The Baltic Summer 2013 by Think Publishing

COLD AWAKENING The communications needs of the Arctic shipping boom THE BALTIC

COMING IN TO LAND Why canny onshore businesses are snapping up ex-seafarers

THE OFFICIAL MAGAZINE OF THE BALTIC EXCHANGE SUMMER 2013 | WWW.THEBALTIC.COM | OUR WORD OUR BOND

PLAN B How shipping operators can endure disaster

SHIP TO SHORE SUMMER 2013

THE MARITIME LABOUR CONVENTION 2006 WILL GIVE SEAFARERS THE SAME LEVELS OF WELFARE AS WORKERS ON LAND. BUT WHAT WILL IT MEAN FOR THE INDUSTRY AS A WHOLE?

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CHAIRMAN'S MESSAGE Summer 2013

WELCOME TO THE BALTIC The Baltic’s message is being heard, says chairman Quentin Soanes

ILLUSTRATION: LAUREN CROW

An important part of the Baltic Exchange’s role is to ensure all our members’ concerns and interests are raised at national, regional and international level. We have found in our dealings with different governments around the world that the understanding of the role and needs of the bulk shipping industry varies greatly. It may not be a huge vote winner, but the British political establishment is beginning to understand that perhaps there’s more to the maritime sector than beach holidays and fishing trips. The recent announcement by the UK government that it is creating an industrial strategy that takes the views of our huge and world-beating commercial maritime business community into consideration is welcome news indeed. I really do feel the British government is beginning to get it. The message that the success of UK-based Baltic Exchange members depends on there being a stable tax regime and a can-do approach to foreign businesses from government is being heard. Whether it is tonnage tax, the tax arrangements of international shipowners, bulk shipping pools, the planning regime for ports, or balancing the needs of offshore windfarm installations with the need for clear shipping lanes, the issues faced by UK maritime businesses are being taken into consideration by government. I won’t pretend reaching this point has been easy. It has been the result of the UK maritime industry finally getting together and speaking with one voice. To this end Maritime UK was set up a couple of years ago. The Baltic, representing much of the City’s chartering and commercial maritime interests, sits on the steering committee, together with port interests, the UK Chamber of Shipping, Maritime London, the Institute of Chartered Shipbrokers and the Passenger Shipping Association. Together our members

It is not just the UK where the Baltic has a voice and associated businesses contribute £31.7bn to UK GDP, support 537,000 UK jobs and provide £8.5bn in UK tax. That’s something we can all be proud of, and something that has made legislators take notice. We all know how important government support is and how mobile businesses are. We want the UK to remain a world-beating maritime cluster. I would encourage all members and readers to get involved with London International Shipping Week, on 9-13 September this year. With your support we can grow the profile of our sector. It is important that the Baltic provides this advocacy role for its members, and we will continue to ensure members are heard at the highest levels. We are part of a cross-government forum with the Department for Transport, the Cabinet Office, and the Department for Business, Innovation and Skills, and we hope to

help shape government strategy in the commercial maritime sector. However, it is not just in the UK where the Baltic Exchange has a voice. We have a small but growing office in Singapore, and plan to open an office in Shanghai shortly. Our membership reflects the eastwards shift of shipping activity and the new generation of shipowners, brokers and charterers in China, Singapore, Hong Kong, Indonesia and India. We had early success with the Chinese authorities ensuring shipbroking businesses received official designation and therefore legal status, and I’m pleased with the progress we have had with the Singapore authorities over frothy bunkers. Partly as a result of our intervention, Singapore bunker deliveries must now adhere to the Singapore Standard Code of Practice for Bunkering (SS600), which covers pre-delivery, actual delivery and postdelivery checks and documentation. A 24-hour bunkering assistance hotline has also been set up. In Athens, we now have a full-time representative, and we will be taking part in a Greek and British governmentsupported forum at the British embassy designed to build on links between the UK maritime services community and Greek shipowners. I’m delighted that Stephen Hammond, the British shipping minister, will be joining us there. On a separate note, it has now been two years since the launch of Baltex, the Baltic’s trading screen for the dry freight derivatives market. To date, there has not been a significant shift towards screen trading, despite the presence of 33 major FFA trading principals on Baltex. We believe legislative pressures will make screen trading necessary in the not-too-distant future. To build liquidity on Baltex and to give today’s freight derivative pioneers a stake in the future, we have launched an equity earn-in initiative that gives brokers Baltex shares in return for putting trades through the screen. If this gains traction, I am hopeful Baltex will establish itself as an accepted central platform for the market. Further details of this initiative can be found on page 11. www.thebaltic.com SUMMER 2013

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FAIR TRADE

Our seafarers are finally getting the recognition they deserve under the incoming Maritime Labour Convention. But what makes this widereaching welfare resolution unusual is the fact that its creation was initiated by owners and operators in recognition of the obligation they have towards their offshore workers. It’s refreshing that owners and operators are being proactive in their desire to meet today’s corporate social responsibilities. Let us hope that this is a precursor of greater things to come as we strive towards a fairer working environment for all who are touched by the shipping industry. Carly Fields

THE NEW STRATEGIES OF PIRACY – PAGE 44 ROBERT FLYNN OF MJLF & ASSOCIATES – PAGE 38

EX-SEAFARERS IN THE OFFICE – PAGE 34

THE BALTIC Editor Carly Fields Art director Darren Endicott Senior designer Clair Guthrie Senior sub-editor Alec Johnson Publisher Sam Gallagher Publishing director Ian McAuliffe Advertise with us: For all enquiries, contact Adam Lloyds at adam.lloyds@thinkpublishing.co.uk or +44 (0)20 8962 1253 Subscriptions This magazine is free to members of the Baltic Exchange and qualifying non-members. Others may purchase an annual subscription for £140. Contact baltic@thinkpublishing.co.uk The Baltic © 2013. Published on behalf of The Baltic Exchange by Think, The Pall Mall Deposit, 124-128 Barlby Road, London W10 6BL, UK +44 (0)20 8962 3020 The Baltic Exchange is a membership body at the heart of the global maritime market. It publishes freight market information that benchmarks freight rates across the major vessel sizes used to ship dry and wet bulk commodities. Its indices are used to settle Forward Freight Agreements (FFAs) used as a means to hedge exposure to freight market risk. The Baltic Exchange also publishes a daily fixture list, market commentary and FFA assessments.

FEATURES

HOT TOPIC Polar communications Beate Kvamstad highlights the new communications requirements of Arctic shipping, and surveys the changes that will be needed if the growth in high-latitude trade routes is to continue.

HOT TOPIC Maritime Labour Convention 2006 The convention takes effect in August, enforcing stringent requirements throughout the industry. James Graham investigates how the changes will affect shipowners and employers.

BUSINESS BASE Contingency planning Sometimes it’s impossible to prevent a crisis. At that point the priority shifts to dealing with it – an area where good

28 4

preparation can mean less harm and lower costs. Andrew Williams finds out how business continuity management can help shipping defy disasters of all kinds. RECRUITMENT Bridge the gap Mark Charman explores the career opportunities for seafarers moving into the shore-based side of shipping, and how businesses from insurers to naval architects can benefit from their experience.

IN THE DOCK Robert Flynn The president and chairman of the board at MJLF & Associates tells Carly Fields about his 34 years at the company, and shares his thoughts on eco-ships, market forces, a life in shipbroking – and opera.

SUMMER 2013 www.thebaltic.com

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CONTENTS SUMMER 2013

WWW.THEBALTIC.COM

OUR WORD OUR BOND

THE OFFICIAL MAGAZINE OF THE BALTIC EXCHANGE //

FRONT

WELCOME The Baltic Exchange is working to give members a voice in Whitehall, says chairman Quentin Soanes.

QUARTERLY DIGEST Key developments from the past three months in shipping, including Lloyd’s forecast for 2030.

OPINION Dr Richard Ward argues that the salvage industry is losing its ability to deal with today’s massive vessels.

15 //

BACK

BRIEFING Condition monitoring Dr Steve Dye explains how to save money with real-time reporting of vessel maintenance needs.

64 HOW TO RESPOND TO THE MARITIME LABOUR CONVENTION – PAGE 18

OPERATIONS Low-sulphur fuels With the North American Emissions Control Area now finishing its first year of enforcement, Adrian Tolson analyses its impact.

SHIP MANAGEMENT Security West African piracy is gaining strength and changing its tactics. Stephen Spark sorts through the viable responses and the lessons learned from Somalia.

OPERATIONS Ship finance Craig Jallal looks back over the years charted by the Baltic Sale and Purchase Assessments, from boom to bust.

MARKETS Reefers Clive Woodbridge is heartened by signs of recovery in the specialist reefer market, but knows the dark times aren’t quite over yet.

PORT FOCUS Middle East Long-term economic investment is shoring up the future of maritime infrastructure throughout the region, creating new potential in Oman and Saudi Arabia, as Clive Woodbridge discovers.

PORT FOCUS News in brief The latest snippets from Russia, Singapore and the US.

DOCUMENTATION Wind farms Grant Hunter introduces BIMCO’s new Windtime standard contract for the offshore turbine sector.

INSURANCE Signatures Why Andrew Jamieson believes brokers should be wary when asked to sign documents on behalf of principals.

P&I BRIEFING Delays There’s no easy way to insure against lost time, but there are options, according to Gavin Ritchie.

LEGAL BRIEFING Asset recovery and slow steaming Andrew Mitchell QC on reclaiming ransom payments, and Daisy Rayner on a dispute over vessel speed.

SPECIAL REPORT Connecticut Maritime Association Conference 2013 Barry Parker reviews a panel discussion on the future of the freight market, chaired by the Baltic’s Jeremy Penn.

MEMBERS’ NEWS Round-up of activities and events Featuring fundraising activities, fiercely competitive go-karting and London International Shipping Week.

WHAT A DAY! Always on the move Twenty-four hours in the life of Simon Swallow of the Shipowners’ Club.

www.thebaltic.com SUMMER 2013

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Program Overview The program consists of eight one-week modules plus a final integrating strategy project (thesis). All modules will deal with leadership issues and personal development. In the process of working with the integrating strategy project (ISP) the participants will give three presentations and the last presentation will function as the oral defence of the ISP/thesis.

Participants study the material in between sessions and write an assignment for each module. These assignments, as far as possible, will be focused on a problem related to the candidateâ&#x20AC;&#x2122;s own firm. For the final integrating strategy project, topics should be chosen for their strategic purpose and integrating function, giving participating companies a valuable and practical analysis.

Each module presents theories and gives a thorough introduction to reading material and motivates participants for their independent studies.

Pre-MBA (optional) Module 00

Accounting and international economics

18-20 Sept. 2013

Copenhagen Denmark

23-28 Sept. 2013

Copenhagen Denmark

02-06 Dec. 2013

Copenhagen Denmark Copenhagen Denmark

Shipping as a Business and a Market Module 01

Shipping as a business and a market + Leadership

Understanding the Global Environment Module 02 Module 03

Supply-chain management â&#x20AC;&#x201C; new logistical challenges International economics and market analysis + Leadership

10-15 Feb. 2014

Focus on Maritime Issues Module 04 Module 05

Ship design 07-11 April 2014 The maritime legal framework Operational management and information technology 23-28 June 2014 + Leadership

Hamburg Germany Copenhagen Denmark

Core Management Issues Module 06

Investment analysis, risk management and finance

01-05 Sept. 2014

Module 07

International marketing and organization Introduction to ISP Process Managing strategy and change Introduction to Industry Analysis + Leadership

03-07 Nov. 2014

Module 08

12-17 Jan. 2015

London UK Copenhagen Denmark Copenhagen Denmark

Integrating Strategy Project (ISP/Thesis) Presentation of Industry Analysis Introduction to Company and Issue Analysis Presentation of Company and Issue Analysis Introduction to Implementation Plan Presentation of the ISP with Implementation Plan (oral defence)

18-20 March 2015

Graduation

08 August 2015

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20-22 May 2015 05-07 August 2015

Copenhagen Denmark Copenhagen Denmark Copenhagen Denmark Copenhagen Denmark

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DIGEST Breakbulk safety, 2030 predictions

QUARTERLY DIGEST ■ SHORTS

Not all shipowners and operators will survive the current recession, and this will have a knock-on effect on seafarers who are caught up in the resulting bankruptcy cases. Any cover that does not provide for the indemnification of unpaid wages fails to adequately protect seafarers Thomas Brown, managing director of Seacurus

CLEAN WIN FOR RWO The US Coast Guard has stamped its Alternate Management System (AMS) seal of approval on RWO’s CleanBallast system. RWO is one of the first companies to receive AMS approval, confirming the effectiveness of its CleanBallast water treatment technology. To date, CleanBallast has been selected by customers from Belgium, China, Canada, Cyprus, France, Germany, Hong Kong, Japan, South Korea and the Netherlands for vessels including container, bulk carrier, heavy lift, ro-con, multipurpose and tankers.

■ BREAKBULK

JODY F MILLENNIUM, GROUNDED IN 2002; NOW BREAKBULK CAN ADD STOWAGE DANGERS TO ITS PROBLEMS

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PHOTOGRAPHY: CORBIS

STOWAGE FAILINGS

An increase in claims involving poor stowage and securing of breakbulk cargoes has prompted GT North P&I Club to remind masters of their duties under the International Convention for the Safety of Life at Sea. Poor stowage can lead to shifting at sea, putting ships, cargoes and seafarers at risk. North’s head of loss prevention, Tony Baker, says these bad practices “are particularly prevalent in Chinese ports and have led to cargo shifting and stows collapsing during voyages.” Problems include over-stowing incompatible cargoes and improper or insufficient use of lashings, dunnage and shoring. “We are aware of instances where masters have challenged stevedores on the method of stowage and securing of the cargo and yet stevedores have ignored these objections,” says Mr Baker. “It is vital in such situations that masters exercise their authority and stop further loading until satisfied.”

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■ FORECASTING

COLLABORATIVE REPORT GAZES INTO THE FUTURE OF SHIPPING of the large traditional shipowners of Greece. These are some of the outcomes predicted by Global Marine Trends 2030, modelling report released by Lloyd’s Register, Qinetiq and Strathclyde University. The report considers the future of shipping under three key drivers: population growth, economic development and demand for resources.

Fast forward 17 years from now to a world where China owns a quarter of the merchant fleet, consumes three times as much oil as it does today and demands 60% of the world’s coal production. Pair this with 100 times as many offshore wind platforms, a plummeting European share of the containership market, and the reduced dominance

Overall, the report sets out an optimistic vision for shipping. “Anyone looking for a future in an important sector [has] to consider maritime,” said Richard Sadler, chief executive of Lloyd’s Register. “Without seaborne trade, offshore energy and naval power, the geopolitics of tomorrow will be highly fragile.” To read the report, go to www.lr.org/gmt2030.

“We are telling a story with no clear or definitive outcome,” says the report. “But, by examining different scenarios based on major global drivers (such as economic and population growth, resource demand, accelerated technological advances, [and the] rise of consumers and cities in large emerging countries), we can map out divergent futures.”

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Barring cataclysmic change, the China factor will still be the big story in 2030. China, consuming three times as much oil as it does today and 60% of the world’s coal, will be the marketplace for maritime trade Lloyd’s Register, announcing the findings of Global Marine Trends 2030

www.thebaltic.com SUMMER 2013

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DIGEST Product releases, KPI Project advances, Baltex equity scheme ■ EQUIPMENT

METAL MODELLING BREAKTHROUGH

PLASTIC PAD

SHIM PLATE ELASTIC PIECE

LOCKING PIN

HOUSING FRAME

NEW PAD WEARS WELL Cargo Care Solutions has developed a new low-wear hatch cover support pad, which promises financial savings and a reduced fitting time. The manufacturer believes UltraPad offers the lowest wear on the market today, using a special locking pin to speed up mounting. It is the only hatch cover support pad available with Germanischer Lloyd type approval.

A researcher in Finland has made advances in accurate welded steel fatigue that could ultimately lead to lighter, tougher and more energy-efficient ships. Heikki Remes, senior university lecturer at Aalto University, has developed a model to determine how fatigue sets in with various welded steel materials. Presently, classification societies use fatigue measurements based on the average quality of the weld and apply those guidelines to both traditional and more advanced structures. With the new model, it is now possible to consider the difference between traditional and advanced structural joints and the impact on fatigue resistance.

■ SHORTS

ANTIFOULING COMPOUND LAUNCHED

INTERNATIONAL PAINT’S TWO FRESH COATINGS

INSURER’S PLEA FOR PUBLIC MOU DATA

Jotun has introduced a resilient antifouling coating made up of a new compound of resins and hardeners. The antifouling specialist claims that SeaLion Resilient will improve maintenance and docking efficiency, reduce the risk of mechanical damage and maintain hull condition throughout the service period. The coating also provides a smooth surface that Jotun says decreases drag.

Paint and coatings specialist International Paint has launched two new biocidal antifouling systems, based on polymer technology. Intercept 8000 LPP is a biocidal linear polishing polymer that promises predictable, long-term performance for up to 90 months, while Intersleek 1100SR is the first biocidefree fouling control coating, and features a unique slimerelease technology.

The International Union of Marine Insurance has asked that the Paris Memorandum of Understanding on Port State Control make more of its inspection data publicly available. Secretary General Lars Lange asked the organisation to place details of its ship risk and company profiles on Equasis, the public web portal aimed at eradicating sub-standard shipping.

CLEANUP IN NEW JERSEY WAS STILL UNDER WAY 75 DAYS AFTER SANDY STRUCK IN OCTOBER 2012

Cost of Superstorm Sandy to the global marine market, effectively wiping out all US marine premiums for 2012 Source: International Union of Marine Insurance

Source: TT Club

$2.5bn$3bn

The full load of an 18,000 teu containership put end to end

PHOTOGRAPHY: GLYNNIS JONES/SHUTTERSTOCK.COM

■ NUMBERS

SUMMER 2013 www.thebaltic.com

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■ BROKER INCENTIVES

As a matter of principle, it is wrong to impose a tax on one industrial sector in order to assist another, especially without proper consultation with the parties affected. Shipping is a global industry operating under global rules. The European Parliament should really not be contemplating measures which will work against the aim to improve recycling conditions globally, an aim which we fully support The secretary general of the European Community Shipowners’ Associations, Alfons Guinier, speaks out against proposed amendments to a new EU Ship Recycling Regulation that would impose a tax on merchant ships of all flags calling at EU ports, in order to fund ship recycling facilities in the European Union

IN APRIL, INDUSTRY OBJECTIONS LED THE EUROPEAN UNION TO DISCARD A PROPOSED PORT LEVY TO FUND SHIP RECYCLING FACILITIES

BALTIC LAUNCHES BALTEX EQUITY SCHEME In a bid to stimulate use of the Baltic Exchange’s dry Forward Freight Agreement (FFA) trading system, freight derivative brokers putting trades through the Baltex will be given shares in Baltic Exchange Derivatives Trading Ltd (BEDT). The equity scheme complements the Broker Initiator Scheme launched in April, which provides principals with a rebate if a broker enters an order on their behalf. Under the equity earn-in plan, BEDT will issue warrants for New B Shares based on the volume of trades placed on Baltex. Up to 24.999% of the company will be available to brokers, with early adopters being rewarded with a share warrant for every five lots traded. A total of 24,999 New B Shares will be issued in three tranches. Only B Shares will be eligible for dividends, and they will therefore hold the main economic interest of the company. Baltic Exchange chief executive Jeremy Penn said: “By incentivising brokers we hope to boost liquidity not only on Baltex, but eventually in the FFA market overall. We have built the screen of the future and it is right that today’s freight derivative pioneers should have the opportunity to take a stake.” View full details at www. balticexchange.com/default. asp?action=article&ID=6974

24.999 Percentage of Baltic Exchange Derivatives Trading Ltd shares available to Baltex brokers www.thebaltic.com SUMMER 2013

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DIGEST Eco-ships, risk management, economics n RISK

n DESIGN

BIG SHIPS CAUSE SLIPS ANTON FLETTNER’S ROTOR SHIP BARBARA, LAUNCHED IN 1926 TO ENGINEERING ACCLAIM

A CENTURY OF ECO-SHIP CONCEPTS

Insurers have been vocal in their concerns about the risk attached to growing ship sizes. And the past year has validated those fears. A fire aboard the MSC Flaminia in July 2012 and flooding on the Emma Maersk in the Suez Canal in February 2013 both caused tremendous financial harm and supply chain disruption, according to Peregrine Storrs-Fox of Thomas Miller’s TT Club. “No port can suddenly produce crane and storage capacity to handle 13,000 unexpected containers without huge disruption,” Mr StorrsFox told a London Shipping Law Centre risk management seminar. Unexpected calls by these behemoths place greater demands on ports and terminals, particularly for pilotage, tug services and loading and unloading. This leads to greater insurance premiums and more complexity when assessing risk and liabilities.

With fuel costs rising and green regulation on its way, Ambrose Greenway finds that old ideas are being dusted off With eco-ships under discussion, it is worth harking back to 1922, when German physicist Anton Flettner patented his ‘rotor ship’ idea, which used the Magnus effect to aid propulsion. He calculated that rotating cylinders could produce more ‘lift’ than ordinary sails, and in 1924 fitted two 18m units to a converted schooner, Buckau. The larger three-cylinder Barbara followed two years later, and though the system worked well, competition from cheap fuel in diesel engines proved too great. The oil price hikes in the mid1970s led to further research in Japan by Nippon Kokan, which culminated in two rigid sails being fitted to the coastal tanker Shin Aitoku Maru in 1980. Other applications followed, the largest being on the 1984-built bulk carriers Aqua City and Usuki Pioneer, which had two large, square sails that could be folded in half when

not in use. In ideal conditions a 30-40% fuel saving was claimed, but high maintenance costs proved a drawback. In the UK, Stephenson Clarke’s collier Ashington tested a funnelmounted Walker Wingsail between 1986 and 1988, but the results were disappointing. More recently, computercontrolled kite sails have been tested on German ships, but reliance on wind will always be subject to its vagaries, and for optimum results steady, regular winds are required, which are not always available where ships have to trade. Much tweaking has also taken place with underwater forms to conserve fuel, but ecologically sound alternatives such as solar power and hydrogen fuel cells are still in their infancy. When needs must a radical solution is often not far away, one that hopefully will be so economical and ecologically friendly that it could well consign the internal combustion engine to history.

n MARKET CONDITIONS

TIMES STILL TOUGH FOR OWNERS Global ratings agency Standard & Poor’s (S&P) says ship operators face “significant refinancing and default risks as a result of tight bank funding, enormous industry overcapacity, and depressed global trading conditions”. In Global Ship Operators Scramble For Liquidity To Stay Afloat, S&P blamed the malaise partly on freight rates, which have fallen to between 30% and 80% below their ten-year historical average. This, plus high costs, a “lack of supply discipline”, and the difficulty of raising capital for new ships

and refinancing existing loans means shipowners face challenging times. But in a ray of hope, the agency said most of the shipping companies that it rates were “well placed in a global context” to deal with the tightening funding conditions this year. “We calculate that most have liquidity sources that will exceed liquidity uses by more than 1.2 times in 2013,” said S&P credit analyst Izabela Listowska. Nevertheless, S&P warned that more shipping company defaults and financial restructurings are likely in the next few quarters.

www.thebaltic.com SUMMER 2013

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OPINION Salvage

CLOSING THE CAPABILITY GAP Dr Richard Ward, Lloyd’s chief executive, addresses the challenges caused by growth in vessel size, and the failure of the salvage industry to match this growth with enhanced skills and equipment The past decade has seen construction records broken at unprecedented speed. While it took nearly a quarter of a century for the Petronas Towers to replace Chicago’s Sears Tower as the world’s highest building in 1998, Taipei 101 held the record for just six years before being replaced by Dubai’s Burj Khalifa in 2010. The same trend is occurring in shipbuilding – posing a problem for the shipping and insurance industries alike. Lloyd’s recent report ‘The challenges and implications of removing shipwrecks in the 21st century’ illustrates the widening gap between the size of the new generation of vessels and the shipping industry’s ability to salvage them. The speed of this size inflation is most noticeable for passenger vessels. There are currently 51 cruise vessels of more than 100,000 gross tonnes in service, a further seven under construction and more on order. In 2007, there were just 40. Despite recent events such as the Costa Concordia and the Kulluk, there has been a drop in marine casualties since the 1980s. It’s fair to say that the shipping industry has focused more on preventing accidents, rather than managing their aftermath. While prevention is clearly better than cure, because salvage issues are not a design consideration, costs are already increasing dramatically. This isn’t just Lloyd’s view. Leading figures in the salvage industry, including the president of the International Salvage Union, Andreas Tsavliris, now identify the failure of capability in techniques, equipment and experience to keep pace with vessel-size increases as one of the key risks in salvage and wreck removal. The Large Casualty Working Group of the International Group of P&I Clubs has analysed the 20 most costly wreck

removals insured by the clubs in the past decade. They currently value these at $2.1bn, but this, thanks to Costa Concordia and other current notable cases, is set to rise. They also found that location was increasingly significant. Proximity to major shipping centres, where salvage assets and heavy gear are located, is clearly a factor in the duration of the salvage operation and thus its cost. Experts are easily transported to wreck sites and some equipment can be air-freighted. However, heavy equipment is a different matter, and the growing size of vessels – and the removal of their cargoes – requires ever heavier apparatus. There is mounting competition for this equipment from the offshore construction and energy sectors, and it tends to be concentrated in Europe,

There is a widening gap between the size of the new generation of vessels and the industry’s ability to salvage them

Singapore, North East China, Japan and the Gulf of Mexico. Even if the equipment is available, it requires a deep-sea tow to many locations, adding to response time, vessel deterioration and cost. In the case of Rena, for example, this process took six weeks. For the shipping industry, the location challenges created by changing patterns of economic development are echoed in the impact of an unstable climate. As a Lloyd’s report from last year, Arctic Opening: Opportunity and Risk in the High North, showed, maritime traffic in the Arctic is considerable and growing. Polar regions present particular challenges and risks in terms of access, working conditions, and the potential for environmental damage and liability. The shipping and salvage industries urgently need to address this capability gap. Shipowners today benefit from record levels of capacity in the marine insurance industry – currently in excess of $2bn. However, the increasing costs of wreck removal and events such as Costa Concordia and Superstorm Sandy, which have caused marine (re)insurers to suffer one of their worst underwriting periods on record, are likely to affect future availability of capital. This, coupled with increasingly stringent capital requirements anticipated from European regulatory changes, highlights the need for change across all maritime industries through efficient collaboration for the future benefit of all parties.

DR RICHARD WARD

Richard joined Lloyd’s as chief executive officer in April 2006 and sits on the organisation’s council and franchise board. He also sits on the board of the Geneva Association, an international insurance think-tank, and on the advisory board of Financial Services Knowledge Transfer Network. He is a business ambassador for Catalyst UK (part of UK Trade & Investment) and a council member of Heart of the City.

www.thebaltic.com SUMMER 2013

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HOT TOPIC Polar communications

ARCTIC CALLING Beate Kvamstad from the Norwegian Marine Technology Research Institute considers how Arctic communications can cope with expected increases in traffic over the medium term

lack of effective communications in the Arctic has been responsible for several critical situations in modern shipping history. Most notably, for the Titanic in 1912 information about drifting icebergs did not reach the ship officers and navigators, and it took a long time before nearby vessels received a request for assistance. More recently, in 1989, the cruise ship Maxim Gorkiy sailed into an ice belt approximately 60 nautical miles southwest of Svalbard. The hull was damaged, and the passengers, crew and ship were rescued only by luck due to good weather and a courageous on-scene commander. Had the navigators onboard either ship received information about the dangerous ice in time, they would have been able to choose another, safer route, and the accidents would probably have been avoided. Delivering 16

the correct information in time to aid shipping decisions made in the Arctic was important to people then and continues to be so. Increased Arctic shipping activity requires robust and reliable communication systems, which are still not available today. Activities on sea, on land and in the air are all increasing in the Arctic, with the highest growth presented by the maritime and oil and gas industries. Due to the harsh working environment and the vulnerability of the surroundings, there is pressure on commercial players to plan and run their operations carefully, with a high level of control. These safety requirements are combined with the commercial players’ desire to profit from their operations and run them efficiently and with low risks. These incentives have led to the development of new concepts and ICT-based systems for integrated operations and decision support, which involves the use of video, images and

other digital information. This depends on robust, efficient communication systems with sufficient data rates. Today’s communication systems are unable to meet such demands in the Arctic. To avoid a large-scale accident, where both people and nature can be injured, it is important to increase awareness about the lack of suitable communication systems among those who are planning Arctic operations. Let us not wait for an accident to happen before we, as an industry, work to improve this situation. Existing communication systems in the Arctic can be classified by geographical area. In polar regions (latitudes above 80˚N) the only available broadband satellite communication system is Iridium. This area is out of reach for geostationary satellites because they orbit the Earth around the equator. Iridium was designed to be a voice system, but offers digital services at a bandwidth of up to 128 kbps.

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PHOTOGRAPHY: THINKSTOCK

Let us not wait for an accident to happen before we, as an industry, work to improve this situation AN INCREASE IN ARCTIC SHIPPING MEANS BETTER COMMUNICATION SYSTEMS ARE NEEDED AT HIGH LATITUDES

BEATE KVAMSTAD

Beate is a research scientist at the Norwegian Marine Technology Research Institute.

Other options available in polar areas are the terrestrial maritime radio systems of very high frequency (VHF), high frequency (HF) and medium frequency (MF). These are also voice communication systems, but VHF offers radio-based internet at around 200 kbps in shallow waters (VHF data), while HF offers a more limited digital capacity in high waters through the PACTOR protocol. With their limited capacity, these could be valuable for certain, low-data-rate safety communications in the Arctic. The limited capacity and the latency in Iridium and maritime radio, however, means these cannot meet the demand from operations that require the transfer of video images. In subpolar areas (between 70˚N and 80˚N) you can also use geostationary satellite communication. However, since this is on the edge of the coverage areas for most of these satellites, the quality of service depends on factors such as the user location versus satellite position, antenna installation, and atmospheric and icing conditions. Today’s geostationary communication systems are only expected to meet near-term demands in areas below 75˚N. Future shipping operations in the Arctic need to be designed so that they can be performed as safely and as efficiently as possible, and this is especially true beyond 75˚N, where solutions are virtually non-existent. It is not only shipping and oil and gas operators that are deprived of adequate systems: government services designed to monitor these operations, such as coastguards, are also in the dark. Once these protectors pass into the polar areas, they too lose the ability to transfer maps, photos and so on. The Arctic urgently needs better broadband satellite communications. Telenor Satellite Broadcasting and the Norwegian Space Centre are investigating a new system based on two satellites in high elliptical orbit (HEO) under the ASK – Arctic Satellite Communication system. Two HEO satellites will offer total coverage and continuous services in the Arctic. The Canadian Space Agency is looking at a similar system as part of its Polar Communication and Weather Mission, and there are also Russian initiatives. Commercial players and considering capitalising on the advantages of Arctic shipping, and institutions interested in the region, need to get involved in these developments now. As an industry, we have an obligation to find the best possible financial and technical solutions for Arctic operations to safeguard both the safety of life and the Arctic environment.

ICE BREAKERS The eventual rollout of high bandwidth services for the Arctic is some way off, and predicting what form they will take is not easy. For shipowners, there are still questions over whether investment in new equipment will be required or if existing systems may be adapted. According to Astrium Services, current VSAT antennas used onboard vessels are not designed to work with satellites in high elliptical orbit (HEO). Today’s stabilised antennas are designed to point directly at the satellite regardless of vessel position, but with the possibility of HEO satellites providing services across the Arctic, an antenna would need to track a moving target from a moving position. VSAT antennas used for VSAT services don’t have this functionality, although the technology does exist. “There is still no conclusion on exactly how new high-bandwidth Arctic communication systems will be designed, but it’s likely that a solution would be coverage provided by satellites circling in an HEO. This will provide coverage for the Arctic and part coverage for the Antarctic. In a perfect world, existing antennas would work or be easily adapted, so an industry-wide adoption of Arctic-only antennas would not be required. However, the fact that HEO satellites are moving requires the antenna controller and software to be able to find them and keep track of them,” explains Tore Morten Olsen, head of Maritime at Astrium Services. Depending on what satellite technology and frequency services are based on, full, high-bandwidth coverage in the Arctic may require new antennas and radio frequency systems. “Existing systems and radio are only offering limited data throughput in the Arctic. This won’t meet future demand for new sailing routes between Europe and Asia, and other Arctic operations,” continues Mr Olsen. “If 100% seamless services are required, there may be a need for more sophisticated dualantenna systems onboard for switching between satellites.” Seamless, high-throughput communication requires investment from governments and military forces, as well as satellite operators, but companies such as Astrium Services will develop the services, while manufacturers may need to make or adapt hardware for vessels. Astrium Services is gearing up to offer highbandwidth communications services in the Arctic as soon as it is possible.

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HOT TOPIC Maritime Labour Convention

REWRITING THE RULES

A SAILOR’S LIFE: 1.2 MILLION SEAFARERS STAND TO BENEFIT FROM THE NEW RULES

The Maritime Labour Convention 2006 is a game changer for the provision of seafarer welfare and has moved the global maritime industry into unfamiliar waters. However, implementation won’t necessarily be arduous: some will find that little needs to change, as James Graham discovers 18

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CONTRACT COVERAGE The MLC 2006 imposes a wide variety of requirements for working and living conditions, and proof of compliance will need to be ensured through the shipowner’s or ship manager’s procedures relating to all things labour. The convention also has detailed requirements for agreements detailing terms of employment. A single document – the seafarer’s employment agreement (SEA) – will be created for each individual seafarer, and will in many cases supersede existing crew agreements and any separate employment contract in force before

the convention. This SEA agreement is a completely new document that will have to be created from scratch for underprepared HR teams. ALL AT SEA What may also catch some shipping managers unawares is the scope of the convention’s coverage. Georg Smefjell, head of section for management systems and classification support at classification society and risk manager Det Norske Veritas (DNV) spells out the breadth: “The requirements have been developed with the intention that they shall be equally applicable to all those onboard regardless of rank. Some people who work onboard, but whose main job is somewhere else, may not be considered seafarers and accordingly [will not be] covered by the convention, but for all who are seafarers the convention should have the same impact. There are some differences in the accommodation requirements for ratings and officers, but the rest of the requirements are the same.” Robert Johnston, managing director of insurer Crewsure, adds: “The Convention applies not only to traditional seafarers and crew but [also to] supernumeraries undertaking other work onboard ship. On cruise ships, this will mean shop workers, casino staff, kitchen staff… quite a broad spectrum. The scope of the convention is surprisingly wide – as well as freight ships, not many realise it also includes super yachts. In short, any person employed on a ship is covered.” Bibby Ship Management (Western Europe), which handles ship management and crewing for box line ACL, demonstrates the range of

At its simplest, the incoming Maritime Labour Convention 2006 (MLC 2006) tidies up more than 68 international labour standards related to the maritime sector dating back to the 1920s. It gives seafarers the same care and concern, the same rights to benefits, the same access to the best medical treatment and the same employment security expected and enjoyed by those who work ashore. The philosophy at its heart is a desire to safeguard the world’s 1.2m professional seafarers to ensure working conditions are raised to the highest international standards, not driven down to the lowest national cost. After implementation in August 2013, the MLC 2006 regime will be about record-keeping, management systems and third-party involvement in matters that some managers have at best overlooked and at worst wilfully ignored. The cornerstone of the convention is the set of duties and responsibilities it places on the shipowner or ship manager. Compliance is not automatic and the implications for management systems and record keeping will be determined by how far the shipowner’s current management of working and living conditions part company from the convention’s requirements.

There are wide disparities between welfare provisions from employers – which range from beneficent to Scrooge-like

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HOT TOPIC Maritime Labour Convention

THE CITY AND THE SEA: THE MLC 2006 WILL STANDARDISE CONDITIONS ASHORE AND ONBOARD

regulatory processes that employers must have in place post-ratification. Its general manager, Ian Coward, says: “From a crewing perspective, Bibby Ship Management are MLC-compliant as a recruitment and placement (R&P) service under MLC 2006 A 1.4.5. We have a ‘letter of compliance’ in place issued by the Isle of Man Ship Registry, our competent authority, and when the IOM regulations enter into force we will be issued with a full-term certificate of compliance, valid for five years. “As technical managers, relevant processes are in place and we are liaising with flag and class as information becomes available, with the objective of completion of inspections for all our fleet prior to entry into force.” Under the MLC 2006, the SEA must be granted to every seafarer by their direct employer. This has created a series of liabilities in terms of medical care, personal accident, loss or delay of baggage and the cost of repatriation in the case of abandonment. Inevitably, this has prompted the emergence of third-party insurance schemes for employers who wish for cover and will not self-insure. One example of these insurers is Londonbased Crewsure. Its Crewsure Marine is a ‘no fault’ insurance policy that

provides a benefit to seafarers in the same way employers provide insurance to shoreside employees as a standard contractual entitlement. Managing director Robert Johnston says: “Crewsure cover varies according to what is required. There are wide disparities at present between welfare provisions from employers – which range from beneficent to Scrooge-like.” Mr Johnston warns shipowners that reliance on existing protection is a mistake: “Cover is personally owned by seafarers; P&I insurance is only for shipowners and valid for ships not seafarers.” MONEY MEASURES A key foundation to the MLC 2006, according to Mr Johnston, is that

employers must demonstrate “financial security”, though this term is unhelpfully undefined. He contends that insurance is one way to demonstrate that security. With no minimum or maximum coverage, Crewsure “will cover from one seafarer with no upper limit” of crew size. Mr Smefjell adds: “We have noted that there are quite a few liability issues in the MLC. Though DNV does not have a view on how the liabilities should be met, it is crucial that shipowners and operators understand the liabilities and have the necessary dialogue with the insurance providers or others in order to ensure the necessary coverage.” In the months leading up to implementation, Bibby Ship Management has worked to ensure its internal systems are compliant. Mr Coward says: “[We prepared] our work processes to ensure they were MLC 2006-compliant [and] arranged and

WHY GOOD PRACTICE MEANS LESS WORK Responsible shipowners and seafarer employers are likely to notice little change following implementation, except for certification and oversight of their business management and crewing management systems. Those who have flagged their vessels to flag states that have implemented the MLC 2006 so far will probably need to deal only with the details to comply with the new convention regulations.

Hong Kong-flagged OOCL puts itself in this category. A spokesperson says the line “takes the safety and welfare of our people very seriously and… we will continue to meet and exceed international standards, as expected from a leading ocean carrier.” The concern for seafarers and their labour representatives arises from where conditions are below those demanded by the MLC 2006. These flags, lines and employers now have the template

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reduce its mandatory expenditure: “The cost element for this has been the need to allocate appropriate resource time to the project. Where possible, inspections are aligned with International Safety Management (ISM) Code inspection audits to minimise costs,” says Mr Coward.

HIGH STAKES (ABOVE): CREW SAFETY SHOULD BE PARAMOUNT, AND THE MLC 2006 PLANS TO MAKE SURE IT IS. LEFT: AN INSPECTION IN PROGRESS UNDER THE OLD FRAMEWORK

completed R&P compliance audit. [We] liaised with flag and class and attended relevant seminars and workshops to ensure awareness of current and new legislation and guidelines, and that our processes had considered these. Reworking the contracts of employment and SEAs is an ongoing process. “More management controls have been included in the workflow processes which we will be audited against for MLC 2006 compliance on an annual basis.” All of which comes at a price: the need for certification under MLC 2006 has seen seafarer employers incur costs in both time and money. These liabilities will continue past ratification and must be factored into management plans after ratification. Bibby Ship Management has piggybacked its MLC 2006 inspections on other audits to

Mistakes and failure to develop effective measures in the initial phases will lead to problems in the future

– the SEA agreement – for best practice and a duty to comply, ending the days of a race to the bottom in crew conditions. The MLC was agreed in 2006; implementation has taken place at glacial speed over seven years. For good employers, business and management systems have only to be tweaked, not set in place. Mr Smeljell concludes: “The overlapping between MLC and other standards is such that it is possible for shipowners to make

CLASS ACTS From the class perspective, Mr Smefjell adds: “The MLC 2006 services are priced as comparable inspection regimes such as ISM and the International Ship and Port Facility Security Code (ISPS). The certificates will have a validity period of five years, with a mandatory intermediate inspection between years two and three. Certification jobs will vary, depending on the effectiveness of the measures for ongoing compliance implemented by the shipowner or manager, the resources available, the size of the ship and crew, and the complexity of the flag state’s legislation.” DNV reports that in the run-up to implementation the number of certifications has run into the hundreds though the slower-thanexpected implementation of the MLC 2006 gives the classification society some concerns. The time needed to complete the inspection for certification will depend on the flag, type and size of the vessel, notes Mr Smefjell: “The typical inspection will take one full day – eight hours. For a large cruise vessel it may take several days,” he says. There is also a need to spend time reviewing and approving the Declaration of Maritime Labour Compliance (DMLC), by which shipowners and managers have to identify their measures for compliance with and continuous improvement in meeting requirements set in flag state legislation. “Looking at the implementation of previous international standards, such as ISM, ISPS and the revisions of the Standards of Training, Certification and Watchkeeping, it is clear that those who prepare well manage

use of existing measures and procedures in meeting MLC 2006 requirements as implemented in flag states’ legislation. We have had the pleasure of interacting with many highly skilled, very professional and dedicated people both with flag states, shipowners, ship managers, port states and other key stake holders: if all were at the same level, implementation will be undertaken effectively.”

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HOT TOPIC Maritime Labour Convention

FAQS

the situation well and those who fail to prepare, prepare to fail. Mistakes, misinterpretations and failure to develop effective measures in the initial phases will lead to problems in the near future and may lead to consistent problems for shipowners, managers and those onboard.” TIME SAILS ON Although the convention took its time coming into force, there are now deadlines looming for operators: “There are two main challenges in meeting the entry into force deadline,” says Mr Smefjell. “The DMLC part I, which has to be developed by the flag states, is only available for a few countries and shipowners and managers need that document in order to understand the requirements and develop and implement the necessary measures. It is crucial that those flag states which have not completed and/or published their DMLC part I do it as soon as possible. “The second challenge is that there is an innate tendency in the industry to only deal with challenges when we have to. We fear a situation where 20% of the jobs which need to be done will be requested during the first 80% of the time available before 20 August this year and 80% of the jobs which need to be done will be requested during the last 20% of the time available before 20 August this year.” For its part, DNV has almost 95% of the Norwegian flagged ships in its portfolio, and since August 2009 it has delivered inspection of compliance with Norwegian legislation for seafarers’ working and living conditions on those ships. Mr Smefjell says: “Since the Norwegian legislation has been very advanced and almost identical with the requirements of the Maritime Labour Convention, we have gained

Flags, lines and employers now have the template – the SEA agreement – for best practice and a duty to comply, ending the days of a race to the bottom in crew conditions

CONDITIONS ONBOARD TODAY COULD BE DETERMINED BY ANY OF 68 SEPARATE SETS OF STANDARDS

THE BIG QUESTIONS Who is the shipowner under the MLC 2006? The MLC 2006 defines a shipowner as the owner of the ship or another organisation or person, such as the manager, agent or bareboat charterer, who has assumed the responsibility for the operation of the ship from the owner and who, on assuming such responsibility, has agreed to take over the duties and responsibilities imposed on shipowners in accordance with the convention. This definition applies even if any other organisations or persons fulfil certain of the duties or responsibilities on behalf of the shipowner. This comprehensive definition was adopted to reflect the idea that, irrespective of the particular commercial or other arrangements regarding a ship‘s operations, there must be a single entity, the shipowner, that is responsible for seafarers’ living and working conditions. This idea is also reflected in the requirement that all seafarers’ employment agreements must be signed by the shipowner or a representative of the shipowner. What are the shipowners’ responsibilities under regulation 1.4? Under the MLC 2006, shipowners are not required to use seafarer recruitment and placement services and may directly recruit seafarers to work on their ship. However, where shipowners use a private seafarer recruitment and placement service, they must take steps to ensure that the service is licensed or certified or regulated in accordance with the requirements under regulation 1.4. This responsibility, which is subject to inspection and certification, is particularly important where the recruitment and placement service is in a country that has not ratified the MLC 2006. Must hours of both work and rest be regulated? Standard A2.3, paragraph 2 of the MLC 2006 requires each country to fix either a maximum number of hours of work which shall not be exceeded in a given period of time, or a minimum number of hours of rest which shall be provided in a given period of time. It is up to the country to decide which of the two arrangements to choose. Does the MLC 2006 establish a minimum manning level for ships? The MLC 2006 does not set a specific number of seafarers who must be working onboard a

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HOT TOPIC Maritime Labour Convention

ship as this is a matter that the competent authority in the flag state would need to decide for a ship or category of ships. However, it set outs some parameters that must be followed when deciding on the manning levels for ships. Standard A2.7 requires every ship to be manned by a crew that is adequate, in terms of size and qualifications, to ensure the safety and security of the ship and its personnel, under all operating conditions, in accordance with the minimum safe manning document or an equivalent issued by the competent authority, and to comply with the standards of the MLC 2006. In this connection, when determining manning levels, the competent authority must take into account all the requirements within regulation 3.2 and standard A3.2 concerning food and catering. What is shipowners’ liability? In addition to providing for health protection and medical care onboard and ashore, the MLC 2006, under Regulation 4.2, requires flag states to ensure that all seafarers employed on their ships have material assistance and support from the shipowner with respect to the financial consequences of sickness, injury or death occurring while they are serving under a seafarers’ employment agreement or arising from the employment under such an agreement. These INSIDE THE ENGINE CONTROL ROOM: financial consequences include QUALITY OF WORK IS loss of wages and also medical INTIMATELY TIED TO and other costs. QUALITY OF LIFE When does shipowners’ liability begin and end? The liability of shipowners, under regulation 4.2, to bear the costs for seafarers working on their ships in respect of sickness and injury begins on the date when the seafarers commence their duty and ends on the date upon which they are deemed duly repatriated. Shipowners are also liable for sickness and injury that arises from the seafarers’ employment between the dates of commencement of duty and repatriation.

Many shipowners provide decent working and living conditions, but few meet the detail level of the requirements set in the convention

HELP BOX

Lloyd’s Register ILO MLC Pocket Checklist: www.webstore.lr.org/products /479-ilo-mlc-pocket-checklist.aspx Germanischer Lloyd MLC 2006 pocket guide: www.gl-group.com/pdf/ MLC_Pocket_Guide_2011.pdf Germanischer Lloyd ILO CERT checklist self-assessment tool: www.gl-group.com/pdf/MLC_ Checklist_Self_Assessment_Tool.pdf Videotel Academy ILO Maritime Labour Convention Course: www.mlc2006.com/cbt_training_course/?P HPSESSID=pmvnlkpuh17vkknqug7cdhuhk2

invaluable experience in most of our locations as, of course, Norwegian ships trade internationally and accordingly are being inspected worldwide.” Of course, the amount of work that shipping lines and seafarer employers now face depends on how far their current practices depart from the MLC 2006 objectives and how much catching up will be needed. “Many shipowners already provide decent working and living conditions for their seafarers as per the MLC 2006,” says Mr Smeljell. “That said, very few have measures or procedures meeting the detail level of the requirements set in the convention and it is our experience that quite some work needs to be done in all companies in order to ensure compliance. DNV has consistently recommended that our customers use

Source: the International Labour Organization’s Maritime Labour Convention 2006 Frequently Asked Questions. The full document is available from www.ilo.org/mlc

their existing systems and procedures, as they are well known in the company and onboard, and only develop new ones if it is necessary. The level and the detail of the challenges have varied from company to company and we are sure they will continue to vary. “The only way to understand the challenges and manage them effectively is to do the work and utilise the resources and competencies which are in the customers’ own organisations and as necessary seek support from competent sources.” //

JAMES GRAHAM

After a career in daily newspapers, James began to work in transport journalism in 1995. He specialises in ocean and rail-cargo transport.

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hot backtopic xxxx Maritime Labour Convention 2006 case study

Republic of the Marshall Islands

equal footing While many flag states worry about the demands of the Maritime Labour Convention 2006, Carly Fields finds that the Marshall Islands is ahead of the game carly fields

is editor of The Baltic

Creating a level playing field, a new bill of rights for the world’s seafarers and a global reference on maritime labour issues, the incoming Maritime Labour Convention 2006 (MLC 2006) makes a myriad of promises to improve welfare for the shipping industry’s key workers. MLC 2006 has set the scene for one of the shipping industry’s greatest performances on labour. But it is the behind-the-scenes work that has arguably been the most empowering. The introduction of a convention of this scale has pulled together wide swathes of the industry in preparation for a smooth entry into force in August. Flag states have had their work cut out to ensure that the world’s fleet will be compliant in time, and as the third largest register by gross registered tonnage, the Republic of the Marshall Islands (RMI) has been busier than most. And while there are concerns over whether the whole industry will be compliant by the time MLC 2006 enters force, the RMI Maritime Administrator is confident that its owners will be ready. “The RMI Maritime Administrator has issued more than 1,800 Declarations of Maritime Labour Compliance (DMLC) Part I,” says Captain Thomas F Heinan, senior vice president of maritime administration. “At the moment, 2,250 of the more than 2,850 registered RMI vessels must comply by 20 August 2013. The RMI Maritime Administrator is confident that those vessels in the fleet that must comply will be certified in time.” This can be attributed to forward planning: to meet its obligations, the RMI Maritime Administrator has been providing guidance through marine notices, marine guidelines, Q&A correspondence, meetings and seminars since 2010 to assist owners and operators in making preparations for MLC 2006 implementation.

The RMI Maritime Administrator is confident that those vessels in the fleet that must comply will be certified in time

“Most of the shipowners and operators to which the convention applies already meet the requirements by virtue of having to comply with RMI statutes and regulations,” says Capt Heinan. “This is evidenced by the lack of need for the consideration of substantial equivalencies and the lack of exemptions requested by shipowners and operators in their DMLC Part I applications, and is also evident in the results of DMLC Part II reviews and results.” However, previous conventions have shown that no matter how laudable the intentions of new legislation, there will be an element of the industry that is barely compliant: those that scrape through, gaining certificates because they are forced to rather than engaging in the spirit of the convention. “The fleet’s compliance with RMI standards is closely monitored and enforced through port state control inspection and annual RMI safety inspection reviews,” says Capt Heinan. “In addition, recognised organisations (ROs) are required to report issues back to the RMI Maritime Administrator while survey work is being conducted on behalf of the flag state. A watchlist of ships of interest is developed every month, and a dialogue is initiated with the ship operator or owner to work on rectifying cited deficiencies.” The RMI’s commitment to MLC 2006 compliance is embedded in its respect for the convention: “MLC 2006 does a great deal toward safeguarding the rights of seafarers as required by [the United Nations Convention on the Law of the Sea],” says Capt Heinan. “The concept of ‘no more favourable treatment’ should go a long way towards reinforcing the rights of seafarers to decent, equitable working and living conditions aboard ships and the social securities enjoyed by others ashore. It should also develop a level playing field for the shipowners that employ them.” That level playing field also applies to the application of MLC 2006: to ensure that standards and criteria for certification are similar across all flag states and ROs, the RMI Maritime Administrator has gone to “considerable effort” to ensure that all of its International Association of Classification Societies (IACS) ROs are familiar with and understand RMI requirements under MLC 2006. In support of this, the administrator has held meetings with the IACS ROs to discuss MLC 2006, most recently meeting in Paris in April. www.thebaltic.com summer 2013

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BUSINESS BASE Contingency planning

READY FOR ANYTHING

DON’T SET OUT WITHOUT KNOWING WHAT COULD GO WRONG – AND BEING READY FOR IT

Some disasters can’t be avoided, but they can be prepared for. Andrew Williams meets the planners who stay calm in a crisis 28

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Photography: imagesource

The supply framework: delays for one ship can have knock-on effects on a whole line

Photography: imagesource

ith the shipping environment as unpredictable as it is today, woe betide ship operators that fail to plan for the unplanned. Whether dealing with labour unrest, power outages, environmental pollution or failed communications, contingency planning is more important than ever. The field can cover a wide range of difficulties, from relatively minor incidents, such as delays caused by bad weather, to disasters such as oil spills or security incidents. So how prepared are shipowners, operators and charterers for every eventuality? How much does it cost to ensure an adequate level of planning? And is it ever worth taking the risk of not being ready for the unexpected?

Failure to plan for unexpected events – particularly those that can be hazardous or environmentally damaging – exposes shipowners to tremendous risks

emergency options As Andy Lane, partner at marine consultancy Container Transport International, explains to The Baltic, a ship operator’s primary responsibility is protecting the interests of the cargo owners. He believes that in doing so, it is useful to distinguish between “contingency execution” and “incident handling” activities. For Mr Lane, incident handling would stem from a vessel becoming inoperable, probably as a result of a grounding, collision, fire or water ingress, which may also involve some pollution. “These are not things which can be pre-planned for, but are risks which need to be mitigated at the potential root cause,” he says. “They are serious indeed, always delay cargo significantly, and are very costly to deal with, but fortunately represent a very small element of all voyages commenced or total cargo volumes transported. The industry thankfully is getting better and better at avoiding them.” Contingency execution activities are a direct result of delays to a vessel, which are usually port or terminal related, and in the “majority of cases” driven by weather conditions, according to Mr Lane. He adds that issues stemming from labour relations or communications failures “can and should be mitigated up front in just about all scenarios”. For weather-related delays, he points to a “huge disparity” between locations, highlighting that northern Europe, which he says suffers similar challenges to China, often appears “far more resilient”. He likens ship or cargo delays to a disease that requires containment to prevent

The price of preparation Shipowners should not hold fixed assets solely for contingencies, argues Container Transport International’s Andy Lane. From his perspective, there should not be a financial outlay per se, though he admits that there might be additional fuel and cargo handling costs that were part of the original transport plan. “You will also need a centre, or a few centres, of excellence and expertise that can react in the most cost-efficient and damage-limiting ways to get ships and cargo back on schedule. For a large operator, this might not be more than, say, four to seven experts,” he says. Resolve Marine Group’s Joseph Farrell agrees that there can’t be a particular dollar amount attached to contingency planning, as being prepared is an ongoing process. “It requires continuous investments of time – creating a support infrastructure, and safety training for your people to ensure your investments are protected,” he says. Haakon Svane of the Norwegian Shipowners’ Association adds that while most shipowners have few staff at their head offices, there is a lower limit if a company wishes to retain crisis management ability. Effective planning can also save money. Jackie Savitz, deputy vice president for US campaigns at Oceana, says weather routing and contingency planning can reduce fuel use and increase efficiency: a win-win for companies and the environment. “Ships head into bad weather, but if they route based on weather reports they can avoid it and ultimately speed up their trips,” she explains.

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it spreading; allowing the virus to spread to other cargo, ships or services will usually simply create further delays, without necessarily saving the cargo disrupted by the original glitch. “Contingency plans must be as simple as possible to execute, and it might well be necessary to sacrifice the cargo on the disrupted service, rather than risking the presently on-time cargo on several others. This leads to greater transparency of the root causes of delays, so that these can be tackled to preserve the overall integrity of the global network,” he says. Meanwhile, Joseph Farrell, president of Resolve Marine Group, reveals that, for many years, vessels in the US and Europe have been required to have adequate contingency plans for collision, fire, and oil spill or hazardous materials response. He explains that plans like these are designed to “create a well equipped and trained response infrastructure” to respond to incidents.

Some smaller owners and operators may not have the resources to make the necessary investments in contingency planning – as high levels of competitiveness squeeze budgets

It enabled the organisation to return to normal operations more quickly than otherwise would have been possible

It reduced the impact of the disruption

It enabled continued delivery of key products and services without interruption to customers

It helped employees cope with the immediate effects of an incident

Worth the effort In its 2013 business continuity management report, Weathering the Storm, the Chartered Management Institute gathered opinions from UK managers about business continuity management at their organisations. This chart shows the strong positive response to contingency planning measures. 4

The cost of developing BCM arrangments is justified by the benefit it brings the organisation

4 6

7 10

It supported employees after recovery It catered for the personal and family resillience of employees (eg, knowing partners or children were safe)

Negative %

Disagree

“Prevention of marine oil spills is the primary goal,” Mr Farrell says. “Another risk is that vessels carry the maximum amount of cargo in order to operate cost effectively, sometimes at a cost to manoeuvrability and safety.” He adds: “There are many risks today, despite the technological improvements. Some 80% to 90% of incidents result from human error or communications issues.” According to Mr Farrell, there are wide-ranging levels of preparation among owners, operators and charterers. His view is that most larger companies and prudent shipowners and managers understand that contingency planning is part of the cost of doing business – and he points out that they became large companies in part “because they made good investments in equipment and maintenance, personnel and training”. However, he admits that some smaller owners and operators may not have the resources to make the necessary investments in contingency planning – as high levels of competitiveness squeeze budgets. “It’s the smaller companies that comprise the greatest part of the maritime industry. They may operate with fewer trained personnel onboard – and experience, knowledge and

PHOTOGRAPHY: THINKSTOCK

BUSINESS BASE Contingency planning

Positive %

Neither agree nor disagree

Agree

SUMMER 2013 www.thebaltic.com

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AVOID GETTING TANGLED IN KNOTS: TOO MUCH PROTECTIVE BUFFERING CAN REDUCE EFFICIENCY

training are critical when challenges arise,” he says. “We believe this is why there are so many incidents at sea. In some cases with smaller operators, they may not realise how unprepared they actually are,” he adds. Elsewhere, Haakon Svane, director of the Contingency Planning Secretariat at the Norwegian Shipowners’ Association, believes it is hard to judge the extent to which shipowners are prepared for every eventuality. However, in his field – maritime security – the general trend is positive: “We’re in the tenth year of the [International Ship and Port Facility Security Code] and in the sixth year of widespread use of counter-piracy measures such as the Best Management Practices. These two types of contingency planning have, in my view, given shipowners who implement properly a real edge in the face of the continued threat from Somali piracy and in meeting new types of maritime security threats,” he says.

GOING TOO FAR But Mr Lane stresses that shipowners should also be aware of the dangers of becoming too cautious: “You can add buffers to buffers, but invariably some of those buffers are then used for other purposes, which breeds overall inefficiency,” he explains. “Most operators will utilise a small buffer for micro-delays, such as fog in the morning or wind in the afternoon – weather factors which prevail and subside over a number of hours – and here operators are very well prepared.” However, for Mr Lane, it is never going to be efficient to plan or buffer for one to three days of port closure, which he says tends to happen “just a few times per year”. This is doubly so where the contingency entails a combination of faster steaming to downstream ports, which incurs high additional costs, or rerouting of cargo to other services or products to mitigate or minimise delays to final destinations, also usually at some cost.

“You need to be prepared to omit a weather-bound port quite ruthlessly, and then also have the scale and design of network which can catch cargo up to its original transport plan. In terms of the large independent operators and larger consortia, this is already well in place today,” he says. But Mr Farrell argues that failure to plan for unexpected events – particularly those that can be hazardous or environmentally damaging – exposes shipowners and operators to tremendous risks. “Incidents still occur at sea even when everything is done right and owners or operators are prepared. Shipowners don’t need to be expert at handling marine emergencies, but they do need to be able to manage an emergency until experts can arrive to solve the problem,” he says. Mr Svane agrees that it is not a risk worth taking, though he concedes that shipowners and operators “can never plan away 100% of any risk”. For him, risk mitigation is about reducing as many of the known risks as possible. “The old saying is true: if you find contingency planning is expensive, try a real disaster,” he says. In contrast, Mr Lane says it is possible to avoid the need to have a plan, arguing that it’s difficult for shipowners to prepare for the unexpected. His advice is to “handle contingencies as best as possible as they arise, and make provisions in schedules for any known or expected service disruptions. “Those ports and terminals which are closed for the largest and longest

Contingency planning

Steps to survival SOURCE: WORST CASE SCENARIOS, BY KAREN DWORACZYK OF INSIGHTOVATION

Five key stages Identify

Prioritise

Plan

Execute

Review

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BUSINESS BASE Contingency planning

number of hours or days will, if at all possible, be relegated to second-tier terminals in an operator’s network. Then they can simply be bypassed by the vessels, and avoided by cargo owners in their supply chain planning,” he says. A BUSINESS BALANCE Given this debate, how can shipping companies distinguish between vital contingency measures and those that are inessential extras? For Mr Farrell, contingency planning is essential, as he is of the firm view that the unexpected will occur at some point. He argues that shipowners and operators must know where they are at greatest risk, and, at the least, form alliances with companies that can provide immediate, expert assistance during a difficult incident. “Shipping companies must do more than just comply with regulations. They must know their vulnerabilities and have a plan that addresses them. They must train their personnel continuously in order to avoid casualties at sea,” he says. Meanwhile, Mr Svane points out that a company’s underlying social, environmental and reputational values should be the determining factor when it comes to questioning the types of risk it faces – as well as how to mitigate them. “These are questions that need to be asked in order to manage contingency planning and distinguish between must-have and mightneed-to-have contingency planning measures,” he says. While recognising that shipowners generally know their organisations best, he stresses the need for companies to make sure they have a basic contingency plan relevant for the threats against their ship operations and their crew. In doing so, he says that they should always focus on people first.

IN DEFINITION

Business continuity is a management discipline that identifies potential threats to an organisation and the impacts to business operations that those threats, if realised, might cause. It provides a framework for building organisational resilience with the capability for an effective response that safeguards the interests of its key stakeholders, reputation and value-creating activities.

HIGH PRESSURE: STRIP AWAY EXCESS COSTS, BUT DON’T LEAVE YOUR SHIPS UNPROTECTED

SOURCE: THE BRITISH STANDARDS INSTITUTE’S BUSINESS CONTINUITY MANAGEMENT STANDARD

“If you don’t, you may end up in double trouble once a crisis hits you and it becomes obvious that you’ve not focused on what everybody expects you to give priority to,” Mr Svane says. “There is a lot of good advice out there and plenty of bad, one as costly as the other. Therefore, retain at least a minimum ability to distinguish good advice from bad, or seek out partners or other shipowners to assist you in making that distinction,” he adds. ANDREW WILLIAMS

Andrew is a freelance journalist specialising in business, science and technology.

A company’s underlying social, environmental and reputational values should be the determining factor when it comes to questioning the risks it faces www.thebaltic.com SUMMER 2013

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RECRUITMENT

Career shifts

A myriad of professional maritime service-providers rely on seafarers to bring their experience as a deck or engineering officer to the headquarters. Many businesses can benefit from having ex-mariners in the company

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Faststreamâ&#x20AC;&#x2122;s Mark Charman discusses the findings of research into what maritime employees at sea and ashore make of their career options ILLUSTRATION: MATT MURPHY

BRIDGE THE GAP

he maritime industry is an extraordinarily diverse and interesting sector to work in. As in any industry, the skills required for different roles vary greatly: some require creativity, some focus on technical problem solving, and others are more about commercial savvy. However, what sets the maritime industry apart from many other business sectors is its reliance on people who have been to sea and served at the sharp end of the industry becoming involved with business ashore. This is not just ex-seafarers working in shipping companies; it also includes a myriad of professional

maritime service-providers who rely on seafarers to bring their experience as a deck or engineering officer to the headquarters. Not every insurer, shipbroker, surveyor, lawyer or naval architect needs to have gone to sea, but all of these businesses can benefit greatly from having ex-mariners in the company. At the start of 2013, Faststream, a recruitment firm specialising in the shipping industry, asked maritime professionals what they thought about their careers, the choices they had and what their counterparts earned. It wanted to find out if they regretted the choices they had made and where the best opportunities lie. In all, 2,048 responded, including 612 serving mariners, and the survey threw up some interesting results. While 85% of all seafarers will remain at sea for most of their working lives and never make the transition from sea to shore, Faststream found that seafarers are far more attracted by the professions they have contact with in their day-to-day work. Operations managers, surveyors, fleet managers and harbourmasters all feature in the working lives of seafarers. However, how many seafarers have ever had to deal with a shipbroker or insurer? These professions can seem extremely remote to the average seafarer. But the reality is that all of these professions need ex-mariners in their offices. People who understand the realities of life at sea and what is and isnâ&#x20AC;&#x2122;t possible are important. It is difficult to make a sideways career step, but in the long term it can be a good move. Companies in areas of maritime business that are less obvious and less visible to the average seafarer, but which are looking for ex-seafarers to fill key positions, cannot assume seafarers have a rounded view of how the international shipping industry fits together and what their company actually does. When marketing their positions to seafarers seeking to come ashore, those responsible for recruitment need to understand that a large part of finding the right people is about marketing the company and then clearly and carefully explaining the opportunities it offers. www.thebaltic.com SUMMER 2013

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RECRUITMENT

SOURCE: PERCEPTION VS REALITY REPORT, MARITIME SECTOR – FEBRUARY 2013, FASTSTREAM

FAST FACTS  92% of shoreside workers think it’s at least quite important to have exseafarers in the office  Engineering officers think it is easier to get a job ashore than deck officers do  Seafarers are least attracted to shoreside professions in law, shipbroking and insurance  37% think South East Asia will offer the best career opportunities in the next decade  69% of all respondents but only 50% of deck officers would follow the same profession again if given a second chance

Career shifts Seafarers can be used to a hierarchical working life that involves following a defined series of courses and exams to advance their career. For them, the idea of coming ashore and learning a completely new set of skills on the job can be daunting – it’s a huge leap into the unknown. It is also important to note that many seafarers do not come from big commercial shipping centres such as London, New York or Singapore. Their families are based elsewhere, often in more remote locations, so a move ashore can mean not only an initial drop in take-home salary, but also a move to another part of the country or even another part of the world. Therefore the pool of experienced officers looking to move ashore is always going to be limited. However, seafarers should be interested to read that 92% of shoreside workers think it’s at least quite important to have ex-seafarers in the office, while 35% say it’s vital. Yet just over half of seafarers, whether Western or Asian, think it’s difficult or very difficult to get a job ashore. This can be correct. Not every seafarer is cut out for the challenges of a job ashore. For some, the transition to shore life, with the stresses and strains of commuting, tax, office politics, family life and less obvious hierarchal structures, can make life at sea too good to leave behind. But those who are less set in their ways, able to explain complicated technical issues to a non-technical audience or able to adapt to a completely new way

For some seafarers, the idea of coming ashore and learning a completely new set of skills on the job can be daunting – it’s a huge leap into the unknown MARK CHARMAN

Mark is group chief executive of international maritime recruiter Faststream.

of working can find that their skills are very much in demand. The 1,436 office-based maritime professionals who answered Faststream’s survey agreed that ex-seafarers generally make good workers, with only 5% saying that they struggle to adapt. However, one third did note that ex-seafarers need a good deal of initial support in the office. This means companies that have good support and training programmes are the ones most likely to retain staff for the long term. However you look at it, the maritime sector is a complex playing field for both employers and employees.

CONTINENTAL SHIFT With competition as hot as ever between shipping centres in Europe and Asia, Faststream wanted to find out where onshore workers thought the best opportunities lay in the coming decade. The company’s survey found that 37% thought Asia was on top, and 26% Europe. But is this a fair reflection of the number of jobs available? The recent decision by the Baltic Exchange to move its capesize vessel reporting times forward by a couple of hours to meet the Asian working day underlines just how much Singapore has grown as a chartering centre. Since setting up a Singapore office in 2006, Faststream has seen more growth there than anywhere else. Despite this, London remains the world’s top maritime centre, providing employment for at least 15,000 people and being home to every type of maritime business imaginable. However, the sentiment among professionals seems firmly in the favour of the East. Faststream also asked its shorebased respondents whether they thought their counterparts around the world earned more or less than them before tax. The results showed some of the common – and incorrect – assumptions made when it comes to pay. There was little difference between the perception of pay for technical and commercial roles, but the reality is that technical staff in Asia often earn a similar amount to their European counterparts, while commercial roles such as charterers or shipbrokers often get paid more in Asia than anyere else in the world. European and US-based workers seemed to think the opposite, with 47% and 64% respectively believing that their Asian counterparts were paid less than them, while workers in Asia seemed more confident in the pay levels against workers in both Europe and the US – 64% of Asian workers thought they got paid more than their equivalents in Europe and 69% thought the same of US shore-based employees. One of the most interesting conclusions that can be drawn involves how workers perceive their own pay against people in similar roles on the same continent. While workers in the US and Asia felt happy with their own salary, European employees were by far the most negative, with more than 43% believing that their counterparts around Europe earn more than they do.

SUMMER 2013 www.thebaltic.com

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Sea Marshals Ltd

Phone: +44 (0) 2920 486 000 Fax: +44 (0) 2920 485 823 Email: info@seamarshals.com 6th Floor Riverside House 31 Cathedral Road CF11 9HB, Cardiff, UK Part of Naval Security Services Ltd

• We supply armed guards for transits in high risk areas • All British teams • Fully licensed in Djibouti, Sri Lanka, Oman and S. Africa for the use of military grade weapons • We are ISO9001 certified, Panama approved and a member of SAMI • Insured for 5 million USD • Own operations centre in UK staffed 24/7 • Own bases in Djibouti, Fujairah and Sri Lanka • Complies with the new BIMCO Guardcon contract and the latest IMO regulations

Sea Marshals is a UK limited company that provide security solutions to merchant vessels travelling through high risk areas in the Indian Ocean, Arabian Sea, Red Sea and through the Gulf of Aden. Fully licensed in Djibouti for services and weapons and also licensed in Galle, Sri Lanka. We have facilities for embarking/disembarking men/weapons in Djibouti, Red Sea, Muscat, Galle and Richards Bay, S.A. We supply both armed and unarmed security guard facilities and all our men are European nationals with a minimum of 3 years military experience.

www.seamarshals.com

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Qualifications of these men include STCW95, SSO, Firearms certs, Anti-piracy course, first aid and criminal records checked.

25/06/2013 04/06/2013 15:47 15:04

in the dock Robert Flynn

Mari n e maestro Shipbroker and opera fan Robert Flynn tells Carly Fields how he composed his shipbroking career at MJLF & Associates photography: louise haywood-schiefer

ew foresaw the genius that would result from the collaboration of Wolfgang Amadeus Mozart and Lorenzo Da Ponte when they penned the score and libretto for The Marriage of Figaro. The first of three such cooperations, the partnership was a perfect fit. But without Da Ponte’s deft libretto work, Mozart’s masterpiece might never have been. While the workings of this operatic alliance were unfamiliar to a youthful, military-trained Robert J Flynn in 1979, the now self-confessed opera fan soon came to appreciate the intricacies of developing a score from scratch, when he brought together the highly creative and motivated individuals of what was then the shipbroking firm Mallory, Jones and Lynch to create his own harmony. When he arrived fresh-faced at the firm to take up a post-ops position in May 1979, Bob, like Mozart’s and Da Ponte’s critics, did not see the immediate fit. But the founding partners – who would become his mentors – Sam Jones, Charlie Mallory and Charlie Lynch did, and he was soon adopted into the family to start work on his very own collaborative libretto in shipbroking. “My first day at MJL, as it was, was a little offputting,” he explains to The Baltic. “I had been in the military for nine years so I spent the night before shining my shoes and getting my shirt pressed. I came into work and found out that I had the best looking shoes in the office, but I didn’t know what was going on.” Now, as president and chairman of the board at MJLF & Associates, and the last of the named partners still in the firm, Bob’s libretto is well under way. Born and raised in an Irish Catholic inner-city family, Bob was highly motivated to move up and out of his circumstances. With four brothers vying for attention and a father who worked on the railroads, Bob turned to the US Coast Guard for his first taste of maritime life. But it was night courses at the Seamen’s Church Institute that whetted his appetite for a chartering career. When the teacher spoke of getting in at 09.00 in the morning, working his way to lunch at New York shipping hangout the Whitehall Club at noon, to head back to the office at 15.00 to write up his recaps before leaving at 17.00, Bob knew he’d found the shore-based industry for him. It was a sage choice: this

year he celebrates the 34th anniversary of MJLF and his time there. While MJLF has not strayed too far from its roots as a tanker broker with a small focus on dry cargo, today it is also active in newbuilding and has a significant foothold in the Jones Act market – the US flag cabotage trade. “Given the state of the international market, I’m quite pleased that we are active in this market,” admits Bob. “It’s an incredibly robust market; one of the reasons why the Jones Act is so overheated is because domestic US oil production has exceeded all expectations.” MJLF has made its mark in the up-and-coming eco market as well, with its seal on close to 20 newbuilding contracts this year for medium-range product tankers with an ecofriendly design. Despite that involvement, Bob remains wary of the expanding eco bubble. “You have to be careful with the eco designs; we need to see how these vessels perform after a full year of service with various weather conditions.” He also believes there needs to be a sea change in the way the market views eco-ships. “Eco should be more than just speed and consumption. When we talk about eco we need think about other environmental issues, such as bottom painting, waste disposal and so on.” market tides Bob is man of contrasts, and that is reflected in his business ethos. While he sees MJLF as a “traditional shipbroker”, he adds that the firm is always looking for ways to reinvent and renew itself to stay relevant. While he has his own private office at the Connecticut hub, he prefers to sit on the trading floor in the thick of the action. And while he still considers MJLF as a family, to him it is also a franchise with international recognition. But Bob concedes that the current state of the market leaves no room for contrasts. “The thing that keeps me awake is ensuring that we have meaningful work for the highly educated persons that we have in our office. I worry about deal flow, access to opportunities and being able to create those opportunities.” Indeed, he confides that the worst thing about his job at the moment is working with accountants, lawyers and

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I donâ&#x20AC;&#x2122;t see demand driving a rebound in the market in the short term; it has to come from the supply side

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IN THE DOCK Robert Flynn

P&I Clubs on collection of commissions. “We’re running a business, not a bodega. Having to chase commissions is an unfortunate sign of the times; we’re just in the chain along with many other suppliers.” While Bob is no stranger to the cyclical nature of shipping he admits that he is “more concerned” in the current market. “Whether it’s a shipowner, ship manager or shipbroker, we’re all trying to get through this cycle. I’ve been doing this for a while and I’ve been through a number of cycles, but this one seems longer than the last. “You can’t cut your way to profitability; you can only cut so much. We have to have the right people in the right place so that when the market turns, whenever that is, we’re there to participate in a meaningful way.” Looking at the present economy, he questions how the markets are able to sustain themselves when owners are operating so far below break-even. “How can we possibly continue on that basis? It is not sustainable and we must be reaching breaking point. “My biggest fear is that there will be a major incident. It will be down to a lack of judgement, perhaps caused by inattention to detail. I’m really fearful of this.” And an upturn stills seems some way off, as it will depend, in Bob’s eyes, on the amount of scrapping. “I don’t see demand driving a rebound in the market in the short term; it has to come from the supply side.” OTHER SHORES Outside the office, Bob was inspired by his military training with US Coast Guard to accept the chairmanship of the

Coast Guard Foundation. Indeed, he sees his post-broking future in the directorship of a major foundation or notfor-profit business after retirement. Not that he has plans to retire any time soon: “I turned 60 last year, but I’m not planning to retire. I still enjoy what I do and I’d like to stay for a few more years – if they’ll have me!” And he still has goals he’d like to fulfil before he passes on the baton. “I’d like to see us have a little more financial component to our work. We do the origination, come up with the idea, we do the placement, we do the execution, and we can do the shipyard contracts. The one thing we don’t have is the financial placement. It would be a nice thing to round off our work, putting everything together.” He was also recently elected to the Board of Governors of the Society of Maritime Arbitrators, supporting a dispute resolution method he has a lot of faith in. “Arbitration used to always be considered a no-no; if you went to arbitration it was perceived that there was something dreadfully wrong about your commercial abilities. But there are great opportunities to solve legitimate differences without destroying a good commercial relationship when you let a third party decide. I’d like to get more involved in arbitration and mediation when I retire.” Whether Bob will have time for such extracurricular activities on retirement is questionable. Touring the US and Canada on his Ultra Classic Harley Davidson may take precedence. Last summer he drove cross-country on a two-week trip from New York to San Francisco on the “Blue Highways”. Next summer, he plans to ride the Trans-Canada Highway, one of the world’s longest national highways, through the middle of Canada. With these adventurous plans, it seems Bob’s shipbroking libretto is nearing completion. Just as Mozart’s The Marriage of Figaro grew from just nine performances on its completion to one of the most-performed operas worldwide, Bob has internalised his parents’ emphasis on faith, family and achievement to perform his own magnum opus in broking to a global audience. www.thebaltic.com SUMMER 2013

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26/06/2013 15:15

OPERATIONS Low-sulphur fuels

UP IN SMOKE

OW Bunker’s Adrian Tolson explores the impact of the North American ECA on supply and demand, and shows how new regulations mean the old fuel-procurement model is no longer valid »

he North American Emission Control Area (ECA) came into force almost a year ago, in August 2012, requiring vessels passing within 200 nautical miles of the US coastline to burn 1.0% sulphur fuel. In that time, we have witnessed the impact that a lack of planning for change can have, from a supply and demand, as well as a compliance, perspective. The implementation of the ECA brought with it much discussion of whether shipowners and operators would review and adjust their fuel procurement arrangements in time. In the end, there was hesitation, speculation and delay. This lack of forward planning by owners and operators made it difficult for refiners, traders and suppliers to forecast demand, which created an inflated price differential between high- and low-sulphur fuels. Some feared a switch to non-US ports, in retreat from higher prices, but this has not been realised, as suppliers have been quick to meet increased demand for low-sulphur fuel. More players have come to the market, and supply has been relatively abundant, which has also stabilised pricing. However, what this situation demonstrates is that, for fuel procurement to be compliant, as well as cost-effective and efficient, there

must be closer, more collaborative relationships between suppliers and their customers. Ultimately, a lack of planning cannot just be blamed on shipowners and operators; it is also up to the fuel suppliers, who have the expertise to engage and share their knowledge. Indeed, in this new era for fuel supply, successful fuel procurement must be based on providing more than just products. Fuel suppliers must provide counsel, flexibility and, most importantly, solutions; solutions that are specific to their customers’ businesses and operations, and that help solve the increasing challenges that they face. Suppliers need to work with their customers to create fuel procurement plans that take into account the volatility of the market, and that are right for each individual business. Ultimately, suppliers have a vested interest in the prosperity of the market, and can play a key role in helping owners and operators to weather the storm. From a physical supply perspective, success is about providing customers with a level of service that is defined by quality and value, from earliest contact to final delivery. Naturally, experience and knowledge is essential, not just of the industry, but of the customer’s business strategy, and how this influences their operations and therefore the supply solution

PROCUREMENT PROBLEMS As if proof were needed that cloud technology can work in any industry, software specialist Inatech has developed a cloudbased real-time fuel procurement system. Its ShipTECH Shipping Solution promises to streamline the buying process, reduce costs and enhance profitability.

The key selling point, says Inatech, is that the cloud version enables shipping companies to move away from making old-fashioned capital expenditure investments in technology and move towards an operational expenditure model. With industry spending on fuel put

at $180bn per year by Inatech, bunker costs can account for between 10% and 70% of ship operating costs. And with a link to crude oil prices, rate volatility is also a concern. Currently, there is a lack of end-to-end fuel procurement software solutions, which can mean that operators

face several problems, including vessels bunkering in ports where fuel prices are high even though alternative ports are holding lower prices, under-use of vessel capacity, late receipt by traders for bunker requests to procure fuel, and bunkering more fuel than required for the round trip.

Jean-Hervé Jenn, chief executive of Inatech, explains that the obligation to buy lowsulphur fuels has forced companies to source more efficient fuel procurement methods. “[These] will become absolutely vital for these companies if they want to stay profitable,” he says.

SUMMER 2013 www.thebaltic.com

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that they require. What products are needed when? What is the best mode of delivery? Does the customer require technical assistance in switching products? How can we maximise efficiencies within their operations? And how can we exploit our infrastructure to ensure the best prices and the best terms? In providing solutions, ultimately we’re offering customers a choice, when in many ports, particularly in North America, choice is often not on the fuel supply menu. It is the ability to take the lead in finding more efficient ways to supply bunkers and to develop a supply strategy that provides tangible solutions that can really make a difference to customers’ bottom lines. This includes investing in the most efficient supply tankers and using new technologies to pass on efficiencies to customers. Of course, customers also want assurance; assurance that they are receiving the bestquality products at the best prices and on the best terms possible. The debate over quality has long raged between the bunkering and shipping industries. Great strides have been made in the past few years to implement regulations that have created more transparency and assurance when it comes to product quality. But again, physical suppliers must take responsibility for

HIGH STANDARDS 1

0.1

3.5

0.5

IN 2015, ECA SULPHUR LIMITS WILL FALL FROM 1% TO 0.1%. AND FROM 2020, IN ALL EUROPEAN WATERS OUTSIDE ECA ZONES, MAXIMUM SULPHUR LEVELS WILL BE REDUCED FROM 3.5% TO 0.5%.

A lack of planning cannot just be blamed on shipowners and operators; it is also up to the fuel suppliers, who have the expertise to engage and share their knowledge setting new benchmarks for excellence that not only ensure products meet the required standards but, where possible, exceed them. The physical supplier’s role is indeed changing, but it is changing for the better. Those suppliers are increasingly important links in the shipping supply chain. And it is vital that they take responsibility and seize the opportunity for delivering on the value that they must now provide. Ultimately, the regulatory pressures that shipowners and operators face will not go away. The 2015 ECA regulations, reducing sulphur limits to 0.1%, will soon be upon us. And from 2020, in all European waters outside ECA zones, sulphur levels will be reduced to 0.5%. There are still questions over whether the International Maritime Organisation will follow suit, or look to delay the global regulation to 2025. Whatever happens, while owners and operators continue to face tremendous economic challenges, it is vital that they make plans to mitigate the effects of change. Central to this is the relationship that they have with their fuel suppliers. The time to act is now.

ADRIAN TOLSON

Adrian is regional manager of North America (physical operation) for OW Bunker.

As a part of its commitment to quality, and in the interests of setting benchmarks, OW Bunker has launched a new global standard to ensure the quality of products supplied by its physical operations on a global basis. Customers are provided with a full specification analysis in advance of any physical delivery, which will be provided before the usual bunkering sample tests conducted for the buyer by an external fuelquality inspection company. This is a result of the company’s commitment to driving annual global claims below 1%, an unprecedented figure in the bunker industry. It is a bold move, but one that all physical suppliers should be taking if they want to take leadership seriously and provide as much value and professionalism to customers as possible. This value-driven approach is not a revolutionary concept in general business terms. But it is one that has not always been evident in the bunkering industry. Fundamentally, it makes good business sense. It is the foundation for building great relationships and engendering customer loyalty. In an industry that has seen such volatility, it is a tremendous competitive differentiator if physical suppliers can provide that much-needed stability. When fuel oil accounts for between 10% and 70% of a vessel’s operating costs and a small variation in cost or volume can make or break a voyage profit and loss, it seems logical that the supplier should play a significant role in ensuring that a fuel purchase gives full value. In an industry that is facing transformation, it is incredibly valuable to be able to provide solutions that genuinely solve problems.

www.thebaltic.com SUMMER 2013

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ship management Security

West African pirates adopt new tactics

Once characterised by smash-andgrab raids on shipping, West African piracy has undergone a worrying evolution this year – and states’ protectionism may be hampering change, reports Stephen Spark

F Photography: Getty images

or seven years, piracy in the Gulf of Aden and the Indian Ocean monopolised maritime security headlines. Somali pirates presented problems on a scale that seriously challenged the industry, regulators, politicians and neighbouring states. Nevertheless, the response – a combination of maritime policing by international naval forces, active and passive counter-measures, onboard armed security and political progress in Somalia itself – appears to be paying off. Attacks have diminished, pirates are no longer immune from justice and one well-known pirate leader has foresworn the trade and urged his former colleagues to do the same. Meanwhile, attacks on shipping and offshore installations on the other side of the continent have continued. In short, often violent, attacks, raiders off West Africa have tended to steal valuables from

somalian pirates preparing a skiff in 2010. Now west african gangs are adopting similar strategies

the crew, plus cargo, primarily oil and petroleum products, which they tranship and sell ashore. Nigerian gangs are believed to be responsible for most of these attacks. Unlike the Somali model of piracy, in which the ship and its crew are seized for ransom and held for many months, the West African approach has essentially been what one observer called “old-fashioned maritime mugging”. recent attacks Events this year suggest that Nigerian gangs may be adopting Somali-style tactics, however. Attacks on three ships in February and April resulted in crew members being abducted. Two Russians and a Romanian from Carisbrooke Shipping’s general cargo ship Esther C spent 31 days in captivity before being released in late April. On 23 April, the German container ship Hansa Marburg was boarded south of Bonny and four crew members seized. Significantly, the cargo was untouched. Crude oil tanker Cap Theodora suffered two assaults, though without sustaining any loss of crew or cargo. The first, on 16 April, took place 157nm from Bonny – an unusual distance from land for West African pirates. Six days later, there seemed to be an explanation, when a trawler was spotted nearby during the second attack. By using sturdy fishing vessels as motherships, Somali pirates increased their range substantially. In another raid, 100nm off the Nigerian coast, five crew members from the container ship City of Xiamen were taken hostage on 25 April when 14 heavily armed raiders breached the ship’s secure citadel. Like Esther C and Hansa Marburg, City of Xiamen had a relatively low freeboard, making it easier for an attack party to board. “The levels of robbery and hijackings off the Nigerian coast and elsewhere in the Gulf of Guinea are a real cause for concern,” says Steven Jones, maritime director of the Security Association for the Maritime Industry (SAMI). “Recent attacks appear to indicate pirates in the region are expanding their willingness to venture further afield and use more violent tactics. There are fears, too, that piratical activity is evolving to embrace kidnap and ransom.” If West African pirates are employing Somali tactics, why not use similar measures to deal with them, such as onboard armed security, international naval patrols and attacks on pirate camps? Chris Trelawny, the International Maritime Organization’s (IMO) senior deputy director for maritime security, says: “West African piracy is very different from Somali piracy.” This is not least, he explains, because the gangs operate in the territorial waters and exclusive economic zones of countries with functioning governments. Maritime security consultant Brian Phelan elaborates: “The Gulf of Guinea problem tends to be confined to the waters of governments that are, paradoxically, both strong, more or less stable and fiercely independent while being weak in terms of naval capability. Thus, national pride dictates that they cannot permit outside agencies (other navies or armed private maritime security contractors – PMSCs) to offer solutions that would only serve as an admission of their own shortcomings.” For

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ever, Mr Jones believes. He pointed to an announcement by the Lloyd’s Joint Cargo Committee that the risk of pirate attacks in West Africa is likely to increase, partly due to political tensions in Nigeria.

For many years, the Nigerian Navy has lacked oceangoing ships, Mr Phelan adds. The Nigerian government recently announced a crackdown on PMSCs and their clients, many of which it says are operating illegally. The Nigerian Security and Civil Defence Corps will be in charge of licensing private security contractors, who are permitted to operate solely as unarmed advisers. Licensed PMSCs can ask the navy to supply armed security. Reports suggest that licences can be hard to obtain, but the consequences of being caught without one can be severe – the operator may be banned from Nigerian ports for a year, the ship seized and crew detained. These restrictions, together with alleged corruption in the region, have led some SAMI members to avoid the Gulf of Guinea. However, the need for reliable security is greater than Type of vessels attacked in January to March 2013 Bulk carrier Chemical tanker

SOURCE: ICC-IMB PIRACY AND ARMED ROBBERY AGAINST SHIPS REPORT

Tanker General cargo Container Product tanker Supply ship LPG tanker Tug Refrigerated cargo ship Fishing vessel 0

US MARINES IN THE GULF OF ADEN, 2009. TODAY, COULD SIMILAR INTERGOVERNMENTAL COOPERATION PAY OFF IN THE GULF OF GUINEA?

STEPHEN SPARK

Stephen is a freelance journalist and sub-editor specialising in transport and the Indian Ocean region. He also writes for Safety at Sea, Ports & Harbors, Fairplay Solutions and Dredging & Port Construction.

CHANGING THE GUARD Some recent initiatives give cause for hope, however. Mr Jones reports: “West African countries are set to launch a major anti-crime tool: the West African Police Information System, which is an automated database to centralise and share intelligence.” An upsurge in attacks on land by Boko Haram, a militant Islamist group allegedly linked to al-Qaida, prompted Nigeria and the UK to sign a memorandum of understanding on bilateral military cooperation to tackle not just terrorism but also maritime insecurity in the country. Mr Trelawny observes: “The IMO has assisted in drafting the West African version of the Djibouti Code of Conduct. As at 17 June, 20 countries from the 21 eligible had signed up to the code. There is already cooperation between Benin and Nigeria, and the Oil Companies International Maritime Forum has opened a maritime trade information sharing centre in Ghana.” And BIMCO is amending its Guardcon security contract to suit West Africa. Getting West African countries to shift their focus from land to sea is a priority for the IMO, says Mr Trelawny: “What’s needed is the political will to make the sea more important.” In his view, piracy is not the greatest threat. “We’re looking at a number of maritime crimes that are more serious than piracy, such as illegal fishing. Also drugs, people smuggling, arms trafficking and so on.” If these issues can be addressed, piracy and robbery at sea will also decline, he maintains. But Mr Jones is unsure whether there is the will to tackle these problems: “We are mired in a piracy problem which cannot be fixed without addressing the root causes. Whether it is ships off Nigeria or Somalia, without criminal prosecutions, a coastguard and long-term solutions, pirates will remain, and seafarers, vessels and cargoes will be taken. Without protection, without deterrent, shipping is left without a hope.” www.thebaltic.com SUMMER 2013

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Baltic_page_0613_1.0_210 x 280mm 10/06/2013 12:58 Page 1

International maritime protection and port facility security

Drum Cussac’s Maritime Division

a market leader in anti-piracy and maritime security consultancy We provide specialist advice and security solutions globally to the oil and gas industry, commercial vessels, offshore operators, superyachts, port facilities and the energy sector. We have developed an international reputation for our understanding of maritime protection and port facility security. Our services are supported by a dedicated Maritime Operations Team and a purpose-built 24/7 Response Centre. Our services and products include: • Automated Piracy Threat Assessment System (APTAS) • Competent Authority • International Ship and Port Facility Security (ISPS) Code / International Safety Management (ISM) Consultancy Services • Long Range Acoustic Device (LRAD) • Offshore Boat Teams • Port Facility Security • Risk Assessments and Investigations • Technical Security Consultancy • Track and React • Training • Vessel Escorts • Vessel Protection Teams We are certified by the DfT Maritime Security (formerly TRANSEC), accredited by the Maritime and Coastguard Agency (MCA), a member of the Security Association for the Maritime Industry (SAMI) and actively participating in the Security in Complex Environments Group (SCEG) along with the Steering Committee of the International Code of Conduct for Private Security Service Providers (ICoC).

Drum Cussac Discovery Court Business Centre 551–553 Wallisdown Road Poole, Dorset BH12 5AG United Kingdom

+44 (0) 1202 802 060 +44 (0) 1202 853 109 (24hr) info@drum-cussac.com www.drum-cussac.com

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ship management Security case study

Drum Cussac

risky business The Gulf of Guinea has been dubbed the new Gulf of Aden, referring to its growth in violent piracy. But, says business risk consultancy Drum Cussac, this is a misleading comparison “The Gulf of Guinea is very different to Aden for a number of reasons,” Drum Cussac’s director of marketing, Mark Pearce, tells The Baltic. “Firstly, the threat level is different in that the ‘pirates’ are not actually pirates as they are traditionally defined. They have no real interest in the ship; they are only interested in the cargo. Secondly, the level of violence is different. “Thirdly, security licensing in the region is extremely complex. And lastly, there is a lack of cohesive anti-piracy planning.” Rather than comparing the Gulf of Guinea to the Gulf of Aden, a more accurate comparison would be with the Strait of Malacca, he says. Before any functioning cooperation between the countries bordering the strait existed, pirates could dip into another country’s territorial waters to escape capture. Likewise, avoidance tactics by ship operators could prove difficult. In the Gulf of Guinea, the wrong people in the wrong place could be considered an act of war, says Mr Pearce. But, as in the Gulf of Aden, there are several options for operators hoping to improve their resilience to pirate attacks. “The first thing any ship operator moving or considering moving through that region should do is a proper risk assessment,” says Andrew Nicholson, director of government and industry affairs at Drum Cussac. “This will then point to the risks that can be mitigated.” However, as operations can alter at relatively short notice, it is important that risk assessments are constantly monitored and updated. Mr Nicholson explains that the Gulf of Aden and the Gulf of Guinea operate on different commercial models. Movements in the Indian Ocean are usually simple A to B

Rather than comparing the Gulf of Guinea to the Gulf of Aden, a more accurate comparison would be with the Strait of Malacca

journeys, but in the Gulf of Guinea ships can be engaged in transhipments, calls at offshore terminals, lightering and multi-terminal calls. This means the latter offers a distinct operating model that requires a different approach to tackling piracy. Once the risks have been identified, ship operators need to look at the existing arsenal of counter-piracy measures and decide which are appropriate to the region. Mr Nicholson advises: “Appropriate mitigation could be in the Best Management Practices information employed by operators in the Gulf of Aden. Much of this still applies for operations in the Gulf of Guinea. However, I would advise against the use of citadels due to the higher levels of violence and the lack of coordinated military response to deal with any problem. “Another method that can be used is the employment of private security companies, which might involve bringing an adviser onboard to advise the crew and ensure the proper procedures are in place to mitigate and deal with any threat. “Of course, the issue of bringing any equipment onboard is extremely difficult, if not impossible, so that restricts what security personnel can do and how effective they can be.” Another concern is the mix of jurisdictions covering the areas where piracy is prevalent, which can cause confusion about the scope and level of counter-piracy measures that can be employed. On top of that, several of the countries in the Gulf of Guinea have trade embargoes that further complicate operations. “There’s a whole raft of different administrative issues that are difficult to overcome in the region,” confirms Mr Nicholson. A final option operators can consider is hiring local military sources on ships moving through the region. “This can work well, or not,” says Mr Nicholson. “The problem is that you have no control over who comes onboard. You don’t know their background and you are not able to choose the person you want. “To overcome this, you could talk to a local security company that has a contract with the military; however, there are very few security companies that have these contacts.” www.thebaltic.com summer 2013

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OPERATIONS Ship finance report

During that darkest period of the financial crisis in 2009, an illiquid sale and purchase market forced many brokers to stop publishing second-hand values

THE EVOLUTION OF SHIP VALUE ASSESSMENT Baltic Sale and Purchase Assessments hit the market in the golden years, and have charted the massive fluctuations since then. Craig Jallal studies their workings

000

74 dwt

tonnes 48

hen the Baltic Exchange first started publishing the Baltic Sale and Purchase Assessments (BSPA), little did it know it was going to capture an extraordinary episode in shipping history. Like all the Baltic freight indices, the BSPA is driven by the demands of the market. The timing of its introduction was fortuitous. Ship values soared to the highest levels in living memory, with the five-yearold very large crude carrier (VLCC) assessment reaching $162.9m in August 2008. The capesize assessment was equally stratospheric, at more than $153m, but it had plunged to $45m by the end of 2008. Today the capesizes barely reach $30m, while VLCCs hover around $50m. It was during that steep descent in 2008 and 2009 that the BSPA proved to be a useful indicator. During that darkest period of the financial crisis in 2009, an illiquid sale and purchase market forced many brokers to stop publishing second-hand values in their regular reports. The BSPA was one of the few consistent indicators available. Like the Baltic Exchange freight indices, the BSPA uses a panel of Baltic Exchange member shipbrokers to submit assessments. The current panel consists of Arrow Chartering (UK), Banchero-Costa (Italy), Barry Rogliano Salles (France), Compass Maritime Services (US), Fearnleys (Norway), Lorentzen & Stemoco (Singapore), Mallory Jones Lynch

SUMMER 2013 www.thebaltic.com

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• VLCC – 305,000 dwt, 15.5 knots on 90-ton bunker, special survey passed, 2% commission. • Aframax – 105,000 dwt, 15.5 knots on 50-ton bunkers, special survey passed, 2% commission. • MR Tanker – 45,000 mt dwt, 14.5 knots on 35/32.8 mt (laden/ballast), special survey passed, 2% commission. • Capesize – 172,000 mt dwt, 14.5 knots on 56 mt, special survey passed, 2% commission. • Panamax – 74,000 mt dwt, 14.0 knots on 32/28 tons, special survey passed, 2% commission. • Supramax – Mitsui 56 type, 56,052 dwt, special survey passed, 2% commission.

These are generic five-year-old vessels in each sector, and the assessments follow the brokers’ current opinion. This opinion is based on the traditional last done calculation, by which the last known sale is adjusted up or down to match the BSPA specification. Willy Lyth, senior freight reporter at the Baltic Exchange, says: “It is important that people understand these are assessments, not actual values.” The Baltic Exchange is not in the business of providing valuations.

200

Baltic Sale and Purchase Assessments Supramax Panamax Capesize MR product tanker Aframax VLCC

150

Flynn (US), Optima Shipbrokers (Greece), R S Platou Shipbrokers (Norway), SSY Valuation Services Ltd (UK) and Yamamizu Shipping (Japan). The criteria for the panel are that they must be independent brokers able to provide the assessments by 15.00 GMT on Monday, whatever their location. The assessments are averaged and published at 16.00 GMT. The six ship types are:

100

0 7 5 8 4 6 9 0 01 00 00 00 00 00 00 /2 /2 /2 /2 /2 /2 /2 9 9 9 9 9 9 09 0 0 0 0 0 0 / / / / / / / 15 15 15 15 15 15 15

Some of the firms on the BSPA 0 365 730 1095 1460 panel, such as SSY Valuations, produce hundreds or even thousands of valuations a year using last done calculations, and will have a ready supply of current data for the assessments. For others, the process may take longer. If the assessment is wildly different there may be an enquiry from the Baltic Exchange team behind the BSPA, but this may also be an indication that the broker is working a vessel and has closer knowledge of a change in the assessment direction. While there is a wide geographical spread to the panel, some of its brokers are better known for operating in the tanker sector, which might suggest that sometimes the assessment is light on dry bulk submissions. The BSPA manual does allow for this, stating that if there are fewer than four submissions, //

CRAIG JALLAL

Craig is an shipping researcher and writer. He has worked at Lloyd’s Shipping Economist, Clarkson Research, Fortis Bank and BNP Paribas.

knots

11 20 9/ 0 5/

01 /2 09 / 15

the assessment will be dropped, 2190 2555 2920 3285 3650 and a note will appear. However, this does not appear to have ever happened, even in the grim days of 2009. Similarly, as the fleet evolves, the pool of five-year-old vessels in a sector is diminishing, so if necessary the generic specification can be changed as the fleet matures. Changes such as these are not, however, done on a whim, and can take several months of discussion and trials. The last change to the BSPA was in April 2012, when the TESS 52 Handymax was replaced with the Mitsui 56 Supramax. Interestingly, the BSPA is also designed to be the underlying base for a derivative, although so far no paper trade on the BSPA has been reported.

1825

RISE OF THE ALGORITHM Ship valuation has evolved since the introduction of the BSPA, most noticeably with the introduction of VesselsValue.com, an online system providing instant values using a complex algorithm. Initially there was scepticism in the market, as this appeared to take the art out of the valuation process. Since then the system has been examined and has undergone due diligence by financial institutions looking to use it. Today an estimated 60% of the active shipping banks use the VesselsValue.com system. The online system processes more than 2,000 tanker and bulk carrier valuations a week – more than enough to fulfil the BSPA requirements. The addition of an online system would herald another evolution in the story of ship values.

www.thebaltic.com SUMMER 2013

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SHIP FINANCE

Lender profile

COMMONWEALTH BANK OF AUSTRALIA

As European banks pull out of ship finance, Craig Jallal finds formerly lower-profile lenders ready to grasp the opportunities

he Commonwealth Bank of Australia (CBA) is financially one of the strongest banks lending to shipping today, maintaining a long-term credit rating of AA- and with a market capitalisation equivalent to US$110bn at the time of writing. But it is probably the bank you have heard the least about – until now. This was a deliberate policy by CBA, according to its executive vice president and head of structured asset finance, Nick Fletcher. “Historically we were very lightweight in shipping,” he says, “and had an Australasian-only focus. The combination of our financial strength, our pre-existing involvement in natural-resource industries and being headquartered on an island continent means it makes strategic sense for us to tap into more of the value in the transport chain.”

Indeed, it was in 2007 that CBA’s asset financing division started evolving from an inward-facing provider of capital to a financer to the global transport industry. Although the bank is Australian, there are no Aussie rules: clients do not need to be Australian, have companies in Australia, operate ships under Australian tonnage tax rules, or even trade with Australia. Of course, CBA is a great source of information for clients looking to do any of those things, but none are necessary to become a client. CBA is increasing its international focus on the key segments of land transport, aviation and shipping, with the risk management and commercial parameters controlled from Sydney. The shipping centre of excellence model has been developed, and the key components are now present in London. Simon Baker coordinates input from bankers talking to shipping //

CRAIG JALLAL

Craig is a shipping researcher and writer. He has worked at Lloyd’s Shipping Economist, Clarkson Research, Fortis Bank and BNP Paribas.

CONTACT DETAILS

CORRECTION

SIMON BAKER Director of shipping and offshore finance at Commonwealth Bank of Australia Level 3 Senator House, 85 Queen Victoria St, London EC4V 4HA Phone: +44 (0) 20 7710 3607 Fax: +44 (0) 20 7329 6611 Mobile: +44 (0) 7739 324 696 Email: simon.baker2@cba.com.au

On page 51 of the Spring issue of The Baltic, Marco Albers was incorrectly identified as the contact for ING in London. The correct contact is Stephen Fewster on +44 (0) 20 7767 1036. The Baltic apologises for any confusion.

CBA

200m

1.5bn 50

companies around the world. At his side is JJ Wang, a former shipbuilder and Standard & Poor’s broker, recently recruited from the RBS shipping team. He provides the technical expertise to complement Mr Baker’s commercial analysis. The parameters the bank has set for shipping clients are for relationships with strong management teams and knowledgeable shareholders. The bank is not comfortable with a pure asset-play business model, and opts for carefully chosen clients rather than many deals. The parameters for assets are equally clear: “We prefer assets supporting production activities over development activities,” says Mr Fletcher. In the offshore sector this means FPSOs over drillships. On the shipping side, the main restrictions are no cruise ships and no car carriers. The timing of the move from local to global focus couldn’t have been better. As the crisis in 2009 deepened, some European banks pulled out of ship finance completely, and others curtailed activities to a few core national-interest clients. Meanwhile, CBA has been able to cherry-pick clients and deals. According to Mr Fletcher, the client sweep is limited to the top three to five owners by quality and quantity in each of the main sectors. This is illustrated by two recent deals: in the liquefied natural gas sector CBA committed $200m as a joint mandated lead arranger (MLA) and bookrunner to the Angelicoussis Group’s $2.25bn Maran Gas project. In the second example, CBA committed $150m as a joint MLA for BW Group in a $1.5bn gas project.

SUMMER 2013 www.thebaltic.com

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Project1_Layout 1 06/06/2013 09:07 Page 1

Redefining Maritime Security

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14/06/2013 10:32 25/06/2013 15:48

MARKETS Reefers

COOL UNDER PRESSURE Clive Woodbridge finds some resurgence in the reefer market, but warns that there’s more to do before the sector recovers fully

A SEATRADE PACIFIC REEFER OFF THE SHORE OF SHANGHAI

ast year was extremely challenging for the specialised reefer shipping sector, and for the first time in more than a decade there was no high season. Despite this, there has been an outbreak of optimism among the leading players in recent months. As Yntze Buitenwerf, general manager of Seatrade Reefer Chartering, puts it: “The mood in the reefer market is unquestionably more positive. Spot rates for reefers in the first quarter of this year were more than double the level of last year and there is an improved outlook for the next few months as higher banana volumes and good quantities of citrus are expected.” A major structural shift in the reefer business took place in 2012, reflecting the lower demand for specialised shipping capacity throughout most of the year. A record number of ships were recycled, shifting the demand-supply balance in a way that should encourage higher rates. It is estimated that 74 reefer ships with a total capacity of around 28m cu ft were scrapped – around 10% of the global fleet. There was also significant consolidation in the market, and several new alliances were formed, none more important than the joint venture between Seatrade and Baltic Shipping to

service the increasingly influential Russian market. The so-called Reefer Alliance started operating in January this year and brings together a combined fleet of 96 specialised reefer ships in the 320,000 cu ft to 625,000 cu ft size range, which operates across three core trade lanes, connecting South Africa, Chile and Morocco with St Petersburg. According to Mr Buitenwerf: “Without doubt the reefer business is in a stronger position today to defend its interests than it was at the beginning of 2012. This is partly because major players in the industry have been able to put their own houses in order, but equally importantly because the liner competition, led by Maersk, has belatedly come to understand that it needs to make a greater return from its reefer activities to justify continued investment in this sector.” Last October Maersk announced a universal $1,500 general rate increase, and most other lines followed suit. While this level of increase has not been fully implemented in practice, there are strong indications that charterers and cargo

Specialised reefer operators believe the market may be moving towards a more level playing field, having been artificially skewed in favour of container operators

www.thebaltic.com SUMMER 2013

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25/06/2013 10/06/2013 15:49 10:48

MARKETS Reefers SIEM SHIPPING’S 2006-BUILT STAR PRIMA REEFER SHIP

The pricing policies aggressively pursued by the major container lines over the past few years have now been exposed as predatory policies designed to squeeze out the specialist reefer operators interests are paying considerably more to ship on container services this season than they did at the same time last year. This will put specialised reefer rivals in a stronger competitive position and may allow them to reclaim some conventional business that had been lost to containers. For the first time in many years, specialised reefer operators believe the market may be moving towards a more level playing field, having been artificially skewed in favour of container operators. One leading reefer operator, Siem Shipping, was scathing in its criticism: “The pricing policies aggressively pursued by the major container lines over the past few years have now been exposed as predatory policies designed to squeeze out the specialist reefer operators.” The sense that market fundamentals have changed is encouraging some companies to invest in their fleets again, although reefership newbuilding remains at a standstill. Seatrade, for example, has recently acquired a number of second-hand reefers, including several large vessels with good container capacities. Scrapping has nonetheless led to a net reduction in the size of Seatrade’s fleet over the past year or so. “Present utilisation levels are encouraging,” says Mr Buitenwerf, “and this might eventually lead to new acquisitions.” For its part, Siem Shipping, formerly Star Reefers, has decided to lengthen and rejuvenate four of its C-class vessels, based on a sevenyear charter commitment. This project, which is expected to cost around $10m a vessel, includes inserting a container hold and new cranes to make the vessels more flexible and competitive. Like Seatrade, however, Siem scrapped ships last year, and overall the company calculates that its reefer capacity declined by around 15% in 2012. The company currently

CLIVE WOODBRIDGE

Clive has been writing about shipping, ports and transport for 30 years. He has contributed to Lloyd’s List, Seatrade and Container Management, and edits Ship Repair and Conversion Technology for the Royal Institution of Naval Architects.

controls a fleet of 33 vessels with a combined capacity of 18.7m cu ft. It seems unlikely that there will be any appreciable increase in specialised reefer capacity in the foreseeable future, as container lines continue to absorb most of the global growth in reefer cargo volumes. Mr Buitenwerf believes, however, that the specialised fleet will retain its current volumes and will become stronger in certain niche sectors: “We clearly see that container services, as a result of slow steaming and hub and spoke patterns, are no longer suitable for products which need a fast, direct and dedicated service to ensure freshness and quality when received by the end consumers. The present focus on food safety will only sharpen this trend.” Siem Shipping takes a similarly bullish position. Certain that the value of conventional palletised reefer shipping will shine through, the company declared: “A modern specialised reefer can deliver a higher quality and more predictable service than that provided by third party container lines. The issue has been price, and now, as the price gap closes, it is possible that some end-users will no longer be prepared to accept the lower-quality service provided by the container lines.” However, while market forces may be favourable, to sustain the green shoots of recovery seen in the first quarter of 2013 will require continued action by reefer owners. With the retirement of so many vessels last year there are now fewer older reefers accepting business at loss-making rates, but more needs to be done if reefer shipping specialists are to return to acceptable levels of long-term profitability. In particular owners need to bite the bullet and continue to delete older and uneconomic vessels from their fleets. www.thebaltic.com SUMMER 2013

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PORT FOCUS Middle East

LIGHTING UP THE GULF ECONOMY Clive Woodbridge on Middle Eastern ports and economic diversity

ABOVE: PANORAMIC VIEW OF SALALAH PORT

cross the Middle East Gulf region governments are adopting long-term economic development strategies aimed at increasing diversification and creating job opportunities for their fast-growing populations. As a result, ports are being viewed not just as gateways for imports and exports, or hubs for transhipment trade, but as a way to add value to the local economy and facilitate the growth of industrial activity in the immediate hinterland. Oman – driven by its Oman 2020 Vision – is perhaps a prime example of a country that views ports as ‘enablers’ and the Sohar Industrial Port Company (SIPC) – a joint venture with the Port of Rotterdam – is a shining example of the symbiotic relationship between port investment, industrial activity and trade growth. Less than ten years old, having handled its first cargo vessel in 2004, the Port of Sohar handled just under 44m tonnes of cargo last year, 51% more than in 2011. Dry bulk cargo flows jumped from 14.7m tonnes in 2011 to 26.1m tonnes last year – an astonishing rise of 78%. Container traffic was also well up, albeit from a fairly small base – an 83% increase from 108,440 teu to 198,817 teu – while project cargo and breakbulk volumes jumped by 68% and 59% respectively. Liquid bulk cargoes were

up by a more modest but still impressive 16%, to 14.9m tons. As Andre Toet, chief executive of SIPC, reflects: “For a young port like Sohar the year-on-year growth has been remarkable. This is not only due to large industries… coming on stream, but also [due to] the growth of the container and general cargo terminals. The strategic location of Sohar, outside of the Strait of Hormuz, but easily accessible for the large consumer markets in the UAE, Saudi Arabia and Indian Subcontinent, has created a unique selling point which has fuelled the growth of throughput in a relatively short period of time.” Two key infrastructure developments for the Port of Sohar in the past 18 months have been the completion of a dedicated jetty for the Brazilian minerals giant Vale, which started operations in late 2011, and the Sohar Bulk Terminal, which received its first vessel in July 2012. Mr Toet says: “The commissioning of the Vale plant and the start of its own bulk terminal operations has had a significant impact on our port. Besides the high volume of cargo throughput, this has put Sohar on the map as being one of the few ports anywhere in the world able to handle the largest ore carriers.” Oman International Container Terminal has also taken a next step in the development

SUMMER 2013 www.thebaltic.com

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DUBAI

For a young port like Sohar the yearon-year growth has been remarkable Andre Toet, Sohar Industrial Port Company chief executive

of its facilities in Sohar, and will assemble a new terminal with greater land capacity and additional, larger ship-to-shore gantry cranes. This new facility, which is expected to be operational by the end of this year, will be able to handle vessels up to 11,000 teu, and will help accommodate the additional business brought by companies such as Mitsui OSK Lines and Orient Overseas Container Line that have added Sohar to their direct service calls to and from the Far East. Crucial to the success of all terminals in Sohar is the adjacent Freezone Sohar, which was set up to allow investors to make best use of the deepwater port, as well as tap into the upstream steel and petrochemical feedstock available. “Together with multimodal infrastructure and investor-friendly incentives, this forms a unique proposition for downstream industries setting up in Sohar,” says Mr Toet. Over the past year, a key milestone for Sohar was the setting up of a metals cluster in the free zone. Various international and local investors are building smelters with an annual ferro-chrome production capacity of around 500,000 tonnes a year. As Mr Toet points out: “These are globally significant volumes and will mark Sohar out as a key area for this type of product.” In Sohar’s first departure from industries dominated by metals and petrochemicals production, this April an agreement was signed for a major sugar refinery project at the port.

This will produce up to 1m tonnes of refined sugar a year, most of which will be re-exported. Another Omani port, Salalah, is best known as a container hub, but also handles a significant volume of dry and liquid bulk commodities for customers including Octal Petrochemicals, Salalah Methanol, Raysut Cement and Salalah Mills, through its general cargo terminal (GCT). Last year, Salalah handled a record 7.2m tonnes of non-container cargo at the GCT, 11% more than the year before, with significant increases in limestone, bagged cement and methanol. Development of the adjacent Salalah Free Zone has gathered momentum over the past year, and to capitalise on this, and to unlock the opportunities to develop new cargo flows and expand existing ones, the Omani government last year awarded a contract for the much-needed expansion of the GCT. Construction work is now under way and it is expected that the new facility, which will incorporate 1.8km of multipurpose berth, will be operational in 2014, tripling the capacity of the GCT from 6.5m tonnes a year to around 20m tonnes. Peter Ford, Port of Salalah chief executive, says: “The general cargo terminal has a great future. If the capacity was needed when the government placed this contract, it is even more so now, as a number of major investors have already stepped up with plans to take advantage of the new facility.” He estimates that around 65% of the 6m tonnes of extra liquid bulk capacity has already been sold, even before the terminal is open. Mina Petroleum is investing in a tank storage facility, Oman Gas is setting up a liquefied petroleum gas plant and Salalah Methanol is developing a new ammonia production site in the free zone. And Saltic has plans to invest $400m in a caustic soda plant. On the dry bulk side the Omani government has awarded a series of new mining contracts in the surrounding region. Largely as a result, Salalah

Jebel Ali and its neighbouring free zone represent the Middle East template for port investment acting as catalyst for economic diversification. The Dubai port remains the leading container hub in the Middle East, handling 13m teu last year, while the free zone now covers 48km2 and is home to more than 6,400 companies. It is estimated that the free zone accounts for 25% of Jebel Ali’s container throughput. DP World is in the process of expanding Jebel Ali’s capacity to accommodate more gateway business, as well as transhipment activity. The company recently finished the port’s biggest dredging programme in more than a decade, as part of a major investment programme to boost capacity at Container Terminal 2 by 1m teu later this year and to create 4m teu of annualised capacity at Container Terminal 3 by 2014. The dredging also deepened the draught alongside the port’s ro-ro and tanker berths from 10.5 metres to 11.5 metres.

www.thebaltic.com SUMMER 2013

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PORT FOCUS Middle East expects that its dry bulk exports will more than double over the next two years, reaching around 6m tonnes. This will comprise mainly aggregate, limestone and gypsum, with US Gypsum in particular stepping up its activities in the port. One of the strategic aims of the Port of Salalah is to encourage companies to add value to imported bulk and breakbulk products to generate additional re-export business for the container and general cargo terminals. In this context, Mr Ford draws attention to the fact that US Gypsum is planning to process raw materials to make products for the building industry, thereby making use of the container terminal infrastructure as well. A Ghanaian cocoa bean exporter has also been attracted by the port’s value and is to set up a plant to process cocoa inside the free zone and export chocolate. However, Salalah’s container business is transhipment based, and last year the port handled 3.6m teu, around 14% more than in 2011, with Mediterranean Shipping Company strengthening its hub activities at the port. First quarter 2013 figures were even higher than last year, suggesting that another record throughput is on the cards. Salalah has plans to build three more super-post-panamax berths, taking the number at the port to nine. Negotiations with several lines interested in partnering in this investment project are reportedly under way. But the biggest new port development in the Gulf at present is taking place in Qatar, which has one of the region’s fastest-growing economies and is gearing up to host the 2022 World Cup. The existing Doha port will not be able to cope with the imports required, so the government of Qatar is developing Doha New Port, at a cost of around $7bn. The first phase of this multipurpose facility is scheduled to be operational by 2016, providing capacity for 2m teu of containers and 2m tonnes of cargo a year. Doha New Port will also have facilities to handle ro-ro ships, bulk carriers and offshore vessels.

The biggest new port development in the Gulf at present is taking place in Qatar, which has one of the region’s fastest-growing economies

BELOW: THE DEDICATED JETTY IN SOHAR FOR VALE’S PALLETISING PLANT

Saudi Arabia has a similarly buoyant economy, which is pushing up throughput levels at the ports. At the Red Sea gateway of Jeddah, for example, container throughput jumped by 17.9% in 2012, to 4.7m teu, while there were big increases in dry bulk goods as well. The volume of building materials moved through Jeddah was up by over 31%, at more than 11m tonnes, as investment in local infrastructure gathered momentum, while the volume of bulk foodstuffs, including grain, was up by 13% to 11.75m tonnes. Jeddah has limited scope to expand, although a new multi-storey car terminal is expected to free up land for additional facilities. To take some of the pressure off Jeddah, the Saudi government is developing a new port and industrial zone at the King Abdullah Economic City, north of Jeddah near Rabigh. This will comprise a container port with capacity of more than 2m teu annually, which is expected to be operational in 2017. Opening before that will be a second container terminal in Dammam, on the Gulf coast of Saudi Arabia, whose facilities are under similar pressure. This new terminal, which will be operated by a subsidiary of Singapore’s PSA International, is expected to be operational in 2014. The Dammam port authority is also developing two new bulk shipping berths, which will be able to handle larger bulk carriers than the port can presently accommodate.

CLIVE WOODBRIDGE

www.thebaltic.com SUMMER 2013

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CMY

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port focus Middle East case study

Khalifa Port

Gulf growth Abu Dhabi’s Khalifa Port moves from project-led organisation to fully operational ports and business Abu Dhabi’s newest port, Khalifa Port, is now fully operational and handling all of the UAE’s container traffic following a 100% transition at the end of last year from the older port, Mina Zayed. Planning for the future, the Abu Dhabi government has invested billions of dollars in diversification and infrastructure, and the UAE is rapidly becoming one of the world’s primary hubs for economic, commercial and corporate activity. The new port, together with Khalifa Industrial Zone Abu Dhabi (Kizad), is part of Abu Dhabi Ports Company (ADPC), which was established in 2006 by Abu Dhabi government emiri decree. ADPC sets out to be a preferred provider of world-class integrated ports and industrial zone services, and together Kizad and Khalifa Port have the objective of contributing more than 15% of non-oil gross domestic product by 2030, as an integral part of the Abu Dhabi Economic Vision 2030, a plan that prepares for less reliance on oil revenue. The mega-project offers access to two billion people in four time zones, and has three international airports within a 90-minute drive, purpose-built express highways and a direct Etihad Rail link planned for 2016. In addition, businesses enjoy a tax-free environment in a nation that was recently cited by the World Bank as one of the easiest to do business with. Gulf Cooperation Council (GCC) ports have become major logistics hubs for transhipment and distribution. The UAE is the GCC country with the highest investment in port developments, at $10.7bn, and Abu Dhabi is increasingly widely recognised as a prime

The UAE is the GCC country with the highest investment in port developments, and Abu Dhabi is increasingly widely recognised as a prime location to do business

location to do business, located at the crossroads of trade routes between Europe, Asia and Africa. Khalifa Port was officially inaugurated on 12 December 2012, on time and under budget. It was the first semi-automated port in the region and will be the first port to be connected by rail. While its capacity is relatively modest compared to Dubai’s nearby Jebel Ali Port, Khalifa Port currently handles 2.5m teu containers a year and 12m tonnes of bulk/breakbulk cargo a year – a figure that is four times as much as Mina Zayed Port handled in 2010. By 2030 the port will have the capacity to handle 15m teu containers and 35m tonnes of cargo a year, and it will, together with Kizad, have become one of the world’s largest industrial zones. To reach these targets, building will continue, with the port being developed in five planned stages, which can be slowed or accelerated depending on market conditions. The mega-project is located halfway between Abu Dhabi and Dubai. Kizad, which already houses the world’s largest aluminium smelter for its anchor tenant Emirates Aluminium, has signed up nearly 50 investors to its 51km2 Zone A (its first phase of development). The industrial zone will grow into a gigantic industrial powerhouse, just under 420km2 in area – two-thirds of the size of Singapore, catering for several industries, including base metals, heavy industry, chemicals, trade and logistics, building materials, and medium and light industry. The site is being laid out to encourage vertically integrated clustering among industry sectors – whereby upstream producers are in close proximity to midstream and end users, to maximise economies and ensure low operating costs. The increasing industrialisation of the Middle East means that the region is fast becoming a significant exporter, and Kizad itself will, it is hoped, become a major source of exports, delivering significant cargo volumes to the new Khalifa Port. Both Khalifa Port and Kizad have been planned using lessons learned from other ports and industrial zones around the world; the result is facilities that have space for development, incorporating best practice and anticipating the needs of the future. Together they will create more than 100,000 jobs by 2030 and are set to revolutionise logistics across the Gulf region. www.thebaltic.com summer 2013

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PORT FOCUS News in brief

LATEST NEWS FROM THE DOCKS UNITED STATES

INSPECTION NOTICE ISSUED BY US AND CANADIAN AUTHORITIES FOR ASIAN GYPSY MOTH

The United States Department of Agriculture and the Canadian Food Inspection Agency have issued a joint inspection notice to vessels calling from Far East Russia, Japan, Korea and Northern China to prevent the incursion of Asian gypsy moths via seaports. The moth is a serious pest that can be carried on the superstructure of ships and cargo. If introduced, the moths would pose a significant risk to the North American plant resource base and businesses that rely on plant resources. The authorities issued the notice to “strongly urge maritime interests to take all possible precautions”, as the risk of incursion is thought to be high for 2013. The notice calls for inspections to be made as close as possible to the time of departure, and for crews to perform intensive inspection en route and remove any traces of egg masses and other life stages of the moths before entering US and Canadian ports. The notice has advised that vessels will be required to provide two years’ port of call data to the local agent 96 hours before arrival. Last year, US and Canadian authorities intercepted many vessels with moth egg masses on the superstructures of ships and cargo, resulting in those vessels being ordered into international waters to mitigate any risks. Source: US Department of Agriculture/Canadian Food Inspection

RUSSIA – NOVOROSSIYSK

SINGAPORE

The current port dues structure consists of main rates and a series of incentive schemes. Under the revised port dues structure, these will be streamlined into four categories of port dues and some specific incentive schemes. The revisions that would benefit, or have no cost impact on, the industry will take effect from 1 July 2013, while those that would lead to an increase in port dues payable will have a six-month notice period then take effect from 1 January 2014, to give the industry time to adjust to the changes. Source: Maritime and Port Authority of Singapore Port Marine Notice No 47 of 2013, dated 12 April 2013

UNITED STATES

2013 VESSEL GENERAL PERMIT ISSUED

The US Environmental Protection Agency has issued the 2013 Vessel General Permit, which will come into effect on 19 December 2013. The aim of the National Pollutant Discharge Elimination System’s 2013 Vessel General Permit (VGP) is to protect the nation’s waters from shipborne pollutants and reduce invasive species. It covers commercial vessels longer than 79 feet, excluding military and recreational vessels, and will replace the 2008 VGP that expires on 19 December 2013. The new permit includes a stricter numeric discharge standard limiting the release of non-indigenous invasive species in ballast water. It also contains additional environmental protection for the Great Lakes. The 2013 final VGP seeks to reduce the administrative burden for owners and operators by eliminating duplicate reporting requirements, expanding record-keeping opportunities, and reducing self-inspection for vessels that are out of service for extended periods.

NEW PORT REQUIREMENTS

MPA REVIEW OF PORT DUES

A new Marine Risk Management Policy came into force on 1 May for vetting all tankers calling at Sheskharis Oil Terminal, IPP Terminal (piers 26 and 27) and Fuel Oil Terminal (piers 25 and 25a) in Russia. The main purpose of the new policy is to minimise risks during the loading of crude oil, products and liquid fertilisers at Novorossiysk Commercial Sea Port. All tankers now calling at Novorossiysk are subject to preliminary vetting to confirm their suitability for loading crude oil, products or liquid fertilisers. The risk assessment and vetting procedure will be based on data from Ship Inspection Report Programme reports, the Oil Companies International Marine Forum (OCIMF), Lloyd’s Marine Intelligence Unit and other sources. Vetting inspection will be carried out by the International Risk Assessment Service on behalf of Primorsk Oil Terminal (as a member of OCIMF). Particular attention will be paid to the vessel’s age, crew manning, accidents and incidents statistics, and the conditions of ship’s cargo, exhaust and inert gas systems. In accordance with the policy, full pre-arrival information must be supplied to the terminal via the ship’s agent 14 days before arrival.

The Maritime and Port Authority of Singapore has completed a comprehensive review of Singapore’s port dues structure and rates, in consultation with the shipping industry and other stakeholders. As part of the port dues review, the MPA will also simplify the port dues structure and streamline various incentive schemes. The changes to port dues are expected to save the industry $11m a year. This is on top of existing $11m a year savings from the 20% port dues concession for container ships that will be made permanent, and the $7m a year from the waiver of the Maritime Welfare Fee introduced in October 2012. Under the revised port dues structure, 83% of vessel calls are expected to pay lower port dues than they do to today. About 10% of vessel calls will pay the same and up to 7% THIS INFORMATION HAS BEEN SUPPLIED COURTESY OF GAC’S HOT PORT NEWS. of vessel calls, INTERESTED READERS CAN SIGN UP FOR mainly longGAC’S FREE HOT PORT NEWS EMAIL FOR staying vessels, DAILY UPDATES FROM PORTS AROUND may pay more THE WORLD, AND SUBSCRIBE TO RED HOT PORT NEWS FOR FREE SMS ALERTS OF port dues, if call BREAKING NEWS AT WWW.GAC.COM/HPN patterns remain unchanged.

www.thebaltic.com SUMMER 2013

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BRIEFING

Condition monitoring

PREVENTION BEATS CURE

Real-time, continuous condition monitoring promises cost savings by increasing the life of assets, but is the training, equipment and human investment worth the returns? Absolutely, says Parker Kittiwakeâ&#x20AC;&#x2122;s Steve Dye

urrent financial conditions are forcing the shipping industry to look inwards and find ways to reduce costs and maximise existing assets. However, in an effort to cut spending and comply with increasing environmental legislation, ship operators have sometimes adopted practices, such as slow steaming, that can have detrimental effects on various parts of a vessel, including engines. This can lead to damage that is difficult to detect. While condition monitoring (CM) offers real-time updates that can prevent damage and enable ship operators and engineers to correct problems before costly unplanned downtime occurs, traditionally this has not been a priority in shipping. However, recent patterns suggest that this is changing. While CM systems have historically had a narrow focus, industry changes such as the shift to sustainable fuels, new engine designs and rising bunker prices have made it necessary for CM systems to expand and encompass more of a ship. Instead of protecting individual components, modern CM analyses the entire system, the environment in which it works and specific machinery requirements. CM is no longer just about stopping equipment before catastrophic failure, but rather about spotting problems at an early stage and implementing efficient preventative maintenance scheduling. Scrutiny from regulatory, legislative and environmental bodies is putting pressure on the shipping industry to address the continuing challenge of complying with fuel emission

WORKERS EXAMINE A SHIP PROPELLER â&#x20AC;&#x201C; BUT COULD CONTINUOUS COMPUTER MONITORING BE THE WAY FORWARD?

SUMMER 2013 www.thebaltic.com

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PHOTOGRAPHY: CORBIS

While the merits of continuous condition monitoring speak for themselves, there are the downsides that must also be considered. Professor Chris Mechefske, graduate chair in the Department of Mechanical and Materials Engineering at Queen’s University in Kingston, Canada, points to some aspects that must be weighed in the decision to use machine condition monitoring and fault diagnostics. “Monitoring equipment costs are usually significant, as are the operational costs,” he says. “Additionally, skilled personnel are needed, as well as a strong commitment from management, both of which attract further costs.” He adds that companies have to factor in a significant run-in time to collect machine histories and trends, without which condition monitoring is of limited use.

regulations. As emission control areas (ECAs) continue to widen, the regulatory timetable and targets to reduce sulphur oxides and nitrogen oxides are becoming increasingly daunting. This is not only from a cost perspective – due to the high price of distillates, as well as supply and demand – but also as a result of technical issues, such as engine and fuel system damage that can arise when using low-sulphur products. It is here where CM is now playing a key role. Recent reports show that catalyst fine damage to cylinder liners is on the rise. This occurs mainly in large, slow-speed crosshead main engines. Large abrasive particles can pass through fuel injection equipment and into the cylinder liners, where they embed themselves in the cylinder wall surfaces. Damage to the cylinder liner can happen for various reasons, but a rise in damage has coincided with the growth in demand for low-sulphur fuel. Engine damage claims can be expensive, costing anything up to $1m. Technology to monitor and prevent catalyst fine damage already exists and is easy to implement. The liner is one of the most crucial and costly components of a ship’s engine. Monitoring wear and uncovering problems at an early stage not only extends engine life, but can also mean the difference between minimal damage control and considerable financial loss. Advances in CM systems allow online diagnostic equipment to continuously and automatically provide complete sets of trend data showing levels of wear in all critical equipment, including cylinder liners. Technology is available that uses magnetometry to quantify the iron in used cylinder oil, reporting changes caused by abrasive wear and highlighting periods of increased physical or thermal stress. Sensors can be fitted to each cylinder of the vessel engine to monitor the scrapedown oil for ferrous wear. Integrated software systems can provide onboard engineers with actionable readings that can be used to minimise liner wear, optimise lubricant feed rate and detect ingress of catalyst fines.

DR STEVE DYE

Steve is business development and marketing manager at Parker Kittiwake, where he is heavily involved in research and development, specialising in emissions monitoring and acoustic emissions technology.

www.thebaltic.com SUMMER 2013

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DOCUMENTATION Wind farms

PROPELLER POWER

PHOTOGRAPHY: IMAGESOURCE

BIMCOâ&#x20AC;&#x2122;s Grant Hunter describes a new standard contract designed to support the small-vessel needs of the growing wind farm industry BIMCO has developed the first standard contract written specifically for the burgeoning offshore wind farm industry. The contract is designed to cater for the chartering of the small vessels used to carry up to 12 technicians to and from offshore wind farm installations. Code-named Windtime, the new contract is the result of two years of intensive drafting work by a small group of representatives of owners and clients from the offshore wind farm sector, with valuable additional input provided by P&I and legal experts. Although based on the widely used Supplytime 2005 form, the new charterparty is tailored specifically to meet the needs of the offshore wind farm industry and should drastically reduce the amount of time previously spent amending Supplytime forms or negotiating in-house forms with clients. In common with many of BIMCOâ&#x20AC;&#x2122;s offshore contracts, Windtime incorporates a knock-forknock liability regime. Although this regime is currently fairly unfamiliar to wind farm operators, which have only relatively recently moved their activities from land to offshore, the economical and administrative advantages of this regime are clear in this context.

A SPECIALIST INDUSTRY REQUIRES AN EQUALLY SPECIALIST CONTRACT

The drafting team has not worked in isolation but has invited the industry to give its views on the draft before publication. There has been a great deal of interest in this project, as indicated by the volume of constructive comments received. Windtime users will notice that many of the provisions found in Supplytime have been amended and refined in the new contract, which much improves the clarity of the form. A final draft produced following the consultation process was formally adopted by BIMCO in May. KEY FEATURES The publication of Windtime will be supplemented by an educational programme including seminars and webinars, as well as the usual comprehensive explanatory notes.

The new charterparty is tailored specifically to meet the needs of the offshore wind farm sector www.thebaltic.com SUMMER 2013

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THE BRIEFING BIMCO

Users of Windtime might be surprised to see BIMCO’s ISPS Clause included in this contract Some of the key features that distinguish Windtime from Supplytime 2005 are set out below. Windtime incorporates a provision for liquidated damages payable by the owners to the charterers if the vessel arrives after the agreed cancelling date. This is a novel provision in a BIMCO contract, but the drafters felt it provided an incentive for owners to ensure they do not delay projects. The parties are free to set the level of liquidated damages payable, but if no agreement is reached then a rate equivalent to the daily rate of hire will apply. Recognising that a liquidated damages provision will not be acceptable in all cases, Windtime provides two other options. The parties can choose for no liability for the owners in the event of termination by the charterers for late delivery, or they can elect for the charterers to be able to hold the owners liable – which is the normal position under a Supplytime. Users of Windtime might be surprised to see BIMCO’s International Ship and Port Facility Security Code (ISPS) clause included in a contract for such small vessels. This clause is included because some of the vessels employed under Windtime will be operating in international waters and will therefore be considered “passenger ships” under the International Maritime Organization regulations on ISPS (if they carry 12 or more passengers). Windtime is a hybrid of a conventional time charterparty in that the small crew-transfer vessels used by the wind farm industry do not generally operate on a 24-hour basis, as a conventional merchant vessel would. The working day is normally around 12 hours and the vessel is not available to the charterers outside this period. Should the charterers wish to extend the working day to a full 24 hours then provision is made for this, but it usually requires additional crew and therefore extra costs. TIMESCALE Windtime, along with explanatory notes, is available from BIMCO’s website. A Windtime seminar is planned for September.

GRANT HUNTER

Grant is chief officer of legal and contractual affairs at BIMCO. For more information about BIMCO, go to www.bimco.org.

STANDARD CLAUSES Just as important as BIMCO’s development of standard contracts is the timely publication of standard clauses dealing with topical issues. These clauses cover circumstances that are not generally dealt with in existing standard charterparties, such as new legislative measures or changes in commercial practice. Some of the important new clauses BIMCO has recently published, or is about to publish, are set out below.

OFAC

All of BIMCO’s standard clauses are freely available to the entire industry: you do not have to be a BIMCO member to download and use them in your contracts. Just visit the clauses section of the chartering page of the BIMCO website and help yourself.

In close cooperation with the International Group of P&I Clubs, BIMCO has developed the Designated Entities Clause to address dealings with internationally proscribed persons or entities that are prohibited from engaging in trade, commerce or financial transactions. The need for caution in business transactions to protect legitimate undertakings has resulted in the appearance of market-inspired clauses attempting to address these complex issues. In some cases these market clauses may have unintended implications for the parties and could result in the imposition of far-reaching obligations. So if you are considering adding a clause to a charterparty to address the Office of Foreign Assets Control or similar legislation dealing with proscribed persons or entities, BIMCO recommends its new Designated Entities Clause.

MLC 2006 Recommended Clauses

The coming into force of the Maritime Labour Convention (MLC) 2006 in August this year has created quite a stir in the industry, as the full implications of the new regime have become apparent. One aspect of concern is the definition of “seafarer” and the implications that may

have on the contractual apportionment of responsibility and liability of the owners for personnel onboard ship who are not directly employed by them. BIMCO has looked at its offshore and ship management contracts and has developed a set of additional clauses that can be incorporated into Shipman, Crewman and Supplytime agreements to address these issues. In the case of Supplytime this refers to charterers’ personnel, such as geologists, who may be working onboard the supply vessel but who are not part of the crew. In the case of ship and crew management agreements, the focus is on technical managers who also provide crew, and crew managers who provide crew as principals under a lumpsum agreement.

Revised war risk and piracy clauses

The revision of the BIMCO Conwartime 2004 and Voywar 2004 war risk clauses has recently been finalised. The update has focused on clarifying the test for when the clauses may be invoked and on harmonising the language. The new versions also better define how various additional insurance costs and premiums are to be apportioned. BIMCO’s piracy clauses have also been updated. As with the war risk clauses, the revision deals mainly with clarifying the triggering mechanism. It also covers the application of loss of hire insurance during seizure by pirates, and time lost after release of a captured vessel used to make good any damage or deterioration caused to the ship during the seizure. The revised war risk clauses and piracy clause were adopted at the documentary meeting in May and will be available to the industry towards the end of June.

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insurance

Signatures

Providing a clear signature

Brokers can be pressured into issuing revised recaps or draft charterparties reflecting what one side claims to have been the basis of an agreement. It is rarely prudent to issue such documents, however, as ITIC’s Andrew Jamieson explains

rom time to time, the International Transport Intermediaries Club (ITIC) receives enquiries about shipbrokers signing charterparties on behalf of principals. This is, of course, not a new occurrence. Shipbrokers have signed charterparties on behalf of their principals for well over 100 years. In earlier days it was simply impractical to send the document around the world for a signature. The broker, as the person on the spot, would have wide discretion as to the conclusion and the individual terms of the agreement. Modern communications have changed this, however. A copy of a drawn-up charterparty can now be attached to an email and sent anywhere in the world for approval. If original documents are required, they can be

couriered between continents in a matter of days. Today, the main reason for principals asking brokers to sign charterparties is not a matter of practicalities, but rather the financial cost of employing staff to handle the process of checking and executing documents. Stories are invariably told of principals having piles of unsigned – and probably unread – charterparties in their offices. There is a growing awareness that most negotiations lead to a legally binding agreement well before the charterparty is drawn up, and time taken perusing formal documentation is regarded as time poorly spent. In many cases, principals will ask a broker to draw up the charterparty and sign it “provided the same is strictly in accordance with negotiations”, rather than forwarding a copy of the document for signature. This sounds

There is a growing awareness that most negotiations lead to an agreement well before the charterparty is drawn up, and time taken perusing formal documentation is regarded as time poorly spent 70

perfectly reasonable and it is difficult for brokers to tell principals that they are unwilling to do it. After all, the broker negotiated the agreement and logically should be able to produce an agreement reflecting it. The problem is, however, that in some negotiations there are areas where the brokers have reached an understanding but are yet to turn that understanding into precise words. It would be prudent to expressly confirm the text of such provisions in writing. ITIC is often asked to recommend the form of the signature line. A recent enquiry involved a broker who had been instructed to sign the charterparty “as authorised signatory of the owners”. The important consideration is that the wording of the signature line should make it clear that the broker is signing not as a party to the agreement but on behalf of the principal. Some phrases, including “as brokers only”, can achieve this objective, but the expression “authorised signatory” is not recommended. To avoid any difficulty, brokers would be well-advised not to depart from the accepted practice of signing “as agents only”. Principals on whose behalf the broker is signing should be named. It is permissible to refer to them as “owners” or “charterers” if they are properly identified in the charterparty itself. It is surprising how many claims reported to ITIC involve disputes about the correct identity of the contractual parties. Legal issues created by

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inaccurate or erroneous names can give rise to costly and protracted litigation. It is prudent to check that the name is written down correctly. To avoid possible issues of authority, the instruction to sign the charterparty should come in writing from the named principals themselves. The Baltic Code suggests that the source of the authority should be referred to. The code provides a signature line as follows: “By email authority of [name of principal] as agents only.” In the tanker trades, the process of drawing up a charterparty is modified by the use of charterparty administration clauses. These provide a mechanism for concluding the deal on the basis of the recap message and thereby avoiding the need to draw up a charterparty unless one party requests a formal document. There are many different versions of this type of clause. At a recent event at the Society of Maritime Arbitrators in New York, one of the audience questions was whether ITIC had experienced claims arising from the use of such clauses, and if it would recommend their use in the dry cargo markets. Answering the first part of the question is simple: ITIC’s experience is that the clauses have not created problems for brokers. But the question of whether other markets should adopt the process is really a matter for market participants. The use of charterparty administration clauses reflects the fact that people haven’t seen the need to draw up a formal charterparty on every occasion. In many – perhaps most – dry cargo claims handled by ITIC, no charterparty has been signed. Charterparty administration clauses may therefore be an appropriate way to reflect that reality. The purpose of a signed charterparty is to record what has been agreed. If a dispute has arisen, brokers can come under pressure to issue revised recaps or draft charterparties reflecting what one side claims to have been the basis of the agreement. It is rarely prudent to issue such documents, however aggressive the threats made against the broker. The best course of action once a dispute has arisen is to seek advice.

ANDREW JAMIESON

Andrew is claims director at the International Transport Intermediaries Club.

SHIPBROKER PAYS FOR INVOICING ERROR A claim recently handled by ITIC involved a chartering broker that arranged a fixture for a voyage from the Black Sea to Singapore. The recap showed the identity of both the registered owner and the disponent owner with whom the negotiations had been concluded. The disponent owner asked the broker to arrange the purchase of bunkers, and an order was placed with a supplier. The cost of the bunkers was $777,278. But instead of ordering the bunkers on behalf of the disponent owner, the broker mistakenly ordered them on the registered owner’s behalf, taking the name from the recap. The bunkers were duly supplied and the ship signed for them. The bunker supplier invoiced the registered owner, care of the broker, for the cost of the bunkers. The invoice was sent to the disponent

owner, but was not paid when due. When chased for payment, the disponent owner replied: “Regarding the payment for bunkers, I have passed to the financial side and they should be arranging payment; the delay is due to our company currently being audited and will be ending in the coming weeks”. When further requests for payment met with a similar response, the bunker suppliers instructed lawyers to collect the amount owed. When lawyers approached the registered owner they were told that the registered owner had never given

any instructions for the purchase of the bunkers and that the responsible party should have been the disponent owner. If the bunkers had been purchased in the name of the registered owner, this was a misrepresentation on the part of the party that had provided the information to the bunker supplier. Lawyers therefore turned their attention to the broker, claiming that it was responsible for breach of warranty of authority. There was no prospect of going after the vessel, and the brokers entered a settlement with the bunker suppliers.

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November 5 - 8, Ahoy Rotterdam

PIONEERS IN MARITIME TECHNOLOGY Register n ow for a free v isit! www .europort.n l/ registration

From 5-8 November 2013, world port city Rotterdam is the ultimate meeting place for maritime pioneers. Europort has a strong focus on advanced technology and complex shipbuilding. Get in touch with the industry leaders, meet over 1,000 exhibiting companies from 35 countries and join one of the many conferences during the event. For an updated programme and exhibitor list, please check www.europort.nl or download the Europort app.

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P&I BRIEFING Delay

WHEN TIME IS MONEY

How can you guard against losses caused by delay? There's no viable way to insure against it outright, but Gavin Ritchie shows how the Charterers P&I Club is trying to cover some of the options Charterers are exposed to many risks in their day-to-day operations. Those risks can often be mitigated or at least managed by exercising due diligence when vetting contractual partners, investigating cargoes or concluding charterparty terms. Many risks can be transferred to insurers, such as the legal liability for damaging ships (which are often expensive and surprisingly easy to damage during routine operations), or for cargo damage or wreck removal. There is, however, one element of risk that is commercial in nature and for the most part simply represents the cost of doing business. Exposure to delay can cause many charterers

FD&D is not, however, a mechanism for covering the cost of the actual time lost or delay. It only covers the charterer for the legal costs of bringing or defending the action. The success or failure of the charterer in defending or pursuing the principal amount will of course depend on the facts of the case and the terms of the charterparty. As one of the most experienced insurers of charterers’ liability, the Charterers P&I Club is often asked whether there is a way of insuring commercial delay, such as port congestion, delay with cargo or weather-related delay. Many of these risks would simply be too expensive to transfer. Transferring the cost

is damaged or destroyed, disrupting for a previously agreed schedule for nominated ships – perhaps by several months. Operators and those charterers for whom the chartering of a ship is ancillary to their core business of growing, building or mining, and who have a vested interest in the cost of delivering a product to market at a fixed price, might well benefit from the ability to transfer some of this risk to insurers. We are working on wording to insure some of these risks. As insurers with more than 25 years’ experience of managing charterers’ risks, we believe we can readily identify the risks,

Transferring the cost of routine congestion to an insurer would ultimately result in a dollar-swooping exercise, as underwriters would have to charge so much for the cover that it would become uneconomical to buy sleepless nights, as it can often be the difference between profit and loss. Some of this risk can be transferred to insurers, and under a charterer’s liability insurance policy there are two principal mechanisms for covering delays. In the event of damage to the ship for which the charterer is legally liable under the charterparty, any time lost while the ship is waiting or being repaired may be covered under the section of the policy dealing with hull damage. Another policy that can respond where time is lost concerns the mythical world of freight, demurrage and defence insurance (FD&D). Often misunderstood, FD&D cover can assist a charterer in recovering amounts due from owners or sub-charterers that are in dispute under the charterparty contract. If a matter cannot be settled amicably with the counterparty, the dispute resolution clauses under the charter contract can lead to expense ranging from a few thousand to hundreds of thousands of dollars.

of routine congestion to an insurer would ultimately result in a dollarswooping exercise, as underwriters would have to charge so much for the cover that it would become uneconomical to buy. Having listened to our clients in recent years, we do, however, believe there are certain risks that could be transferred, allowing most charterers to budget the premium into their voyage costs. These risks include storm damage to a port that causes loading berths to be closed, and thus significant delay to the ship; a port or waterway affected by a pollution incident, resulting in the ship being unable to berth or being delayed in leaving; and many other similar events beyond the control of the charterer that could cause delay to the ship or the consumption of additional bunkers. We are also considering other risks, such as where cargo becomes unavailable, or where a shipping schedule cannot be met, for example if a manufacturing plant or mine

obtain the financial security for the product from the market, and commit resources to developing the product and handling claims. What we would like is feedback from the wider chartering community concerning the risks they would like to see covered and the limits required. To paraphrase a popular UK children’s television programme from my youth, “Answers on a postcard, please, to the Charterers P&I Club, London.” Alternatively, those more technologically advanced are welcome to send comments to gritchie@else.co.uk.

GAVIN RITCHIE

Gavin is the underwriting director of the management company of the Charterers P&I Club and has 20 years of riskmanagement experience in this specialised field.

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LEGAL BRIEFING Asset recovery

HIJACKING THE PIRATES

iracy attacks in the first quarter of 2013 fell 35% from the corresponding period in 2012. While this drop has been widely welcomed, one of the less appreciated effects of the decline is that the average ransom has risen by 20% from the 2010 average of $4m. This, and the recent increased migration of maritime piracy to the west coast of Africa, has resulted in an increase in insurance premiums for shipowners and charterers alike. All is not as we would wish it to be. If a ship is hijacked and a ransom negotiated and paid, the buck, so to speak, does not have to stop there. The development of asset freezing and asset repatriation laws provides a framework for the recovery of payments made by those who fall prey to maritime piracy. The right combination of legal expertise and forensic investigation, combined with cooperation of local law enforcement and relevant regional organisations, means significant inroads into the reclaiming of ransom payments are now being made.

Timing, however, is crucial. There is a common misunderstanding that asset recovery depends on the prosecution of an individual. Thanks to developments in domestic and international law, this is not the case. In addition to confiscation of the proceeds of crime after a conviction, there is a second avenue: civil, or nonconviction-based, recovery. Put simply, a recovery claim can be made against the asset itself, be that cash, a bank account or a boat. A prosecution is not required. This is a powerful tool that enables investigations to follow an asset into a recipientâ&#x20AC;&#x2122;s hands. Identified assets in the hands of individuals, which cannot be justified without recourse to illicit funds (for example an offshore bank account, high-value car, jewellery or real estate), can be disgorged. The burden of proving the legitimacy of this unexplained wealth is on the holder of the asset. Take the hypothetical case of a vessel, crossing the Gulf of Aden passage, that is hijacked by pirates and taken back to the waters of Puntland, Somalia. The owner is

informed that its vessel and cargo have been seized and a ransom payment is sought. At this point, the asset-recovery team should be contacted and involved in all negotiations between the owners and pirates. This will ensure that all relevant information is collected as soon as it is made available, to enable the tracing to begin immediately after deposit of the payment. If, for example, half the sum is paid in cash and half in an electronic transfer, forensic investigators will be able to make contact with the relevant banks, customs and financial intelligence units to put them on notice of suspicious transactions and illicit cash movements.

IMAGE: MOHAMED DAHIR/AFP/GETTY IMAGES

Andrew Mitchell QC explores the legal avenues for reclaiming ransom payments from criminals

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The development of asset freezing and asset repatriation laws provides a framework for the recovery of payments made by those who fall prey to maritime piracy

ASSET RECOVERY ISN’T JUST A WAY TO RECLAIM LOSSES: IT CAN HELP STOP PIRACY AT ITS SOURCE

Crucial information can be collated: who, how, where, when and how much has been paid. This information is dealt with sensitively, and only shared with the agreement of the owners and their insurers. Given the asset recovery tools that are available, the physical cash, any purchases made by the individuals that cannot be legitimately explained, and all electronic money can be frozen by court order in a matter of hours. With the use of sufficient intelligence sharing, rapid mutual legal assistance, tracing skills and specialist litigation support, it is possible to follow the route of those funds – no matter where they entered the banking

system – into the hands of the ultimate beneficiary. This is achieved by a combination of banking cooperation, the threat of prosecution and assetrecovery powers. The incentive to invest in asset recovery in vulnerable jurisdictions is obvious. Repatriation of funds that were lost can be reclaimed and invested back into maritime security,

and this may increase insurance cover. The flow of cash from maritime piracy, crucial to its survival, can be squeezed at both ends. Limiting the funds available to criminal gangs can leave them without the capital needed to invest in future piracy attacks. In other words, the pirates will find themselves hijacked.

// ANDREW MITCHELL QC

Andrew is head of chambers at 33 Chancery Lane and director of ARM Stolen Asset Recovery. He specialises in civil and criminal asset forfeiture and is the pre-eminent barrister in the field of confiscation, restraint and receivership. He has advised and represented prosecuting authorities, defendants, receivers and third parties throughout the UK courts on restraint, management and confiscation of property.

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25/06/2013 15:50

LEGAL BRIEFING Slow steaming

SLUGGISH DEFENCE Holman Fenwick Willan’s Daisy Rayner on a slow-steaming decision Much has been written about the environmental and operational benefits of slow steaming. But now a recent judgment has shone a light on its underexplored commercial impact. In the English Commercial Court decision of Bulk Ship Union SA v Clipper Bulk Shipping Ltd (The Pearl C) [2012] 2 Lloyd’s Rep 533, the owner, Bulk Ship Union, time chartered The Pearl C to charterer Clipper Bulk Shipping on an amended NYPE form for about nine to 12 months. The charterparty contained a speed warranty of about 13 knots in good weather. This applied on delivery of the vessel and was not continuing. The charterer withheld hire for alleged underperformance, claiming that the vessel had failed to proceed with utmost despatch, in breach of clause 8, and that it was entitled to deduct time lost due to slow steaming under the first part of clause 15.

error in navigation defence – could be relied on to exempt owners from liability. In reaching this conclusion, Mr Justice Popplewell referred to the decision of The Hill Harmony [2001] 1 Lloyd’s Rep 147, and emphasised the dichotomy between a breach of clause 8 that involves a deliberate decision not to proceed with utmost despatch, and a negligent error in navigation or management of the vessel concerning a matter of seamanship, with the exception only applying to the latter. It was the charterer’s case at the tribunal that the owner had deliberately slow steamed. However, the judgment is silent on what evidence demonstrated the owner’s deliberate decision. A decision on the part of the owner to slow steam would generally be incongruous with their position under a time charter, as hire and bunkers are paid for by the charterer. Therefore,

charterers legitimately withholding hire under the off-hire clause? The most obvious solution for owners is to incorporate terms into the charter that permit slow steaming. The BIMCO slow-steaming clauses for time and voyage charterparties are standard clauses developed for precisely this purpose, and both are suitable for liner, tanker and dry bulk trades. Division of responsibility in time and voyage charters differs, but both clauses offer protection to owners. This takes the form of a recognition that slow steaming will not constitute a breach of the duty of utmost despatch and an obligation on charterers that the terms of the bill of lading permit slow steaming, failing which charterers will indemnify owners for liabilities arising from claims for breach of this obligation. This last point is particularly important to owners because if they intentionally slow steam this may constitute an unjustified deviation, thus risking loss of the right to rely on exclusions and exemptions as set out in the Hague and Hague-Visby Rules. Consequently, owners would also lose the benefit of their P&I cover for any liabilities that arise as a result of the deviation. These clauses are likely to solve most slow-speed claims that arise between owners and charterers, although they would not have assisted the owner in The Pearl C because it was the owner under the time charter who chose to slow steam. There is also likely to be litigation where charterers fail to incorporate slow-steaming terms into the bill of lading. Therefore, although the standard clauses are helpful, we recommend that owners and charterers carefully consider their individual needs to ensure that any necessary amendments are incorporated.

The performance warranty will be used as a benchmark to assess whether the vessel has proceeded with utmost despatch The tribunal found no breach of the speed warranty, but held that there had been a breach of clause 8 and a net loss of time under clause 15 as the vessel had failed to proceed with utmost despatch. In deciding this, the tribunal compared the vessel’s actual speed with the warranted speed and found that on three voyages the vessel had failed to proceed with utmost despatch. The owner appealed, arguing that the tribunal had incorrectly treated the performance warranty, which applied only at the time the vessel was delivered, as a continuing performance warranty that applied throughout the charter. However, Mr Justice Popplewell upheld the tribunal’s decision on the basis that there had been an underperformance on three voyages and there was no other realistic explanation for the vessel not achieving the warranted speed. Mr Justice Popplewell also rejected the owner’s argument that Article IV, Rule 2(a) of the Hague Rules – the

there would seem to be no incentive for an owner to slow steam. The key point in the decision was that the performance warranty will be used as a benchmark to assess whether the vessel has proceeded with utmost despatch and, without a good explanation for poor performance, this may be sufficient to establish a claim for breach of clause 8 or a claim of off-hire. On a strict interpretation of the contractual wording this may appear incorrect, as it effectively extends the performance warranty into a continuing warranty, but from a commercial perspective it is the easiest way to assess whether a vessel has underperformed or slow steamed. Factually, The Pearl C is unusual. Most slow steaming is performed by vessels owned by the operator or on liner services that have employed slow steaming to save fuel and absorb the excess capacity in the freight market. What can those owners take from this decision and how can they avoid

// DAISY RAYNER

Daisy is an associate in the shipping and transport department at international law firm Holman Fenwick Willan.

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SPECIAL REPORT Panel debate

2013 CMA CONFERENCE

In March, the Baltic’s Jeremy Penn led an expert panel on freight market prospects at the 2013 Connecticut Maritime Association conference. Barry Parker reports

co-ships, African mining, scrapping, the psychology of cargo interests and a possible fourth-quarter upswing for 2013 came under the spotlight at this year’s Connecticut Maritime Association (CMA) conference. Leading the session and challenging the panellists to provide a relevant dialogue that didn’t just focus on overbuilding, Baltic Exchange chief executive Jeremy Penn said: “There are right answers, but we just do not know all of the answers yet.” The speaker roster consisted of shipbrokers, a banker and a scrap exporter. Georgi Slavov, ICAP’s former dry-side managing director, now global head of supply chain and strategy at Armajaro Holdings; Marygrace Collins, partner at Bulkore Chartering; Evan Sproviero, project specialist with GMS (USA); S Riaz Khan, from DVB Bank; and Basil Mavroleon, who oversees the projects group at CR Weber, all contributed to the debate. The session kicked off with Mr Penn pointing to the good (increasing demand, albeit slowly), the bad (supply, which still presents a huge overhang)

and the ugly (financing, constrained by banks’ difficulties). Ms Collins explained that “The madness started in 2003,” adding: “The shipping world was totally unprepared; all of the analysts drastically underestimated Chinese ore imports.” Data marked iron ore as the largest dry bulk cargo, comprising 30% of movements, at nearly 1.1bn tonnes. China’s portion of this is close to 0.8bn tonnes, contrasted with barely 0.2bn tonnes in 2003. In the words of Ms Collins: “China is holding all the cards.” Unprecedented demand growth around 2003 to 2006 led to a vessel ordering boom, and one amusing statistic cited by Mr Mavroleon was that the world’s capesize vessels, if moored end to end, would stretch 314 miles – raising the question of when all those ships will be needed. Complicating this situation is the iron ore market, in which production capacity could grow by 0.9bn tonnes in the next four years (against estimates of increased seaborne trade in the order of 0.3bn tonnes by 2017). Mr Slavov told the audience: “African mining investment is exploding; there’s

a huge increase in capacity,” prompting moderator Jeremy Penn to wonder aloud, “Is Africa part of the story?” The entire financial landscape, certainly for vessels, but also for underlying commodities and infrastructure projects to connect ports with bulk cargo (and facilities consuming bulk materials), was brought into the discussions. In spite of the long queue of capesize vessels already afloat (and the 35m of dry deadweight tonnage set to be delivered in 2013), more ships are being ordered. Indeed, during the week of the CMA event, reports of fresh orders were swirling through the shipping press. John Fredriksen, a strategic investor who is “right about the market more often than he’s wrong”, according to Mr Mavroleon, and various financial investors were said to be ordering more than 50 capesize vessels, mainly from Chinese yards, in spite of dismal hires. The Baltic Exchange’s capesize timecharter composite stood at $4,977/day on 19 March, the day of the panel – not sufficient to pay the daily operating costs of such vessels. Fleet use is hovering in the low 80% region, but

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Fleet use is hovering in the low 80% region, but 90%-plus is needed to bring about the supply inelasticity, with its rate spikes, that is characteristic of better days

BALTIC CHIEF EXECUTIVE JEREMY PENN IN THE CHAIR, PLUS PANELLISTS GEORGI SLAVOV AND MARYGRACE COLLINS

90%-plus is needed to bring about the supply inelasticity, with its rate spikes, that is characteristic of better days. Ms Collins noted that a few big charterers, notably Cargill and Norden, had taken in period tonnage with the hope of capturing the upside if there is a repeat of last year’s fourth-quarter upward spike. Mr Mavroleon explained: “Some of the bigger players feel that we are at the bottom. They are looking to make money on an asset play. They need to get positioned to be ready for what they think will be a move upward.” Mr Slavov pointed out that hires well above $20,000 per day on capesizes are needed to bring about acceptable returns for private equity investors, who are now eyeing shipping as attractive from a timing perspective. Interestingly, Baltic Exchange assessments do not support this uptick, underscoring the gambles that investors are taking. For example, calendar 2015 and 2016 assessments, at the time of the conference, were around $15,800 per day and $16,900 per day, respectively. Meanwhile, on the flip-side of the oversupply that has dominated the

headlines, 2012 saw levels of vessel scrapping not seen since the desultory mid-1980s, estimated to be between 32m and 35m dwt, compared with 25m dwt in 2011. Mr Sproviero, representing GMS – the largest cash buyer of ships that are then sold on to scrapyards in India, Bangladesh and China – explained that local steel markets have propped up scrap prices. Baltic Exchange demolition prices for bulkers were $371 per ldt for delivery in China and $421 per ldt for delivery on the Indian subcontinent. However, as Mr Mavroleon pointed out: “Historically, it’s demand, not scrapping that will save a market.” One factor fuelling the ordering boom is eco-ships, a subject of fierce discussion and sharp disagreements across panels, private meetings and hallway conversations throughout the three days in Stamford, and one that Mr Penn said is closely tied to another factor: slow steaming. This practice, predicated on a desire to reduce fuel consumption, has the welcome corollary impact of reducing the effective vessel availability.

Mr Mavroleon provided some backof-an-envelope economic calculations showing that fuel-cost savings must be traded off against capital investments in a new ship (or in retrofitting an existing unit). He explained that retrofits (for example, engine work, or installing ducts to better direct water from the propeller) will save 7.5% to 11% on fuel costs, and newbuilds – say, a capesize priced at around $45m – will save 10.5% to 16%. With five-yearold capesizes available for around $30m (according to the Baltic’s Sale and Purchase Assessments), the stark economic realities are revealed. Mr Penn, clarifying Mr Mavroleon’s view, said: “It’s not clear that the marketplace prefers the eco-ships; they don’t change the world. A fiveyear-old vessel may offer a better deal.”

BARRY PARKER

Barry is president of bdp1 Consulting. A former broker, he has extensive writing experience in the maritime industry.

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MEMBERS' NEWS Charities, LISW, Chairman’s Cocktail Party

MEMBERS’ NEWS ● CHARITABLE WORKS

FUNDRAISING SUPPORT FROM THE BALTIC The Baltic Exchange administers two charities: the Baltic Charitable Fund (BCF) and the Bonno Krull Fund (BKF). The BCF considers applications relating to the sea, including training for professionals and children, the City of London, forces charities, educational bursaries and sponsorship for Baltic Exchange members. The BKF was established by the will of Bonno Krull, a former Baltic member, who decreed that the funds be used for such charitable purposes in connection with shipbrokers and shipping as the directors of the Baltic think fit. The directors carry out these objectives by making grants and donations to applications for charitable purposes in connection with shipbrokers and shipping. BCF and BKF donate about £50,000 and £20,000 per year, respectively. Among the causes supported are the Sailors’ Society, the Marine Society &

Sea Cadets, the Worshipful Company of Shipwrights Ark Appeal, Blind Veterans UK, the Lord Mayor’s Appeal, Futureversity and Derek Prentis’s Royal British Legion Poppy Appeal. In the past year, the charities have supported several fundraising endeavours by members. These included Tony Foster of Marine Capital, who participated in the London Triathlon in support of Concern Worldwide and its project to address issues of acute malnutrition in Uganda; Mark Soutter of SSY, who cycled from London to Beaune in support of the British Heart Foundation and Cancer Research; and David Webb of Arrow, who cycled from Land’s End to John O’Groats in support of Shooting Star CHASE, which supports children with terminal illnesses. For more information on the Baltic’s charitable work, contact Duncan Bain on dbain@balticexchange.com.

CHAPLAIN SERVICE Sailors’ Society Surabaya port chaplain Harry Rumagit supports seafarers in Indonesia’s largest ports, and has done for almost 30 years. The support that the Baltic Exchange offers, through its Baltic Charitable Fund donations to the Sailors’ Society, helps Harry to assist seafarers in contacting their families, counsel seafarers suffering from emotional troubles, and give spiritual or financial support if requested.

With his new Baltic Exchange-liveried vehicle, Harry also provides free and safe transport to seafarers. This could be a lift to nearby phone and internet facilities, to the shops, or to a doctor. This is essential, as seafarers have limited time away from their ships – often only two or three hours. Harry also visits ships, taking practical items such as maps, port directories and woolly hats for those heading to cold climates. He also provides phone

cards and international newspapers; simple items that can reinforce the connection between a seafarer and their home. The Sailors’ Society has a Seafarers’ Centre in Surabaya, five minutes’ walk from the port. This is visited by roughly 300 seafarers each week, around half of whom are seeking employment. It is the heart of the local community and acts as a meeting place for retired seafarers and seafarers’ wives.

INDUSTRY WEEK COMES CLOSER This year’s inaugural London International Shipping Week (LISW) is gathering political support, with the UK government confirming two of its ministers as main speakers at the LISW conference. The UK minister for trade and investment, Lord Green of Hurstpierpoint, and the Rt Hon Stephen Hammond, UK shipping minister, will address delegates at the Willis Building conference on 12 September. London International Shipping Week – Propelling World Trade will take place on 9-13 September 2013, and will offer networking as well as the day-long government and industry conference and gala dinner on the 12th. The Baltic Exchange is backing the event and will act as the LISW headquarters for the whole week. Baltic chief executive Jeremy Penn is part of the event’s steering group, while Baltic chairman Quentin Soanes has accepted a position on the official board of advisors for the event. Other confirmed conference speakers include Alderman Roger Gifford, the Lord Mayor of the City of London; Koji Sekimizu, secretary general of the International Maritime Organization; Masamichi Marooka, chairman of the International Chamber of Shipping; and John Denholm, president designate of BIMCO. For further information, see www.londoninternational shippingweek.com.

SUMMER 2013 www.thebaltic.com

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// EVENTS Baltic training courses 2013 Freight Derivatives & Shipping Risk Management London 14-15 Oct Advanced Freight Modelling & Trading London 16-17 Oct

IN MAY, BALTIC MEMBERS AND THEIR GUESTS FROM AROUND THE WORLD GATHERED AT LONDON’S CHRIST CHURCH FOR THE ANNUAL CHAIRMAN’S COCKTAIL PARTY. THE GUEST OF HONOUR WAS UK SHIPPING MINISTER STEPHEN HAMMOND MP

City Twenty20 Tournament 3 September, JP Getty Estate The annual City Twenty20 Cricket tournament between the London Stock Exchange, Lloyd’s and the Baltic will take place at the spectacular JP Getty Estate Cricket Ground at Wormsley Park on 3 September. The day features a champagne bar for pre-lunch drinks during the first match, a three-course lunch in the Getty marquee, and afternoon tea. Tickets are available to Baltic members and their guests. Please email events@balticexchange. com for further details. London International Shipping Week 9-13 September 2013, City of London London International Shipping Week promises to gather a magnificent collection of shipping interests in the UK capital for events supported by more than 50 major participating organisations, including the Baltic Exchange, the UK government and the City of London. The conference will take place on 12 September followed by a gala dinner. There will also be a reception for invited guests at Lancaster House on 10 September.

STUDENT BURSARIES

The Baltic is to provide a bursary to students taking the Institute of Chartered Shipbrokers Advanced Diploma examinations. The bursary is for students from West, East or Central Africa and will be primarily promoted by the institute’s Kenya-based East Africa and Ghana-based West Africa branches and the Cameroon Distance Learning Centre. The £1,600 bursary will cover registration, materials, textbooks, tutor support and exam entry. Nathaniel Nti and Gift Mwambela Mkiwa were awarded the bursary for 2012/13.

www.thebaltic.com SUMMER 2013

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the_baltic_ad_2_Layout 1 03/06/2013 16:32 Page 1

The must attend global maritime networking event for 2013

High level Government and industry speakers will give their views and considered opinions on shipping’s future and London’s role in helping shipping emerge from economic crisis. This will highlight London’s position at the epicentre of world trade, shipping and maritime services with speaker participation from across the globe.

LISW Conference Thursday 12 September at Willis, 51 Lime Street, London

Don’t miss out on the premier evening event of the week – the London International Shipping Week Gala Dinner to be held on Thursday 12 September at Grosvenor House Hotel, one of the most luxurious five-star hotels in London. Individual places and corporate tables available. All tables accommodate ten guests in total.

LISW Gala Dinner

Thursday 12 September at Grosvenor House Hotel, Park Lane, London

Book now for the flagship event of the week – The LISW Conference and Gala Dinner on Thursday 12 September

SHIPPING INNOVATION

GLOBAL SHIPPING EVENTS

Book online at www.londoninternationalshippingweek.com and go to the Conference and Gala Dinner page 082_BALTIC_SUM_13.indd 82

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MEMBERS’ NEWS Irish Society, indices changes, Cadet Class championships l EVENTS

IRISH SOCIETY MEMBERS IN FINE VOICE The 31st Baltic Exchange Irish Society Dinner took place on 14 March 2013 at The Brewery, near Barbican, London, attended by 470 members and guests. Society chairman Charles Hudson of ED&F Man Shipping gave an exemplary speech, while David Beckett of Shearwater Shipping & Chartering was a masterful master of ceremonies. The evening was capped by a highly amusing speech from Neale Webb of Dublin, the first guest speaker to be invited for a third time. Thanks to the generosity of all, £6,474 was raised THE PORTER TUN HALL AT THE BREWERY, LONDON, WHERE THE BALTIC IRISH SOCIETY MET FOR AN EVENING OF FOOD, DRINK AND SONG

for the Sailors’ Society, and as usual the rafters resounded to the singing of Irish songs, despite the absence of Pat McNamee the drummer, who was unable to attend due to illness (he is, after all, 90 years old). Finally, we are calling for all shipping people who are Irish or of Irish descent to stay in touch with the Baltic Exchange Irish Society. Please get yourself added to our LinkedIn group, as we intend to gather at an Irish pub in September and introduce the society to potential new members, as well as engage in some sociable networking. Anyone interested should contact Nigel Herdman at Noble Europe or Derek O’Haire at Clarksons.

LATEST INDEX ALTERATIONS The Baltic Exchange has provided its shipbroker panel members with further guidance on the way they assess the capesize market. This follows extensive market consultation and reflects the need for greater precision on the slowsteaming characteristics of the Baltic capesize vessel type. When considering the prevailing timecharter market rate for the Baltic defined capesize vessel, panellists should assume that at 12kts laden/13kts ballast, the vessel will consume 44 tonnes per day (NDAS). Other changes include the trial of two new clean MR TCE triangulation baskets: the MR Atlantic basket and the MR Pacific basket. The first will be based on TC2_37 TCE in combination with TC14 TCE, and the second will be based on TC12 TCE (currently trialling) in combination with TC11 TCE. The Worldscale flat rates for vessels loading in Seria and Sullom Voe have changed. This affects the TD14 TCE and TD7 TCE respectively. There have been changes to BES Asia: due to a lack of physical business routes S7 and S7-IV are suspended; the trial of a new route S11 is being reported at 13.00 Singapore time; the BES Asia TC average has been reconstructed; and a trial has started with an equal weighting of S8, S10 and trial S11.

l CADET CLASS SAILING

HARRY CHATTERTON, AGE 11, WRITES This piece of writing is informing you about my great experience of competing in the World Championships in Tasmania for which [the Baltic Exchange] kindly supported me. I will hopefully be competing in many more championships in my sailing career. One of my best experiences in Tasmania has got to be making new friends from all over the world. I made friends especially with the Argentineans and Ukraines and I will be seeing them in the next Worlds in Flanders. Overall this experience has been the best of my life so far. Travelling half way round the world has opened my mind to many more things for example, how small the world really is. I am now looking forward to the indicators, inland and offshore and now looking forward to experiencing Flanders.

WRITTEN ON THE RETURN JOURNEY Today is the day that I travel back to England. It has been a great experience competing in the World Championship at such an early age and hopefully I will be competing in many more. We had two days from sailing to explore Tasmania and the highlight has to be when we went to Bruny Island. We saw white wallabies and some dolphins. IT WAS GREAT! My overall place in the Worlds was 27th which was great for our first Worlds and will be hopefully in the top 15 this coming year. I was also very pleased with my result in the Australian open finishing 11th.

ELEVEN-YEAR-OLD HARRY CHATTERTON REPRESENTING THE UK AT THE CADET CLASS WORLD CHAMPIONSHIPS

Thank you again, Harry Chatterton www.thebaltic.com SUMMER 2013

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If you have ever wanted to take on an exhilarating challenge for charity here’s your chance. The Mission to Seafarers is looking for adventurous volunteers to cycle from London to Paris connecting two of the world’s most chic cities on one of the best cycling routes in Europe! Sign-up prices start at just £99. For details, contact Rebecca Watson on 020 7246 2939 or at Rebecca.Watson@missiontoseafarers.org www.missiontoseafarers.org/paris london-to-paris.indd 1 084_BALTIC_SUM_13.indd 84

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themissiontoseafarers 18/06/2013 14:52:49 25/06/2013 15:51

MEMBERS’ NEWS Karting, wine ON THE PODIUM, RIGHT: WINNERS TSAVLIRIS SHIPPING, SECOND PLACE RS PLATOU, THIRD PLACE GMI

● GO-KARTING

WINE TIME

TSAVLIRIS SHIPPING AHEAD OF THE PACK It’s been a long while since the Baltic Go-Kart Club (BGKC) took to the track for one of their popular Grand Prix race nights, so it was with excitement and in some cases an element of trepidation that drivers came forward to do battle for the chequered flag. The BGKC is an open club welcoming employees from any Baltic member company, right across the shipping spectrum. Sixty drivers representing 20 teams of three put their names in the ring for the meet scheduled for 11 April. SPEEDY SHIPPING Greenwich Raceway has an indoor circuit featuring three hairpin bends – to be taken seriously – and three more gentle turns, which if taken on the racing line can be held on to almost flat out. It’s a dangerous and deceptive track that has seen the likes of Jenson Button stuck, staring at the buffers,

ELECTION

The results of the ballot director 2013 election, which closed on 28 March 2013, are as follows: Michael Graham Guthrie, sole trader (shipbroker), 163 votes John Tsatsas, sole trader (arbitrator), 262 votes Number of votes cast: 425 John Tsatsas will, therefore, be joining the board of directors of the Baltic

waiting for a race marshal to give him a push-off – an embarrassment that most go-karters will sympathise with, and one that is felt most acutely when it happens by the pits, in front of 40 of your industry rivals. While 20 drivers took their place on the grid following the driver warmup, the remaining team members assembled in the pits, trackside, to await the green light. As ever with these things, it was quite literally a bumpy start, but one car seemed to edge its way fairly effortlessly through the pack: Tsavliris Shipping captained by Andreas Tsavliris, along with his son Alexandros and joined by Keith Gardener, soon found themselves up front tussling with AM Nomikos, led by BGKC captain Mark Jackson. The Grand Prix is an endurance race 90 minutes long, the aim being to complete the most laps with a minimum of six driver changes per team. The racing was competitive, as you might expect, and there were some breathtakingly fast laps from the likes of the Nomikos team and the Baltic’s own Colm Nolan and Tony Potter. Sadly for them, however, pole was out of grasp. As the final flag came down, Tsavliris was victorious, followed by Richard Fulford-Smith’s RS Platou team, with GMI in third. AM Nomikos, which seemed to be held back by one or two light disciplinary encounters, were in fourth, with Ince & Co coming fifth. More race nights will be organised soon; anyone interested should email gokart@balticexchange.net.

Following two years of successful wine articles for The Baltic magazine by former dry cargo broker David Hughes, it was suggested that he host a wine tasting event for Baltic members, with the added lure of a post-tasting curry for attendees. The first event took place in February 2012, with 35 members settling into the Baltic bar, where David produced nine wines interspersed with quiz questions to give a competitive edge to the evening. He also threw in an array of interesting facts; did you know our everyday use of the word “ton” originates in wine terminology? The whole evening proved so successful that the second tasting event, in the autumn, saw more than 50 in attendance, making us host the event in the larger Royal Victoria Dock conference room, with the same successful outcome. In February of this year, 56 again attended in the Royal Victoria Dock room, this time with a change of tack, as David engaged a wine-trade chum to aid in the proceedings. The two of them endeavoured to convince the Baltic teams that each was honestly describing the six wines. However, the attendees were not to be fooled and successfully guessed which was the true description in every case. The post-curry consensus was another evening that gave all a sense of fun and learning, as well as a chance to consume a range of wines and tasty curries.

www.thebaltic.com SUMMER 2013

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INDUSTRY-LEADING NEWS AND VIEWS The Baltic is the official magazine of the Baltic Exchange. It is a vital resource for anybody affected by the big issues in today’s markets and tomorrow’s maritime world

COLD AWAKENING The communications needs of the Arctic shipping boom THE BALTIC

THE BALTIC IS AVAILABLE FREE TO MEMBERS OF THE BALTIC EXCHANGE AND TO QUALIFYING NON-MEMBERS

COMING IN TO LAND Why canny onshore businesses are snapping up ex-seafarers

THE OFFICIAL MAGAZINE OF THE BALTIC EXCHANGE SUMMER 2013 | WWW.THEBALTIC.COM | OUR WORD OUR BOND

PLAN B How shipping operators can endure disaster

Subscribe today to receive your free copy of the quarterly magazine and get access to: ■ Debate from the sharpest minds in shipping ■ Expert analysis of the global business trends influencing the maritime industry ■ Market insight from trusted, experienced professionals

SUMMER 2013

To subscribe to The Baltic, head to www.thebaltic.co.uk/ magazine-subscription and enter your details. Alternatively, complete and post the form below

SHIP TO SHORE THE MARITIME LABOUR CONVENTION 2006 WILL GIVE SEAFARERS THE SAME LEVELS OF WELFARE AS WORKERS ON LAND. BUT WHAT WILL IT MEAN FOR THE INDUSTRY AS A WHOLE?

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COMPLETE AND POST TO: THE BALTIC, THINK, THE PALL MALL DEPOSIT, 124-128 BARLBY ROAD, LONDON W10 6BL, UK PLEASE SEND THE BALTIC TO: Name

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SUMMER 2013 www.thebaltic.com

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MEMBERS' NEWS Obituaries, Music for Seafarers // OBITUARIES Roy Caney

After service with the Royal Navy, Mr Caney was elected to the Baltic Exchange in 1952 and was an active member for more than 40 years. Through his business and his participation in Baltic societies such as the football and cricket clubs, amateur dramatics, motor rallies and the Baltic Golf Society, of which he was captain, he made many lifelong friends among his fellow members. He died on 2 February 2013, and friends and family will remember him for his humility, humour and love of sports, and as the embodiment of the Baltic values of honesty, integrity and diligence. In everything he did, his word was his bond.

Tom Young

On Easter Sunday Mr Young passed away on the Isle of Wight with his family beside him, after a long and valiant battle against cancer. Many members will know Mr Young, who was formerly the head of Seascope Shipbrokers, and more recently senior consultant to the Sanko Steamship Company.

Martin Parsley

Mr Parsley was first elected a member of the Baltic in 1966, representing MD Beard & Co Ltd until 1987. He died on 30 April 2013.

Duncan Forbes

Mr Forbes died in February 2013. He was first elected to the Baltic in 1949. Before becoming a retired member in 1984, he represented Such & Schooley Ltd from 1974.

William Broudo

Mr Broudo died on 20 December 2012. He was first elected to the Baltic in 1951 and represented Helix Shipping & Technical Services Ltd before becoming a retired member in 1985.

John Graham Maccoy OBE

Mr Maccoy was first elected to the Baltic Exchange in 1947. Before becoming a sole trader in 1978, he represented Anderson Hughes. He became a retired member in 1986.

Edgar Blum

Mr Blum was first elected to the Baltic in 1952. He represented Bluship Ltd for many years until becoming a retired member in 1991.

l MUSIC

SEA-THEMED CHORAL COLLECTION FROM PORTSMOUTH CATHEDRAL As part of the shipping industry’s efforts to support seafarers worldwide, the Baltic Exchange has commissioned an ensemble to perform choral music for a new collection called Music for Seafarers. Funds raised from the sale of the music will go towards the seafaring charities Mission to Seafarers and the Sailors’ Society, as well as RNLI Salcombe, where the Baltic has supported lifeboats for more than 100 years. Recorded in Portsmouth Cathedral and performed by Portsmouth Cathedral Choir and the Convivium Singers, the collection includes anthems, hymns, songs and folk songs on the theme of the sea. The music is easily accessible, even for those who might not normally listen to choral music. AN OCEAN ANTHEM The highlight of the collection is “Anthem for Seafarers”, a new composition based on the most famous of seafaring hymns: “Eternal Father, Strong to Save”. The hymn, originally written in 1860 by William Whiting, is associated with both the UK and US navies, as well coastguards and marines. “Anthem for Seafarers” is an updated version of this hymn composed by Malcolm Archer, a leading light in the music world and the former director of music at St Paul’s Cathedral. First performed in 2010 in Vancouver to commemorate the International Maritime Organization’s Year of the Seafarer, the piece forms the centre of the collection. Composer Malcolm Archer said: “For many years I had wanted to compose an anthem version of the text ‘Eternal Father, Strong to Save’ when Michael Drayton, the chairman of the Baltic Exchange, approached me with just such a commission for dedication to the exchange and to mark his retirement as chairman. “It also seemed appropriate that I should set these words to music since the author of them, William BUY THE COLLECTION AT Whiting (1825£9.99 ON CD OR £6.99 AS A DOWNLOAD. SEE 1878), was Master CONVIVIUMRECORDS. of the Quiristers at CO.UK/C/RELEASES/ Winchester College, THE-BALTIC-EXCHANGEa position which I MUSIC-FOR-SEAFARERS. EACH SALE INCLUDES A now hold, as their £2 CHARITY DONATION choirmaster. With

CLUBS

THE BALTIC EXCHANGE’S ASSOCIATIONS AND SPORTING SOCIETIES FOR MEMBERS INCLUDE CRICKET, GOLF, SAILING, SUB AQUA, FOOTBALL, TENNIS, GO-KARTING, THE IRISH SOCIETY AND THE CALEDONIAN SOCIETY, AS WELL AS THE YOUNG BALTIC ASSOCIATION, WHICH ORGANISES NIGHTS OUT FOR EMPLOYEES OF MEMBER COMPANIES UNDER THE AGE OF 35. FIND CONTACT DETAILS IN THE CLUB DIRECTORY ON THE ASSOCIATION PAGES AT WWW.BALTICEXCHANGE.COM.

that link, the anthem is assured of performances within the college, and it is my sincere hope that it will not only be performed regularly for the Baltic Exchange but will become a popular choice amongst the many seafaring communities around the world.” Michael Drayton, former Baltic chairman and a keen chorister, initiated the commissioning of the music. “The combination of my regard for seafarers and my love of music formed the basis for this project,” stated Mr Drayton. “Malcolm Archer has taken this great seafaring hymn, its wording such a powerful reminder of the perils at sea, and given us an anthem that moves from the sombre reflection of its opening key to a glorious centre section. Here we will all recognise the famous hymn and its plea for the security and protection of our mariners. Malcolm is to be commended for this masterful work, which I hope will be adopted throughout the seafaring world.”

www.thebaltic.com SUMMER 2013

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CORPORATE VIEWPOINTS

MARITIME RISK IN THE GULF OF GUINEA

As crime and piracy increase in the Gulf of Guinea, Port 2 Port Maritime argues that only a few providers can contribute to the maritime security of the region ANDREW VARNEY

is the managing director of Port 2 Port Maritime, based in the UK with regional offices in Nigeria, Ghana, Greece and Korea www.port2portuk.com

As the number of attacks on vessels in the Gulf of Guinea continues to rise, shipowners operating in the region should beware of using unlicensed private security companies to deter maritime crime and piracy. With the decrease in piracy off east Africa and the Arabian Sea, attention has turned to the increasingly volatile west coast of Africa. In 2012, the Gulf of Guinea witnessed its worst year for piracy and maritime criminal activity, and if the current rate of incidents continues, 2013 will surpass all previous years. The rise in maritime crime in the gulf has resulted in many private maritime security companies (PMSCs) trying to ply their trade in this area without fully understanding the regulatory requirements and nuances of such a complex field. For example, many PMSCs engage in unlicensed and unregulated activity by conducting operations without the necessary government authority and licence, or contracting the services of “off duty” national security forces for armed protection services in territorial waters – something that could annul any indemnity they have for the region. At the minimum, shipowners should check that their private security provider has the proper authority and requisite licences to conduct operations in the region and engage the services of the local national security forces. For many shipowners, the selection of security provider has been problematic, but there is now international regulation – the first of its kind – to define and differentiate a reputable provider: ISO (PAS) 28007 (maritime). Based on a security riskmanagement approach, the standard demands conformity across many areas, from resilience, planning and resources, personnel selection

The key to success is whether the shipping industry will embrace and support ISO (PAS) 28007 by using only accredited companies 88

and training to incident management, reporting and investigation, health, safety and customer relations. It also requires performance evaluation and continuous improvement reinforced by monitoring and auditing. It is one of the quickest ISOs to have entered an emerging market. Captain Charlie Piersall, Chair of the ISO technical committee that developed the document, recently explained: “We published ISO/PAS 28007 in record time in order to meet a critical market need. Many ships have already turned to armed guards as a response to piracy, and security guidelines were urgently needed. We were entrusted by the International Maritime Organization as the best place to develop the standard with their guidance and participation.” Port 2 Port Maritime is the leading company working towards ISO 28007, and is scheduled to complete the process soon, before being awarded full certification at the end of the pilot programme in November 2013. While the PMSC sector is young, it has undergone notable change in offering the industry unparalleled transparency of its risk-management services. Shipping has rightly lobbied to improve regulation and compliance. To its credit, the security industry has responded well by welcoming progress through the ISO standard. Under the banner of “ISO”, this milestone accreditation affirms that progress and maturity. However, the key to success is whether the shipping industry as a whole will embrace and support this regulation by using only accredited companies. The Gulf of Guinea is cautious about an influx of PMSCs, whatever their marks of excellence. Nevertheless, without a comprehensive international approach to the security of the littoral region, maritime crime and piracy increases unabated. There are cogent reasons for the minimal input from the private security sector in west Africa, but the use of the private sector to mitigate the threat of Somali piracy contributed significantly to its recent demise. It would be churlish not to use this experience and knowledge to help improve the situation in the west. Shipowners are again experiencing a real and present threat to maritime trade and seafarers; the private sector can help.

SUMMER 2013 www.thebaltic.com

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MLC COMPLIANCE AND CERTIFICATION

ClassNK describes how its services can help shipowners and service providers prepare for the imminent enforcement of the Maritime Labour Convention With the International Labour Organization’s Maritime Labour Convention 2006 (MLC), the maritime community is seeing the consolidation of labour standards for seafarers. But facing an entry into force on 20 August 2013, shipowners and recruitment and placement service providers have a clear and immediate need for assistance in implementing these new regulations. ClassNK is dedicated to responding to these needs, and has taken industry-leading efforts to ensure smooth implementation on all fronts. For shipowners, inspections and certifications to ensure vessel compliance are an absolute must. Forty states, making up 68% of global shipping, had already ratified the MLC as of June 2013. As the rules of the MLC stipulate that ratifying states will be required to apply the convention’s standards to all incoming vessels regardless of their flag, this constitutes a major industry requirement. ClassNK is already taking proactive steps to respond to the needs of shipowners. In February 2011, it accomplished a major milestone when it became the first recognised organisation (RO) to gain authorisation from the Panama Maritime Authority, the world’s largest flag administration, to perform inspections and certifications in accordance with the MLC. To date, ClassNK has received authorisation from more than 20 flag administrations to perform MLC inspections and certifications, and is expected to be authorised by all major flag administrations that grant authorisation for such MLC activities to ROs. ClassNK offers these services at its more than 120 exclusive survey offices around the globe. ClassNK is scheduled to have issued maritime labour certificates, which signify the successful completion of MLC inspections, for more than 4,000 vessels by the time the MLC comes into force. In addition to shipowners, seafarer recruitment and placement service providers are facing a wide range of new requirements with the introduction of the MLC. The onus of demonstrating the ability to meet these requirements will fall on these service providers – a considerable task by any estimation. As a third-party organisation highly

knowledgeable in the MLC field, ClassNK is well equipped to respond to this industry need. To meet the requirements of these providers and support MLC implementation, ClassNK offers “Seafarer Recruitment and Placement Services Certification,” one of the entries in PrimeManagement, a suite of certification services that ClassNK provides to maritime companies worldwide. Drawing on its extensive worldwide network, ClassNK is able to certify MLC compliance for organisations the world over, with assessments available in a variety of languages. ClassNK has also conducted a series of informative seminars under the PrimeManagement banner. These seminars, offered free of charge, have drawn large audiences in many of the world’s major providers of seafarers, such as India and the Philippines in Asia, and Ukraine, Bulgaria, Romania and Croatia in Europe. Held due to popular demand from seafarer training academies and manning and crew placement agencies, these seminars are designed to address methods of responding to the MLC’s new requirements, as well as provide a structure for efficient, seafareroriented training. ClassNK will remain dedicated to providing the maritime industry with high-quality services to ensure smooth implementation of MLC regulations.

Safety Management Systems Department smd@classnk.or.jp

In February 2011, ClassNK became the first recognised organisation to gain authorisation from the Panama Maritime Authority to perform inspections and certifications in accordance with the MLC

www.thebaltic.com SUMMER 2013

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BACK What a day!

ALWAYS MOVING

The Shipowners’ Club’s commercial director, Simon Swallow, is often in flight – whatever the season I’m usually awake before the alarm. I’d like to think it’s the thought of what my day has in store that gets me up in the morning, but more likely it’s age or, more often, jet lag. I sneak out of a sleeping house trying not to wake our fox terrier, Fennel, who anyway seems to prefer his bed to a morning walk. “Breakfast like a king,” my mother always taught me; she’d scold me now, but I do try to grab a croissant on my way in to the office. It’s hardly a feast, but it keeps me going. I’m behind my desk by eight. When I was underwriting director I used to amass a huge number of morning emails. Now it’s different. As commercial director I work with the shipowning members of the club and the marine insurance brokers to find new opportunities to broaden our product offering and to ensure that we remain totally focused on providing the best levels of customer service. My first task is to Skype the Singapore office and speak to Steve Randall, who jointly heads the Asian branch. Daily communication with the branch offices is essential. We share ideas and concerns, and a laugh or two. Steve and I also share a passion for the industry: small ships are in our blood, and together we have spent more than 55 years at the Shipowners’ Club. We are selfconfessed anoraks when it comes to ships, and we talk of ship visits and exchange pictures of the launch ceremonies that the guys in Singapore so often attend. How great it must be to look out of your office window in Singapore and see the craft that we insure. There’s no chance of that in London. I have a hotel to look at, which has produced some interesting early morning visions, not always pleasant! We deal with over 600 insurance brokers worldwide, and I keep on my desk a list of the partners with whom we transact business. An important part of my role is looking after these business partners: how can we do more with them and are we looking after them okay? Today I am looking 90

Tomorrow I’m off to the Netherlands for a meeting, so I grab my travelling kit and head out the door. It’s been a good day at a partnership programme we are developing with a broker to help extend our reach to areas of the world where we are not currently operating to any great degree. I also call a broker with whom we handle only a handful of vessels, asking: “What more can we do for you? Can we construct a product that will fulfil both your customer’s and your requirements?” It is this type of conversation that made us realise that the traditional P&I club rules are a challenge to read at the best of times. So we forge a simplified insurance policy for certain vessel types – one that is far easier to understand.

Suddenly our energetic marketing team poke their heads around the door. They have the draft 2013 annual report ready for my review. It’s the pictures I like; while the text is fundamental, I believe a picture says a thousand words. I’ve just received an image from an owner in Argentina, proudly displaying his small coastal tanker. Can’t we include it in the report? My waistline is the surest evidence that my role requires regular contact with brokers. Today I attend a gettogether with a crowd from a few P&I clubs, as well as brokers, to celebrate the return of an underwriter who left a high-profile P&I club role for a new life in Burma. His tales and views on the exciting developments in that country are fascinating. Returning to the office, I catch up with our business research and development manager, who wants my thoughts on a new product offering to the towage industry. Then I’m back on Skype as Vancouver is now open. Our office in wonderful British Columbia handles our North American business. I try to focus on our discussions but am constantly distracted by the snow-capped mountain vista visible behind my colleague’s desk. Rose Adams is our general manager there, and she is just starting her day. Sadly she always gets me at the end of mine, when I’m feeling a little jaded and ready for my train home. Tomorrow I’m off to Terneuzen in the Netherlands for a meeting with an owner, so I grab my usual travelling kit – the corporate gifts and the business cards, not forgetting my Euros – and head out the door. It’s been a good day. “That BlackBerry of yours; one day I’ll throw it in the bin” is the usual cry from my wife as I sneak a peek during the evening. Our roles these days are 24-hour. But now the football is on the TV, so it’s time to put business aside and watch the sport that my son and I love and which also drives my wife to distraction!

SUMMER 2013 www.thebaltic.com

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26/06/2013 14:29

The heavier, the better A cargo like that might be a problem for other carriers, but not for us. As the world leader in the ocean carriage of heavy lift and project cargoes, we have the expertise and technical resources to deliver your assignment safe and sound. So the heavier it is, the better it is to trust BBC Chartering.

www.bbc-chartering.com

091_BALTIC_SUM_13.indd 91

25/06/2013 15:51

Class NK_BAL_SUM13.indd 92 1 092_BALTIC_SUM_13.indd

17/06/2013 15:51 16:09 25/06/2013