Why Investors Should Read 'The Shipping Man'

Includes: SEA
by: Safety In Value

"The Shipping Man" by Matthew McCleery is a novel about a hedge fund manager (Robert Fairchild) becoming a shipping investor. The protagonist accidentally pulls the Baltic Dry Index up on his Bloomberg, and ends up on an adventure investing in ships in various ways. I won't spoil the plot, but it's a rare business book that has pirates as a reasonable plot device.

Besides the fast paced plot, the book is also an excellent primer on the shipping industry. By following the hedgie's journey from neophyte to shipping expert, you can learn the vocabulary of shipping, from time charters to demurrage. And while the vocabulary lesson is a precondition for understanding the seafaring business, it's not sufficient.

Happily, the book also goes into detail about the factors affecting the business. One brief example occurs when Robert learns about foreign flagging of vessels, so their owners pay taxes in low or no tax countries. This is an important factor in the valuation of shipping companies, and impacts their valuations. One example can be found in my article regarding Awilco Drilling (OTCPK:AWLCF), which has its offshore rigs domiciled in Malta, and hence pays a very low tax rate.

The key lesson in the book is the option value of ships, which are not contracted on long-term charters. The idea being that mismatched assets and liabilities are a huge opportunity, and also a huge risk. This book is an entertaining way of experiencing a lesson that applies to any hard asset business, including real estate, MLPs, and resource companies.

Another main character in the book is a Norwegian shipping magnate who uses the spot market, similar to John Fredriksen of Frontline (NYSE:FRO). The book details a leveraged recapitalization of the fictional magnates shipping company, similar to (and preceding) this recapitalization of Frontline. This presents a primer into the complicated world of ship finance, and gives the reader an understanding of the terms and players involved in shipping finance. Investors buying into the industry would be wise to understand these types of transactions.

The author is the President of Marine Money, and publishes about and arranges shipping finance, giving the book an authentic flair.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.