A conversation with Riccardo and Emanuele Ravano, respectively President and CEO of IFCHOR
IFCHOR is an international shipbroking company based in Lausanne, Switzerland with a network of 12 offices in Asia-Pacific, Europe, Middle East and the USA. I asked Riccardo, the founder of the company, how it had all begun.
I come from a ship owning family. I started in the shipping business in 1964 at the age of 20, in Genoa, Italy. In the 1970s, politics in Italy began to get really bad, even dangerous. Many of my clients began to move abroad, and in 1976 I decided to follow them. I looked originally at Monaco and then at Geneva. I had a friend who told me that there was a one-room office for rent in his building in Lausanne. I took it.
I started on my own at first with a secretary—who by the way is still with the company 42 years later! Over the years we expanded from one room to two floors…but we remained in the same building!
And Manu, when did you join?
Ours is a family business, so I joined when I was born! I officially started working in 2002, just before the freight super-cycle, which lasted about five years between 2003 and 2008.
How big is the company today?
Today we are about 180 people around the world. I would say we do between 3,000 and 4,000 transactions a year throughout our various offices and segments. We have never calculated the amount of tonnes that equates to, but perhaps we should. It could be good marketing!
Do the big trade houses each have a shipping department?
All of them do. Over the years they have developed bigger and bigger departments. Forty years ago they might have had one guy chartering vessels on a voyage basis, but now they all have separate departments with P&Ls that can reach tens of millions of dollars.
Manu, that’s one big change in the past 40 years. Are there others?
The most important change in the past 40 years has been the development of the market in Forward Freight Agreements, FFAs. These now trade every day in thousands of lots, allowing operators to hedge their freight needs. The FFA market has traditionally been an OTC (Over The Counter) market, where counterparties enter into direct agreements with each other. It is still an OTC market, but since the crash of 2008 all FFAs are cleared either in London or Singapore.
FFAs are closely linked to the physical shipping business. It is the physical shipping market that determines the FFA prices, not the other way around.
Any other changes?
Shipping transports 90 percent of the goods in the world. At the same time, the sector burns only 7 percent of global oil consumption. Shipping globally contributes only 3 percent of the GHG emissions in the world.
Recently, the IMO took a major step to implement—as of January 2020—new regulations to ensure a targeted 20 to 30 percent reduction in GHG emissions, to be achieved principally through the use of low sulphur fuel.
Could LNG be used as an alternative low emission fuel?
There is a currently lot of discussion around LNG fuelled ships, but for the moment the technology is pricey and it is difficult to justify economically. Some charterers may be willing to pay more to charter LNG fuelled ships for environmental reasons, but trading margins are currently so thin that it is unlikely that trading companies could do so and remain competitive. There is also a question of LNG supply at the ports. It is not easy to organize globally. There is a risk of having LNG fuelled ships being stranded.
So how could the industry reduce emissions further?
I think it will be a contribution of many things. There might be some sails that work. There might be some solar power as well. There might be some electric contribution to the engine. It will be an evolution that will take another 10 to15 years before we reach a point of having the right mixture of technology.
What’s the average lifespan of a ship?
That is another thing that has changed significantly over the past 40 years. When my father started in the business, the average lifespan of a cargo vessel was 25-30 years. Today, it is more like 15 years, especially when you look at all the new regulations coming.
Remember though, that some ships are well maintained and safe for carrying grain, even at 25 years old. Others are less well maintained and are a problem at 12 years old. We know which ships are well maintained, and which ones aren’t.
Where is innovation likely to come from in the future in the industry?
Shipping is facing the same challenges as those faced by commodities. Technology has made communication fast and seamless in both chartering and trading. This has led to thinner margins. As a result, traders are seeking economies of scale and shipping is evolving with bigger and bigger ships. Port infrastructure is also adapting to accommodate these bigger ships.
I wouldn’t say it’s a challenge. It’s a reality. We have to adapt to a world that is faster and bigger.
Thank you Riccardo and Emanuele for your time and input.
© Commodity Conversations ®
This is a short extract of the conversation that will be published this autumn in my new book on the grain business.