WEBVTT - Ted Jadick on Hanjin and Global Shipping (Audio)

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<v Speaker 1>You're listening to Taking Stock with Kathleen and Pim Fox

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<v Speaker 1>on Bloomberg Radio the bankruptcy of the world's largest shipping

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<v Speaker 1>container shipping company, han Jin, and what it means for

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<v Speaker 1>the global economy and for the shipping industry itself. Here

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<v Speaker 1>to tell us more is Ted Jaddick. He is managing

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<v Speaker 1>director and chief executive as well as president of d

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<v Speaker 1>NB Markets. He is also the chairman of this week's

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<v Speaker 1>New York Maritime Form. Ted, thanks very much for being here,

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<v Speaker 1>my pleasure. Thank you. Now just to mention that d

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<v Speaker 1>n B is Norway's largest financial services group, right it's

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<v Speaker 1>and it's one of the largest in the whole Nordic region.

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<v Speaker 1>Tell us about what has happened in the shipping industry

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<v Speaker 1>and in financing the shipping industry since the bankruptcy of Hunjin,

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<v Speaker 1>the South Korean shipping company. Well, I think bankruptcy is

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<v Speaker 1>is obviously a dramatic event, um, I think the forces

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<v Speaker 1>driving the financing of the shipping business have been in

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<v Speaker 1>place well before that bankruptcy. Uh and in in in short,

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<v Speaker 1>that is a a a a more constrained environment for

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<v Speaker 1>for shipping companies looking to raise financing, whether it's from banks,

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<v Speaker 1>whether it's from capital markets. UM. Shipping has traditionally been

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<v Speaker 1>a privately owned industry and and most of the capital

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<v Speaker 1>has come from the from the from the commercial banking sector,

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<v Speaker 1>a lot of it concentrated in Western Europe in the

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<v Speaker 1>Nordic region UH and then the private the owner's private

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<v Speaker 1>private checking account. UM. Capital markets are becoming more much

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<v Speaker 1>more active. Shipping companies are coming to the capital markets

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<v Speaker 1>more regularly, so you now have a number of listed

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<v Speaker 1>companies who would be you know, using the typical instruments

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<v Speaker 1>that the public markets would would be able to offer UM.

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<v Speaker 1>But generally speaking, with tighter capital controls on banks, requirements

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<v Speaker 1>for for higher capital levels and shipping generally modeling out

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<v Speaker 1>in most banks models as a as a higher risk industry.

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<v Speaker 1>UH that that's constraining the amount of bank capital that's

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<v Speaker 1>available for the for the industry. The public markets have

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<v Speaker 1>been a little bit less generous lately valuations have have

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<v Speaker 1>come off. That's really sector specific and due to specific

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<v Speaker 1>factors in those sectors. So generally a more constrained environment.

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<v Speaker 1>What what the bankruptcy of Handgin will do, UM will

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<v Speaker 1>create a lot of dislocation in in in that particular market,

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<v Speaker 1>UM ships get arrested. UM shippers have goods on these

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<v Speaker 1>ships that are expected to be in ports all over

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<v Speaker 1>the world by certain deadlines. It's a very tightly scheduled

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<v Speaker 1>industry that will that will create a lot of headaches

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<v Speaker 1>for people who who have their goods on hangine ships. UM.

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<v Speaker 1>Whether this will lead to some further consolidation in that sector,

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<v Speaker 1>time will tell whether the Korean government wants to find

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<v Speaker 1>a way to fashion a solution to keep the company afloat.

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<v Speaker 1>We'll see unintended, I'm sure keeping the company afloat, But Ted,

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<v Speaker 1>I just have to ask you, Uh, is this is

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<v Speaker 1>sort of you know, it's it's like developers of houses

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<v Speaker 1>boom time everybody builds, they don't care about who's going

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<v Speaker 1>to buy the market because they just want to sell

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<v Speaker 1>their house. Was there just too much shipping capacity? And

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<v Speaker 1>is this actually sort of an an inevitable outcome and

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<v Speaker 1>this kind of shakeout will leave the industry on a

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<v Speaker 1>sound or footing? Uh, definitely, it is a common problem

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<v Speaker 1>with shipping. Shipping. Shipper ship owners managed to shoot themselves

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<v Speaker 1>in the foot by building too many ships in the

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<v Speaker 1>good time, and and of course it takes to two

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<v Speaker 1>years generally to deliver a new ship, so so by

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<v Speaker 1>the time that new ship comes, the market conditions have

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<v Speaker 1>have often changed. In the container shipping market. Where Hansine

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<v Speaker 1>is is that that's their sector. There's been a tremendous

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<v Speaker 1>growth in the amount of tonnage been ordered by by

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<v Speaker 1>all of the major liner operators, and they've been not

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<v Speaker 1>only ordering more ships, but they're ordering bigger ships. Uh so,

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<v Speaker 1>so the capacity that has been added to the market

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<v Speaker 1>has been considerable. UM. Hand engine going into bankruptcy. The

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<v Speaker 1>unfortunate thing about shipping companies going bankrupt is that the

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<v Speaker 1>vessels don't go away, and the vessels are what creates

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<v Speaker 1>the extra capacity. So where those vessels will end up,

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<v Speaker 1>unless they end up in a scrap yard, UM, will

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<v Speaker 1>not necessarily alleviate the capacity issue. You mentioned the market

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<v Speaker 1>conditions when it comes to the container vessel industry. Of course,

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<v Speaker 1>there is also the dry bulk shipping industry. Give us

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<v Speaker 1>your take there. I'm relatively optimistic. On the other this

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<v Speaker 1>is hauling things such as coal, is coal, iron, ore grain,

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<v Speaker 1>Those of those would be the three three major dry

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<v Speaker 1>bulk commodities Pam. Um, I'm relatively more optimistic. UM. Why

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<v Speaker 1>is that it's been through a terrible period. UM. What

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<v Speaker 1>that is meant is that owners have basically stopped ordering

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<v Speaker 1>new ships. UM, the growth in demand continues. China had

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<v Speaker 1>been the main driver for many years. The market peaked

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<v Speaker 1>in kind of the mid two thousand's five six into

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<v Speaker 1>early seven, as China began consuming less of the of

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<v Speaker 1>the that type of commodity, kind of shifting their their

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<v Speaker 1>economic growth model. UM, demand did come off. The owners

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<v Speaker 1>had built an anticipation of that continuing. UH. So you

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<v Speaker 1>had for a number of years a a a big

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<v Speaker 1>overhang of ships. Now that now that ordering has really

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<v Speaker 1>slowed down or almost stopped, you know that that overhang

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<v Speaker 1>continues to diminish, and we've seen demand continue strong and growing.

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<v Speaker 1>In two thousand sixteen, Chinese production of iron orange coal

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<v Speaker 1>is relatively much higher priced than world other major producers

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<v Speaker 1>and of a lower quality. Uh. China was willing to

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<v Speaker 1>subsidize those domestic producers for a longer period of time

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<v Speaker 1>that I think many had had expected they would. That

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<v Speaker 1>now seems to be clearly coming to an end, and

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<v Speaker 1>so domestic production of those commodities in China is off,

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<v Speaker 1>but their demand continues to grow, which ovily obviously helps

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<v Speaker 1>the import side. We've got about just twenty seconds or

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<v Speaker 1>so here tell us about the New York Mirror Time

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<v Speaker 1>Forum this week. Pretty big deal. It is a big deal.

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<v Speaker 1>I've been leave. It's the seventh or eighth that Capital

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<v Speaker 1>Link has sponsored. This is our first year working with

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<v Speaker 1>Capital Link to to sponsor this event. Um. It is

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<v Speaker 1>an event that we'll both look at the global shipping

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<v Speaker 1>industry and where it's standing, so we'll have panels of

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<v Speaker 1>ship owners and financiers and analysts. But it's also very

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<v Speaker 1>much focused on New York as a maritime center, so

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<v Speaker 1>there'll be a number of panels focused on those types

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<v Speaker 1>of topics as well. We're excited about it. Well, good

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<v Speaker 1>luck to you and congratulations Ted Jaddeck Managing Directors, CEO

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<v Speaker 1>and President of d n B Markets and he's chairman

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<v Speaker 1>of this week's New York Maritime Forum. I'm Kathleen Hayes

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<v Speaker 1>along with Pim Fox on taking Stock. This is Bloomberg