In Greek shipping, the majority of the owners and company’s shareholders, are family members, and the shipowning company is usually run by an ex-Captain, and father, from an Aegean/Ionian island, having at least three sons (Greek tradition). The family holds the majority of the companies’ shares, through an offshore “Mother Company” (the holding company), issued to the bearer (anonymous shares).

Every vessel has its ownshipowningcompany and all ships have the same ship-management company. Greeks care to protect their vessels from those who may be involved in legal problems. Greeks believe that every vessel has its own destiny, and this has to be independent from the destinies of the rest of the vessels. In addition, not all ships necessarily belong to the same shareholders.

In the above descriptions, ownership and management functions coincide in the same single person. This type obviously depends on the economic strength of its shareholders and on the owner’s ability to borrow from the commercial banks. These companies can, of course, also borrow money from the stock exchanges, the bond and other capital markets, mainly in the USA and London.

A PF is run by a professional manager and the company’s management and ownership are separate. They are run by a board of directors, which decides, at its earliest convenience, the long-term policy of the company, especially whether to build ships or not. This type of PF has been adopted by the companies upon the establishment of the “stock exchanges”. There, the size of the companies was not restricted by the properties of their original shareholders, and this has been considered as a main way for companies to grow. The Stock exchanges helped in creating the corporate economies we know today.

[3] described the old-fashioned type of companies—as he called it—(GT, 1936, p. 150), which … we found it applicable to Greek shipowners to a great extent. These enterprises for Keynes “are mainly owned by those who undertake them, or by their friends, and associates. Their investment depends on a sufficient supply of individuals of sanguine temperament and constructive impulses, who embark on business as a way of life… (italics added). This affair is partly a lottery. Businessmen play a mixed game of skill and chance”. We consider this description of Keynes to be an accurate one for the Greek shipping entrepreneurs.

Keynes, by not knowing the shipping industry very well, thought of it as an “irrevocable business investment industry”. But here exist many well-organized brokers of the 2^nd hand markets. But it is also true that shipping enterprises look, or have to, at the stock exchanges when they have to build ships, to find there another more profitable opportunity.

Suppose a shipping company decided to build 4 passenger ships, where the cost quoted by say 2 shipyards, amounted to $400 m. Looking at a Stock Exchanges, the company found a company owning 4 newly built ships, close to those it was going to build, at a share price of $350 m. Apparently, this company will buy the shares of these ships instead of building them, saving at the same time $50 m (the prices quoted above are hypothetical)².

In mid-1996, 15 top shipping companies appeared in the global Stock exchanges, having a market capitalization of $31 billion (Figure 2). And further 14 minor ones, also appeared, having a $583 m capitalization, including 8 oil companies (Figure 3). The oil companies are not exclusively “maritime³” ones, because their main endeavor is to find, extract, and sell crude oil to refineries, where its transportation department is a secondary activity destined to protect the company from excessive high tanker freight rates. Also, “Carnival” belongs to the “leisure industry” rather than shipping.

Note: Source: author; data from [9].

Figure 2. Market capitalization of the top 16 “shipping” companies, 1996-mid, in b$.

Note: Source: author; data from [9].

Figure 3. Market capitalization of 14 shipping companies, 1996-mid, in $m.

Moreover, six maritime companies appear on the Internet to be the top listed ones in 2024.

Note: Source: author; data from Internet.

Figure 4.Market capitalization of the 6 world’s top Maritime companies, 2024, in $b.

As shown in Figure 4, in 2024, 6 top shipping and port companies (= maritime) had a market capitalization of ~119 $ billion... This is almost 4 times higher than the market capitalization of the 6 top companies 28 years ago (1996-mid). The reader may be sure that there is a common trend in shipping companies to grow from year to year (in dwt/number of ships; as shown below). They also grow in value, but this depends on the prices of the 2^nd hand ships prevailing, which are variable.

We reckon that, as time goes by, more companies will try to join the worldwide stock exchanges, especially those companies run by a single person with few, or zero, shareholders and in need for additional funds so that to add vessels to company’s fleet. We have seen this to happen when freight markets were rising, like in 2005-2006 and thereafter.

The Stock Exchange is seen as a place where a company can borrow any desirable amount upon its promise to provide, in 12 months, either a higher value in its shares or a profit per share better than a 12-month deposit in a bank plus a risk premium. This thought is particularly attractive to those single owners who do not have own funds, or additional shareholders, and they wish to buy 2^nd hand ships. Of course, the company has a need for additional specific personnel, as well an amount required by the SE, so that to be listed arriving at $1 m. The listing process is slow.

The % of owners of the 4 most common types of vessels: i.e. VLCCs, Aframax Tankers, Panamax bulkers and Handy-maxes, in 2007, was as follows (Graph1).

Note: Source: data from [4].

Graph1. The % of ownership among the 4 main types of ships in 2007 (worldwide).

As shown in Graph1, the majority, 75.5%, of the main types of ships are owned by FFs. This is rather unexpected, because after so many decades, when the separation of ownership from control took place, the majority of the shipping companies are still family… We may remind the reader that “the separation” has occurred among the large “joint stock companies”, where the voting shares of the companies were dispersed among a large number of shareholders.

Let us present our “growth model” of a shipping company that is not listed. This company is controlled by a manager who maximizes his/her utility from management. Three utility levels areshown here by three indifference curves: I_1, I₂ and I₃ (Graph2). The utility from management, we reckon, is derived from acquiring additional ships, meaning additional capacity. The utility here is not derived from “profit maximization”, as perhaps it should.

Note: Source: author.

Graph2.Our growth theory of an unlisted shipping firm.

As shown, there are two growth functions. The number 2 growth function, in particular, is an exceptional (shifting⁴) curve occurring rarely, like in 1918, and in 2008, (i.e., twice in 90 years). This curve has occurred when either the supply of newly built ships has been extremely low, due to a world war, or the demand, due to a large emerging economy, was vast.

g₁ determines company’s maximum growth rate (under “normal”⁵ conditions, locked in the ceteris paribus assumption), which a firm could sustain at its starting t₁ − t₂ period (in dwt). This t₁ − t₂ period is assumed equal to the duration of a full shipping cycle, say of 7 years, while t_o − t₃ indicates a long period (lasting 90 years). The company’s growth rate is assumed to be increasingover time, till t₂, when the growth rate fell to g₂.

Our model assumes not only that the Managers are free to choose their objectives, which they will pursue in managing a private, personal, family shipping company, but also to derive utility from the satisfaction of his/her instincts and objectives of “power”, “dominance” and “prestige”… This psychograph is not very distant from that of the Greek shipowners, we believe…

Of particular interest is, however, the “growth function”. We may ask: Is a shipping company’s growth function—as drawn—bell-shaped? If yes, then this means that there is a maximum average growth rate (of say 20%, Graph3) and a probability of more than 50% for it. This further means that one can measure the probability also of different growth rates like 5%, 10% and 15%.

Note: (*) the mean equals 20 units and the s.d. equals 5 units (s.d. = standard deviation or the square toot of Variance); Source: author.

Graph3. A Normal distribution of a random sample (*).

Smith A, believed, in 1776, that the “engine of growth” is the division of labor, which is limited by the extent of the market… This can also be read as follows: “the larger the market—where a company’s products are sold—the larger this company”. It seems that Smith’s principle has been adopted by the Chinese export firms.

As shown (Graph4 and Graph5), the freight rate shipping market distribution, 1741-2015, for dry cargoes, did not behave as normal, because it showed a maximum standard deviation of 6.52σ… and not 3σ. Thus, we will assume that also the “maximum growth rate” of a shipping company can be up to 6.52σ away from the mean growth per annum (which was 147 index units in 1741-2009).

The above is confirmed by the history, when 4 freight rate indices rose from 1000 units in Jan. 2002 to 19,000 units in Oct. 2008, i.e., 19 times… This, with the normality mentality in mind, it should never have occurred… but still it occurred. As shown, 4 shipping markets experienced, in 7 years, five increases in the level of the freight rates indices. This is a phenomenon that occurred at the end of 2008, but it has also occurred in 1918 (Graph6).

Graph4. The freight rate shipping market distribution.

Note: Source: author; data from [10]; the distribution has a r.h.s fat tail, where the average = 65 units; a leptokurtic curve.

Graph5. Four Baltic shipping indices, 2002 to 2009-10.

The above analysis puts forward a crucial assumption, that is, by maximizing the company’s “growth rate”, in fact, does the company also maximize its “profits”? Moreover, economic theory requires “profit maximization”, as mentioned, and not “growth maximization”, which may lead to a lower profitability or even to a loss... In addition, shareholders are required to “maximize their dividends”, and they do not care about how fast their company has grown.

Note: Source: author; data from [10].

Graph6. The dry cargo freight rate index, 1741-2009.

Graph7. The revenues, the expenses, and the profits from its voyages of a Greek-owned shipping co, 1985-1992. Source: author; from company’s data.

The theory saw the above gap i.e. between the “growth theory of the firm” and the “profit theory of it” and provided a solution (Graph2). It adopted a “growth-profit function”, where Profit = f (g, t) (1). This function refers to the maximum profit rate that a firm can sustain at different growth rates. At low gs, positive increments in the growth rates are likely to be generated and to increase profit rates. This is so ifthere is a stimulus to productivity coming from the “economies of growth”—i.e., if there is higher turnover and increased capacity utilization. In shipping companies, the growth of the company in the number of ships shouldminimize the costs of operations, because more ships usually mean higher costs.

This company started in mid-1985, and in 1991 spent $29m to buy a number of 2^nd hand vessels, which means that it was growing (Graph7). However, its profit fell… As shown, the company has increased its revenue from the vessels over its first 7 years of operation (except in 1990). But when the company purchased a number of ships in 1991, its expenses rose (1991-1992) substantially, so that its profit fell (1992).

Graph8 shows the growth between 2016 and 2018 of 49 top Greek-owned companies in dwt and in the number of ships.

Note: Source: author’s archives.

Graph8.The growth between 2016 and 2018 of 49 top Greek-owned companies in dwt and in number of ships.

One part of the fleet, owned by 49 top Greek-owned shipping companies, arrived at ~235m dwt in 2016 and increased to ~273m in 2018 or a 16% increase. In the number of ships, these were 2,288 in 2016 and increased in 2018 to 2581 or ~13% increase. Not all companies increased their dwt or the number of ships, but the majority did. Thus, we should expect the majority of the shipping companies to grow from year to year either in dwt or in the number of ships, say at the 6.5% - 8% p.a., as shown, on average.

The “growth theories of the firm” are due to the works of [6] and [5]. These authors took a managerial approach appropriate to a “corporate economy”. [6] aspired towards a rigorous and relevant model by providing a way of looking at the growth of the firms that will be useful for both theoretical and practical purposes.

[5] provided a formal theory of the behavior and growth of a large-scale managerial corporation, based on a realistic assessment of its sociological and institutional environment. Assuming that Managers seek to maximize their utility out of their management may be better to assume that they seek to maximize their salary. The role that a valuation may play in a listed company is considered important, though this has to be linked to company’s profitability. Greeks, as mentioned, stay away, by majority, from the stock exchanges due to the takeover risk.

The “corporate managers”, par excellence, had an element of discretion over the objectives which they were about to choose, as mentioned. Moreover, growth means “a time path of expansion” of the firm, making this endeavor dynamic. This term adds much prestige to the models, making them closer to reality, where time is an indisputable factor ([2]).

Managers in the above models are assumed to satisfy their instincts of power, dominance and prestige by pursuing the growth of the firm they manage as an objective. When listed, however, additional motives emerge like those of the “security”and“professional excellence”inducing them to accept firm’s valuation⁶as a further objective. Thus, the capital markets impose a constraint on the value of the VR. This is done through the “merger” and “take-over” mechanisms, something that Greek shipowners do not like.

A model of the “growth theory of the firm” is a constrained optimization one: i.e., Max. Um = Um (g, v) (3) s.t. v ≥ v_dash, where Um stands for the “utility function” (utility coming from management); g stands for firm’s growth rate; v stands for firm’s VR (valuation ratio) and v_dash stands for the “capital market constraint”.

Note: Source: author.

Graph9. The growth theory of an unlisted shipping firm.

As shown in Graph9, we presented the “growth-valuation function⁷”, where v can be negative to g (for g > of certain of its levels). This means that the capital market may form a negative valuation for the firm as the firm grows.

Coming now to the optimum state of the model, one—not constrained—is achieved at g*v* (i.e., at the tangency between the highest possible indifference curve, I₁, and the growth-valuation function). But if the company is listed, there is a capital market constraint: v ≥ v_dash. Then the optimum has to be at a higher growth rate, at v_dash, g_dash, higher than the (not constrained) optimum g*v*. This means that when a company is listed has to outperform its unlisted performance…

Most shipowning companies are still private, as mentioned: 64% of the VLCC fleet is privately owned and more than 80% of the Panamax and Handymax bulk carriers are similarly privately owned. We believe that this also happens in the non-shipping and maritime world.

Empirical research showed that well-managed FFs outperform the well-managed PFs ([1]; [8]). The FFs have harmony between ownership and management. Moreover, FFs take a more long-term point of view, while the interest of the management/owners is focused also on their next generation.

We could provide a dozen examples of the above opinion, including in our account not only the sons of the shipowners, but also their daughters (e.g., Anangel, Procopiou, Frangou for Greeks). The above analysis coincides with the idea that shipping companies, like FFs, become wiser by taking into account a full shipping cycle, or a generation. The FF is a type of company well suited to shipping ([4]).

FFs have a better understanding of the underlying critical success factors and they have a fixed number of stakeholders. Many FFs have done very well ([4]: p. 237), while there is a fundamental reason why FFs dominated the industry: this is their decision-making speed, which is often critically important.

There are, however, four reasons/questions that we may consider that the FFs are vulnerable to degeneration.

Note: Source: author; data from [4].

We cannot exclude from our analysis the probability for the next family generation not to be competent, as this has happened in practice (e.g., in Greek “Thenamaris” shipping management Co Inc.). The 2^nd situation arises when one sibling is more competent at running the business than the other(s). This symptom we have met also in Greek-owned shipping, which, however, was beneficial for the industry as a whole.

The rivalry leads certain family members to take over a number of ships and establish their own company. These split-ups, however, grow-up in an astonishing rate, perhaps because they now have their freedom. A good example of the above is the “Martinos family” having 3 brothers in charge of the various departments of the initial common company of “Thenamaris” (owning in the 1990s 30 vessels).

The 2 brothers, Thanasis and Andreas, established two new companies, the “Eastern” and the “Minerva”, owning in 2018, 8.73m dwt and 7.18m dwt respectively, while the original “Thenamaris” owned 9.03m dwt. All three owned 235 vessels and 25m dwt… from about 10 units, which have received each from the original company… This phenomenon, which we may call “growth by splitting-up”, is important for establishing a larger number of shipping companies, where, e.g., three brothers in one large single company have created 3 big companies…

Some family members may earn large salaries and others only low dividends. Some pay many taxes, while the asset value of the FF is substantial. Such injustices may dissolve an FF. In FFs, however, some company issues may arise, e.g., out for business renewals, internal entrepreneurships and company’s growth ([8]).

In Greek shipping, we saw cases of rivalry not only between partners⁸, which is something to expect among Greeks, but also between relatives. The family member who manages the company considers it proper, for his/her self, to have the lion’s share, something unacceptable by the remaining family members, a matter which often leads shipowners to the Courts. A solution here may be a “shareholders’ agreement”—common in foreign shipping companies—(see [4], for details, p. 239).

In shipping industry, there is a need for speed and for immediate reaction. Management will often play the role of an agent for the stockholders to strive for their maximum short-term value perhaps at higher governance costs. There is also the lack of congruence between management and owners (of course, one can find exceptions to this).

PFs often have a shorter-term focus, as mentioned, perhaps only as long as the duration of the CEO’s contract. In PFs, diverse stakeholders are always coming and going, and the financial analysis is more predominant. PFs, however, provide more liquidity and more professional management. These are two important advantages.

PFs are dictated by governance regulations and have extensive decision-making committees. Their processes can be, however, too slow, especially for the shipping companies, where instant decisions/choices are sometimes required between strategic options. PFs pursue a more compromise-oriented decision-making, which, however, depends on the particular CEO.

We are aware of the case of an UK-based PF oil company, which has decided to build three VLCCs in the 1970s. The company, however, had to obtain the approval of its board of Directors, which for various reasons delayed-out 3 months. The company paid several additional million dollars for this delay as ship prices increased in between…

In the PFs there are distinctive roles for the CEO and for the board of directors. The table that follows shows out the role of the CEOs.

As shown, the agony is with the speed of the decision-making in PFs, concerning the CEO of the company. Exceptions to the above finding could be found. This means that the difference is not so much due to the type of company, but to the ability of the company’s CEO, who has to be effective and efficient in all his/her decisions.

The “chair” and the “board of directors” also have their role in a PF shipping company:

Note: Source: author; data from [4].

As shown, the agony is again on the speed of the decision-making in PFs, concerning this time the board of directors of the company.