engine going into bankruptcy. The
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  Speaker 1: unfortunate thing about shipping companies going bankrupt is that the
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  Speaker 1: vessels don't go away, and the vessels are what creates
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  Speaker 1: the extra capacity. So where those vessels will end up,
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  Speaker 1: unless they end up in a scrap yard, UM, will
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  Speaker 1: not necessarily alleviate the capacity issue. You mentioned the market
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  Speaker 1: conditions when it comes to the container vessel industry. Of course,
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  Speaker 1: there is also the dry bulk shipping industry. Give us
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  Speaker 1: your take there. I'm relatively optimistic. On the other this
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  Speaker 1: is hauling things such as coal, is coal, iron, ore grain,
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  Speaker 1: Those of those would be the three three major dry
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  Speaker 1: bulk commodities Pam. Um, I'm relatively more optimistic. UM. Why
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  Speaker 1: is that it's been through a terrible period. UM. What
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  Speaker 1: that is meant is that owners have basically stopped ordering
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  Speaker 1: new ships. UM, the growth in demand continues. China had
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  Speaker 1: been the main driver for many years. The market peaked
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  Speaker 1: in kind of the mid two thousand's five six into
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  Speaker 1: early seven, as China began consuming less of the of
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  Speaker 1: the that type of commodity, kind of shifting their their
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  Speaker 1: economic growth model. UM, demand did come off. The owners
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  Speaker 1: had built an anticipation of that continuing. UH. So you
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  Speaker 1: had for a number of years a a a big
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  Speaker 1: overhang of ships. Now that now that ordering has really
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  Speaker 1: slowed down or almost stopped, you know that that overhang
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  Speaker 1: continues to diminish, and we've seen demand continue strong and growing.
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  Speaker 1: In two thousand sixteen, Chinese production of iron orange coal
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  Speaker 1: is relatively much higher priced than world other major producers
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  Speaker 1: and of a lower quality. Uh. China was willing to
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  Speaker 1: subsidize those domestic producers for a longer period of time
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  Speaker 1: that I think many had had expected they would. That
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  Speaker 1: now seems to be clearly coming to an end, and
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  Speaker 1: so domestic production of those commodities in China is off,
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  Speaker 1: but their demand continues to grow, which ovily obviously helps
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  Speaker 1: the import side. We've got about just twenty seconds or
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  Speaker 1: so here tell us about the New York Mirror Time
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  Speaker 1: Forum this week. Pretty big deal. It is a big deal.
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  Speaker 1: I've been leave. It's the seventh or eighth that Capital
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  Speaker 1: Link has sponsored. This is our first year working with
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  Speaker 1: Capital Link to to sponsor this event. Um. It is
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  Speaker 1: an event that we'll both look at the global shipping
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  Speaker 1: industry and where it's standing, so we'll have panels of
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  Speaker 1: ship owners and financiers and analysts. But it's also very
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  Speaker 1: much focused on New York as a maritime center, so
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  Speaker 1: there'll be a number of panels focused on those types
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  Speaker 1: of topics as well. We're excited about it. Well, good
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  Speaker 1: luck to you and congratulations Ted Jaddeck Managing Directors, CEO
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  Speaker 1: and President of d n B Markets and he's chairman
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  Speaker 1: of this week's New York Maritime Forum. I'm Kathleen Hayes
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  Speaker 1: along with Pim Fox on taking Stock. This is Bloomberg