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Maritime Matrix Today | August 2021 | 03
Konecranes-Cargotec receive China’s approval for merger
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hina has given the green light to Finnish engineering majors Konecranes and Cargotec to proceed with their merger plans.
On 10 August 2021, the duo said it received “unconditional approval” from the State 04 | Maritime Matrix Today | August 2021
Administration for Market Regulation, the competition authority in China. Back in October 2020, Cargotec and Konecranes unveiled that they had signed a combination agreement and plan to combine through a merger, subject to regulatory and other approvals. In December 2020, the Finnish Financial Supervisory Authority was the first to grant approval to the two merger partners.
The companies said they continue to work closely with the competition authorities in the remaining jurisdictions to obtain regulatory approvals. “Cargotec and Konecranes are confident that the approvals will be received to allow completion of the transaction by the end of H1/2022. Until completion, both companies will operate fully separately and independently,” the two companies said. MMT
Maritime Matrix Today | August 2021 | 05
Reefer Container Rates Surge
In
a new setback for food buyers in this season of high freight rates, the cost of importing perishables is also forecast to rise in the remainder of the year. According to a new report by the maritime research and consulting firm Drewry, which is based on their Global Reefer Container Freight Rate Index, the average rates across the top 15 reefer trade routes rose 32 percent year-over-year in the second quarter. The report also projects that these increases will reach as much as 50 percent by the end of the third quarter. This will surpass the dry cargo rates, and a further rise is also forecast in 2022 driven by a catch-up on North-South routes. 06 | Maritime Matrix Today | August 2021
“In contrast to dry container freight rates which are expected to decline in 2022 as trade conditions normalize, reefer container freight rates are forecast to continue rising as price inflation feeds into NorthSouth routes when long term contract rates are renewed,” said Drewry’s head of reefer shipping research Philip Gray. “Most reefer cargo on these trades moves on long term contracts.” The resurgence in reefer freight rates however has not been uniform across all trade routes. Pricing recovery has mostly been observed on the main East-West routes, where vessel capacity conditions are noticeably tight. The North-South trades have generally seen less price inflation, particularly on export routes from the west coast of South America, Central America, and Southern Africa. The main driver of the inflation is capacity related, as perishables
shippers have competed with higher paying dry freight BCOS (Beneficial Cargo Owner) for limited containership slots. In addition, continued disruption across container supply chains has led to acute shortages of reefer container equipment. Although the global seaborne perishables trade in 2020 declined by 12 percent, it has picked up through the first half of this year expanding nearly five percent year-on- year, led by meat, citrus and exotics trades. However, it is not expected to expand at the same pace as dry cargo through the remainder of the year as it is not recovering from as deep a contraction in 2020. MMT
Maritime Matrix Today | August 2021 | 07
Chetak’s Poshan Scheme to felicitate and reward drivers and Covid front line workers with high-quality dry food ration
Honourable Union Minister of State for Home Affairs Mr Nityanand Rai flagging off the Poshan Vahaan, Chetak Foundation’s vehicle providing high quality nutritious dry ration to felicitate drivers and Covid front line workers, in the presence of Mr Mukesh, Rajesh and Sachin Haritash, Directors of Chetak Foundation
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on’ble Union Minister of State for Home Affairs Mr Nityanand Rai formally rolled out Chetak Foundation’s Poshan Scheme to felicitate and reward over 1000 underprivileged drivers and Covid front line workers with high-quality dry food ration. Chetak Foundation (the social arm of Chetak Group, the leader in Automotive Logistics in India) has tied up with prestigious Sir Ganga Ram Hospital (SGRH) to honour Covid front line workers and drivers with high-quality dry food ration packets. Mr Rai said, “It is heartening to see Chetak Foundation come forward and support the government’s efforts by acknowledging the Covid front line workers and drivers who worked tirelessly during the crisis saving numerous lives, while risking their own lives. We need many such corporates and foundations to join hands in this noble initiative.” On Chetak’s vision, Mr Sachin Haritash, Board Member, Chetak
08 | Maritime Matrix Today | August 2021
Honourable Union Minister of State for Home Affairs Mr Nityanand Rai felicitating the drivers and Covid front line workers, in the presence of Mr Mukesh, Rajesh and Sachin Haritash
Mr Mukesh, Rajesh and Sachin Haritash along with Chairman of Gangaram Hospital, Mr DS Rana felicitating the drivers and Covid front line workers
Foundation said, “Chetak Foundation is set up to make a positive impact on the lives of underprivileged communities, in line with the vision of our founder late Mr JK Sharmaji. We are honoured that the Hon’ble Minister has blessed our initiative to felicitate over 1000 drivers and Covid front line workers.”
logistics space and those around Group’s operational presence.
“We are really happy that the prestigious SSGRH has agreed to join us for this noble cause and it reflects the social ethos being practiced by the organisation. We would like to convey our gratitude to Mr DS Rana, Chairman, SGRH and his entire team,” he added. SGRH has identified Ambulance drivers, Ward Helpers, Guards, House Boys, Ward Boys, Pantry Boys and Liftmen, all from less privileged backgrounds for the felicitation. Chetak Foundation focuses on broad areas including Education, Environment, Health, Livelihood, Nutrition and Road Safety, in the
The Foundation has conceived specific interventions to enhance beneficiaries’ experience. Some of these include Oxygen Plus (an environment initiative), Swasthaya Plus (a Health initiative), Poshan Plus (a nutrition initiative to alleviate hunger), Shikha Plus (an Education initiative), Zindagi Plus (a Road Safety Initiative), Sahayata Plus (an initiative to help people during crisis or natural calamities). Mr Rana said, “Once we were approached by Chetak Foundation for this noble initiative, we immediately said yes, as it is in line with the values being practiced by SGRH. We are happy to acknowledge and felicitate our drivers and Covid front line workers for their continual efforts. We are also glad to associate with Chetak Foundation and we look forward to many more such associations, in future.” MMT
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Maritime Matrix Today | August 2021 | 09
MV Ever Given – Grounding in the Suez Canal
Salient Features of the Suez Canal The 120-mile-long canal, constructed in 1869, connects the Mediterranean in the North with the Red Sea in the South. The canal is managed and operated by the Suez Canal Authority (SCA) since 1956, when the Egyptian government nationalized the Suez Canal Company, which was largely owned by British & French interests. The chairman of SCA is Mr Osama Rabie. Captain Hassanin was on duty at the control tower located in Ismailia at the time of the incident. The pilots are employed directly by SCA. The waterway is only about 200 meters wide (from bank-to-bank) at some locations and about 24 meters deep. The cross-section profile of the canal appears like an inverted trapezium. A large section of the canal is too narrow for large ships to safely pass each other. Therefore vessels have to transit the canal in one-way convoys, each passage taking about 12 hours. The vessels have to wait in one of the lakes (located approximately mid-length of the canal) or side channels for the group of vessels going the other way, to pass safely. 10 | Maritime Matrix Today | August 2021
General Description & Specifications of Ever Given IMO # 9811000 Year Built 2018 Vessel Type Fully Cellular Containership Capacity 20,388 TEU DWT 199,489 GT 217,612 LOA 399.99 mtr Beam 59 mtr Draught 16 mtr Flag Panama Class ABS P&I UK Mutual Steam Ship Assurance Association Owner Luster Maritime, Panama; subsidiary of Shoei Kisen Kaisha, Japan Charterer Evergreen Marine Corp. Lines, Taiwan
Ship Op Manager - Higaki Sangyo Kaisha Tech Manager Bernhard Schulte Shipmanagement Master Captain Krishnan Kanthavel Chronological Sequence of Events Leading to the Incident Ever Given was en-route from Port of Ningbo, China towards Port of Rotterdam. She joined the northbound convoy on Tuesday 23rd March 2021 morning, as the 13th of 20 vessels. The southerly winds were about 40 mph. The dusty haze resulted in visibility reduced to about a mile. Two SCA pilots boarded the vessel. As she was proceeding along the channel, there are several reports suggesting that the vessel suddenly veered to starboard. At this stage the lead SCA pilot instructed the bridge team “hard-a-starboard” and “Full ahead.” The other pilot reportedly objected to this manoeuvre and there were some heated arguments between the two pilots. When the master tried to intervene, the lead pilot threatened to leave the vessel. The vessel ran hard aground at the 151 km mark viz. abut 6 nautical miles from the southern entry to the Suez Canal, at approximately 0540 hrs GMT (07.40 hours local time). Her bulbous bow got embedded in the Eastern bank of the canal and her port quarter grounded on the Western bank. She was thus wedged diagonally across the canal between the two banks. By sheer cruel fate, one of the largest container vessels to transit the canal, ran aground in one of its narrowest sections, blocking traffic in both directions. Fortunately, the 6,188 TEU Maersk Denver, which was following the Ever Given, managed to stop just in time, thus averting a collision and further damages (the 2nd mate Ernest Caponegro, was quoted as stating that there was a sudden gust of wind more than 40 miles an hour, resulting in sand being blown across, such that he momentarily lost sight of the Ever Given The crew were safe and all accounted for. There was no report of pollution. Re-Floating Operations The rudder, stern frame and bow may have suffered damage. Bottom damage, if any had not been assessed. She was reportedly heeled to port. With the vessel grounded at the bow as well as the stern and afloat at mid-length, excessive SAG was a serious concern. It was determined that the watertight integrity of the hull was not breached. Time was of the essence in re-opening the Suez Canal as soon as possible. Operations to re-float the ship to clear the channel were carried out under SCA control. Initially 2 tugs MOSAED 3 & MOSAED 2 were
mobilized to try and free the vessel. Thereafter these efforts were supplemented by 8 tugboats, including BARAKA 1 (160 tons). Subsequently, 2 dredgers (Mashhour & Ramadan) were deployed to dig-out the sand banks to create a ‘turning basin’ for the vessel. They would run 12-hour shifts, alternating between excavators on shore removing the soil around the bow and stern, and tugboats pulling with as much power as possible. Boskalis, Smit Salvage and Nippon Salvage were supplementing these efforts. Tugs “Carlo Magno” and “Alp Guard” Bollard Pull 280 tons, were mobilized, both arrived on the scene on Sunday 28th March and commenced pulling the starboard quarter, but failed to re-float the vessel. In order to decrease the forward draught, the vessel ballasted about 2,000 tons aft and ordered all the tugs to try again. To minimize the risk of the bow swinging sideways suddenly, when she re-floats, four mooring ropes were secured / anchored ashore. Operations were timed to suitably to utilize favourable tidal and weather conditions. Finally she was refloated on 29 March 2021. After being re-floated on 29th March, Ever Given had anchored in the Great Bitter Lake, where she remained detained and laid-up. SCA managed to clear the back-log of waiting vessels during the next 6 days. Vessel Detention and Subsequent Release On 13th April, SCA secured an Egyptian court order to detain the Ever Given, seeking about USD 272 million in expenses, 300 million towards salvage bonus, and 344 million in damages & moral losses”, i.e. a total almost $1 billion from the ship’s owner. The cargo was estimated to be worth about $ 780 million. WK Webster were appointed as the Average Adjuster. Mr Faz Peermohamed of Stann Marine, was appointed by the owner Shoei Kisen Kaisha and insurers In its initial public statements, SCA insisted that the Pilot did make the weather forecast (strong winds and poor visibility) available. The Master ought to have been aware of the vessel’s manoeuvring characteristics in this condition, loaded high with more than 18,000 TEU aboard. The Master is thus solely responsible for taking the decision to enter the Suez Canal. Informatively, some other vessels preferred to delay the transit, thus pointing a finger towards “compromised safety” to meet the high-pressure commercial demands of container shipping. SCA released another statement to the effect that the vessel’s speed, which is the sole responsibility Maritime Matrix Today | August 2021 | 11
of the Master, exceeded the maximum limit established by the authorities. Lloyd’s List intelligence data indicated that she was travelling at 12.9 knots just before she grounded. The owner is believed to have provided evidence to the effect that the pilot ordered to increase speed, for steerage control. The ship owner insisted that the ship grounded because “she lost control due to sudden strong wind in bad weather” and reiterated “absolute confidence in our Master, who has acted with professionalism and diligence throughout this period”. The “Indian Maritime Union” too released a statement urging the authorities not to “hold the crew to ransom”. During the first hearing, the lawyer representing the ship owner submitted “voyage data recorder” as evidence, the contents of which were not made public and agreed to negotiate the terms of the release. Legal proceedings at the Ismailia Economic Court of First Instance were put on hold to allow the parties to reach an agreement. SCA subsequently reduced its claim to about USD 550 million. The owner filed an application to limit its maximum liability. The UK P&I Club released a statement on 22nd June, to the effect that, consequent to meetings with the SCA’s negotiating committee and numerous court hearings, a formal solution has now been agreed. On 26th June, the ship-owner and SCA reached an “Agreement in Principle” for an undisclosed sum. A large section of the industry was naturally heartened to hear that after several rounds of consultations and negotiations, the Suez Canal Authority and the ship owner had reached an “agreement in principle”, which no doubt was facilitated by the reduction of the claim amount to a more realistic figure and perhaps by the realisation that the vessel was not entirely to blame. Another press release quoted SCA as stating that it will accept $ 200 million now and the balance in the form of “letters of guarantee”, as a condition to allow the vessel to leave. The agreement enabled the SCA to lift detention orders. On Wednesday, 7th July 2021, 106 days after grounding, she finally hoisted anchor and joined the northbound convoy heading towards Port Said, at the northern end of the canal, where an underwater dive inspection of the hull, in-situ, was expected to be carried out, before she finally sails towards Rotterdam (next port of call to discharge cargo) expecting to arrive there in about 10 days. The agreement presumably does not address the status of other parties, whose claims thus remain unsettled and are subject to further litigation in 12 | Maritime Matrix Today | August 2021
respective jurisdictions. The agreement, as the name suggests is merely a prelude to a formal contract, setting out in broad terms the amount, the stages of payment and the conditions. Long and contentious legal battles are expected to lay head. Author’s Opinion Probable Cause(S): 1. Machinery Failure The vessel must have resources available to ensure that she is able to maintain speed between maximum allowed in restricted waters and minimum required for steerageway, consistently and over a prolonged length of time. The fine balance between safety and commercial expediency and the means to ensure that safety is always paramount. The official (preliminary/statutory) enquiry will determine the facts pertaining to machinery performance, from ship’s records 2. Effect of prevailing winds on ship manoeuvrability Windage area alone is not the only factor to be considered especially for the ULCS and PostPanamax Container ships. Reference is made to the IMO MEPC.1/Circ.850/Rev.1 (2015), interim guidelines for determining minimum propulsion power to maintain the manoeuvrability of ships in adverse conditions, as amended (resolution mepc.232(65), as amended by resolutions mepc.255(67) and mepc.262(68), as also to the Recommended Practice DNV-RP-C205; Environmental conditions and loads. Attention is also drawn to the Manoeuvrability Plots, which are provided by the shipyard, onboard large container ships like Ever Given, which are fitted with Transverse Thrusters. Ship maneuvering trials are invariably carried out in open waters. To control the adverse effects of shallow waters, larger vessels need to proceed at slower speeds, but keeping in mind the consequent compromise in maneuverability. Some reports have alluded to the possibility of “bank effect phenomenon” ie reduction in relative water-pressure between the ship-side and the near bank, due to the increase in ship’s engine speed, resulting in the stern tending to swing toward one bank with the bow pushed away towards the other. The investigating authorities will determine the facts pertaining to (a) strength and direction of winds forecast at commencement of transit passage (b) strength and direction of sudden gusts of wind as actually experienced. 3. Human Error (Master, Crew, Pilot) Pilotage in the Suez canal is compulsory. The investigating authorities will study the VDR and
other records to determine the facts pertaining to the actions taken during the final stages viz. between the time vessel suddenly veered and her grounding, by each pilot and the corrective actions taken by the Master in exercise of his over-riding powers in law and discretionary powers under ISM. 4. Systems failure Like most canals and restricted waterways, the Suez is difficult to navigate during strong winds or in poor visibility. Informatively, four ports in the vicinity had ceased operations due to the weather. Furthermore, the master of an LNG carrier, sailing from Qatar, had the previous day taken the decision to delay the transit under the prevailing weather conditions. The investigating authorities will review the Standard Operating Procedures and mandatory risk assessment (critical limits of meteorological conditions which demand aborting port operations) and review of risk management policy and procedure (tug escort policy, deployment of tugs considering vessel size, freeboard and windage and weather). They will also study the masterpilot exchange records and determine the facts pertaining to (a) SOP as per port rules, (b) implementation of SOP especially pertaining to use of ESCORT tug, (c) the due diligence and risk assessment carried out by the Master (d) the decision-making process of the Master and the Port to proceed in transit passage despite the prevailing meteorological conditions. 5. Inadequate Depth of Water (Siltation) The investigating authorities will determine the facts pertaining to the actual depths in the canal, being maintained as claimed and promulgated, keeping in mind that even the vessel did not touch ground during passage, a reduction in UKC may result in loss of steerage-way. Insurance Whereas the ship owner’s exposure to risks of property damage and liability (pollution, injury, loss of life etc) are usually covered by hull and machinery underwriters and by P&I Clubs respectively, the risk management of ports, vary. In India the government owned ports generally bear their own risk. Private terminals, operating under concession agreement, may either voluntarily insure their properties and third part liabilities or often do so as matter of prudent risk management; or they may be obliged to do so, by the banks/financers who have advanced loans to the terminals. Needless to emphasize that in the absence of knowledge of the facts of the case, it is pre-mature
to discuss financial liability and/or professional responsibility. The following paragraphs have been included merely as general information on how a similar incident, had it occurred in India, may be viewed under Indian law. Civil Liability 1. Damage and/or loss to cargo on board To be assessed by cargo insurers / cargo surveyors & loss assessors 2. Expenses incurred to re-float the vessel:
These would include expenses incurred towards owned and contracted tugs, dredgers, earth moving equipment, cranes etc
3. Consequential losses to SCA: These would include the loss of revenue (canal transit fees) in the vent that some vessels deciding to go around the Cape of Good Hope instead of waiting indefinitely for the canal to re-open. The loss of revenue may generally be arrived at, on the basis of transit fees which SCA would have earned from that particular vessel, less expenses which SCA would have incurred forwards that transit. 4. Consequential losses to other ships / cargo interests etc These would include the loss incurred by ships which waited at anchorage, during the period between when they would have exited the canal, had the Ever Given not grounded, till the time when they actually did exit after it was re-opened The consequential loses of an incident or casualty such as this, may be excessive. This fact became readily apparent, after the impact of the canal blockage, reverberated throughout the shipping and logistics industry. Damage to H&M of Ever Given will be assessed by Classification Society and surveyors, while she is afloat or in dry-dock. Civil liability may arise out of tort or statute or from breach of contract. In the case of the former, SCA / other interests have to demonstrate that the Master owed a “duty of care” and that Master failed to exercise it. Professional Responsibility Although the vessel remains monetarily liable to the port, the question of professional negligence or accountability under domestic law, shall have to be determined individually by departmental enquires. Thus parallelly and simultaneously with determining the above explained financial liability, the Master or pilot, may individually be held Maritime Matrix Today | August 2021 | 13
professionally negligent and thus responsible to their respective employers, in the case of the pilot, to the port authority and licensing authority; in the case of the Master, to the ship-owner and Flag State & Certificate of Competence authority.
distribute the consequences of an accident, as wide as possible, the same being consistent with public policy. Shifting financial liability for all damages and losses; to the vessel, was thus considered a better option.
Criminal Liability
Stage 5: The impetus for change occurred when the International Collision Convention, 1910 created a conflict. The Departmental Committee appointed by the UK BoT accordingly recommended that the liability regime be reversed. The Pilotage Act 1913 thus incorporated section 15, which clearly stated that even during compulsory pilotage, Master was responsible, in the same manner as optional pilotage. A suitable clause to that effect was accordingly inserted in the Indian Ports Act, 1908 Section 31, sub-section 1 prohibits a vessel’s entry, movement or departure, without a pilot. Sub-section 2, states thar the master of a vessel which is required to have a pilot on board, shall be answerable for any loss or damage caused by the vessel or by any fault in the navigation of the vessel, in the same manner as he would have been, if he had not been so required by that sub-section. The law thus provides that notwithstanding the vessel proceeding under compulsory pilotage, the vessel / master is answerable (jointly and severally liable for any damage caused by the vessel) as if the pilot were not on board. In other words, the effect of such a legal provision is to equivalate the compulsory pilot with the pilot who is employed at the option / discretion of the master.
There has been no report of personal injury or loss of life or environmental damage. Therefore it is not applicable in this case. Why is Ship Held Liable for Damages and Losses? To answer that question, one would need to study the developments in context of the legislative history. Stage 1: The earliest “pilotage service” was voluntary (optional). The direct master-servant relationship resulted in the ship-master and shipowner being held vicariously liable in Common Law. Stage 2: Accidents happened. A need was felt to regulate pilotage services, by imposition of Compulsory Pilotage and licencing pilots, who would accordingly be held responsible for faults. The UK Merchant Shipping Act 1894 u/s 633, in support of this line of thinking, stated that Master / Owner were not answerable to any person, for any loss/damage due to fault of compulsory pilot. Furthermore section 388 limited the liability of owner. The logic was that to obtain the full benefit of compulsory pilotage, it was considered important that the pilot retains sole conduct of the vessel and that it was necessary to avoid a divided command. The pilotage services provider obtained insurance and loaded the premium onto vessel related charges. Stage 3: Realization that the civil liability policy resulted in the Master becoming increasingly reluctant to over-rule or even interfere in the actions of the pilot for fear of losing the benefit of “no liability under compulsory” pilotage. Stage 4: Liability Insurance, including liability during compulsory pilotage, was available to ship-owners through mutual clubs at competitive rates. Therefore, the risks came to be covered by both the ship-owner and the Port. It was felt that if financial liability is shifted to the vessel and the claim honored by the P&I Club, the latter would raise call money contribution from its members, the ship owner could theoretically (in actual practice of course, market conditions of supply and demand, dictates how much of the additional insurance premium cost is passed-on or borne internally as a loss), increase the freight or charter hire by a proportionate amount and the cargo traders would eventually pass on the additional cost to customers. Furthermore, it makes better economic sense to 14 | Maritime Matrix Today | August 2021
The Master-Pilot Relationship Master is familiar with the vessel, the stability condition and manoeuvring characteristics. However in confined waters the time interval between error and its consequences is very short. The Pilot has local knowledge, is familiar with Port SOP and can effectively communicate with tug flotilla etc. Utilizing the combined expertise of the two professionals, thus minimizes the risk to the port and the vessel. If pilotage is mandatory as in most ports including the Suez Canal, the port’s responsibility is generally limited to ensuring that the pilots are competent & duly certified. In fact the level of competence is determined by the port itself, as per its own established rules. The significance of the logbook entry “Proceeding to master’s orders & pilots advice” lies not in the meaning of the word “advise” per definition in Black’s Law dictionary as the “giving of an opinion or counsel; being discretionary or optional with the person addressed”. In actual fact, a compulsory pilot’s advice cannot be treated as above. Power is defined as the ability to act, whereas authority is the right to act. At sea, the Master has authority and power. The officers hand-over watch, with the
phrase “she is all yours”. That phrase is not used after the pilot boards the vessel. Whereas the “authority” is retained by the Master, an element of the “power” is ceded to the pilot, when the “conduct” (con or conning) of the vessel is handedover. Helm and engine orders are conveyed directly by the pilot to ship staff. Obviously, power which is delegated can also be reclaimed, but only under well-established circumstances, for example if the pilot is manifestly incompetent, intoxicated or incapacitated. Naturally, if the pilot’s actions are placing the ship in clear and imminent danger, thus jeopardising the safety of the ship, the Master has a duty to intervene. Even when the port rules enforce “compulsory pilotage”, it is important to appreciate the point that it is the PILOTAGE which is compulsory, not that particular pilot. Consequently the subsistence of the master-servant relationship between owner-and-pilot and the vicarious liability flowing therefrom, continues. The Way Forward The chairman of SCA’s reported statement to the effect that “the pilot gave master guidance, but it’s up to the master to comply with it or not. The master was solely responsible for the decisions and actions that led to the blockage of the Suez Canal. Egypt therefore detained the vessel and its crew until a settlement was reached, which was amicable and ‘everyone was happy’ But obviously “everyone is NOT happy.” The question arises as to why the Ship-Owner is financially liable for all the damages listed above, even though pilotage is compulsory and Master was NOT entirely at fault.
detention of the vessel while “negotiations” were in progress, may have been reduced considerably. Unfortunately, even if IPA section 31(2) is amended to read “the vessel / port shall be responsible for the respective faults of the master/pilot”, it may not address all the above concerns. A pre-condition to a ship voluntarily entering port limits, is her acceptance of its sovereign jurisdiction and consequently its laws. The vessel in foreign jurisdiction will thus remain hostage to domestic law. The port authority may decide to exercise jurisdiction and detain the master and/ or the vessel, pending determination of cause and apportionment of fault or till determining that the pilot is hundred percent at fault (which is most unlikely). As per international maritime laws, accident investigation is carried out by the port and flag state. As regards the investigation by flag state, one has to appreciate that till the vessel is in detention, the progress of the flag state investigation, depends to a large extent on the cooperation of the port state, especially pertaining to pilots’ experience, bad-weather procedures and control tower–vessel communications. A good indication of the possible way forward may be apparent in the press release which quoted SCA as stating that it will accept the balance in the form of “letters of guarantee”, as a condition to allowing the vessel to leave. If there is a system in place for the immediate acceptance by the port authorities, of P&I Club security for the full amount, detention, arrest and inordinate delays may be avoided. MMT
For one; the frequent arrest of the Master (and crew sometimes) is resulting in a growing exasperation and simmering discontent among the seafarers. Secondly; if the ports were to be held liable, and consequently were compelled to obtain liability cover, their insurers may demand; by incorporating suitable clauses / policy conditions, that a system of risk assessment, systems audit and lossminimization procedures is duly implemented. Such measures would theoreticaly ensure not only improvements in safety standards, but also reduce the casualty response time, avoid involvement of multiple bodies, streamline the process and consequently reduce litigation. And finally, the crew, the vessel and her cargo were detained by SCA as a bargaining tool, for over three months while negotiations regarding “civil liability” or rather “compensation” as some would say, continued between SCA and the ship interests. Had SCA proposed a more realistic initial claim, the additional losses, which mounted up, during the
The Author Kapildev Bahl Maritime Arbitrator
Disclaimer: This report is based on information available in the public domain through various media resources. Although the information thus obtained could not be verified, the data has largely been cross checked for inconsistencies. Only such data, which appeared reasonable and practical to the author (based on his professional experience and knowledge) has been included. Furthermore, chapters 01 to 05 have been compiled with information available up to vessel departure from Suez.
Maritime Matrix Today | August 2021 | 15
VLCC demolition at lethargic pace
D
espite more than a year of low freight rates in the oil market, tanker owners are continuing to hold on to their VLCCs even avoiding the temptation of skyrocketing steel prices offered in India, Bangladesh, and Pakistan. According to a new analysis from the shipping association BIMCO, shipowners are delaying and deferring disposing of older VLCCs (Very Large Crude Carriers) despite the potential of a prolonged slump in freight rates and the uncertainty of future waves of COVID-19 will depress demand from one of the world’s largest oil importers, China, and other major import countries. “The low demolition level seen in the first seven months of the year for crude oil tankers surely takes some by surprise. Some are wondering why shipowners are not demolishing the excess fleet when freight rates have been sluggish for the past year,” says Peter Sand, BIMCO’s Chief Shipping Analyst. According to the analysis, with weak rates both in the freight market and demand for floating storage, freight rates are averaging just over $2,600 per day in 2021. BIMCO notes that $25,000 per day is normally required to break-even operating a VLCC. Yet, during the first seven months of 2021, BIMCO reports that only three actively trading VLCCs 16 | Maritime Matrix Today | August 2021
have been sold for demolition. In addition, five retired VLCCs working as Floating Storage and Offloading units (FSOs) in recent years have been demolished. However, as they are not actively trading, the demolition of those five vessels did not impact the demand-supply imbalance reflected in the low freight rates. Comment on the current demolition rate of VLCCs, Sand believes “the reason behind this is two-fold. Firstly, the strong earnings enjoyed by everyone in the crude oil tanker shipping sector last year leaves no owner short of cash. Secondly, as secondhand prices exceed even the record-high prices offered for demolition steel, shipowners are more inclined to keep their tankers afloat and changing hands, rather than sending them to the demolition yards.” The lethargic pace of VLCC demolition is partially explained by attractive prices for older ships in the secondhand market.
According to VesselsValue, 69 VLCCs have changed hands between January and -July 2021, compared with 91 for the full year of 2020. “To some extent, what we see now is like what we saw in the period that followed the six quarters of high oil tanker earnings from Q4 2014 through Q1 2016,” says Sand. ”Following this it was not until Q3 2017 that we began to see a pick-up in demolition for VLCCs.” Time has proven that it takes time for shipowners’ demolition decisions to mature and that a weak market right in the wake of a strong one is not enough to take the final step and go for demolition. BIMCO, however, cautions that nothing is straightforward in these markets citing the fact that demolitions of oil product tankers are heading for a record-high level in 2021. MMT
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Maritime Matrix Today | August 2021 | 17
Guidelines on Safe Loading and Carriage of Containers issued
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ith continued chaos driving record-high freight rates in container shipping, some shippers have been forced seek more creative ways of moving cargo point A to B, including turning to bulk carriers and general cargo ships for their transportation needs. But with great risk comes, well, great risk. According to a recent report from marine claims consultancy WK 18 | Maritime Matrix Today | August 2021
Webster, last month the bulk carrier Great Beauty was forced to return to port in China after containers stowed in its holds shifted and collapsed during heavy weather while sailing from Taicang, China to Savannah, Georgia. It is now possible that General Average may be required as work to clean up and investigate the incident is underway. After receiving a number of enquiries regarding the carriage of containers on vessels not primarily
designed to carry containers, P&I club Steamship Mutual has now issued guidance alerting its members to the risks associated with the practice. As Steamship Mutual points out in its Risk Alert RA 74, container stack collapse and loss of containers overboard are not uncommon in container shipping, even in vessels specifically designed to carry containers. But loading containers on vessels other than purpose-built containerships poses additional risks that shippers should consider in order to ensure coverage. Steamship Mutual’s new guidance is intended to provide information to members concerning risks presented by such operations and draws attention to the need to ensure that a ship is suitable for the safe loading, carriage and discharge of cargo and is equipped with the appropriate means of securing such cargo. It also identifies some of the primary information gathering and reporting necessary for considering such activities, along with other considerations of due diligence and risk assessment to mitigate and minimize the potential risks.
Steamship Mutual also points out that the carriage of containerized cargoes on vessels that are not specifically designed for that purpose may well constitute a material change of risk within the meaning of “Rule 6 v,” and therefor it’s important that they are notified in advance of such operations being undertaken in order to reduce the potential for coverage to be prejudiced. “Members should evaluate if the vessel and stowage locations intended for the carriage of containerised cargo have the required structural strength and can be adequately adapted for safe carriage of the cargo,” Steamship Mutual says in the guidance. The guidance also provides some information on some key aspects for consideration, such as having a class approved stowage and securing plan, when conducting primary and any subsequent assessments to ascertain vessel suitability for the carriage of proposed containerized cargo. MMT
Maritime Matrix Today | August 2021 | 19
Cover Story
Container Prices and Availability at Asian Ports hit by Covid-19 lockdowns • The temporary lockdown of the port of Yantian in the second quarter is still negatively affecting container prices and availability in southern China. • Early indicators from Container xChange’s Container Availability Index (CAx) suggest similar trends will emerge in Vietnam and central China after more recent port closures and productivity declines.
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OVID-19 outbreaks at ports in China and Vietnam will likely reduce container availability and driveup prices at key shipping hubs in the coming weeks, according to the latest data analysis by Container xChange, the world’s leading online platform for the leasing and trading of shipping containers. Terminal productivity declines at Yantian and nearby terminals in southern China due to COVID lockdowns in the second quarter of 2021 are still causing disruptive ripples up and down container supply chains including reduced box availability and soaring prices. Container xChange analysis indicates that similar trends are likely to occur due to more recent COVID lockdowns in Vietnam and Ningbo in China. “We saw a real and measurable spike in container prices and a major drop in container availability as measured by our Container Availability Index (CAx) when terminals at Yantian saw operations disrupted through most of June,” said Christian Roeloffs, co-founder of Container xChange. “Early indicators suggest we are likely to see the same impact in Vietnam and at Ningbo.” According to the CAx, average container prices (defined as the average price of the transactions on the Container xChange platform covering all container sizes including 20 ft. and 40 ft. dry containers) at the port of Yantian increased from $5,515 in June to $15,336 this month. This compared to much smaller container price increases at the ports of Shanghai and Qingdao over the same period. Average container prices at Shanghai increased from $4,468 to $5,570, for example, while at Qingdao they increased from $4,793 to $5,203.
A similar negative trend for those seeking boxes was apparent at Yantian as availability declined significantly. In Container xChange’s Container Availability Index (CAx) an index reading of below 0.5 means more containers leave a port compared to the number which enter. Above 0.5 means more containers are entering the port. At Yantian, the CAx reading for a 40 ft dry container was 0.61 in Week 17 but fell to 0.47 in Week 22 and 0.3 in week 32. CAx readings for 20 ft. dry containers revealed a similar trend, dropping from 0.61 in week 17 to 0.47 in week 22 and just 0.4 in week 33. There is good reason to expect some of the patterns evident at Yantian will emerge at other Asian shipping hubs in the weeks ahead. COVID outbreaks that have been disrupting supply chains and port productivity in Vietnam since last month have prompted average container prices at Ho Chi Minh City to jump from $2,872 in May to $4,875 in August. August has seen the short notice closure of terminals at Meishan Island, part of the NingboZhoushan port complex. The port handled almost 1.2 billion tons of cargo and almost 29 million twenty-foot equivalent units (TEUs) last year making it the third largest container hub in the world by volume after Shanghai and Singapore, so any disruptions to services calling there will have significant knock-on impacts. Early indicators suggest that the temporary closure of Meishan Island terminals is already causing a small spike in container prices with average August prices climbing to $5,731, up from $5420 in June, making boxes at the port more expensive than at both Qingdao and Shanghai (but of course not at Yantian). “Whether we see a further spike in container prices at Ningbo will probably be determined by how much cargo was disrupted at the port and whether we see additional shutdowns later this month,” said Dr Johannes Schlingmeier, CEO & Founder of Container xChange. “Even if there are no additional closures it is likely that container prices will rise on lower availability in the coming weeks due to the lag between liner schedule disruption and container availability and pricing.” MMT Maritime Matrix Today | August 2021 | 21
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Sriti Devadiga
CMMI’s Extra Masterclass Part C deals with commercial aspects of shipping
eeping in sync with the changing times and in line with its aim to educate and foster knowledge within the maritime industry, The Company of Master Mariners of India (CMMI) formally inaugurated the part C of its Extra Masterclass on 16th August. The class will commence on 21st August.
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This exclusive course has already completed its part A and part B. This will be the second batch of the part C class. Gracing their presence were CMMI wardens and members – Capt K Pradhan, Capt MP Bhasin, Capt Sasikumar S, Capt BK Jha among other industry leader like Capt Gajanan Karanjikar and Capt Ajay Achuthan along with 15 candidates who have enrolled for the course. “Extra Masters is the highest degree of the maritime industry. It has tremendous value attached to it. It will definitely help the candidates in their career progression by value adding to their profession,” said Capt Achuthan. CMMI’s typical Extra Master’s on-line classes consist of three parts, in addition to a dissertation. The examinations will be conducted by the Directorate General of Shipping (DGS). “There is always a need to replace old knowledge with new which should be cadre, calibre and career progression based.
CMMI’s Extra Masters Course delivers all of these,” opined the Chief Guest, Capt Joseph Alapat, Vice Chairman and Founder CMMI Cochin Chapter while sharing his vast knowledge and experience of over 4 decades.
newer horizons for their career in the maritime industry. It will truly be an eye-opener for all the candidates. It will prepare them towards risk management from different perspective and commercial aspect of shipping.
“Develop interest for learning and reading. Gaining pursuit of knowledge and sharing it should be our goal. Courses like these are the bridge that creates a smooth transition and corelation between academia and industry,” he added.
Capt Sai Dinesh sailing with Sanmar Shipping and a participant of the course shared, “I have joined the course to be able to gain knowledge and insights from industry veterans and acquire required skill set that will boost my career graph.”
Capt Jha, Master, CMMI welcomed the delegates and the Master Mariners to the august gathering. It was Capt Jha’s vision to conduct and host the Extra Masterclass under the aegis of CMMI. Capt Jha has developed all the course material for the Extra Masterclass.
The lecture also witnessed the faculty of CMMI Extra Masterclass sharing their inputs and advice for the candidates.
The part C will be dealing with marine involvement and oceanography, port management, and commercial aspect of shipping.
The CMMI’s course is in line with the association’s objectives to promote and foster continued professional development of seafarers. MMT
Capt Achuthan opined that the course will be a value added for the seafarers and will open Maritime Matrix Today | August 2021 | 23
Need to preserve the internet from ransomware attacks
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ttacks on information and communications technology infrastructure are becoming more common, as the recent spike in ransomware attacks affecting supply chains and the integrity of core information infrastructure has demonstrated. In fact, according to numerous reports, 2020 was a recordbreaking year for cybercrime. The FBI’s Internet Crime Complaint Center reported a 69 percent increase in submissions to its hotline last year. The UK experienced a 31 percent increase in cybercrime from May
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to June 2020, a trend replicated globally. While the rise in reporting is disturbing and requires immediate action, there are long-term developments that are worrying cybersecurity experts. Cyberattacks are becoming increasingly sophisticated, and the range of targets has expanded to include government agencies, the defense industry and criticalinfrastructure providers. But the most destabilizing trend is the surge in cyber operations carried out by nation-states and groups sponsored by governments.
Since 2006, the Center for Strategic and International Studies has been recording significant cyber incidents— those affecting government, defense and high-tech companies, or occurrences resulting in a loss of over US$1 million. In the first four months of 2021 alone, 50 significant incidents were recorded. But this is just the tip of the iceberg. The majority of cyber incidents remain under the radar, as only the most significant attacks are reported in the media. To understand whether businesses are aware of
this growing threat and their susceptibility to cyberattacks for political–military intelligence or economic theft and coercion, the Cybersecurity Tech Accord partnered with the Economist Intelligence Unit in 2020 on a study titled Securing a shifting landscape: corporate perceptions of nation-state cyber-threats. The Cybersecurity Tech Accord, a leading alliance of over 150 technology companies dedicated to increasing cybersecurity, recognizes the critical role of private industry as the first respondents to significant cyber incidents, and as the front line for protective measures. The survey included responses from 500 directorlevel or above executives from businesses in Asia–Pacific, Europe and the United States. The study, completed before the most recent high-profile attacks ignited media reporting on the issue, found that cyberwarfare has indeed become part of corporate consciousness. The survey revealed that privatesector leaders and security experts are concerned about falling victim to a statesponsored cyberattack, irrespective of their industry and location. Across all regions in the survey, 87 percent of executives said they were ‘concerned’ or ‘very concerned’ about their organization falling victim to state-led or sponsored cyberattacks. They are rightly concerned. More and more states have significant resources at their disposal that greatly exceed most of the budgets that go into individual companies’ cybersecurity defenses.
Moreover, advanced tools and technologies developed by states frequently find their way into the hands of organized crime to be repurposed or are leveraged by other state actors and state-sponsored groups. But it’s important to recognize that motivations driving state actors tend to differ from the monetary incentives that drive criminal actors. The survey respondents viewed the leak of confidential materials and loss of crucial information as a top potential consequence. Nationstate actors, however, may have a broader intent that could include degrading and destroying infrastructure—and that can change the risk-management calculations. These concerns were particularly high among Chinese executives, at 20 percent more than the global average. The results highlight the need for a fundamental shift in cybersecurity planning to ensure these considerations become central to any IT deployment and a core part of broader riskmanagement functions. This holds true even though roughly 74 percent of respondents in the Asia–Pacific region also felt their organization was ‘very prepared’ or ‘completely prepared’ to deal with a nation-state attack. Indian executives were even higher than the average at 90 percent. Unfortunately, these results are likely expressing quite a false sense of security. Even when some may believe they wouldn’t be a target for a stateled cyber operation, they can still be faced with the impact in the form of collateral damage such as reduced public trust and confidence, disruptions in the
supply chain, or increased costs of patching and insurance. The impact can go beyond individual companies, because their investments in cybersecurity defenses form a key part of national cyber resilience. The survey confirmed this view, which also recognized that more organizations now see government action, nationally and internationally, as crucial to increasing the long-term security of the online environment. Sixty per cent of executives said their country only offered a ‘medium’ or ‘low’ level of protection from state-led cyberattacks. These numbers were particularly low in China and Japan, where only 30 percent of respondents felt their country provided adequate protection. Company executives also expressed an urge for stronger international economic and political cooperation. Many mentioned the need for an international treaty to rein in dangerous actions by states and cultivate a more secure and stable online environment. The one exception in the region was Japan; only 17 percent believed this would be a helpful path forward, and most saw stronger national cybercrime legislation as a preferable option. These findings underscore the reality that only through multistakeholder collaboration can the international community preserve the internet as a global public good and enforce commitment to commonly agreed rules, norms and standards of behaviour. MMT
Maritime Matrix Today | August 2021 | 25
DMFR’s model portfolio ensures balanced approach to managing risk in low return environment
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ack in 2016, Drewry Maritime Financial Research (DMFR) launched a model portfolio – selecting stocks within the global maritime space to ensure a balanced approach to managing risk in a low return environment. Recommended stocks are hand-picked based on the fundamentals of each entity, coupled with nearterm triggers. The objective of the model portfolio is to generate optimum returns in conjunction with moderate risk.
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August 2021 • The boom in the container market is continuing with no sign of abatement in the near term. Container freight rates on some routes are close to USD 13,000 per 40-foot container, which almost guarantees record profitability for carriers this year. Rising freight rates have ensured that stock markets remain strong, with more room for further upside. The recent disruption at Yantian Port, port congestions, logjams and a higher freight as an outcome
could be a recurring theme until 1H22. While the blockage of a key shipping artery such as the Suez Canal is a rare likelihood the risk that further outbreaks of Covid close to major hub ports remain ever-present, particularly given the prevalence of new viral variants. • Drewry’s Port sector index continued to surge, gaining strength from global vaccination drives and rebound in trade. The index in 2Q21 grew by 9.6% QoQ (vs 1Q21: 8.9% and 4Q20: 16.4%) on the back of higher returns posted by global/ international terminal operators vis-à-vis their more geographically constrained regional terminal peers. Drewry’s current forecast is for a 10.2% increase in global port handling in 2021. This equates to a more than 80 mteu uplift in port volumes over the course of the year, compared to the 9.5 mteu reduction recorded in 2020. The recovery is expected to be sustained into 2022, after which annual growth will normalise to 3.0-3.5%. Despite the near-term optimism, there remains a high degree of uncertainty attached with the spread of new variants of the virus (Delta and Lambda) and a sooner-thanexpected interest rate hike – both of which can take a toll on economic growth prospects. • Dry bulk shipping has revved up in the past year. A market reminiscent of the bull run seen in 2005-2008 has prompted existing operators to expand their fleet and new operators to step in. London saw its first shipping IPO in May 2021 in Taylor Maritime. The main driving force behind the rally has been China. The country’s robust demand for commodities has boosted the global dry bulk trade. Meanwhile, we remain upbeat about the EU’s and Asia’s coal imports. The commencement of grain season in Europe and Russia is likely to aid the demand for Panamaxes and Supramaxes in the continent and the Black Sea. • For 2021, we expect LNG trade to improve by 5.9% to reach 377 million tonnes, aided by lower gas storage in Europe and high Asian demand for gas power generation. Additionally, South America and the Middle East are also expected to witness an uptick in seasonal LNG demand due to higher temperatures. LNG spot prices are expected to remain high over 2H21 due to the strong demand in all regions with sudden surges expected in 4Q21 from Europe. Strengthening oil prices will also raise the cost of oil-linked contracted LNG in 2H21, which is likely to ease in 2022.
• We expect LPG shipping rates to consolidate further over the next month. Low fixtures and narrow US-Asia propane price arbitrage have contributed towards a lower tonne-mile demand. Subsequently, there is a long list of open vessels along with possibilities of relets that is likely to keep shipping rates under pressure in the short term. On the other hand, new orders continue to pour in, causing concerns over long-term earnings for vessels. So far, 72 vessels have been ordered in 2021, compared to just 13 in the entire 2020. • Crude oil consumption and trade is on the rise over the past six months; additionally, crude oil inventory has dropped below the five-year average. Implying limited inventory drawdown in future. The tanker market bottomed out in late 2020, and we now expect an increase in crude oil trade with a recovery in oil demand and rising OPEC+ output. Demand optimism amid rapid vaccination drives in major economies; easing restrictions in the US, Europe and India; resumption of economic activities; and a decline in inventories will also support the recovery in crude oil consumption and tanker demand in 2H21.
Archive of Model Portfolio Updates December 2020 • During the period (30 June 2020 to 4 December 2020), our portfolio gained about 28.5% in value while Dow Jones Global Shipping Index (DJSGH) gained over 52%. In comparison, the benchmark MSCI index gained about 20%. Shipping equities were hit hard in 1H20 largely due to demand-side constraints, but increasing stimulus packages and vaccine hopes have revived the industry. July 2020 • During the period (28 October 2019 to 30 June 2020), our portfolio lost about ~36% in value while Dow Jones Global Shipping Index (DJSGH) lost ~29%. The benchmark MSCI index slid about 1.3%, and shipping equities in this period were Maritime Matrix Today | August 2021 | 27
hit hard in 1H20 largely due to demand-side constraints. Meanwhile, key geopolitical risks continue, including the worsening ties between the US and China. October 2019 • During the period (13 March 2019 to 28 October 2019), our portfolio gained a substantial ~39% in value while Dow Jones Global Shipping Index (DJSGH) gained ~14%. • The benchmark MSCI index rose by a mere 5.5%. Shipping equities in the period have seen a rally in the last couple of months largely due to supply-side discipline. • Key geopolitical risks remain including, USChina trade negotiations, ‘no deal’ Brexit and US sanctions on Iran and Venezuela. March 2019 • During the period (4 October 2018 to 15 March 2019), our portfolio lost 12.2% in value and the Dow Jones Global Shipping Index (DJGSH) lost 14.7% in value. • Shipping equities have retracted sharply owing to the seasonal weakness in the bulk and container trades, and the persisting uncertainty in the macro business environment. As a result, the portfolio lagged behind the benchmark index MSCI, which declined 1.8% during the same period. • Weakness in stock performance also attributed to the sell-side pressure created during December 2018. • The portfolio modestly outperformed the sectoral benchmark the DJGSH by 2.6% during the period. On an annualised basis, the DMFR portfolio has returned 12.7% since its inception (February 2016) compared with 11.7% generated by the MSCI and -5.6% by the DJGSH. October 2018 • Our model portfolio is down 2.5% in the period starting 1 March 2018 to 4 October 2018, but continues to negotiate headwinds – as evident by the 6.3% outperformance against Bloomberg’s BI SHIP. • In this same period, however, the portfolio lagged behind the global benchmark – the MSCI World Index (up 1.2%) – as shipping stocks across the board, with the exception of the tanker sector, weakened. The allocation to stocks of large dry bulk carriers and tanker operators helped minimise losses. 28 | Maritime Matrix Today | August 2021
• We have modified our strategy to increase exposure to the tanker shipping sector to 47% from 11% earlier as we believe the tanker shipping market has bottomed out. • In terms of portfolio concentration, we have increased the number of stocks in our portfolio from 10 to 13 as we now include more stocks, especially in the tanker and LNG sectors. March 2018 • Our model portfolio gained 2.8% between November 2017 and February 2018, outperforming its sector-specific benchmark – Bloomberg’s BI SHIP (down 4.5%) – as a result of the rebound in the dry bulk and LPG shipping stocks. Meanwhile, the performance of the DMFR model portfolio lagged behind that of the global benchmark – the MSCI World Index (up 5.2%) – as we witnessed a disproportionate correction in global shipping stocks since the start of 2018. Our timely increase in allocation to gas shipping stocks benefited the portfolio as value-buying emerged, particularly in the LPG shipping space. • In November 2017, we increased our allocation of LPG shipping stocks from 7% to 16% on the back of improving demand-supply fundamentals. • The overall LPG vessel fleet is likely to expand 5% in 2018, compared with the average annual growth of 16% in the last two years. We had been confident on the coaster segment since the middle of last year, and our view is substantiated by the increased rates for smaller vessels. October 2017 • Our model portfolio gained 11.1% between July and October 2017, outperforming its sectorspecific benchmark – Bloomberg’s BI SHIP (up 5.2%), and also MSCI – the global benchmark index (up 6.8%). • This out-performance was a result of the continued recovery in the dry bulk and liner shipping sectors. We have maintained our exposure to liner stocks although we have reshuffled the allocation based on valuations. • Our increased allocation to gas shipping stocks benefited the portfolio as value-buying emerged, particularly in the LPG shipping space. Meanwhile, crude tanker operators continued to reel under pressure and the stocks under our coverage declined since our last update in July. June 2017 • Our model portfolio gained 3.2% from March
2017 to June 2017, clearly outperforming its sector-specific benchmark, Bloomberg’s BI SHIP (down 2.5%), while being lower than MSCI, the global benchmark index (up 4.6%). • This outperformance was a result of our larger allocation to container shipping companies and port operators. However, at average P/B valuations of 2x for liner companies, most of the positive developments are in the price, and hence we believe it is time to book profit in names such as Maersk and OOIL, which have led the rally in the liner space. • We also trimmed our exposure to port operators in view of the surge in share prices especially ICTSI, which we downgraded to Neutral in May 2017. February 2017 • First year’s performance, Model Portfolio returns 38%. • In 2Q16, we made a tactical shift to increase allocation to the dry bulk sector as we upgraded it to Neutral, backing our conviction of the bottom in the dry bulk market. We downgraded the tanker segment considering its large orderbook, significant dividend cuts ahead and were also discouraged by stagnant asset prices despite healthy freight rates. Our conviction call for 2016, “Long dry bulk, short tankers” generated the highest alpha. • In 3Q16, our portfolio construct was geared for higher risk and we increased our allocation to the dry bulk sector to 42% as we expected the upward trend in stock prices to resume after a period of consolidation in 2Q16. The trade played out handsomely as our portfolio generated a return of 40% between October 2016 and February 2017. • Our portfolio defied a terrible year for the industry to produce a 38% return in our first year out. The model portfolio markedly outperformed the benchmark indices, BISHIPGP Index (Bloomberg Intelligence Marine Shipping Index, 14%) and MSCI World Index(19%) by a big margin.
for the sector in 2017-18. We have increased the allocation to the sector from 8% to 27%. The port sector is another major constituent of our model portfolio for 2017 as world trade recovery gathers steam and earnings remain resilient for our portfolio constituents. • We are Neutral on gas shipping as we believe the stocks are trading in a fair territory, while we maintain our Unattractive stance on tankers. October 2016 • Our model portfolio outperformed key benchmark indices from June to October, although it is still down 6% from February 2016. The portfolio generated annualized returns of 15.7% during the four-month period starting from 16 June 2016. • We continue to stick to our thesis that dry bulk names will be the outperformers in 2017, and have added Star Bulk Carriers because of its high spot exposure and large Capesize fleet. • We have increased allocation to the Port sector as the global throughput growth is stabilising and hence earnings will remain resilient in our view; we have included China-COSCO Ports and ICTSI. June 2016 • We made a tactical shift to increase allocation to the Dry Bulk sector in June 2016 as we believed the bottom had been reached early in the year. Meanwhile, we downgraded the Tanker segment to Neutral on increasing vessel supply. • We reshuffled our portfolio to play the recovery in the Dry Bulk shipping sector albeit from a very low base, and believed that the beaten-down Dry Bulk names could provide superior risk-adjusted returns. MMT
• For 2017, lowering allocation to dry bulk stocks; increasing weightage on container trade. We have reduced our allocation to the dry bulk segment to 31% from 42%. The value play is over in our view and we believe stocks could be at the risk of “too soon too fast” in the near term. Conversely, we believe that the worst is over for the container shipping and we see higher returns Maritime Matrix Today | August 2021 | 29
Spotlight on Port disruptions
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orts have taken center stage during COVID-19. While countless airports, roads, and trains ground to a halt during the peak of the pandemic last year, authorities continued to wave ships into ports. This makes clear the importance of shipping but also the danger of port disruptions in the future. “The Covid-19 pandemic has highlighted that ports are in desperate need of investment,” John Manners-Bell, chief executive at consultancy Transport Intelligence informed. “The entire port infrastructure system has been overwhelmed for the past year.” According to Kuehne+Nagel 353 container ships are currently anchored outside ports around the world, more than doubling the number from earlier this year. The busiest ports, such as Los Angeles / Long Beach, are experiencing delays of 12 days or more. During a time when next-day delivery has increased because 30 | Maritime Matrix Today | August 2021
of a pandemic-driven surge in online shopping, the logjam has caused shortages of stock and delayed deliveries, raising prices, frustrating consumers, and alarming regulators. Adding to the problem is an aging and overburdened port system. “There were problems before the rush of cargo,” said Soren Toft, chief executive of the world’s second-largest container shipping group MSC. “Port complexes were becoming old there were capacity restrictions and restrictions on the ability to serve the ever-growing size of ships.” The most obvious solution to the problem is investing in port infrastructure, short sea shipping, and short sea distribution but only $17 billion of President Biden’s $1.22 trillion
infrastructure bill is allocated for ports and waterways. “The President’s plan to invest $17 billion in the nation’s ports and waterways is essential to alleviate backlogs and improve the nation’s vital supply chain,” said Dr. Sal Mercogliano, Associate Professor at Campbell University and adjunct professor of maritime policy at the U.S. Merchant Marine Academy. “Yet, such an investment is only a start and needs to be tied to a large and comprehensive national maritime strategy to make the nation more competitive in international trade and against competing domestic modes of transportation, such as truck, rail, and pipelines.” Even if new money is found to expand ports, dredging ports and ordering equipment is not
an easy fix. The time it takes to install a crane ranges from 18 months to more than a year, which makes it challenging for ports to adjust quickly to demand changes. The only short-term solution is to think outside the box. Literally, in New York City thousands of large trucks bring cargo from New Jersey Terminals to places like Hunts Point food market in The Bronx but hundreds of thousands of small and Less Than Truckload tractor-trailers and vans deliver food, packages, and pallets of goods from warehouses and markets to the stores and consumers direct. Distribution is the problem. “We need to think outside the box” says Bob Kunkle, founder of the short sea distribution company Harbor Harvest. “We don’t need to get shipping containers from ships to warehouses, we need to get palletized cargo from ships all the way to stores.” If we can deliver smaller cargos, aboard smaller ships, to smaller ports, we may be able to alleviate congestion in both ports and cities. The problem is that, apart from a pilot program in London, very little evidence exists that lawmakers are even aware of the problem. “It is illegal to drive a shipping container into most cities,” said Antoon Van Coille, CEO of the short sea distribution company Zulu Associates. “Disruptive innovations are needed to change radically the way goods are moved from ports into cities. To do that we must move from mega-ships to mini-ships.” Companies like Zulu are focused on the biggest, wealthiest, and most congested ports like New York and Long Beach but the
problem is truly global in nature. Turloch Mooney, associate director of maritime and trade at IHS Markit, said that many poorer ports are “sub-par” and failed to adapt to the new, larger ships, particularly in emerging markets such as Bangladesh and the Philippines, where there was chronic congestion even prior to the pandemic. Getting local support for innovations like short sea distribution is difficult enough but global change requires leadership from the International Maritime Organization, the United States Maritime Administration (MARAD), and the EU. Unfortunately, that leadership does not currently exist. According to Nishan Degnarain at Forbes, The IMO is an “embattled UN agency that gets headlines, not for innovation, but for “facilitating agreements that broke the Paris Agreement on Climate Change with emissions from shipping that actually increased rather than decreased by 2030.” Searching the IMO website for the term “Short Sea Distribution” yields zero results. The situation is not much better in the United States or much of the EU. gCaptain was able to find short sea distribution programs in a handful of European countries (e.g. UK, Belgium, The Netherlands) but we could find no mention of the term in European Union documents, and the United States cares so little for maritime innovation that it has failed to appoint a US Maritime Administrator.
appointment for the BidenHarris team,” said Degnarain in November 2020. “Transforming global shipping is critical for the planet to meet climate objectives, and strong maritime leadership from the U.S. is required.” Unfortunately, nine months later, this critical appointment remains unfilled. But perhaps the biggest question is how ports will respond to potential changes in consumer demand after the pandemic if there is no government leadership and media interest in logistics wanes. “The demand for next-day delivery has changed the way in which shippers select ports,” said Marc Levinson, author of The Box. “And that could change again if, after the pandemic, it goes out of favour.” Don’t expect port and road congestion to go away anytime soon. We can blame shipping companies like Maersk and MSC for escalating costs but with less than $17 billion of $1.2 trillion infrastructure bill devoted to ports, with no Maritime Administrator, with our top maritime CEO’s not pushing for change, with the IMO not once discussing Short Sea Distribution our problems run deeper than any single company. Our port problem runs deeper than the Marianas Trench. MMT
“The MARAD position has historically been overlooked but may prove to be a critical Maritime Matrix Today | August 2021 | 31
Updated CSR Software provides users with an easy way to evaluate ship designs
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ommon Structural Rules Software LLC, a joint venture company formed by ABS and Lloyd’s Register, has updated its software products in line with the latest International Association of Classification Societies (IACS) rule changes.
Common Structural Rules (CSR) Prescriptive Analysis (PA) and CSR Finite Element Analysis (FEA) have been updated to meet the latest version of CSR Bulk Carrier and Oil Tanker Rules on January 1, 2021 issued by IACS that entered into force on July 1, 2021. This update assists users with the development of new designs to meet the latest rules as well as the application of older rule versions to designs that may apply to the contract date of the ship. The software provides users with an easy way to evaluate ship designs against CSR and is employed by around 500 users. Regular updates will continue to improve functionality and address rule changes. Details can be found in the Release Notes and User Guide bundled with the software installation. The updated CSR Prescriptive Analysis and CSR Finite Element Analysis tools are available for download from the Common Structural Rules Software LLC website www. commonstructuralrulessoftware.com, along with user support to both CSR PA and CSR FEA software including licenses. MMT
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AFP charges Maersk Captain over underwater cable damage off Perth
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he Australian Federal Police has charged the 59-year-old Master of container ship Maersk Surabaya, which allegedly damaged the Australia Singapore Cable off the West Australian coast – in what is believed to be the first prosecution by the AFP for the alleged offence. A section of the subsea communications cable in the Perth Submarine Cable Protection Zone, approximately 10 kilometres offshore from City Beach, was disabled early on 1 August 2021. Allegations that a passing vessel had damaged the cable – causing approximately $1.5 million damage - were reported to the AFP on 3 August (2021). An investigation by AFP officers in WA and Victoria has resulted in the arrest of the 59-yearUkrainian national.
The man was the Master of a cargo ship Maersk Surabaya, which police say had been anchored approximately 500m from the protection zone, and allegedly dragged its anchor through the area in high winds, snagging and damaging the 20m-deep cable. The 59-year-old man was charged last week (11 August 2021) after AFP investigators searched the vessel when it docked in Melbourne and seized ship logs. The man appeared by video-link in Melbourne Magistrates Court on 11 August for: Engaging in negligent conduct as the Master of a maritime vessel, which resulted in damage to the Australian Singapore Cable, contrary to section 37 of schedule 3A of the Telecommunications Act 1997 (Cth).
The offence carries a potential maximum penalty of three years’ imprisonment and a $40,000 fine. The man was granted bail with strict conditions and is currently in COVID hotel quarantine. AFP Detective Superintendent Graeme Marshall said damage to a subsea cable can have serious financial consequences for both the cable operator and for customers who experience reduced connectivity and data access. “The protection zone is clearly marked on maritime charts and all vessel Masters should ensure vessels operate in a manner which does not interfere with critical communications infrastructure,” AFP Detective Superintendent Marshall said. MMT
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New Selektope® to protect ships on global, high fouling risk routes L eading hull coating manufacturer, Chugoku Marine Paints (CMP), has integrated the active antifouling agent, Selektope® in a new coating product developed for worldwide trading vessels.
The newly launched product, SEAFLO NEO M1 PLUS, is the latest expansion of the SEAFLO NEO range and has been designed to protect ocean-going vessels with varying trading patterns and activity levels against soft and hard fouling. Classified as a ‘low volatile organic compound’, SEAFLO NEO M1 PLUS is a low friction, hydrolysis antifouling coating, enabling less environmental impact both by keeping the hull clean and by low biocidal leaching from the coating. Developed to meet growing environmental market demands for sustainable coatings, SEAFLO NEO M1 PLUS provides a smooth surface to help reduce fuel consumption by lessening the frictional resistance of water flow during operation of ships. It can be applied at both stages of newbuilding and drydocking and has outstanding antifouling performance suitable for ships exposed to high fouling pressure — such as long periods of idle in areas with high water temperature, or static conditions during the outfitting period at a newbuilding stage. CMP is a long-term partner of Swedish biotech company, 34 | Maritime Matrix Today | August 2021
I-Tech, developers of Selektope®, and currently produce the highest volume of Selektope®-powered products by any single manufacturer. Due to its high concentrate efficacy and low biocidal load, Selektope® enables a more sustainable solution agai I-Tech CEO Philip Chaabane commented: “We are proud that Selektope® has been selected to act as a core agent in this remarkable new coating launched by Chugoku Marine Paints, targeting the global fleet. Following the first commercial activity with Selektope® 6 years ago, this product marks a new step in utilising I-Tech’s active agent. I am excited to see the Selektope®-powered M1 product move into the market, and contribute to making shipping more sustainable.”
Last year, analysis commissioned by I-Tech of hull fouling condition data obtained from vessel drydocking attendance over a four-year period has revealed that more than 40% of vessels were suffering from over 10% hard fouling coverage on the hull – increasing CO2 emissions by millions of tonnes. During the pandemic, many vessels have been forced to lay at anchor making them highly exposed to the risk of hard biofouling. The pressure to reduce GHG emissions are higher than ever in line with new IMO targets increases. Vessel owners are looking to innovative technologies like Selektope® to enhance fuel efficiency. MMT
Chetak Foundation & Indian Oil Corporation aim to avert the Third Wave of Covid
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on’ble Union Minister of State for Social Justice and Empowerment Mr Ramdas Athawale formally rolled out Chetak Foundation’s Swasthya (Health & Fitness) Scheme to felicitate over 10000 underprivileged drivers and Covid front line workers and provide them with high-quality sanitization kits. Chetak Foundation (the social arm of Chetak Group, the leader in Automotive Logistics in India) has tied up with India’s leading company Indian Oil Corporate Limited for this initiative. Hon’ble Union Minister of State for Social Justice and Empowerment Mr Athawale said, “It is heartening to see Chetak Foundation join hands with Indian Oil Corporation and Delhi Metro to come forward and support the government’s efforts by acknowledging the Covid frontline workers and drivers who worked tirelessly during the crisis, helping the public at large remain mobile, while risking their own lives.”
Mr Sachin Haritash, Board member, Chetak Foundation said, “We are really happy that the prestigious Indian Oil Corporate Limited has agreed to join us for this noble cause and it reflects the social ethos being practiced by the organisation. We would like to convey our gratitude to Mr Shrikant Madhav Vaidya, Chairman, IOCL and his entire team.” The Chief Guest Mr Sanjay Sinha, CGM Indian Oil Corporation said, “We are happy to know that Chetak Foundation has taken up this cause to help the underprivileged in maintaining good hygiene. Indeed, a timely initiative. We take good care of the health of all our associates and we are glad to felicitate our front-line workers for their continual efforts. Our best to wishes are with Chetak Foundation for their social initiatives and we will be happy to associate with them in future.”
IOC and Sheel Krishan Dhawan, Sr Manager, IoC along with Mr Ram Krishan Gupta promoter, and Mr Tirupati, Fuel Station. IOC has identified drivers, fuel station attendants housekeeping and cleaning staff, especially from the less privileged background for the felicitation and provision of sanitization kids. Chetak Foundation has conceived specific interventions to enhance beneficiaries’ experience. Some of these include Oxygen Plus (an environment initiative), Swasthaya Plus (a Health initiative), Poshan Plus (a nutrition initiative to alleviate hunger), Shikha Plus (an Education initiative), Zindagi Plus (a Road Safety Initiative), Sahayata Plus (an initiative to help people during crises or natural calamities). MMT
Gracing the event were Mr SP Singh, DGM IOC, Mr Santosh Gupta, DGM Maritime Matrix Today | August 2021 | 35
Chinese crude oil processing takes a hit from recent pandemic developments
Peter Sand, Chief Shipping Analyst, BIMCO
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hinese crude oil imports fell year-on-year in June and July, ending a streak of five months of accumulated year-onyear growth. After the first seven months of 2021, China’s crude oil imports are down 5.7% compared with the same period last year. January to July imports stood at 301.9m tonnes, an 18.1m tonnes decline from January to July 2020. The June and July decline in crude oil imports is not attributable to unusually low imports as much as to unusually high imports in June and July 2020 when oil importing countries – including China – took advantage of attractive prices as the oil price war raged. In June and July 2020 Chinese crude oil imports totalled 104.5m tonnes, compared with 81.4m tonnes during the same two months this year and much more in line with the 80.6m tonnes imported in June and July 2019.
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Imports down from largest suppliers Imports from all top five suppliers of crude oil to China have fallen, although only marginally when it comes to the biggest supplier, Saudi Arabia. Imports from Saudi Arabia have declined by just 83,331 tonnes (-0.2%) during the first seven months of the year compared to the same period in 2020. Imports from Russia, the second largest supplier of crude oil to China, have declined by 4.9m tonnes (-9.6%) in the period. The biggest declines have come in imports from Brazil and Iraq which have seen exports to China fall by 5.8m tonnes (-23.3%) and 8.2m tonnes (-20.9%) respectively. “BIMCO had expected imports over the summer have failed to match last summer’s imports when the oil price war caused China to boost l its stocks with cheap oil. The volumes seen at that time were never going to be matched this summer even
if a wave of new COVID-19 cases had not spread across China and resulted in new restrictions and therefore lower demand for oil,” says Peter Sand, BIMCO’s Chief Shipping Analyst. Crude oil processing taking a hit from recent pandemic developments After record-breaking crude processing volumes in May and June, crude oil processing in China fell in July as tighter domestic travel restrictions and local lockdowns hit demand. In fact, crude oil processing was down 0.9% from July 2020, though on an accumulated basis crude oil processing remains 8.9% higher this year than last with 412.4m tonnes having been processed. MMT
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Wishing Good Luck to All Indian Atheletes