Ship-Operating Business Model: Simple Yet Complex
The business model of a ship-operating company is simple:
Charter in vessels from ship owners.
Charter out those vessels in the freight market.
Make more money in step 2 than you have to pay in step 1.
The business model is conceptually simple yet realistically hard to master, given the shipping industry’s volatile market.
Some ship-operating companies have been in the business for quite some time—like DS NORDEN (est. 1871) and Western Bulk (est. 1982)—and then there are newcomers, like Costamare Bulkers Inc. “CBI” (est. 2022).
CBI is a subsidiary of Costamare, one of world’s largest independent container shipowners, a great benefactor of the pandemic’s booming container vessel market.
Over the past two years, Norden and Western Bulk earned modest profits while CBI lost approximately $130 million of its $200 million capital commitment.
CBI’s business model had a few extra steps, compared to the typical ship operating model, which may help explain the incentives around their staggering loss:
CBI chartered vessels from shipowners.
CBI then chartered those vessels to privately owned agency companies (owner: Costamare’s Chairman and CEO).
The private agency companies deducted an address commission when they chartered the vessels from CBI.
The private agency companies reimbursed all expenses, plus an 11% mark-up to CBI.
The private agency companies then chartered the vessels out in the freight market.
In steps 2, 3, and 4, Costamare insiders stood to make money, regardless of whether they could successfully “buy low and sell high,” while the public shareholders only made money if the revenues in step 5 were greater than the total costs incurred in the previous steps.
Costamare recently reaffirmed their commitment to CBI, including taking steps to reduce the extra layer of fees, but CBI still has a long way to go to get back in the black.
