Interview with AL Group
The German shipowner AL Group has a history of more than 150 years and has achieved steady growth by overcoming the waves of shipping booms and downturns with a skillful investment strategy. We interviewed the top management of 2 core operating company of the group, Mr. Nicolaus Bunnemann, Managing Partner of Atlantic Lloyd (headquartered in Hamburg) and Mr. Friedrich Bunnemann, Managing Partner of Asiatic Lloyd (headquartered in Singapore), about their growth strategies as ship owners.
--The history of the AL Group
We, the Bunnemann family, started our shipping business in 1857 as a partner in the Bremen ship agency Herm. Dauelsberg. In 1887, we acquired all the shares of Herm. Dauelsberg and that was the origin of the AL Group.
After that, for many years our main business was liner agency, but in the 1980s, as major operators began to engage in agency business on their own, we changed our business model and focused on ship owning. We, twin brothers Nicolaus and Friedrich, are the fifth generation.
--The composition of the AL group
The two core companies under the holding company AL Capital Holding are Asiatic Lloyd (founded in 2008 in Singapore) and Atlantic Lloyd (Founded in Hamburg in 2014). Both companies undertake ship investment and ship management and together employ about 50 experienced commercial, technical, engineering and accounting personnel. In the area of crewing, we have a pool of about 1,000 seafarers, and we are working to secure and train qualified seafarers through a long-term partnership with the Magsaysay Group, a leading human resources company in the Philippines.
The chartering of our containership fleet is outsourced to Hanseatic Unity Chartering (HUC), a joint venture of four German shipowners including AL Group. HUC is responsible for the commercial management of over 100 containerships and provides business intelligence functions.
--The current status of the fleet
We have 43 vessels in our fleet, including 12 newbuildings on order. The majority of the fleet is registered in Singapore. The breakdown of existing vessels is 18 container vessels in 1,100-6,000 TEU class, 7 bulkers in 57,000-93,000 DWT class, and 6 MR and LR2 product tankers.
Our newbuilding orderbook consists of six 7,100-TEU containerships from Dalian Shipbuilding Industry and six MR product carriers from Hyundai Mipo Vinashin Shipyard. All twelve vessels will deliver in 2023 and early 2024.
--Investment policy
In principle, we have a conservative fund-raising policy, keeping leverage low and investing about 40% of our own funds when placing newbuilding orders.
On the other hand, we are opportunistic when it comes to investment timing. For example, when ship prices fell sharply in 2016-17, we purchased about 20 containerships from the secondhand market and financial institutions, expanding our fleet at the fastest pace in our history.
By contrast, in the high market since 2020, we have been selling smaller, older container vessels at high prices and using the proceeds to diversify our fleet. Specifically, we have been buying used post-Panamax bulkers and product tankers in parallel with the newbuilding orders.
An important part of our business philosophy is to always be conservative with respect to costs. In the last 15 years, our containership business has only recorded a loss in 2016, when the market slump forced us to write down the value of our containerships. For the remaining 14 years, we have remained profitable."
-- The 7,100 TEU class containerships have high flexibility in covering both long-haul and intra-regional routes.
7,100 TEU class vessels on order will replace many older Panamax class containerships in the future. Currently, about 120 vessels are on order worldwide, most of which will be completed by 2024. We took the lead by ordering six vessels in the 1st quarter of last year, with an early delivery date of 2023-24. We have not yet secured TC-out contracts for those newbuildings, and we would like to fix them before the first ship in the series is delivered in May next year.
--Policy on TC-out period for owned vessels
We make decisions flexibly according to the market. Basically, during periods of market slump, we enter short term contracts and wait for the market to recover. For example, TC-out contracts concluded two to three years ago, when the market was in a slump, were for a maximum of one year. On the other hand, during periods of soaring market conditions, we focus on long-term charter contracts of three to five years to secure a high level of stable income.
--Business development in Japan
We are currently developing business with three Japanese shipowners for long-term time charter of Kamsarmax newbuildings in Japan. Two ships have already been delivered.
In 2019, we conducted the first sale and leaseback through JOLCO (Japanese operating lease with purchase option) for our existing ship. We are open for structured finance in Japan.
In the past, we German shipowners were financed mainly by German financial institutions. However, due to the financial crisis that began in the fall of 2008, German financial institutions have almost completely stopped providing ship financing. This meant that we had to establish new relationships with other European banks, such as those in France, Denmark, and the Netherlands.
This major change taught us an important lesson: the high risk of relying on a limited number of financial institutions. Many of Japan's traditional shipowners and financial institutions are willing to provide us with the long-term, trust-based financing we seek.
-- How did the AL Group overcome the recession after global financial crisis?
The long-term charter contracts for large vessels that we concluded during the boom years covered the losses of other vessels. The low debt ratio of our vessels was also a big support for our cash flow.
In addition, we remained a pure shipowner without getting involved in the KG business. Our father avoided having high-cost vessels during the boom period around 2005 by suspending newbuilding order due to high ship prices. It is exciting to invest in a high market, and there is pressure to hold back when other companies are placing orders all over the place, but it is important to remain cost-conscious and we should be always disciplined.
In the past decade, many German shipowners have disappeared. Around 2010, when the KG business was thriving, German shipowners had 3,500 vessels in their fleet, but now the number has declined to around 1,500. The number of medium and large-sized German shipowners has also declined from 40 in the past to only 10-20 today.
--How to reduce GHG emissions
All the six new 7,100 TEU containerships and six MR-type vessels on order will be the most economic vessels of their kind when they deliver. They are being built as “ammonia-ready” in practice meaning retrofitting for ammonia in the future is taken into consideration in their design and construction today.
We are a large shareholder in Norwegian shipping company Gram Car Carriers, who have recently assisted us and a group of other investors to order a series of LNG-fueled car carriers.
We believe there will be a mix of fuels used in the future so as well as LNG we are also looking at ammonia as a future marine fuel.
The next 5-10 years will be a transitional period for GHG reduction technologies for ships. CO2 capture and biofuels are also strong candidates, and retrofits will play a major role.