Monday, July 8, 2013

The Shipping Man

Value investor Monish Pabrai recommends The Shipping Man, for those looking to learn about the shipping industry. It's a novel, unlike the vast majority of the books profiled on this site, about a hedge fund manager who knows nothing about shipping, but learns the ropes through both counsel and by experience. This setup frequently reminded me of The Goal, an operations management novel which I highly recommend.

The Shipping Man offers as much info about shipping as it does about how *not* to manage money. The protagonist makes purchasing decisions while drunk, invests for the short-term and to look better than his peers, and keeps the best investments for his personal account, to name just a few of his transgressions.

If you're a total beginner to the shipping industry, you are likely to learn a lot from this book. While I'm by no means an expert on the industry, however, I'm not sure I learnt much of anything new (apart from some shipping operations terminology and procedures). I looked at a few shippers after their stock prices crashed in 2009, though I never pulled any triggers, for various reasons including high debt loads, capex commitments, customer concentration combined with lack of transparency of customer ability to follow through on commitments etc.).

As a result, many of the book's lessons about the shipping industry seem obvious to me, though they may not be obvious to someone who hasn't investigated this industry before. Some of these lessons include:

- prices (i.e. charter rates) are highly volatile
- costs are rather fixed, so downturns result in losses
- there are long lead times for new supply (new-builds)
- the best times to buy are when rates are low and therefore cash flow is likely low to negative

There are, of course, a number of more subtle lessons throughout the book's 300+ pages, but I'm not looking to write a summary here. The writing is rather simple, making The Shipping Man a quick read if you are so inclined.

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