US investor Raven Capital Management has gone to court in India, alleging that it is $3.6m out of pocket after buying two ultramax newbuilding resales as its initial shipping investment and then making a costly mistake on outfitting them.
But Raven has not been put off shipping by the experience, according to a company official.
The private equity firm acquired four Chinese-built ultramaxes as resales between January 2015 and May 2016 but has not made shipping investments since then.
Lawyers for Raven have told an Indian court that normal cargo operations were impossible on the 63,500-dwt Soho Trader and 63,800-dwt Soho Merchant (both built 2015) throughout their first full year of operation. Two parallel lawsuits are seeking damages from Goa manufacturer Arul Linu Grabs and its principal, Arul Thomas.
Bernhard Schulte Shipmanagement's Hong Kong affiliate is named as a plaintiff alongside two Raven entities. All claims are on behalf of the shipowner, however, including $1.25m per ship in damages due to lost business opportunities, in addition to actual out-of-pocket losses related to the electro-hydraulic grabs.
Copious correspondence between Bernhard Schulte officials and the manufacturer describes months of delay in delivery and installation of the equipment, starting in January 2015, followed by breakdowns and botched repairs at ports worldwide until September 2016, when legal action commenced.
"The owners are very unhappy at the huge loss... and have threatened to take the ships away from us," Bernhard Schulte fleet director Alok Roy wrote, urging the supplier to replace the equipment at its own cost. "This owner is a potential big owner and we do not want to lose him."
The owners are very unhappy at the huge loss ... and have threatened to take the ships away from us.
Arul's counterproposal was that Bernhard Schulte persuade its client to replace the non-operational electro-hydraulic grabs with new radio remote-control grabs. In a February 2016 email, Thomas offered Bernhard Schulte a 25% commission on any such future purchases by Raven.
Ethical objection
"Just for your information, as an ethical shipmanager, Bernhard Schulte does not retain any commissions from suppliers for our own benefit, rather any reductions are passed on to our client shipowners," Bernhard Schulte fleet manager Suresh Kamath replied.
Thomas told TradeWinds he and his company had supplied and installed the equipment properly. He blamed the later failure of the equipment on lack of maintenance by Bernhard Schulte's crew, and sees nothing unethical about his offer of a commission.
"We needed someone to help us promote our product," Thomas said. "It's difficult to operate in a foreign market without support."
He added that Bernhard Schulte had indicated it could be interested in outfitting up to nine more ships with his equipment.
Raven's ships are fully operational now, Raven director Brandon Doerr said. The grabs were eventually replaced by new ones from German manufacturer Peiner Smag, which cost about 40% more than Arul Linu Grabs', according to an industry source. The old ones remain stowed on the vessels despite a demand that Arul collect them and refund the purchase price.
"Bernhard Schulte's technical engineering skills helped us identify manufacturers of grabs. Unfortunately [Arul] was clearly a mistake," said Doerr, who is in charge of transportation investments at Raven.
"We thought it was a company that would be able to produce [the equipment] and offer good technical support. We gave them every opportunity to rectify and repair, but unfortunately, after multiple attempts, we had to recognise that they were not able."
He defended Raven’s investment strategy in shipping. “Raven is a very competent investor. We just had a bad experience with Arul. That’s where it starts and ends,” Doerr said.
He indicated that the company is looking at both newbuildings and secondhand opportunities, even though there is "nothing active now".
"The Raven family of funds invests opportunistically across all sectors," he added. "There is a lot of potential [shipping] deal flow coming in and we evaluate all of them."
