SFL Gets Past Shipping’s Greed and Paranoia

Key takeaways

SFL's consistent dividend payments over the last 20 years set it apart from many companies in the volatile shipping industry.
The company's strategic shift to long-term charters enhances both revenue stability and client satisfaction.
SFL is committed to modernizing its fleet in response to increasing environmental regulations, investing in cleaner technologies.
Financing practices in maritime shipping have shifted, with SFL finding favorable terms in Asia, particularly Japan.
SFL focuses on strong contractual relationships with tier-one customers, which mitigates risk and enhances reliability.

Summary

Introduction to SFL and CEO Ole Hjertaker

The episode opens with a public service announcement encouraging listeners to support the podcast by following, rating, and sharing it. Host Lee Klaskow welcomes Ole Hjertaker, CEO of SFL Corporation, who has been in this role since 2009. They discuss his background, including his finance experience prior to joining SFL, and provide a brief overview of SFL's operations in the maritime sector, emphasizing its unusual business model of long-term charters to provide predictable dividends.

Maritime Assets and Business Model

Ole explains that SFL began primarily as a tanker owner but has diversified its portfolio over the years to include various marine shipping assets such as container ships and car carriers. They pivoted from dry leases to time charters (wet leases) for better sustainability and management, seeing long-term charters as beneficial for customer relationships and operational success.

Customer Base and Long-term Contracts

The podcast details SFL's customer relationships, highlighting that its largest client is Maersk, which constitutes 40% of its charter backlog. Ole elaborates on securing long-term contracts, typically between 5 to 10 years, to reduce risk exposure and ensure consistent revenue streams. He mentions other notable clients like Hapag-Lloyd and ConocoPhillips, emphasizing the credibility and operational capacity of their customer relationships.

Financing Ships in a Changing Market

The discussion shifts to the financing aspect of ship purchasing, which has evolved significantly over the past 15 years. Ole shares insights on how SFL has transitioned to receiving funding from Asian markets, primarily Japan. He emphasizes the importance of maintaining a balance between equity and debt to optimize returns while managing risks associated with market volatility.

Navigating Emission Regulations

Ole discusses SFL's proactive approach to emission regulations introduced by the International Maritime Organization (IMO). He outlines SFL's strategy of investing in modern, energy-efficient ships and dual-fuel technology to stay ahead of regulatory demands, emphasizing the economic and environmental benefits of such upgrades.

Long-Term Growth and Market Predictions

The podcast concludes with Ole reflecting on SFL's long-term growth outlook, indicating that company expansion isn't a primary target unless it aligns with shareholder returns. He touches upon the overall market dynamics and how SFL intends to navigate potential fluctuations while maintaining its dividend-paying history.

Show notes

The global shipping industry has a long history of boom-and-bust cycles, which make SFL stand out for its ability to pay dividends every quarter for the past 20 years, says CEO Ole Hjertaker. In this Talking Transports podcast Hjertaker joins Lee Klaskow, Bloomberg Intelligence senior transportation and logistics analyst, to share his outlook for shipping subsectors including containers, tankers, dry bulk and car carriers as well as for jack-up drilling rigs. SFL’s model of owning maritime assets and chartering them via long-term contracts has created a stable business that’s focused on returning capital to investors. Hjertaker also talks about how the company is navigating new emission regulations facing the global shipping industry and the process of buying these expensive maritime assets.

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