Lloyd's List Newsroom Blog headlines from www.lloydslist.com

It's time the price of oil fell

Lloyds List Comment — Fri, 3 Jul 2009 00:00:00 BST

THE price of oil seems to belie the view that markets behave rationally. Oil has been on a roller-coaster ride during the past 12 months, a period dominated by the crisis in financial markets and the accompanying recession.

Just a year ago, the price of a barrel of crude soared to a high of $147 before plummetting earthwards to $35 in February.

At that point, a contango in the oil market � when forward prices are higher than those for spot cargoes � tempted oil companies and traders to store crude on tankers in the hope of capturing a handsome profit a few months later. Their gamble has paid off: the oil price recovered to $74 in mid-June and is now close to $70.

This may be less than half of the record established a year ago, but is hardly justified on fundamentals.

The oil price recovery of the last six months cannot be attributed to a genuine increase in demand, given the dampening effect of recession. Indeed, the outlook for oil consumption has deteriorated sharply.

The International Energy Agency last week forecast that global demand will grow at an annual rate of just 0.6%, or 540,000 barrels per day, between 2008 and 2014. The agency�s latest prediction for volumes in 2013 is 3.3m bpd lower than its previous effort at crystal ball gazing.

With economic demand being sucked out of the market, the oil price has been buoyed by currency movements and geopolitical factors. When the dollar started to weaken, many investors who were holding the greenback moved into oil as a safe haven.

Moreover, civil unrest in Iran and attacks on a pipeline in Nigeria have stoked fears of a disruption to supplies.

Factors such as these should no longer be sufficient to enable the oil price to defy gravity, however, as there is now plenty of slack in the supply side. As demand has weakened, the Organisation of the Petroleum Exporting Countries� spare supply capacity has increased to 4m-6m bpd, and is forecast to rise to 7.8m bpd next year.

While a lower oil price will remove the demand for tankers for storage, it should ultimately be beneficial for shipping. After all, a harmfully high oil price could derail the economic recovery so badly needed. ]]>

Shipping's blight

Marcus Hand — Fri, 3 Jul 2009 00:00:00 BST

GREEN shoots have become a favourite topic of discussion lately. Not a sudden obsession with gardening, but whether we are seeing signs of recovery of the global economy and hopefully the shipping industry with it.

The slightest sign of these green shoots is grasped at and their potential impact talked about at length. However, any real signs of a recovery in the economy or shipping markets remain extremely hard to discern.

Certainly, China has been buying a lot of iron ore, and more recently coal, which is good in the short term for dry bulk shipping. Hardly enough, though, to turn around the entire world economy.

Anyone hoping to tie the rises in the Baltic Dry Index to the direction of the economy as whole should note that demand in the rest of the world remains extremely weak and the increases are merely a reflection of the impact of the China factor.

The container trades show worryingly few signs of improvement, with volumes remaining depressed. Yes, volumes might have actually stopped falling, but there are few signs of improvement.

The reality is that much of the shipping industry seems to be in a holding pattern. Those who are financially stressed focus on hanging on and making it through to some sort of recovery, while those who stashed away money in the good times continue to watch and wait for the best time to make a move.

Any green shoots are extremely short at best, and at worst little more than a mirage. ]]>

Waiting for bed time

Lloyds List Comment — Thu, 2 Jul 2009 00:00:00 BST

THERE is a rugged individualism at the heart of shipping, yet this is at odds with the not infrequent en masse response of shipowners to external threats and the new.

The pack that pursues market opportunities rapidly becomes a herd in flight, as the world�s economy teeters on a precipice.

This curious urge, which drove otherwise diehard individualists to purchase steel and shipyard space as if it is the first and last day of a department store sale, is also evident as owners ponder whether to lay up or not to lay up their idle ships.

The stampede for lay-up widely anticipated is yet to occur. Financially diminished shipowners, aware of their peers and half way into the worst year for the industry in recent memory, are holding back from the expense of placing their vessels into official limbo.

Some owners, with the freight boom still ringing in their ears, expect a turnaround as rapid as the downturn, and need to be ready and mobile for work.

Others are deterred by the complexity of officially mothballing vessels that are larger and more sophisticated than in the last round of lay-ups in the early 1980s.

Some have an eye on the time and expense of making an inactive vessel seaworthy and ready for trade.

Insurers offer another explanation why there has not been a mass bolt for the shelter of far-flung bays and inlets.

In times of plenty, owners, hungry to maximise profit, opted in droves for cheaper cancel-and-return-only clauses, dropping pricier lay-up premium return policies. Why pay more for insurance when times are good?

Yesterday�s savings, however, have become today�s chains. Some 60% of London market policies are CRO, offering no return of premium in the event of lay-up. Owners are waiting to negotiate new terms.

Amid this willingness to act in tandem in adversity, by way of an afterthought, what collective noun should we use for these owners? A school, a shoal, a swarm, a pod, a troop, a gang, a pride, a smack, a covey, a mob? For insurers a wake (as in vultures). For laid-up owners, perhaps, a bed. ]]>

Crunch time for box lines

Janet Porter — Thu, 2 Jul 2009 00:00:00 BST

THIS week could go down in container shipping history as a make-or-break moment.

For this is when freight rate increases are scheduled to take effect, with lines seeking $200-$500 per teu more on Asia-Europe cargo in an effort to contain losses.

What they want, and actually achieve, are two very different things, with the industry having a poor track record of firm resolve, even when conferences existed. But that is what competition and free markets are all about.

If they fail to obtain significantly higher rates this coming month, however, there probably will not be another chance until next year. Summer is the peak period for lines shipping goods from Asia to Europe to get merchandise to the stores in time for Christmas.

With most rates on the Pacific already locked in at horrible levels for another year, it is the Asia-Europe trades on which the industry�s collective hopes are pinned.

But as attention is focused on shippers, carriers also face pressure from two other quarters � the yards, which may start to take tough action if newbuilding downpayments are not forthcoming, and the banks, if loan-to-value covenants are breached.

There may be some room for manoeuvre with lenders that seem fixated on charter-free ship valuations. A vessel with a long-term employment must be worth more than one with no work.

Yards, too, may finally relent on production schedules. But unless freight rates can also be lifted, bankruptcies will begin very soon. ]]>

Cancelled out

Marcus Hand — Wed, 1 Jul 2009 00:00:00 BST

THE cancellation of newbuilding orders has been hailed by many as the saving grace of the shipowners in the next few years.

As shipowners manage to wriggle out of contracts, or simply take the hit on downpayments, many have expounded the theory that these cancellations will result in a major reduction in new capacity coming into the world fleet in the coming years.

Although figures for global newbuilding cancellations vary widely, Det Norske Veritas� estimate of 564 cancellations would seem to be as accurate a statistic as any.

Despite the ceaseless rumours of order cancellations, this figure has increased by only 72 since its April estimate, hardly a number that is going to reverse the fortunes of the shipping industry as whole.

A cancelled contract does not necessarily equate to no ship being built; it merely means that the owner for which it was originally intended is no longer going to take delivery of it.

South Korean shipyard SLS Shipbuilding is hawking around four cancelled product tanker newbuildings to be delivered shortly. In China, there are reports of a large cancelled bulker order now being up for sale at knockdown prices. There are many other similar stories.

Not only are the newbuildings not disappearing from the scene, but also sharply reduced prices could well be accepted by yards desperate to sell on the ships, meaning all-important asset prices take a further battering. ]]>

Look who's talking

Lloyds List Comment — Wed, 1 Jul 2009 00:00:00 BST

CHINA Inc, as represented by Cosco, the nation�s largest shipping company, made news yesterday by launching a volley at the world�s largest iron ore producers.

Simon Young, executive deputy director of the government-owned company�s research and development centre, argued at a London conference that the dominance of three major iron ore producers � Australia�s Rio Tinto and BHP Billiton and Brazil�s Vale � gives them unfair advantage that distorts transport prices and could harm the shipping industry.

Their lock-in of the iron ore market and shipping interests, wherein the results of iron ore contract negotiations are reflected in freight rates, allows them to play two sides of the market to their favour.

Does Cosco, and China, have a point? It may look that way. The three giants control 70% of the world sea trade in iron ore, which last year hit 845m tonnes. Such a large stake by three players in any market would seem to verge on distortion.

China has repeatedly tried to secure leverage in the iron ore market and erode the dominance of the big three by market means. So far, it has failed.

China�s state-owned metals group Chinalco was stung in early June after Rio Tinto rejected a tie-up with Chinalco in favour of raising capital in a rights issue and merging iron ore operations in Western Australia with BHP Billiton.

Reassuringly, the loudness of the protest suggests that markets are working healthily. China has enormous leverage of its own. It is one of the world�s largest importers of iron ore. Its steel-making industry is amid gruelling negotiations with global iron ore suppliers as it seeks to reduce annual contract prices for ore.

Cosco�s objections are tied up in China�s ambitions and its national quest to secure raw materials for its development. China, after all, is itself a monopoly of a kind.

The three ore giants, seemingly bloc-like, may have strong bargaining power but are manoeuvring around each other both in the pricing negotiations with China and by snatching up depressed assets in the shipping markets.

The ore giants are certainly powerful, but, in this case, the lady doth protest too much. ]]>

Is iron ore producers' dominant position harming the dry bulk sector?

Lloyds List Poll — Wed, 1 Jul 2009 00:00:00 BST

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Land of Lay-Up

Tom Leander — Tue, 30 Jun 2009 00:00:00 BST

THERE�s often something fanciful underlying forecasts of Asian dominance, especially when they come from western economic pundits.

Fleeting (and quaint) visions of Mongols on horseback and Kublai Khan�s armada strike a chord as analysts warn of emerging protectionism in South Korean and Chinese shipyards and the prospect of nationalised Chinese shipping dominating the industry.

It may be the scale of Asia that disconcerts. If so, a new statistic will only add shivers.

According to Lloyd�s Marine Intelligence Unit Asia is the hands-down preferred spot for parking idle ships. Over 750 containerships, bulk carriers, tankers, refrigerated cargoships and car carriers (more than half of the world total of idle ships) are in lay-up in the region.

Aerial views of Hong Kong and Singapore show miles of inactive boxships just off their coasts.

But the presence of this dormant fleet does suggest the world�s shipowners are betting that recovery of global trade will emerge from Asia, and see advantage in parking their vessels in the region.

Global shipowners, a sometimes far-seeing bunch, are endorsing, in the most practical way, that Asia will dominate shipping�s future. ]]>

Cosco lashes out at ore producer dominance

Michelle Wiese Bockmann — Tue, 30 Jun 2009 00:00:00 BST

CHINA�s largest shipping company yesterday said the global dominance of the three major iron ore producers �could be very harmful to the industry�.

One of Cosco�s senior executives detailed his concerns about the growing shipping power of Vale, BHP Billiton and Rio Tinto at a conference in London.

�I believe nobody sitting in this room could be in a dominant position in dry bulk, even Cosco,� said Simon Young, executive deputy director of the government-owned China Ocean Shipping (Group) Company�s research and development centre.

�Only those who can control exports of iron ore and also those who have larger ship-operating capacity � they�re the ones in the dominant position. This could be very harmful to the industry.�

Speaking at the World Dry Bulk Shipping Summit in London, Mr Young�s comments were clearly aimed at Vale, BHP Billiton and Rio Tinto, which between them control 70% of global seaborne trade in iron ore, which last year hit 845m tonnes.

The three majors �had a strong bargaining power� because they sold iron ore and were also active in the shipping markets, Mr Young said on the conference sidelines. But he declined to elaborate further about Cosco�s concerns, saying only that all shipowners and operators needed to be wary, not just his company.

The comments reflect rising Chinese distrust over all three miners� plans to take greater control of freight costs, as well as merger plans between BHP Billiton and Rio Tinto for their iron ore operations in Western Australia.

Mr Young said that Vale, the world�s largest iron ore producer, was �the easiest to do business with�.

Niels Wage, vice-president of freight for BHP Billiton Marketing, which controls shipping operations for the world�s largest mining company, told Lloyd�s List that he did not think Mr Young�s comments were fair but would not comment further.

BHP Billiton operates between 10 and 20 capesize, 10 and 20 panamax and 10 and 15 handymax vessels at any one time, Mr Wage said.

Star Bulk Carriers director Koert Erhardt said BHP, Vale and Rio Tinto were more closely integrating with shipping, and added: �The role of shipowner is completely changing. We�re not sure who is doing what and when, making life more complicated.�

China has yet to settle annual iron ore contract prices with the miners, with at least one contract, for Rio Tinto, expiring yesterday. Vale has taken advantage of depressed asset prices to embark on a capesize buying spree in 2009, and said in May that it had 20 vessels under its control and 12 contracts of affreightment. It also plans to own or operate a fleet of as many as 20 very large ore carriers by 2012. Rio Tinto also has bulk carriers on order.

Mr Young also attacked speculators in the dry bulk derivatives market, saying that too many banks and funds had been getting involved in the sector. He said their role had skewed forward freight agreements, with the dry market valued at more than $150bn in 2008.

Tom Beney, from commodities giant Cargill, which along with BHP is a significant freight derivatives trader, disagreed with the Cosco assessment.

Mr Young highlighted the global dry bulk market�s reliance on the world�s third-largest economy for economic revival.

�China will bring us more,� he told delegates, highlighting rising fixed asset investment, �generous� Chinese bank lending and a 10% year-on-year boost in car sales. ]]>

Onward to Rotterdam

Lloyds List Comment — Tue, 30 Jun 2009 00:00:00 BST

ELEVENTH hour battles always gain attention, particularly in the slow-moving world of international rule-making.

So it is with the Rotterdam rules, a convention to be signed in September in the eponymous city, and now the subject of bitter dispute.

The intention of the rules is to replace outmoded cargo liability regimes, such as the Hamburg and Hague/Visby Rules. The industry has long been seeking to apply uniformity for the international carriage of goods over the current plethora of maritime liability regimes.

The convention has received strong endorsements, most notably from the Paris-based International Chamber of Commerce.

Opposition has emerged from European shippers, with the support of the European Commission. The European Shippers� Council has stepped up its heated quest for non-ratification, and a senior commission official said last week that Brussels will seek to present an equivalent liability regime.

For industry supporters of a global solution to the governance of shipping, the opposition is disappointing, if not unsurprising. Shipowners generally support the rules, even if they admit their imperfection.

The Brussels-based European Community Shipowners� Associations and US shippers body NITL, to name two, have thrown their weight behind them.

Their support reflects a view that global solutions, even if flawed, are to be preferred to a regional fix.

This is not to say that ESC and the European shippers it represents have unfounded objections. The primary gripe is complexity: the rules are too long and full of exceptions.

They leave open ground for litigious battles, where treatment of conflicts between mandatory conventions and private conditions differs from jurisdiction to jurisdiction.

The rules could also lead to higher insurance costs for non-ship players, particular smaller ones.

As valid as those worries may be, they reflect regional self-interest in opposition to a global approach, one that demands compromise but has the potential to deliver higher economic benefits to all. The ESC�s late entry into the fray suggests complacency. ]]>

Leave FFAs to grow

Lloyds List Comment — Mon, 29 Jun 2009 00:00:00 BST

BALTIC Exchange chief executive Jeremy Penn has raised a warning flag that over-zealous regulators could stifle innovation in the freight derivatives market. His warning is well-founded.

The stifling would come from plans, announced recently, by regulators in the US and Europe to overhaul and add transparency to the over-the-counter derivatives market.

US Treasury Secretary Timothy Geithner announced his intention in May to change US law to require �clearing of all standardised OTC derivatives through regulated counterparties�. Few were alarmed by this; most freight forward agreements, for example, are settled through clearing houses already. But Mr Geithner wants to move standardised trades on to �regulated clearing exchanges and regulated transparent electronic trade execution systems�.

The European Commission announced earlier this month that it planned to restructure in Europe along similar lines, and would provide details of its plans to supervise OTC derivatives soon.

The catalyst for all this is the global economic meltdown precipitated by credit default swaps, the biggest component of the largely unregulated OTC derivatives market. Innovation in CDS contracts led to incomprehensible deals that heightened risk and encouraged banks to add leverage. When these contracts failed, they dragged the banking system down.

But it would be far-fetched to argue that the market for FFAs poses such dangers, despite European financial regulators� description of the instruments as �exotic�.

They are straightforward, and as risk management tools, consistently sound. Their use fell in 2009 as an effect of the crisis, but evidence of their utility lies in rising volumes without a serious setback. Paper trading grew fourfold in 2008 to $163bn over the previous year.

For all that, volumes on the FFA market are much smaller than on other futures contracts. And there�s the rub.

The market is young. Regulators� effort to mandate standardisation and trading on clearing exchanges stands to crimp the most attractive element of FFAs � which allows parties to privately negotiate a deal and customise � and quash the market in its infancy. Given their proven efficacy, it would be foolish to tar FFAs with the same brush as toxic CDSs. ]]>

Right ambition

Tom Leander — Mon, 29 Jun 2009 00:00:00 BST

A VISITOR to Dubai Maritime City last week could be forgiven for indulging in the poetics of desolation.

The development is a product of Dubai�s ambition to become a maritime gateway. It is financed by government-owned Dubai World through its real estate company Nakheel, the group that is developing Palm Jumeirah and other residential follies that jut into the Persian Gulf.

Nakheel�s troubles have led to a halt in Maritime City�s construction, at least for now. At the site, wind blows dust through a skeletal development meant to house construction workers. Most of the peninsula is merely an expanse of packed sand.

Moored in a canal cutting through this expanse is a yacht belonging to Sheikh Mohammed bin Rashid Al Maktoum, ruler of Dubai and prime minister of the United Arab Emirates, awaiting repair.

Dubai, too, awaits repair. It may come from Sheikh Mohammed himself. The city�s financial collapse has strengthened his inner circle, which includes several financial reformers.

One recently has been appointed to fix Dubai World and its indebted companies. His success will entail a herculean effort: detaching a reasonable, laudable ambition � a great maritime hub serving the Middle East � from Dubai�s real estate fantasies. ]]>

Too crowded

Marcus Hand — Fri, 26 Jun 2009 00:00:00 BST

EVERY week more shipbuilders say they plan to increase their share of the offshore market to offset the almost complete dry-up of newbuilding orders.

The last week alone has seen both Hanjin Heavy Industries and Construction and Jiangsu Rongsheng Heavy Industries say they want to boost their business in the offshore sector, adding to many more that have made similar pronouncements in recent months.

With newbuilding orders close to zero, and little obvious sign of a major pick-up in business, the desire to grab a greater share of the offshore business is an obvious one.

However, the question has to be whether the offshore sector can really support so many yards. The rigbuilding sector has been in effect dominated by a very small number of players, with Singapore�s

SembCorp Marine and Keppel Offshore and Marine by far the biggest.

The orderbooks of big Singapore yards, at S$7bn-S$9bn ($4.8bn-$6.2bn), may look impressive on their own but pale in comparison to the huge annual new business targets set by the world�s top shipbuilders.

The planned move by other yards comes at a time when the offshore market is far less buoyant than it was. An estimated 20% of the world�s jack-up rig fleet now lies idle.

The offshore sector may well present an alternative revenue stream to those yards with the required technical know-how, but given the large number saying they want to chase this business, the impact is likely to be limited.]]>

Banks still not tested

Lloyds List Comment — Fri, 26 Jun 2009 00:00:00 BST

ARE the banks having a good shipping crisis when it comes to handling problem loans?

The response might depend on whether your company has had to pay higher margins after breaching loan covenants or, worse still, had ships repossessed. But a more objective observer might be tempted to answer �yes�, at least so far.

Scandinavian banking giant Nordea, for example, has been at the sharp end of two of the most high-profile bankruptcies to date in shipping, Britannia Bulk and Eastwind Maritime, both of which it has handled deftly.

Eastwind may not have been overjoyed by Nordea�s decision to exercise its pledge over shares in group companies, a move that permitted the bank to arrange the sale of 13 vessels to a business associated with the Ofer family. But the bank argues that it had exhausted all other options.

From the perspective of the broader shipping industry, it must be preferable to have a structured transfer of tonnage from a weak to a stronger owner rather than ship arrests and auctions.

Avoiding the firesale of assets through a work-out in an orderly fashion should protect value both for the bank and ultimately the industry at large, as it curbs the pressure on an already weak second-hand market. In the case of

Eastwind, at least one senior ship financier volunteered that his bank would have done something similar to Nordea. However, the truth is that as stress tests go, Eastwind and Britannia and have been relatively minor problems and not particularly taxing for bankers. In contrast, a major bankruptcy involving a large syndicate of banks could prove a much more complex and messy affair, resulting in loan write-downs and then impairment charges throughout the portfolios.

The potential for such a bleak scenario was implicit in remarks made last week by Peter Georgiopoulos, a leading shipowner, who predicted that markets have further to fall.

He noted the low rate at which banks were repossessing vessels compared to previous shipping crises. �The question is, what happens when that starts? What happens to values in the industry?� ]]>

Piracy or war risk?

Lloyds List Comment — Thu, 25 Jun 2009 00:00:00 BST

ONE man�s terrorist is another man�s freedom fighter, so the adage goes, and it would seem that one insurer�s pirate is not another�s, with a particular attention to weapons touted.

Insurers concede that the definitions of piracy found across marine policies are murky, blurred by the arcane meeting the fluid present.

It is to The Republic of Bolivia v Indemnity Mutual (1909) that the English courts return to define piracy. The Edwardian courtroom, considering the insurance exclusions relating to attacks on shipping by Bolivian privateers, made a distinction between pirates and freedom fighters, with apolitical plunder indemnified while political rebellion is not.

Much of the debate would have been left to its own dusty corner had it not been for the Somali pirate crisis and globalisation getting dysfunctional out on east Africa�s watery verges. There has been some furious harrumphing not just about pirates, but also over a wider world�s ignorance of what makes way for the engines of international trade to turn smoothly.

The indeterminate element of piracy-related policies is recognised by the International Group of P&I Clubs in a recent advisory note for members and shipowners. From the P&I perspective, the IG pooling agreement contains no definition or exclusion of piracy. While liabilities remain covered when arising out of piracy incidents, they can be excluded if the act involves �weapons of war�. Pirates bearing mines, torpedoes, bombs, rockets, shells and explosives are not pirates for the purposes of P&I policies.

If armed pirates or mercenaries trigger a war exclusion clause, courtesy of these provisions, it all falls on the laps of war risk underwriters.

The fact remains that Somali pirates are in the business of taking crews, causing loss of hire, and fuelling the growth of kidnap and ransom insurance in the London market. The P&I clubs do not expressly cover ransom, leaving the decision to the discretion of their shipowner boards.

Discretion in this fight, as one would expect from the P&I clubs, is the better part of valour.]]>

Let in the light

Janet Porter — Thu, 25 Jun 2009 00:00:00 BST

GREATER transparency is what the British public is demanding these days, whether on MPs� expenses, boardroom pay, or the Iraq war. That same cry for less secrecy is just as loud in maritime circles, where the issue of light dues has left ship and port operators fuming.

If newly-appointed UK shipping minister Paul Clark thought that all he had to do on day one of his new job was to make a brief announcement on higher light dues and then move on to something else, he was poorly briefed.

Ships will be paying more to call at UK ports from next week, when the new tariff comes in to effect, but the lobbying efforts to force greater efficiencies on the three lighthouse authorities and to end the subsidy to Ireland are continuing with just as much vigour.

What really irks many is that none of the shipowners that had been pressing for reform were contacted by the consultancy firm Raven Trading, which was commissioned by the Department for Transport to assess the impact of the tax increases.

This omission is raised in a letter to Mr Clark by the Independent Light Dues Forum that is asking for a list of those consulted by Raven before the Isle of Man firm concluded that shipping lines� threat to drop direct UK calls was not viable.

Surely a positive first step would be to conduct the debate in public, rather than base decisions on an analysis so lacking in transparency.]]>

Will the downturn introduce a more creative approach to ship financing?

Lloyds List Poll — Wed, 24 Jun 2009 00:00:00 BST

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Philippines ferries

Marcus Hand — Wed, 24 Jun 2009 00:00:00 BST

A YEAR on from the sinking of the 24-year-old Princess of the Stars in the Philippines, which left over 700 people dead or missing, the government is finally taking action against the owner, Sulpicio Lines.

The Philippines Department of Justice earlier this week brought criminal charges against Sulpicio Lines vice-president Edgar Go for reckless imprudence resulting in multiple homicide. Somewhat curiously it also brought the same charges against the vessel�s master, Florencio Marimon, whose body was identified among the victims of the tragedy.

Bringing to book a member of the family that owns Sulpicio Lines is a step in the right direction in a country where horrific loss of life in ferry accidents is an all-too-frequent occurrence. Sulpicio Lines has an unenviable safety record, with 45 casualties in a 29-year period including the world�s worst peacetime maritime disaster, the sinking of the Dona Paz in 1987, in which over 4,000 perished.

However, the Philippines government also urgently needs to update the regulations that cover the domestic shipping industry. Recommendations from boards of inquiry into many previous ferry accidents have never been implemented or enforced.

Laws to ensure the safety of Philippines ferry passengers should be enacted as soon as possible and properly executed.]]>

Bigger could mean better

Lloyds List Comment — Wed, 24 Jun 2009 00:00:00 BST

ANOTHER bout of merger mania seems to be gripping the mining industry. While no fresh consolidation deals have yet been finalised, the big-is-beautiful attitude of the miners contrasts with the continuing fragmented nature of the dry bulk shipping industry that serves them.

The latest buzz in the mining sector has been triggered by Xstrata�s approach to rival AngloAmerican which aims to create a $65bn giant that would become the world�s third-largest mining company.

AngloAmerican�s board may have taken less than two hours before unanimously dismissing Xstrata�s overtures but by then the stock market had decided an unstoppable ball had started rolling.

Would Xstrata launch a hostile bid? Alternatively, would Brazilian giant Vale renew its takeover interest in Xstrata or make a play for Anglo American? Whatever the outcome, Xstrata�s interest in Anglo American is a forceful reminder that mergers and acquisition continue to reshape the global metals and mining landscape.

BHP Billiton�s bold takeover approach to Rio Tinto in 2007 might have eventually been rebuffed, but the recent pact on combining their huge iron ore operations in Western Australia is based on the same logic of achieving major cost savings.

Shipping and mining are cyclical businesses. But while the M&A cycle in mining is clearly on the upswing, shipping�s remains stationary. Thus, as the leading mining companies grow larger and more powerful, the dry bulk fleet which transports their cargoes of iron ore and coal continues to be one of the least consolidated in the shipping industry.

It may be true that the big mining companies do not exert the same degree of control over dry bulk shipping as the oil majors wield in the tanker sector, as the steel mills also play a prominent role in chartering.

Moreover, dry bulk owners had no need to trouble their minds with thoughts of consolidation when asset values were high and the coffers filling with cash.

Now, improved fleet utilisation and cost efficiencies through economies of scale are becoming more desirable. And even their customers, the mining and steel giants, might appreciate the greater flexibility that dealing with fewer, but larger, owners would bring.]]>

Navios treads novel ground

Nigel Lowry — Wed, 24 Jun 2009 00:00:00 BST

IN A number of recent speeches and investor calls, Angeliki Frangou has been relatively positive on the longer term fundamentals for the dry bulk shipping market and her Navios Maritime Holdings has now underlined it is prepared to invest in that vision.

Navios� new deal to acquire four capesize newbuilding commitments in South Korea is one of the largest resale type transactions so far in a fitful first half of 2009 where the stronger dry bulk owners have generally talked more of acquisition opportunities than acted on them.

One of the striking aspects of the agreement to acquire the capesize quartet is that it brings together a shipowner, a bank and a shipyard in a way that solves a headache for the two other parties.

Consequently, Navios has been able not only to add four big vessels arguably at average market prices, but to obtain $240m of bank finance and, for good measure, an easing of terms on three other capesizes it was already building at the same yard.

But it is questionable how many others will be able to emulate the model as a key ingredient in the overall package is Navios� convertible preferred stock issue to part-fund the ships.

�This is a product that has been created by Navios to satisfy the bank and the shipyard,� Ms Frangou commented. �We found an accounting solution and we were able to do this because our share is viewed as something that is very favourable in the market.

�Convertible preferred shares are traditionally used as debt and issued at a discount to share price but here they are equity and at a premium to share price, so it really is like introducing a new product,� she later told Lloyd�s List.

A nominal average price of just over $81m for each of the four ships is likely to approximately accord with the price on the bank�s books and in the shipbuilding contracts, but the �actual� price will work out to less depending on the conversion price of the newly issued preferred stock, said Ms Frangou.

At conversion prices of $10 or $14 per share, the company computes a real price for each ship of $63.3m or $60.3m respectively.

These values appear to be closely in line with other recent deals for capesize newbuildings although those being purchased by Navios have been chartered for long periods at solid rates from the past.

The first of the vessels, due in August 2010, has been fixed for five years at $52,584 daily. The following three will be earning $29,356 daily over longer periods plus a profit share. Two ships chartered for 12 years each will earn Navios a 50% split of profits above $37,500 per day, with one vessel fixed for 10 years offering a profit split above a $38,500 daily mark.

Ms Frangou acknowledged that the solid charters were an important element for Commerzbank which has agreed 10 year funding of $240m on the four vessels.

It is the second novel deal that Navios and affiliates have unveiled in a matter of days, following the cancellation of a drop-down sale by Navios to spin-off Navios Partners of a capesize at $130m. At the same time, Navios sold Navios Partners �all rights� in a long term chartered-in panamax, with purchase option, for $34.6m.

The panamax came with charter under an insured contract until 2018 at a net rate of $26,125 per day. Of that deal Ms Frangou told Lloyd�s List: �I think it is a good deal for both sides but it was not easy to identify and draw up.

The imminent delivery of the cape was �a serious obligation� that forced the respective companies into finding a correct and amicable solution for both sets of shareholders, she said.

She said: �It is a good deal for Navios Holdings because it has the financial capacity � otherwise we would not have done the deal. For Navios Partners the most important issue is the duration and quality of the earnings.�]]>

Flashing the cash

Richard Meade — Tue, 23 Jun 2009 00:00:00 BST

CONVINCING shipowners to swap the traditional stacks of dollar bills onboard vessels for prepaid crew credit cards could be a struggle.

While it makes perfect sense in theory, the reality of day-to-day port calls necessitates a certain amount of hard currency.

It seems likely that similar attitudes towards cash retention may also be ingrained in the owners� psyche when it comes to navigating the downturn.

While a handful of opportunistic purchases have emerged as weaker companies hit the buffers, we have not yet seen the rash of distressed fire sales that some had predicted.

Cash reserves may not be what they once were, but there are still enough owners sitting comfortably on cushions of cash earned during the boom.

The fact that they are holding off from utilising these reserves either speaks volumes about cautious sentiment or suggests that asset values are expected to fall even further.

The key to surviving a recession is keeping control of the business when the market is trying to force surplus capacity out of the system by squeezing cashflow.

According to Clarkson�s economic guru Martin Stopford, it is like a marathon race in which only a limited number of entrants are allowed to finish. The race has no fixed length, it goes on until enough competitors drop out.

Given the length of the race ahead of them it is understandable that most owners are not prepared to part with their cash yet.]]>

Far-sighted myopia

Lloyds List Comment — Tue, 23 Jun 2009 00:00:00 BST

SHIPOWNERS have to look way into the future. Newbuilding programmes need to be based on industry prospects 10 or 20 years ahead. No-one should expect to make an instant return. So even now, the vast orderbook that is weighing so heavily on the entire industry could work out well for some.

But while risk-taking is in any entrepreneur�s blood, with strong nerves required to take some of the investment decisions that subsequently turned out to be spot on, why do shipowners seem to combine such visionary talent with an equal amount of short-sightedness?

Take container shipping as an extreme example. When the Asia-Europe trades were enjoying annualised growth rates in excess of 20% a couple of years ago, the entire trade seemed convinced that this unprecedented expansion would continue for years to come. That is why they rushed to the shipyards to splash out more money than ever before on newbuidings.

And when oil prices crashed back from the record peaks last year, many top executives seemed equally certain that cheap fuel prices would continue. Why else would they have agreed to all-in freight rates that fixed the bunker element?

These are not exceptions. Container shipping is littered with examples of market madness. Each time, industry leaders insist they have learned their lessons and will not repeat their mistakes. And of course, that is all forgotten when the next upturn, downturn or consolidation comes along.

This time it is oil prices that have caught many lines out again. Even though floating bunker recovery formulae were seen as the answer to the problems of how to protect carriers from fluctuating fuel costs, they were quickly forgotten late last year as oil prices fell and lines were in a desperate scramble to attract cargo when volumes were shrinking.

With fuel prices now rebounding, carriers have fallen victim once more to their own short-sightedness and failure to anticipate the recovery.

Boardroom thinking continues to be dominated by myopic behaviour, rather than a more measured interpretation to external influences.

Those so capable of taking long-term decisions should base these on strategic planning, not short-term market fluctuations.]]>

Trade and Tehran

David Osler — Mon, 22 Jun 2009 00:00:00 BST

THERE are any number of reasons why shipowners have an interest in the continued stability of Iran, and not the least of them is that the country controls the Strait of Hormuz, a narrow waterway that provides the only deepsea access to much of the Middle East Gulf.

Every single day, the equivalent of 15 suezmaxes traverse the strait. Over a year, that equates to vessels carrying a full 20% of world crude consumption.

If you need a reminder of what can happen when local politics gets out of hand, look back no further than the so-called tanker war of the 1980s, in which 546 merchant vessels were damaged and 430 civilian seafarers were killed.

The outcome of the Iran�s present political turmoil � which has seen demonstrations on a scale unprecedented since the downfall of the Shah in 1979 � remains unclear. But the worry has to be that widespread unrest can only have a deleterious impact regionally.

Whatever one�s sympathies in this matter, it remains crucial not just for shipping, but the world economy as a whole that the oil continues to flow.

It is a big ask, given the level of protection against piracy that shipping now expects in the Gulf of Aden. But if the worst comes to the worst, the world�s navies may yet find themselves called upon to offer their services to this end.]]>

Considering a new order

Lloyds List Comment — Mon, 22 Jun 2009 00:00:00 BST

IF THE headlines are to be believed, Chinese yards have this month added another 34 bulk carriers and 5.7m dwt to their orderbooks. For owners and operators based in credit-crunched Western countries, such staggering news is greeted with incredulity.

Bulk carriers on order in global shipyards already amount to two-thirds the size of the existing fleet. This looming oversupply hangs over owners and operators as a constant reminder of their excesses and a future drag on earnings.

The orders might be the first revealed in nearly nine months, but Chinese shipyards have yet to explain just how new they really are, or whether they are to fill the slot left by a cancelled order.

Jiangsu Rongsheng Heavy Industries is poised to receive an order worth nearly $500m for four very large ore carriers from Oman Shipping.

Zhoushan Jinhaiwan has reportedly taken a 30-bulk carrier order from its new majority shareholder, Grand China Logistics, owned by a major Chinese airline.

Perhaps there is a little hyperbole at play. Both yards are privately owned. Both are poised to resume plans to list their shares now that Chinese regulators have overturned a 10-month ban.

Whatever the status of these bulker orders, they do provide an interesting insight into how Chinese shipyards will manage their orderbooks over the next two years.

Ships on order will be built, even if the original owner cancels. And it is more likely to be companies from the so-called Bric countries of Brazil, Russia, India and China that will step into the breach.

The Oman Shipping order, for example, involves the state-owned company chartering its four VLOCs to Vale, as they are linked to exports from a pellet plant in northern Oman, which Vale is building.

It is fair to speculate that Oman Shipping has done a deal with Vale, and these cover four of the 12 VLOCs already on order.

The same possibility exists for Grand China Logistics. No delivery date has been attached to its mammoth order of 18 capesize and 12 kamsarmax bulk carriers, leaving possibilities wide open.

The orderbook drought might have broken, but only those involved know whether they bring additional headaches, as well as capacity, to the global bulk carrier fleet. ]]>

Follow the money

Lloyds List Comment — Fri, 19 Jun 2009 00:00:00 BST

SHIPPING is known to be a footloose international industry in which the majority of companies have their assets registered offshore.

The international nature of the industry is also underlined by multinational crewing and access to worldwide capital markets.

But geographical location is becoming more important, at least when it comes to the banking market.

The global financial crisis and the scale of the value destruction in the banking industry forced governments to become the investor of last resort for banks.

It is now generally held that banks bailed out by governments are being encouraged to lend domestically, a negative development for an international industry such as shipping that has been accustomed to the ease of cross-border borrowing.

DVB, a leading shipping and transport bank, has pointed out that the impact of state intervention will differ from country to country.

It believes that owners from �ship finance export countries�, those with few shipping companies but a good number of shipping banks, such as the Netherlands or France, will be fine. However, DVB warned that shipowners in so-called �ship finance import countries�, including Greece and Norway, might struggle.

Never before has such a deep downturn in the shipping industry coincided with a crisis of today�s magnitude in the primary banking market.

Deutsche Bank Research believes the global financial crisis will bring about �the most significant changes� to the banks� operating framework that they have experienced in decades. �There will be fundamental re-regulation of the industry, ownership structures are shifting towards heavier state involvement and investor scrutiny is rising strongly,� the bank says.

No one doubts that government intervention was necessary to prevent the crisis from spinning out of control, as financial markets ceased to function properly.

However, Deutsche Bank warns that development could partly reverse the globalisation of finance as the focus of banks shifts towards domestic markets in both lending and consolidation.

To purloin a phrase from the property experts, �location, location, location� may be the key to improving access to shipping bank debt in future. ]]>

Numbers game

Marcus Hand — Fri, 19 Jun 2009 00:00:00 BST

GLOBAL container port throughput rankings have always been given a great degree of significance by the world�s top box ports.

These figures proved so important to the Taiwanese port of Kaohsiung that 42 officials from the Harbour Board and shipping lines have been indicted for corruption for inflating throughput figures.

While this is the most extreme example of inflating throughput figures, ports in southeast Asia have often been accused of double counting volumes and, some allege, even quadruple counting boxes.

However, even these tricks would not mask the huge plunge in containerised cargoes we have seen this year.

The world�s largest box port, Singapore, has for example reported an average contraction in container volumes of around 18% for the first five months of 2009.

What is worrying about these figures, and similar ones other major ports, is that an expected pick-up in the second quarter, on the back of returning demand boosted by different national government bailout measures and inventory restocking, has failed to happen.

The big question now is, when will we see a turnaround? The consultancy Drewry has turned bearish on 2010 and predicts only minimal growth. If this is the case, container shipping could be in for an even tougher time than the one for which it has been bracing itself. ]]>

Should South Korean yards refuse further concessions to boxship owners and void contracts with overdue payments?

Lloyds List Poll — Wed, 17 Jun 2009 00:00:00 BST

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Yards at risk

Marcus Hand — Wed, 17 Jun 2009 00:00:00 BST

AS NEWBUILDING orders dry up to almost zero, cashflow and liquidity are serious issues for many shipbuilders in Asia.

Shipbuilders rely on a steady flow of new orders to fund the capital-intensive business of shipbuilding. For big established shipbuilders the order drought is less of an issue, as they have built up financial strength over the years. But for less established small- to mid-sized builders the current situation is proving very painful.

The obvious solution is to try to raise new capital. However, few private investors have either the money or the appetite to invest in shipbuilding at the moment. There are of course some exceptions; for example, the reported talks between Grand China Logistics to acquire a 51% stake in Zhoushan Jinhaiwan Shipyard.

Plans by some provincial governments in China for shipyards to prop themselves up by raising money through public listings would appear to be fanciful, given the state of equity markets.

The reality is that the only way some yards in China and South Korea will survive is by accepting state aid.

How willing either country�s government will be to save smaller yards remains to be seen. Much of China�s effort is focused on state-owned or large private yards. In South Korea, some yards have already been allowed to go the wall.

With little sign that newbuilding orders will restart soon, many more yards could yet find filing for bankruptcy is the only option they have left. ]]>

Political risk and LNG

Lloyds List Comment — Wed, 17 Jun 2009 00:00:00 BST

A DUBIOUS election result in Iran and the killing of protesters by militia gunmen have raised serious questions about democracy and human rights in that nation.

In Venezuela, confiscation of private assets has shredded the country�s business reputation abroad while its state-run oil giant has suffered the indignity of a credit rating downgrade.

These events will have inflicted untold damage on these oil producers� ambitions to become major players in the capital intensive liquefied natural gas industry.

Iran has had a clutch of LNG projects on the drawing board for many years but none of these has yet come close to reaching a final investment decision. Its ambitions have been dogged by technical problems, contractual issues and conflict with the west over its nuclear programme.

The re-election in such questionable circumstances of president Mahmoud Ahmadinejad, who does little to hide his hostility to the west, may now ensure that Iran�s projects are confined to the drawing board for years to come.

Venezuela, whose socialist president Hugo Ch�vez is famously anti-American, has turned its attention to the potential of LNG more recently than Iran.

Through state-owned Petroleos de Venezuela, the nation has a $20bn project involving, among others, US and Japanese firms. Who would now bet on the participation of these companies going ahead following Venezuela�s recent nationalisation of more than 70 oil contractors?

It is true that both Venezuela and Iran have a relationship with energy-hungry China, which has a propensity to ally itself with countries which are outside the western umbrella. But even China cannot afford to be oblivious to political risk.

Iran and Venezuela have examples of countries in their regions that have attracted western investment into their energy industries with mutually beneficial results � Qatar and Brazil, respectively.

Earlier this week, Standard & Poor�s pushed the credit rating of Venezuela�s PDVSA further into junk bond territory, while affirming Qatar�s investment grade status. The timing could hardly be more instructive. ]]>

Boxship bargains

Janet Porter — Wed, 17 Jun 2009 00:00:00 BST

SOONER or later, moribund markets spring back to life. A price will be found that brings buyers and sellers together.

That is what seems to be happening in the secondhand containership market. After months of inactivity, vessels are changing hands again.

Brokers say there is plenty of money sniffing around for bargains. The problem is knowing when to make a move. If Goldenport had waited a few months, it could have bought the NYK Procyon for $2m less than it paid earlier this year.

But selling at the peak or buying at the bottom is down to luck rather than judgment. The real skill is to decide when markets are close to turning. Clearly, some speculators now feel this is the time to go back to the market, but they will need strong nerves, as ships up for sale are likely to be those with no work � a situation that could last for several years.

Nevertheless, the revival of the sale and purchase market will be a welcome development for those wanting to raise cash.

It will be less welcome in the boardrooms of other owners and their bankers, who will have to review loan-to-value covenants. While no ships were being sold, they could rightly say it was impossible to calculate asset values.

With some benchmarks now being established, that will no longer be the case. So the secondhand market revival could trigger the next stage of this unending crisis. ]]>

Lloyd's leads by example

Lloyds List Comment — Wed, 17 Jun 2009 00:00:00 BST

THE Lloyd�s insurance market is weathering the global economic tempest in robust shape, which is welcome news for buyers of marine cover.

While the financial turmoil has shaken institutional giants such as Lehman Brothers to AIG, Lloyd�s has emerged from the carnage fighting fit.

Profits last year were down 50% to �1.9bn ($3.1bn), but the world�s insurance market still rolled out of 2008 with its third most profitable year.

Those accounts were formally signed off yesterday at Lime Street, with the corporation also looking at its bedrock central assets edging up to �2.1bn.

Unlike many of its US and continental rivals, Lloyd�s has avoided the complex and, for some, fateful investment products that are unravelling much of the global financial system.

The world�s oldest insurance market, after surviving its own near-death experience and reconstruction in the early 1990s, has kept a tight lid on investments, beating the mantra �profitable and prudent� underwriting for its members.

The message has stood the market in good stead this last year, particularly as it has had to shoulder another devastating North American hurricane season in 2008, plus a string of other high-profile catastrophes.

As Lloyd�s chairman Lord Levene pointed out this week to private capital investors in the market, underwriters in all classes of business, including marine lines, face claims inflation, falling insurance values and increased fraudulent claims.

Marine makes up 8% of Lloyds activity and, despite the growth of rival markets, it continues to dominate this aspect of the insurance business, offering sizeable capacity for larger and complex risks.

In the short term at least, with marine underwriters in Norway and the US forced to push up their prices, Lloyd�s has been picking up business from markets.

Marine, then, over the decade has proved to be a steady line for Lloyd�s insurers, delivering steady if unspectacular profits and promising more over the coming years.

With capacity still expanding, there is now less pressure on marine premiums. That is good news for shipowners when other non-life buyers will experience difficulty paying increased insurance costs this year and beyond. ]]>

Yards and owners to lock horns over boxship orders

Janet Porter — Tue, 16 Jun 2009 00:00:00 BST

SOUTH Korean shipyards have finally lost patience with some of their customers and are preparing for a showdown with those containership owners that are demanding newbuilding delays or price cuts.

Rather than grant any further concessions, yards are ready to declare certain contracts void, keep predelivery instalments that have already been paid, probably complete remaining construction work and put the newbuildings up for sale, Lloyd�s List has learnt.

Should that happen the consequences would be far-reaching, since fire sales would produce prices in an otherwise moribund sale and purchase market that banks would have to use when calculating loan-to-value ratios.

Until now, many banks have taken a lenient attitude on asset values, one of the few exceptions apparently being Korea Eximbank. But once valuations are established, shipowners may find themselves in breach of bank covenants.

The stand-off between the two sides could come to a head within the next few weeks, industry sources close to the situation predict.

Others are more cautious, saying they do not expect events to take a new twist until later in the year, by which time tempers may have cooled and some middle way found out of the crisis.

One bank analyst questioned whether the yards would risk torpedoing customer relationships by taking such drastic action.

Right now, however, the big South Korean shipbuilders are said to be angry about the way they are being bullied by some owners, who have been pressing for delivery deferments or other adjustments to signed and sealed contracts.

The yards believe they have already done a lot to ease supply pressures and that the owners should make a few sacrifices of their own, if only a gesture such as selling the private yacht or company jet.

A typical complaint is that, when the yards were in trouble a few years ago, they did not raise agreed newbuilding prices. Yet now the tables have been turned, owners are asking for price cuts, cancellations, later deliveries or stretched payment plans.

Delayed instalments are causing particular problems for those yards that are already suffering from hedging losses, having fixed forward the Korean won exchange rate against the dollar, only to see the US currency appreciate considerably. Not only are the yards unable to benefit from the higher value of the dollar, but the hedge contracts are fixed to the expected date of predelivery payments. That has forced some to take out bridging loans to settle hedging contracts until money has been received from those customers that are late with their downpayments, either through mutual agreement or unilateral action.

But the true facts of the situation are hard to come by, with one source alleging yesterday that yards were using the claim of hefty hedging losses as an excuse for refusing to renegotiate contracts.

South Korean shipbuilders have also been criticised for not fully understanding the depth of the slump that they had helped to create by urging boxship owners at the height of the boom to place orders or risk losing newbuilding berths to tanker or dry bulk owners.

But German shipowners Bertram and Erck Rickmers refuted those suggestions last week, insisting that the shipyards were being very constructive in discussions with owners and doing what they could to slow production schedules.

Other allies also say the South Korean yards are making every possible effort to help customers through the worst market that the industry has ever encountered, but have finally decided that �enough is enough�.

Should any customer not make the next due payment on time, that could be the trigger for another phase of this industry catastrophe, with the owner at risk of being declared in breach of contract and local courts then appointed to dispose of the asset.

Major South Korean shipbuilders are thought to have sought joint legal opinion on what to do in the event of a default, and were advised to continue construction work rather than leave a ship half built.]]>

Different outlooks

Richard Meade — Tue, 16 Jun 2009 00:00:00 BST

THE state of the shipbuilding market has always been a somewhat subjective call, dependent on an individual�s interests, financial exposure and temperament. But it is becoming increasingly clear that geography is also colouring perception, particularly when it comes to order cancellations.

Accurate assessments of the situation remain irritatingly elusive, but that has not stopped a wide spectrum of opinions being advanced with great authority.

Last week Lloyd�s List witnessed DryShips� George Economou confidently forecasting that up to 50% of the dry bulk newbuilding orderbook would be cancelled or suffer delivery delays in the next three years.

Even as he was speaking, downstairs in the same hotel a group of senior Chinese shipyard executives were scoffing at such exaggerations and what they see as the vested interests that fuel them.

Out of the 20 shipyards represented none had agreed to a cancellation and even the most cautious minds present refused to put the dry bulk cancellation figure at much over 10%.

For tankers and containerships they unanimously suggested an even lower figure.

Meanwhile, in South Korea this week it seems yards have finally lost patience and are ready to pull the plug on those owners pushing for delays and price cuts.

The differing levels of optimism and willingness to cut deals has much to do with the deposits taken by yards and the level of support being offered by governments.

But it is also a question of relationships, trust and how individuals see the future developing. From the Chinese perspective, it seems clear that the future looks a lot brighter than it does in Europe right now. ]]>

Wanted: fresh ideas

Lloyds List Comment — Tue, 16 Jun 2009 00:00:00 BST

CONTAINER lines are being squeezed from both sides. On the one hand, freight rates on major trade routes remain under severe pressure. On the other, both owners and operators are having only modest success delaying newbuilding deliveries.

That leaves the industry with a massive supply and demand imbalance that looks set to last for years.

Now another issue has to be factored into the equation � rising oil prices. More expensive bunkers will not only create problems for those that have agreed all-in rates that combine ocean transport and fuel costs, but will also force lines to reconsider routings.

Already, a number of carriers that were diverting their Asia-Europe services around the Cape of Good Hope while fuel was cheap, in order to avoid Suez tolls, have done their sums again and decided that no longer makes sense.

With oil prices on the rise, they are now reverting to the shorter route. The longer voyage around Africa had also helped to absorb more ship capacity, with an extra vessel needed to maintain weekly schedules.

So what happens next?

More lay-up is an obvious solution, but many shipowners are loathe to mothball an expensive ship, since no-one really knows what harm is caused if an engine is shut down or computer system turned off for any length of time.

That leaves speed. Lines have been slowing their ships for a couple of years, but is the next step an even more drastic reduction?

That may not work well for older ships with less sophisticated engines, but is feasible for some of the new generation that could be operated at much lower speeds without damaging propulsion systems.

This crisis requires some very creative thinking, with innovative solutions required to survive the next few years.

However, the most imaginative ideas some lines can come up with is to cut freight rates. If the rumours are correct, that is what one carrier that has just been bailed out is doing right now � hardly the most sensible response since others will just follow suit, so exacerbating the downward spiral. ]]>

Crucial week for Eastwind

Lloyds List Comment — Mon, 15 Jun 2009 00:00:00 BST

THIS week is crucial for troubled reefer owner, Eastwind Group, as executives hold desperate talks with bankers and creditors.

News has been circulating within the reefer industry of privately-held Eastwind�s financial strain for several months.

That is not surprising given that any owner or operator of specialised reefer tonnage with exposure to the spot market is finding current conditions challenging.

Average May rates were at their lowest levels in 20 years for modern vessels, some brokers reported.

Exacerbating woes were pathetic seafood volumes in the Falklands Islands during the usual March-April high season, which hit the frozen fish market.

That saw business dry up for about 60 ships from the freezer fleet, which then sought work in competing trades, further dragging down rates.

New York-based Eastwind�s website says it operates a reefer fleet of 60, but recently it began re-delivering some of its time chartered ships early.

The company�s problems were the talk of the reefer sector�s key players, around 250 of whom gathered at a homestead in Luton, in the English county of Bedfordshire last Friday for their biennial summer party.

Executives with links to Eastwind Group remained tight-lipped about the company�s prospects at the informal event.

While only Eastwind and its bankers know the truth, financial pressure must have chiefly arisen from an ill-timed diversification into the volatile dry bulk, container and tanker sectors.

The company�s dry cargo arm was hit late last year by defaults from South Korean charterers.

Many of the 16 containerships or refrigerated containerships owned by an Eastwind subsidiary have a capacity of 1,000 teu-2,500 teu, the size worst affected by the terrible slump in containership demand.

That same subsidiary also ordered eight bulk carrier newbuildings of between 28,000 dwt-33,000 dwt, and converted tankers into bulk carriers just before the market collapsed.

Times are so tough, there are now around 118 ships from the specialised reefer fleet of 1,140 without business, or at anchor, for the summer off-season, according to data from Lloyd�s Marine Intelligence Unit.

Just how many from Eastwind�s fleet will join these vessels will be decided this week. ]]>

Keeping piracy in check

Richard Meade — Mon, 15 Jun 2009 00:00:00 BST

A ROBUST naval presence off the coast of Somalia may not be the piracy panacea that we are all looking for, but the protection it offers remains a vital lifeline to the shipping industry.

Given the financial costs involved and the diversion of more immediate political distractions, there has been an underlying fear within the industry that governments may be tempted to quietly scale back their commitments.

The fact that the European Union�s Operation Atalanta has now been extended for another year and NATO has committed a second task force, should go some way to allaying those concerns.

The message behind these decisions is clear � piracy is expected to constitute a �serious threat� for the foreseeable future and despite the tentative diplomatic steps being taken on shore, naval forces are still being relied upon to offer protection.

Even with this substantial military presence, close to 30 vessels have already been seized this year and NATO has counted 114 pirate attacks, more than in all of 2008. Without the Navies this figure would have been far higher.

There is no single solution to the problem, but it seems likely that long-term diplomacy coupled with extensive financial aid and deft political support, both from international donors and neighbouring states, will form the bedrock of any sensible plan.

In the meantime it is crucial that as the dramatic headlines gradually disappear further down the global news agenda, the world is not allowed to once again turn its back on Somalia or forget the threat that unchecked piracy poses to seafarers lives and world trade. ]]>

Hebei Two hopes

Marcus Hand — Fri, 12 Jun 2009 00:00:00 BST

IT IS extremely good news that the Hebei Two are finally being allowed to leave South Korea and go home.

However, elation at the freeing of Jasprit Chawla and Syam Chetan should not be allowed to overshadow the fact that they leave South Korea with criminal records, having gone through a harrowing and wholly unnecessary 18-month ordeal.

Nothing can change the fact that two seafarers spent over a month in prison for charges that were ultimately dismissed by South Korea�s courts or that they were detained in the country for 18 months. But their names should be cleared.

Convictions and fines remain against the two men for not doing enough to prevent oil leaking, even though the initial verdict from the Daejon District Court in June last year found them innocent of all charges.

Being left with a criminal record has a clear consequence for both men, especially should they want to stay in the international shipping industry.

It is good to see industry organisations such as Intertanko and ship manager V.Ships saying they will fight to clear Capt Chawla and Mr Chetan�s names completely.

Beyond this the focus should be on avoiding similar incidents of criminalising seafarers for simply doing their jobs.

The united front the industry has shown in bringing the plight of Hebei Two to world attention should not be allowed to dissipate. Instead, it should be strengthened. ]]>

Beware junk bond risks

Lloyds List Comment — Fri, 12 Jun 2009 00:00:00 BST

SHIPPING may soon have a chance to redeem its tarnished reputation in the US high-yield bond market.

In the words of one investment banker, the overall high-yield market has been �on fire�, with new issues raising $56bn in fresh capital.

Shipping has yet to participate in the revival of the high-yield � or junk � bond market but is expected to do so before the year is out.

It is to be hoped the next spate of shipping high-yield bonds sets a better example than those which came to the market the last time it was �on fire� in the late 1990s.

Between 1997 and 2001, shipping companies raised $4.5bn in the bond market, but losses amounted to almost 50% of par value. Few bonds were repaid on time, two honourable exceptions being Eletson and Ultrapetrol.

To shipping�s shame, it was the worst single industry default record since the Great Depression.

With high-yield pricing becoming more attractive and bank debt scarcer than anyone can remember, owners might be tempted to return to this market.

Yields have dropped dramatically in recent months, with 8%-10% now common for a double-B rated issuer, and around 12% for a single-B company.

Though still more expensive than bank debt � if you can find it � bonds have the advantage of being non-amortising, enabling the owner to deploy cash in the business that would otherwise have been applied to repaying principal instalments.

Should owners decide to tap the bond market, history does not have to repeat itself.

It is true that many of the financiers who put together the deals that went so badly wrong a decade ago have moved on, and not necessarily of their own volition. But bankers and investors have hopefully not forgotten some of the hard lessons from shipping�s last bond market debacle.

A greater focus on vessels with forward employment of more than a single voyage, rather than buying or building on a speculative basis, would be a good start.

As Hamish Norton, head of maritime at investment bank Jefferies & Co, observed last week: �The market is not closed to shipping if the deal is structured properly.�

This should not be too challenging, as issuers in other industries have demonstrated. ]]>

Lights out

Janet Porter — Thu, 11 Jun 2009 00:00:00 BST

BRITAIN�S maritime community is admonished from time to time for failing to get its message across to government more effectively � hence the formation of One Voice last year to present a united front.

But it cannot be easy for shipowners, port authorities or the rest of the industry to build up a good rapport with the country�s political leaders when shipping ministers come and go so frequently.

Most have lost count of how many ministers have been given the shipping portfolio over the years � at one stage, there seemed to be reshuffles every few months.

The latest incumbent has got off to a bad start as far as UK shipping is concerned. Less than 24 hours in his new job, and Paul Clark had to announce an increase in light dues. He would not have been involved in the consultation, and probably has little idea yet of what the fuss is about.

This is far more than just a straightforward tax increase. Shipowners want the three lighthouse authorities to be amalgamated, but that touches on all sorts of political sensitivities, given that the Commissioners of Irish Lights was set up before the Irish Republic was founded, and that tampering with the Northern Lighthouse Board for Scotland would run into Scottish independence aspirations.

Mr Clark will almost certainly move on before most in the industry have a chance to establish any sort of relationship with him. He probably has little interest in light dues. Yet for the shipping industry, Wednesday was a black day.]]>

Do you agree there will be no dilution of quality under new IACS anti-trust membership rules?

Lloyds List Poll — Thu, 11 Jun 2009 00:00:00 BST

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Brussels demands new entry criteria for IACS members

Richard Meade and Tony Gray — Thu, 11 Jun 2009 00:00:00 BST

THERE will be no dilution of quality within the International Association of Classification Societies following a preliminary agreement with Brussels competition authorities that could see the class association open up its membership and provide access to technical information.

The European Commission�s competition directorate yesterday published its long-awaited Market Test Notice, which provides a summary of its current investigation into IACS.

The document, which confirmed that the association�s membership criteria and transparency had sparked the initial concern from European Union regulators, laid out a series of new commitments that IACS members will have to abide by if confirmed.

This includes a new approach to assessing applications for membership based more on qualitative rather than the existing quantitative criteria.

Under the new rules, non-IACS members will be entitled to apply for membership if they can demonstrate that they have fulfilled new quality criteria, effectively removing the traditional size barrier to entry. Applicants will also have recourse to an appeals board, appointed by IACS but independent of the association�s control.

The new commitments also propose opening access to IACS� technical working groups to non-member classification societies and further developing the sharing of background information used in the development of IACS technical requirements.

IACS remains confident that the commitments, which have been published in full on the EU competition directorate�s website, can be accommodated while still allowing the association to maintain its current standards.

�This is all part of the very careful dialogue we have had with the commission to ensure that there is no dilution of the quality of our work,� IACS permanent secretary Richard Leslie told Lloyd�s List.

Under the process set out by the commission, the agreement is now open to market scrutiny for a period of one month. If no objections are forthcoming, IACS hopes it can put an end to the investigation that was launched by the commission in January 2008. If objections are raised, however, this could take considerably longer.

Once agreed, the commitments become legally binding, and should IACS be found in contravention of these rules it and its members will be liable for a fine of up to 10% of its total worldwide turnover.

While IACS does not agree with the commission�s findings or concerns raised, it is confident that the new commitments will put an end to the investigation. It is, however, unclear what immediate impact such an agreement could have on the association�s membership structure.

Following the publication of the commitments, the Polish register PRS yesterday confirmed that it would �welcome a return to IACS�.

The Hellenic Register of Shipping, meanwhile, was unavailable for comment, but is widely viewed as an obvious candidate to make a play for IACS membership under the new commitments.

IACS officials, however, admit that there are far more than just these two societies that could potentially attempt to join.

�The key question there is, how many of them develop their own rules, which is of course the element that distinguishes an inspection body from a classification society � and that varies,� said Mr Leslie.

�I don�t think there are that many outside of the 15 or so that everyone knows about, but there are about 65 that could potentially apply � in which case our appeals board is going to be quite busy.�

IACS was unable to speculate about the potential effect an increased level of non-member class societies would have when it comes participation in IACS technical groups, because nothing has yet been agreed.

Mr Leslie said the international association would �strive to ensure the efficiency and quality is maintained throughout the process; that is what this is all about�.

IACS chairman Oh Kong-gyun said: �The primary concern of all IACS member societies is to promote the safety of life, property and the natural environment.

�We believe the commitments we have offered to the commission are in line with those core principles and are also closely aligned with the commission�s own approach to evaluating recognised organisations.� ]]>

Greenocrat emissions

Lloyds List Comment — Thu, 11 Jun 2009 00:00:00 BST

THE English language added its millionth word on Wednesday, and Lloyd�s List would like to add another, if it has not been coined elsewhere: �greenocrat�.

Also mid-week, the people this term describes � environmental policymakers, technocrats, lobbyists, hangers-on and delegates from 181 nations � were wrapping up United Nations-led climate talks before the post-Kyoto summit in Copenhagen.

The greenocrats� aim in Bonn was for all developed nations to emerge with 2020 emissions targets. And one certainty that has emerged for shipping amid this babel is that it is on course for a level of scrutiny it only usually endures at the eye of a public storm over, say, an oil spill or the large loss of life at sea.

The UN Framework Convention on Climate Change summit host, Denmark, has sought to bring something to its guest greenocrat�s high-table in December. A previous scheme, the bunker fuel levy, will be wheeled out accordingly at the International Maritime Organization�s maritime environmental protection committee next month in London.

The Danish scheme has attractions. It raises money from the polluter, and places this via registered fuel sellers with an international fund, which redistributes to the world�s poorest countries to invest in sustainable technology.

It is relatively transparent and simple. It acts as an ethical sop, feeding those needing to give and those in need of giving. And it promises big business the opportunity to reap back profit through flogging its inventions and expertise to the less developed world.

But there are problems. Without a cap, is the levy just an exercise in collecting for good causes, thereby opening the way for politicians and government to bring their special touch to these funds? Will it need a credit-and-offset mechanism anyway?

The scheme raises profound questions of governance and accountability. Who will collect and invest this money? Who will verify compliance? Who, in short, will police the policeman? More greenocrats?

Which raises a further question: can we control this new technocratic bureaucracy, let alone greenhouse emissions? ]]>

A volatile future

Marcus Hand — Wed, 10 Jun 2009 00:00:00 BST

THE sudden spike in the dry bulk shipping took pretty much everybody by surprise. Based on underlying fundamentals, there seemed very little hope that dry bulk markets would see much improvement for a long time to come. Anyone who has followed the very large crude carrier market over the last decade will have noted its propensity to soar from near breakeven levels to $200,000 a day within four or five weeks, and then come crashing down again.

Very small changes in short-term supply and demand, with little bearing on long-term fundamentals, often have a huge impact on rates.

The once sedate dry bulk shipping markets have been heading in the same direction since the third quarter of 2003.

With China such a key buyer of iron ore, which in turns drives the capesize market, short-term factors have come into play in terms of sudden shifts of the market.

No, the long-term market fundamentals do not justify the recent spike in rates, and that is why they will almost certainly crash back down again later in the year.

Ever-increasing volatility is something dry bulk shipowners and operators will have to get used to, whether they like it or not.

It presents great opportunities to make money if the market is played correctly, but also the risk of things going spectacularly wrong, as a number have found out to their cost over the last nine months.]]>

Bankers in distress

Lloyds List Comment — Wed, 10 Jun 2009 00:00:00 BST

BANKS have a key role to play in deciding the course of today�s shipping crisis. The banks are struggling to minimise losses in shipping portfolios and contain exposure to an industry with problems almost as great as their own.

The manner in which they cope with these strains on their balance sheets will also help to shape the structure of the shipping industry.

There is a growing body of opinion, for example, that suggests that banks are increasingly using the fall in asset values to trigger a withdrawal from financial commitments on newbuilding orders.

Using minimum value clauses as a means of reducing, legitimately, the banks� exposure to newbuilding contracts will be an influence on the number of cancellations shipbuilders are sustaining, and thus on the future level of shipping capacity and freight rates.

Many banks will also have clients who are struggling to make financial ends meet in today�s freight markets. The banks will be working overtime to resolve potentially distressed loan situations in a way that does the least harm to their balance sheets.

One method of achieving such an outcome could be to engineer the transfer of tonnage from weaker to stronger owners, both of who may be their customers.

To make this attractive to the stronger owner, the banks could provide softer financing terms and possibly in return gain some exposure to the upside through an equity kicker such as warrants or convertible bonds. By transferring the ships to an established owner the banks may not avoid financial risk, but they can minimise the commercial and technical risks.

It is also possible distressed shipping assets could find their way into a more conventional joint venture structure between banks and shipping companies, or trusts.

Whatever routes banks choose to deal with distressed situations, they are unlikely to be able to avoid losses in their shipping portfolios.

One thing that is certain, however, is that the banks will do their utmost to avoid becoming shipowners.]]>

What price choice?

Lloyds List Comment — Tue, 9 Jun 2009 00:00:00 BST

CONTAINER lines have cried wolf so many times in the past that it would be easy to dismiss their latest dire warnings as yet another false alarm.

This time, though, the doomsday scenario being depicted is probably justified.

For unless global carriers manage to raise freight rates in the Asia to Europe trades, some will almost certainly not survive.

That is because, unlike in the past, there are no major trade lanes elsewhere that are doing well enough to compensate for losses in the Asia-Europe trades.

Two years ago, when Pacific trades started to soften, lines were still earning bumper results from their Asia-Europe services. When that trade lane began to weaken a year ago, most ocean carriers still had plenty of reserves after five boom years.

Now even those with the deepest pockets are hurting and telling customers that they must pay more for ocean transport if they want to enjoy a choice of services from quality operators.

But does it matter if some lines fail?

That is what both shippers and those shipowners with long-term global ambitions must be asking as they respond to efforts to raise westbound freight rates out of Asia by a few hundred dollars.

Many senior liner executives believe the only way to obtain a good rate of return from container shipping is to reduce the number of players in the main trade lanes to just a handful, rather than about 20 that operate in the longhaul trades.

For their customers, would having fewer alternatives make much difference? Would those shipping cargo from Asia to North America or Europe suffer if they only had a choice of half a dozen lines rather than a couple of dozen?

In fact, with so many carriers operating through alliance or slot sharing arrangements, that apparent choice may not really exist. But numerous individual companies each trying to fill container slots do keep prices down.

That leaves shippers with a dilemma. If they refuse to pay more, some lines will go under, leaving the survivors with greater opportunity to force freight rates up. ]]>

Looking long term

Richard Meade — Tue, 9 Jun 2009 00:00:00 BST

OPTIMISM is a rare and valuable commodity right now, so as the Nor-Shipping festivities kick off in earnest it is heartening to see that the wine glasses are still half full rather than half empty.

Official numbers at trade fairs can mask a multitude of problems, but on the face of it there is a clear indication that the industry is still out to do business.

Inevitably there is much talk of challenging conditions. Even before the fair could open its doors, speculation over possible victims of the downturn was keeping Oslo�s grapevines twitching. There is, however, also a wider sense of perspective.

The Norwegian Shipowners� Association is pushing the line that this is a short-term crisis with long-term business opportunities, and in many ways they make a valuable point.

Given the long-term decisions that face owners, not least in terms of their hardware, shipping is still a long-term industry. While the minority are struggling with a short-term battle for survival, a greater number are more concerned with jockeying for position come the upturn.

As one industry voice recently put it, there are a number of �wealth redistribution opportunities� in the current market. And when world trade eventually steps up a gear, some companies will be far better placed than others to take advantage.

Taking the immediate crisis in hand is of course vital, but restructuring and consolidating for the long term is surely a far more positive process that we should all focus on. ]]>

Strasbourg loses maritime allies

Lloyds List Comment — Mon, 8 Jun 2009 00:00:00 BST

THE European Union has often been accused of lacking technical expertise and knowledge of the maritime industries.

While it tackles issues of great importance for industry, its officials and parliament members are simply not up to the job, some claim.

Over the last five years, in part thanks to the growing influence of the European Maritime Safety Agency, these criticisms have subsided. The European Commission in particular has become much more industry-friendly and has shown itself to be more than willing to listen.

The European parliament on the other hand has been quite anti-shipping. The industry has since the Erika and Prestige disasters been seen by many MEPs as dirty and unwilling to conform to new safety standards.

The parliament has opposed calls for global legislation and often criticised the International Maritime Organization for being too slow and lacking political clout.

If it were not for a few allies in parliament, the last package of maritime safety legislation might well have been significantly more severe.

In this context, the latest election results were always going to be worrying. Several MEPs with maritime experience have retired, which means few are left. Belgium�s Dirk Sterckx, happily, is one of them.

It is not that MEPs such as Mr Sterckx are natural allies, it is that they know enough about the maritime industries to form a reasonable opinion. This is often enough to ensure commonsense prevails.

Now that maritime experts are few and far between, will there be sufficient allies in Strasbourg to take the rough edges off the more virulent opinions?

We fear not, though given the notorious unpredictability of European parliament voting, anything is possible. ]]>

Shipping not out of the woods yet

David Osler — Mon, 8 Jun 2009 00:00:00 BST

THE recession is over. That�s the conclusion of 11 of the 20 City economists polled by the Financial Times today. Most of the rest think the upturn cannot be far away.

As the joke goes, economic forecasting exists to make astrology look good. Remember that the trade didn�t see it coming, so its predictions need to be tempered with an appropriate note of caution.

Yet a glance at shipping markets provides cautious evidence for the upbeat case. Although off slightly in recent days, the Baltic Dry Index peaked at 4,291 last Wednesday, its highest close since September, after 23 successive daily gains. That marks the best run since July 2006.

Tuesday last week saw the Baltic Capesize Index rocket 18% in a single day, as congestion in China tied up around 10% of vessels in this size bracket. Capers are fetching $95,000 per day, up from just $2,000 per day earlier this year, the sterling equivalent of which would not buy you a bespoke suit at a better Saville Row tailor.

Other sectors remain downbeat. You can still get a box from Hong Kong to Rotterdam for as little as $250 per teu, something that would have set you back $1,400 about a year ago. Even so, observers are tentatively predicting a limited upturn.

Car carrier operators are still hurting badly, with the number of idled vessels three times the size it was three months ago.

Yet even here, there is a sense that the worst is over, as inventory run downs make for the reopening of mothballed manufacturing plants. Only for tanker owners - still not even recovering their operating costs - is the picture truly and unremittingly bleak.

So from the shipping point of view, the recession is very much still with us until the numbers irrefutably show otherwise, although things may now be less bad than they have been of late. Let�s just hope all those highly-paid economists know what they are talking about. ]]>