Interview with Martin Haugaard, Benny Andersen and Stephen Schueler, of the European Maritime Finance A/S (EMF)

28 Nov Interview with Martin Haugaard, Benny Andersen and Stephen Schueler, of the European Maritime Finance A/S (EMF)

In exploring the ever-evolving dynamics of the maritime finance sector, EMF has been a prominent player over the past decade. Could you provide a snapshot of the changes, trends, and evolutionary shifts you have witnessed, and how has the company positioned itself amid these transformations?

Martin Haugaard: I founded the company in 2014, and ever since we have been focused on investing in three key sectors: transport within our PCTCs (pure car, truck carriers), the product tanker market, and also into dry bulk carriers. Since we started out, the backbone of our strategy has been setting up SPVs (special purpose vehicles) that allowed semi-professional investors to participate in shipping investments, which were previously the preserve of big ship owners already in the market, as well as big pension funds and other entities that are able to raise at least half a billion dollars at a time. We allow smaller professional investors to participate in our investments in these projects for as little as $150,000.

Part of the transition are new regulations that have been introduced and enforced by the International Maritime Organization (IMO) over the past decade. As such, we have spent the past five years replacing our old fleet. There are a lot of ship owners out there that are very good at buying vessels, but not very good at selling them when the time is right. As fund managers, we are not depending on commercial and technical management fees and as such, we can exit a market when we think it is high and enter other sectors when we find them attractive to invest in This strategy have surely been a key factor behind our consistently good track record, along with discipline and prudence. We sold assets when we saw a good opportunity, left markets when we thought it was a good time to exit, and entered new ones when we saw it was a good time to buy.

EMF has achieved notable growth milestones and established a strong presence in the Scandinavian region, including the majority of projects last year outperforming, and some even doubling their original targets in terms of return. Can you delve into the core activities of EMF and outline the strategic initiatives that have fueled its growth?

Martin Haugaard: We have always been very prudent and disciplined and lived up to our good reputation as fund managers. Our strategy is to achieve continuously good returns. There has been a lot of volatility in the market, but we need to ride out the storm when the market goes down and hold on to our assets and then sell them when the market trend is up. We manage risk by assuring we have enough equity to support any capital calls from shipyard or operating vessels which has enabled us to keep all our vessels without having any banks knocking on our doors when markets have been tough.

Most big ship owners do deals together, trading vessels, and pooling them. We are more diversified in our investment strategy, and we benefit from having a big client base in Scandinavia and Switzerland; that gives us a competitive edge in terms of being able to raise smaller and/or more equity from a wide spectrum of investors.

Benny Buchardt: I have close to 30 years of investment experience primarily with pension funds and real estate. EMF’s exceptionally strong track record is the result of Danish investment managers looking into the global market. I was the CEO of DEAS Asset Management and the CIO of PenSam Pension so my expertise in structuring funds and being a regulated fund manager surely will add value for EMF. I am very excited for the future ahead, especially as our main goal is to support the transition in the shipping industry towards a greener environment than it is today.  We have a huge potential in our global expansion’s plans.

Stephen Schueler: There are four things that differentiate us from the competition. First is a strong track record, which we are very proud of. Second is our people; Benny comes with an incredible background, but we also have people that have worked for the largest shipping companies in the world, like Maersk, Torm, Norden, and Hafnia, who have come together as a strong team. Third, is our global partnerships with ship builders, shipyards, and operators. And fourth is our focus on eco-class sustainability, which is very important to us and our investors.

Given EMF’s commitment and steadfast dedication to fostering collaboration across the marine industry with a strong emphasis on sustainability-focused investing, how does the company operationalize this commitment in its maritime investments?

Steve Schueler: To get the big picture about sustainability it is important to understand the IMO (International Maritime Organization), because it is really the foundation of the change in the industry. When the Titanic sank, there was a realization that there were no rules covering the provision of life jackets and/or lifeboats. So, they created an organization that by 1948 had grown into the IMO with a permanent home at the United Nations. The head of the IMO is also a formal minister of the United Nations and there are 185 countries that are members. 100% of all laws and regulations [for maritime trade] come from this one organization.

The IMO is currently undergoing two big global changes. Firstly, there are 51,000 registered ships in the world, which carry out 90% of global trade. This year, for the first time ever, every vessel in the world will get a grade, from A to E (A being the highest), to indicate the progress they are marking towards lowering their carbon footprint, the goal being to have the most fuel-efficient vessels possible.

The second major change is that, for the first time ever, the EU is now making it mandatory to purchase carbon credits for carbon that is emitted while in EU waters. Year one of that transition is this year, with that mandate covering 40% of emissions, which will rise to 60% next year, reaching 100% by year three. Thus, the pace of change in the maritime industry in the last three years is probably the equivalent of the last 50 years. It is a massive, global transition, and we are part of it. All our recently acquired assets are fuel-efficient, eco-class, state-of-art technology, A-rated vessels, and we pride ourselves on helping to lead the industry’s transition to greener and cleaner fuel in sustainable shipping.

All 185 countries in the IMO get an equal vote in decision making. The US has one representative, as does Denmark. They attend all the IMO’s meetings at their offices in London I am listed as a formal advisor for the IMO, so I can attend the meetings in my capacity as an expert on fuel, which gives us first-hand knowledge of what is happening with the different committees, and what new fuels are being used, for example. There is a massive transition to new fuels now, including methanol, ammonia, and green biofuel, and the IMO gives us insight into what new fuels are being considered. The vessels that we are currently building can run on a variety of new fuels, which will make for an easy transition away from emissions-heavy fuel.

With the US market presenting distinct challenges and opportunities, could you share insights into the unique aspects that make the US market appealing for EMF? How does the company navigate the intricacies of this market?

Martin Haugaard: We are currently setting up a representative office in New York with our EU cross border license from the Danish FSA, targeting /family offices, and institutional investors. We also have a 100% green shipping fund that have zero carbon footprint. We expect to launch the fund within the next few months and to be in the size of $5-8 billion. That will be a significant milestone for us as it will be the world’s first 100% green shipping fund.

It really shows our commitment to be frontrunners in supporting the green transition within the industry. We can also – through independent banks and others – have green bonds issued which would give us a lower financing cost than traditional bank loans and as such, lower our operating cost for each vessel.

Before the financial crisis there were more than 900 shipping yards in the world. Today, there are only around 350 fully operational. So, one of our main challenges is the global ship-building capacity. It is hard to obtain new vessels within 3-5 years of ordering them, which reflects pressure on the capacity of the world’s shipyards. Some shipyards have subcontracted certain parts of the work to sub-contractors because they simply do not have enough qualified employees to do it at their own facility.

How have strategic partnerships and collaborations contributed to the success and sustained growth of EMF, especially in creating bridges between shipowners and professional investors seeking to capitalize on the cyclical characteristics of the maritime world?

Martin Haugaard: We have been working with Atlas Maritime, a very well-known shipping family based in Athens. Leon Patitsas, CEO, is the great grandson of Captain Lemos,who ordered the first steam vessels back in 1913 and he also had one of the Liberty Vessels from the US after WWII, like the Onassis family and other big shipping families in Greece. We have built our track record together with Atlas Maritime and we highly appreciate our combined interest, trust and partnership.

Atlas Maritime is our commercial and technical manager and have typically owned up to 50% of all our investments throughout the years. This commitment and hands-on approach reassure our investors. At EMF, we have also invested 75% of all our performance fees in 2023 in our own projects to show our clients we believe in all the commercial decisions we are executing. It has been a very successful partnership, and we work 18 hours a day to assure it will continue the next decade during our transition and that we will support a greener shipping industry.

How do you envision EMF shaping the evolution of the maritime finance sector, especially considering industry trends and emerging opportunities?

Martin Haugaard: We want to ensure that we are the frontrunners in the shipping industry’s green transition. That is why we are focusing investment into green projects, while having big expectations for our new, upcoming 100% green shipping fund. The speed of the transition is something we must consider. During the transition to steam vessels back in 1913, it took almost 40 years before the last commercial sailing vessels ceased commercial operations.

As fund managers facing another big shift and the challenges that come with it, we want to ensure that our investors have continuously good returns. So far, we have had returns that exceeded expectations, and we are trying to maintain that trend throughout the green transition. We acknowledge the fact that this is a big challenge, and it might be that returns will be lower than our current ones in the beginning, but most of our investors will accept lower returns in the name of environmental sustainability.

What are your concluding remarks and final messages to the readers of USA TODAY?

Martin Haugaard: We are very excited and optimistic about entering the US market, where we believe that we have funds available to attract institutional investors. Our new 100% green shipping funds and other projects that we are launching in other maritime segments, like dry bulk, product tankers and PCTC`s, will ensure that we have the most eco-friendly, A-rated vessel available. The fact is that big oil majors do not want to charter old vessels if they do not have a A or B rating from the IMO and this goes as well for our PCTC`s. The world’s fleet today is old and must be replaced and we are exciting to take part in this transition.

Benny Buchardt: In Denmark, we know how to navigate in global maritime markets. One thousand years ago, the Vikings were the first to visit what is now the US. We still have a global perspective, and we have an organization that is very strong globally, thanks to the background of Stephen (ex-Maersk), Torben (co-founder of Hafnia, the world’s biggest product tanker company), investment professionals like me, and industry veterans like Martin. Denmark is a small country with a global outlook and perspective.

Steve Schueler: What differentiates us is our incredibly strong track record, a great team, strong partnerships, and our focus on sustainability.. Our hypothesis is that two rates for vessels will emerge: one for A- or B-rated vessels, and one D- or E-rated vessels. My former employers, Maersk, are now charging extra for A- or B-rated vessels. They are introducing a surcharge for advanced, eco-class vessels. We are seeing that change in the container industry first, but increasingly also at H&M and Ikea and some American companies that want to be part of the transition.

Martin Haugaard: They have introduced this surcharge because they are already running their first methanol-powered vessel, and methanol is very expensive now, more so than normal bunker fuel. This illustrates that clients are willing to pay a premium for cleaner shipping. We are expecting that renewable energy production will make clean energy cheaper, until it becomes even cheaper than current bunker fuel options today. The big question is how long it is going to take. But it is good to see that these matters are being taken seriously and that clients are willing to pay a premium to support the green transition.

They can carry 7,000 electric cars and the PCTCs can be fueled with ammonia, which is 100% green. These cars are collected from the manufacturer, in East Asia, for example, and transported on electric trucks to the port, then loaded on a car carrier running on green ammonia and taken to Europe where they are transported on electric trucks to the distributor and then directly distributed to the end users.

The vessels are designed and will be built as Dual Fuel PCTC intended for worldwide service (except polar waters), capable of carrying cars such as BEV [battery electric vehicles], FCEV [fuel cell electric vehicles powered by hydrogen], vans, buses, trailers, trucks, and H&H (High & Heavy) rolling cargoes, and they will be powered primarily by LNG.

They will be also assigned the class notation of Fuel Ready (ammonia) to signify the vessels will be ready to an extent for a future application of ammonia as an alternative propulsion fuel, and that the future alternative fuel design is examined and found to be in compliance with the rules for ammonia [in force at time of the shipbuilding], and the ship’s main engine is of a type that is approved to be converted to ammonia or ammonia dual fuel. This enables us to market and support green infrastructure within this segment moving forward.