EuroDry and EuroSea: Global Pure Play Shipping Companies

While the challenges of going public are myriad, Aristides Pittas, CEO of Nasdaq listed EuroDry and EuroSea, feels vindicated by the results, while stressing the need for global solutions under the IMO’s leadership to address incoming environmental regulations.

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GIG: Your family has a very long tradition in the shipping industry that goes back more than 130 years, ranging from drybulk and container shipping across to ship management. Can you tell us a little bit about the history of the business?

Pittas: The family business started with my great grandfather on the island of Chios, where we originate from. We started with sailing ships built in Chios that were manned by family members, and then traded within the Black Sea and the Mediterranean area.

The business was passed down from my great grandfather to his children. Of the five boys, four of them became captains, including my grandfather, while the fifth one became an engineer.

Although each brother owned and ran his own ship, they all cooperated and worked together. And in doing so, they formed one of the first ship management offices dedicated to the simultaneous running of multiple vessels, with my grandfather – who was the youngest – being based at the office and responsible for overseeing the management of the different ships.

This constituted one of the first efforts to create an office dedicated to the management of a shipping business. Before this it really was just one captain, his extended family, and friendly villagers with one boat trying to make a living.

Fast forward several years and my grandfather and his brothers had a fleet of six or seven ships when World War II broke out. However, they lost everything during the war; one of the ships was even taken over by the Germans and later bombarded and sunk by the Allies at the island of Milos. Many of the crew, who were people my grandfather had employed from the Island of Chios, lost their lives.

After the war, my grandfather – with the assistance of his sons – set out to rebuild the business. The family company was able to restore itself and after a time its headquarters were moved to London. The company was managed from there by my father, his brothers, and his cousins and was called Chios Navigation.

I came into the picture gradually. It was 1985 at the time, I was very young, and had recently finished my university studies. And although I was supposed to join the family business, the shipping industry was undergoing a huge crisis. I was told, “Don’t work with the family, we will probably go bankrupt.” The reality is that for every successful Greek shipping company, there are so many others that have failed. So, I worked at the Elefsis Shipyards in Greece for a couple of years, but eventually found my way back to the family business.

Eurobulk was created in 1995 with my two brothers and a first cousin, along with the support of my father and his brothers. EuroBulk is the management entity that runs the businesses and holds all the people and talent. We started off managing two vessels and by 2005 we had reached nine vessels which were majority owned by our family.

In 2005, I decided to take our shipowning interests public in the United States on the Nasdaq. So we formed EuroSea and transferred all the ships – drybulk and container vessels – that we were managing at the time under EuroBulk to this new company.

GIG: The Greek shipping industry is typically known to follow a traditional, family-oriented model. Going public seems like it would make you very much an outlier within the sector. What drove you to make this decision?

Pittas: I think globalisation and the realisation that the world is becoming smaller is what drove me to take the company public. Shipping is a very capital intensive industry with success being highly dependent on a company’s access to capital; you need to find the right partners. I also had the ambition of taking the family business to the next level bearing in mind that, at the time, I was managing anywhere between two to ten ships.

While I tried to find partners in Greece, when I came across the public company model, through which you raise money from investors who don’t want a huge say in what is happening and simply trust what you’re doing, I decided this was the way to go.

Ultimately, the decision was driven by a combination of my ambition and the realisation that creating a bigger company could maximise returns to our investors. It seemed like a step towards the future. I feel vindicated by the result.

GIG: After going public with EuroSea in 2005 you decided to spinoff EuroDry in 2018, effectively separating your container and drybulk ships into different listings and targeting two distinct investor groups. How do you assess the results of this move so far?

Pittas: When we joined the Nasdaq in 2005 with EuroSea, the company had both dry bulk and container vessels, and there were several other companies trading on the stock markets with mixed fleets. Initially, this was the right move because shipping was not a sector that U.S. investors were very familiar with at the time; they viewed all segments of the industry as one. But as time passed and they began to understand the business, investors realised that drybulk, container, tanker, and cruise shipping were very different things and they became more specific with their requirements.

Therefore, in 2018 we spun off our drybulk vessels from EuroSea and formed EuroDry which we also listed on the Nasdaq. This proved to be the right move. The day we completed the split, the combined market capitalisation of both companies increased by 50 percent the very next day. This confirmed the fact that the market was ready and wanted to have sector-specific companies.

As a fringe benefit, the decision has made the management of both companies a lot easier. One of the biggest issues we had at a board level, at any point in time, was deciding whether to concentrate resources on the container sector or the drybulk sector. As both sectors never moved in tandem our stock valuation was always negatively affected by the sector that was underperforming. So, valuations were low and decisions were a lot more difficult. Now, by dealing with pure play companies things are much clearer and, most importantly, investors now understand the company strategy.

Port of Piraeus, Greece Copyright: Aerial-motion / Shutterstock.com

GIG: In retrospect, what are some of the challenges you’ve had to overcome since you took the company public? Do the benefits outweigh the drawbacks?

Pittas: Going public means being public, and everything you do is seen. So, you lose your privacy, which is a disadvantage and a challenge for those who don’t feel comfortable being in the spotlight. There are a few private Greek shipping companies that are much bigger than us, nobody knows who their owners are, yet they are doing very well.

The second disadvantage is that there are higher costs involved in running a public company: From the cost of the board of directors to investor relations across to accountancy and legal fees. Accountants are paid anywhere from three to ten times more than they would be paid for doing the same job for a private business due to the high amount of scrutiny that listed companies are subject to. So too are lawyers.

But on the other hand, you get access to capital, which is what helped us grow from the seven ships we controlled before we went public to the 27 ships we own today. So, it did assist our growth tremendously.

Additionally, the transparency of running a public company is welcomed by banks and financiers, while being public also makes you more disciplined in managing your own company, and this is a big advantage.

GIG: Given the fragmented nature of the industry, do you believe family structures can withstand the pressures of international competition in the current landscape?

Pittas: There are some very strong private Greek shipowners who, independently, control a huge number of vessels and enjoy all the benefits of economies of scale. But on the other hand, in Greece alone there are about 700 shipping companies, of which at least 500 only own one to three ships. I believe it will be very difficult for these companies to compete in the future if they stay private or fail to go down the consolidation path.

The costs of running a shipping company are huge. You need technical know-how, which comes at a high cost. And while I don’t believe a company needs 100 vessels in their fleet to be able to gain all the economies of scale available, they do need approximately 10 ships to compete with bigger players on an equal, or close to equal, footing.

GIG: Both EuroSea and EuroDry are registered in The Marshall Islands. However, the management side of your business has remained in Greece. Why is this?

Pittas: We’ve seen shipping nations rise and fall. Greece is atop at this point, a position I hope we will retain for quite some time. We were lucky because globalisation occurred at a time when Greece had developed into a major shipping power, which is why I feel confident in Greece’s medium term future.

We are leveraging comparative advantages wherever we can find them: Capital is more plentiful in the United States, so we’ve veered to the U.S. for capital; the cost of repairing a ship is cheaper in China, so we’ve taken our ships to China for repair; the cost of manning our ships in Greece is a lot more expensive than it was 50 years ago so we set up an office in the Philippines and have Filipino crew.

In other words, a successful company must target the best resources and services from whichever country it can find within the global shipping business, and that’s what Greek companies are currently doing.

We would not have succeeded if we hadn’t internationalised in this manner. Captains like my grandfather decided to send their children to the best universities around the world to learn about shipping. So, my generation came back having studied in excellent universities, became citizens of the world, and chose to follow in our parents’ footsteps.

There are many competent Greeks in the shipping business. The country has a pool of talent to manage ships and we have a vast, well-educated young generation of people who can do so. I think Greek companies can continue to be at the forefront of shipping for quite some time because we have the talent needed to run the sector.

GIG: While there’s a lot of talent in the Greek shipping industry, there’s also a lot of space to enhance the overall competitiveness of the sector. How effective do you believe the recent liberalisation of the labour remuneration framework applicable to Greek flagged vessels will be in boosting the Greek shipping registry?

Pittas: We all feel pride in being Greek, and would like to see the Greek flag flying on the stern of our vessels as they approach ports across the world. But it has been difficult up until now, and there have been a number of obstacles, one of which was the requirement to have Greek crew on-board, even though this is something that there is a tremendous shortage of today. A relaxation of this condition – being able to source international crews and pay them international wages – is definitely a step in the right direction.

The second obstacle relates to bureaucracy and this can be overcome if the government authorities take the necessary steps to make it simpler and easier for shipowners to get all necessary approvals, following the example and best practices of foreign registries that now account for more than two-thirds of the Greek fleet.

The third aspect relates to continuity at a governmental level. We need assurances that these changes are here to stay and that we’ll have a stable environment.

I think the Greek Shipping Ministry is trying to devise solutions to all three of these obstacles, and once they’ve been achieved we will see the eventual reflagging of the Greek fleet with the Greek flag.

In fact, as a company, if we see that the reforms are working, are economically competitive, and don’t create issues on the operational side, I think the transition to having our ships raise the Greek flag could happen relatively quickly.

GIG: Are there any additional reforms you would welcome in the sector?

Pittas: There is one essential issue on the mind of every shipowner at the moment, which is: how are we going to comply with the incoming environmental regulations? This is an issue that doesn’t have a short-term solution. It’s very difficult to find a substitute for hydrocarbon-based fuels to propel shipping vessels, and there’s a lot of uncertainty about the future.

We don’t know what kind of ship we’ll need in 2030, which is only 10 years away. This makes it extremely difficult for companies to invest in the acquisition of new ships because they may be technologically outdated in anywhere between 10 to 15 years. A ship is built to last 25 years, which is the time needed for its amortisation and for a company to make a profit. A ship that is likely to become obsolete in 10 years is a very bad investment because you lack the time to recover the initial cost.

Besides being the most complex issue the shipping industry is facing, there are many side issues that stem from it. For example, is there going to be a carbon tax on ships’ emissions? And will this be a universal regulation or only apply to the EU?

Ships have transitioned from using high sulphur fuel oil to low sulphur fuels and this is something we are more than happy to comply with, and a small step in the right direction. We are participating in discussions as much as we can, following developments, and of course, always complying with new regulations whilst hoping that at some point shipping will become emission free but unfortunately there is still a long way to go.

We are hoping for global solutions under the IMO’s leadership so that we can establish a level playing field across the world.

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