John Fredriksen: We enjoy a longstanding relationship with Cyprus

John Fredriksen, one of the biggest figures in the shipping industry, outlines the reasons behind Frontline’s redomiciliation to Cyprus, explains how current international affairs are challenging the industry, and shares his ‘gut feeling’ about the decarbonisation agenda.

Let’s start by talking about Frontline’s re-domiciliation to Cyprus. What drove this decision?

We enjoy a longstanding relationship with Cyprus – the Seatankers Management Company has operated from the country since 1986. Moreover, Cyprus is hugely attractive to shipping companies for a number of reasons, including the country’s highly educated and skilled workforce, its robust legal and regulatory framework with Cyprus being an EU member, the stable political environment, as well as its attractiveness to foreign direct investment (FDI). For example, Cyprus leapt 50 places in the 2022 Greenfield FDI Performance Index. The decision to redomicile Frontline was, therefore, a relatively simple one.

China’s departure from a COVID-zero policy is expected to have far-reaching implications for the global economy. How will that affect the shipping industry?

In 2022, with China’s COVID policy largely remaining in place, seaborne volumes to China accounted for approximately 37.4% (1.95 billion metric tons) of global dry bulk demand, while crude oil imports amounted to 23% of global seaborne volumes (508 million metric tons). So, the impact of a China ‘reopening’ on global shipping markets cannot be understated. As China continues to ease its zero-COVID policy, while continuing to reform its embattled property sector, this should naturally lead to bullish shipping. Although China’s economy delivered solid growth of 4.5% in Q1, it was notable that industrial activity lagged behind the consumer sector. We, like others, subscribe to 5%+ growth in Q2, crucially premised on increased infrastructure spending and a stabilising real estate sector.

The EU ban on all seaborne trade with Russia means that oil and fuel tankers, as well as dry bulk, will need to travel a lot further than before. What would be the effects of these longer journeys for shipping companies?

We have already witnessed an immediate impact in a number of areas, particularly in the tanker markets, where fleet utilisation has increased as vessels are required to commit to longer laden legs, in addition to finding themselves ‘out of position’ from an ordinary ballasting position – in simple terms, the freight market has become less efficient. This comes at the same time as a restrained orderbook – current yard capacity is simply not able to meet increased demand from other sectors. Finally, but importantly, freight indices have yet to fully address changing trade flows and this ultimately results in increased volatility in freight rates, given the ‘basis risk’.

It is expected that in the next two years, vessels on order will add some 7.8 million TEUs to global ocean trade – the largest orderbook in container history. How would that impact an industry that is still trying to achieve a sense of equilibrium following supply chain crunches?

While we have very limited exposure to the container sector, the orderbook has profound consequences for the wider shipping market. As I have already mentioned, residual orders in the container market have resulted in less yard capacity elsewhere while Chinese yards are already fully committed for 2025. Add inflation inputs such as labour costs, steel prices, and increased financing costs, and we have a firm resale market – we believe this trend will continue.

At the same time, the bulging orderbook also reflects optimism for the future. What is driving this confidence?

Undoubtedly, a resilient consumer base has provided confidence – Chinese retail sales growth recently reached a two-year high. Of course, the container sector has generated prodigious profits since 2020, ironically a partial consequence of global restrictions imposed by the pandemic, which in turn resulted in supply-chain disruption. To a greater or lesser extent, therefore, the major liners have sufficient reserves to see them through any temporary downturn and have been the first to adopt alternative fuels; some 75% of the ordered container fleet this year has been with duel-fuel methanol propulsion.

You have said in the past that, when it comes to making investments, you follow your gut. Going forward then, in the context of the industry’s decarbonisation efforts, where do you feel the most promising areas for investment will be?

Following one’s instincts is arguably a collection of one’s knowledge and experience, distilled into a view or belief, which is often difficult to reliably articulate. While not infallible, I’d say it has served me well in the past and continues to do so. The decarbonisation debate has the unenviable task of addressing an enormous need during what has been termed an ‘energy crisis’. What will drive the industry to coalesce around one or more outcomes will be ultimately premised on a combination of cost and availability. Circling back to the container sector, it is evident that many believe duel-fuel methanol to be the answer. However, I believe that the industry needs to remain flexible in terms of time horizons – market consensus is one element but this is necessarily followed by adoption and ongoing assessment.