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SOFTWARE’S SILVER LINING How cloud computing can help with those depressed bottom lines THE SECOND AGE OF SAIL New plans and prototypes that could wave goodbye to fossil fuels


HEALTHY HEDGING The hidden benefits of Forward Freight Agreements




Winter 2012

WELCOME TO THE BALTIC Quentin Soanes, chairman of the Baltic Exchange, introduces a new era for The Baltic magazine, with a new design and a new publisher. And that’s just the first stage of improvements to the Baltic’s communications Welcome to the new-look The Baltic magazine, a quarterly digest for the shipping industry and a window on to the Baltic Exchange market. The Baltic Exchange has been publishing its in-house magazine since 1992, and we felt it was time for a change.

Our challenge is to deliver a magazine that contains articles of real interest to our diverse global professional membership of shipbrokers, shipowners, traders and charterers, as well as providing an insight into the diverse activities of the shipping markets. We aim to provide the industry with a must-read publication that reflects the Baltic Exchange’s standing in the maritime world. The Baltic magazine that you are holding has been completely redesigned, making it a more compelling read. And we’ve also appointed a new publisher: Think, an award-winning, UK-based content and publishing agency that specialises in partnering with membership organisations and has a strong track record of producing some very professional publications. The magazine also has a new editor in the form of ex-Lloyd’s List market reporter Carly Fields, and we are confident that the team will build on the work of the past 20 years to provide a high-quality magazine. In this Winter issue you will find articles that examine the operational and commercial issues that have both short-term and long-term impacts on the shipping industry. We look at detailed subjects, such as the latest research by the academics at Cass Business School into freight option pricing; we

We aim to provide a must-read publication that reflects the Baltic Exchange’s standing in the maritime world ILLUSTRATION: LAUREN CROW

review B9 Shipping’s revolutionary fossil-fuel-free cargo ship; we examine charterparty repudiation; and we discuss the developments in cloud computing and their implications for the shipping business. We look at how shipping companies choose their register and provide an update on the latest port developments around the world. The maritime world is, of course, a people business, and we have some great interviews with Baltic members Tim Huxley of Wah Kwong Maritime Transport Holdings and John Banaszkiewicz of Freight Investor Services, who give an insight into what makes them tick. Shipping is a huge industry, covering many trades, and we want to ensure that our magazine reflects the diversity of this fascinating business. This is just the first stage in improving the way the Baltic Exchange communicates with its members and the wider market. A new-look website, both for the magazine and for the Baltic Exchange, will be released in the next couple of months. The new-look main Baltic Exchange website will be faster and easier to use, and will be an improved platform from which we deliver our daily independent freight market information services. This magazine also has its own website and will be a way for us to provide more photos of our members at the many social and sporting occasions that take place throughout the year, as well as containing more up-todate news than the print edition can. Your feedback is important to us. Any ideas you may have for future articles, or comments on the subject matter and style, will be gratefully received. After all, it is your Exchange and your magazine, so please get involved and have your say. I hope you enjoy this issue. www.thebaltic.com WINTER 2012



Shorter cycles, spikier peaks and deeper troughs – shipping is changing, and so, too, is The Baltic magazine. Relaunched with a new, award-winning publisher, The Baltic will deliver cutting-edge features, opinion and insight. As editor of The Baltic, I want to examine the worldwide business trends that are affecting the shipping industry. I want readers to feel part of a professional, forward-thinking community that gives them access to best practice, and is engaging and challenging. The Baltic’s businessspecific knowledge, coupled with such a progressive network, will, I believe, support shipping in all sectors in going beyond simple survival. I hope that you enjoy this, our relaunch issue, and I welcome your comments and suggestions.


Carly Fields

THE BALTIC Editor Carly Fields Art director Darren Endicott Senior sub-editor Alec Johnson Publisher Sam Gallagher Publishing director Ian McAuliffe HANSA HEAVY LIFT DELIVERING A SHIPLOADER IN CHILE; SEE PAGE 73

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 © 2012. 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.



HOT TOPIC Asian risk Political and operational risk can destabilise even the hardiest markets, so how are South East and East Asia rising to today’s supply-chain threats and challenges?


BUSINESS BASE Cloud computing When Maersk Line signed a $150m deal committing to cloud computing, it put its money and its weight behind this green computing phenomenon. But while off-site computing solutions could be the white knight for shipping companies’ depressed bottom lines, the promised reduction on software and server overheads needs to outweigh anticipated security issues.


INTERVIEW – IN THE DOCK Tim Huxley The chief executive officer of shipbroker Wah Kwong talks about his journey in the world of shipping.


FREIGHT DERIVATIVES Beyond hedging Forward Freight Agreements are more than simple hedging tools; today’s shipping companies use derivatives to successfully manage relationships. This issue of The Baltic showcases companies that are thinking outside the box when it comes to risk management.

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WINTER 2012 www.thebaltic.com



THE SECOND AGE OF SAIL New plans and prototypes that could wave goodbye to fossil fuels HEALTHY HEDGING The hidden benefits of Forward Freight Agreements






SOFTWARE’S SILVER LINING How cloud computing can help with those depressed bottom lines




WELCOME Baltic chairman Quentin Soanes introduces the new-look magazine.


QUARTERLY DIGEST A news digest of the past three months – offering review, analysis and trends.


OPINION Tom Kirk reveals the benefits of energyefficiency management.


THE DEBATE The pros and cons of using third-party ship managers.

16 //


BRIEFING LNG Is LNG the future fuel of vessels? Wendy Laursen reports.


HEAVY LIFT Supersized Heavy-lift shipping is seeing rapid growth thanks to new projects and developing areas.

73 OPERATIONS Ship management Outsourcing the operations of precious assets is not a decision to be taken lightly, but when gainful employment is hard to come by the helping hand – and extensive contacts – of third-party ship managers can be a welcome relief.


ENVIRONMENT Sails return to the high seas Fossil-free shipping is moving from concept to reality with a prototype of a new variety of 100% fossil-fuel-free cargo ship, but will the industry accept a return to sail power?


REGISTRIES Keep the flag flying The rising popularity of international registries such as the UK Ship Register shows a middle road emerging from the long-running battle between national and open registries.


PORT FOCUS Europe The impending container meltdown is set to hit ports hard. How are European ports preparing for the next downturn – are they diversifying, offering incentives or curbing port charges? Which strategies are proving to be the most successful?


BEHIND THE SCENES Option pricing Freight research has revealed a more accurate calculation method.


INSURANCE BRIEFING Clauses and causes Unpaid commission is a problem for shipbrokers, especially in an economic slump.


P&I BRIEFING Counterparty risks How well do you know your business partner?


LEGAL BRIEFING Charterparties New precedents have raised the bar for charterers looking to bail out of contracts.


MEMBERS’ NEWS Round-up of activities and events Baltic members’ news, photos, events and forums


BACK PAGE: WHAT A DAY! Freight fan A day in the life of Freight Investor Services founder John Banaszkiewicz


www.thebaltic.com WINTER 2012



Index summary, fuel study, insurance claims rise


LLOYD’S STUDY SHOWS COST IS THE KEY TO FUTURE FUEL CHOICES Money talks when it comes to shipping’s take-up of liquefied natural gas (LNG) as a marine fuel, according to Lloyd’s Register (LR). In a study, the class society found that pricing was closely allied to the number of ships predicted to install LNG infrastructure through to 2025. Using a model based on LNG supply, trade routes, ship-type fuel consumption, port locations and bunkering demand, as well as shipowner and port surveys, LR applied three demand and pricedriven scenarios. The study’s base-case scenario predicted that by 2025 there could

be 653 deep-sea, LNG-fuelled ships in service, consuming 24 million tonnes of LNG annually. These ships are most










likely to be containerships, cruise vessels or oil tankers. ”The obstacles to the adoption of LNG as a marine fuel are practical factors, but they are not technical. They are commercial,” said Hector Sewell, the head of marine business development for LR. ”The difficulty for those looking to make decisions is that forecasting energy prices has always been a dangerous business,” added Latifat Ajala, LR’s senior market analyst. “For shipowners looking to make these decisions, flexibility may be the key. Choosing engines that can burn both gas and fuel oil, or that can be converted, may be one way to manage the regulatory and commercial issues involved with fuel choices.”





For shipowners looking to make these decisions, flexibility may be the key. Choosing engines that can burn both gas and fuel oil, or that can be converted, may be one way to manage the regulatory and commercial issues involved with fuel choices


WINTER 2012 www.thebaltic.com

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INSURERS UNPREPARED FOR CLAIMS RISE Insurers are not prepared for an anticipated rise in marine claims on the back of the global financial crisis, a leading underwriter has warned. Urs Uhlmann, senior vice president of Global Corporate Canada, Zurich, has warned that insurers have not learnt from past experience of recessions, citing a lack of investment in risk management. “Clients are looking at costs and are cutting down on staff and maintenance, and that increases claims,” he said. “We have been there before, we know it will happen, but we have missed the opportunity to deal with it, considering we knew it was coming four years ago.” He said increased regulation may also affect the insurance industry, as regulators look to investigate whether major insurers could be deemed to carry a systemic risk should they fail.


The problem for today’s shipping industry is having the nerve, the wherewithal and the financial backing to sell its expertise and service at a self-supporting price. You don’t have to be John Kenneth Galbraith to work this one out. But while the prospects for recovery in the shipping markets depend to a large extent on a resolution of the debt crisis in Europe and elsewhere, there are issues closer to home that shipping can address, and that will both carry it over the current crisis and position it properly in the more stable market that will hopefully emerge. Quite when that will be is a question that might have defeated Galbraith himself RICHARD GREINER, SHIPPING PARTNER, MOORE STEPHENS



24 January London Ship Finance Forum The Dorchester, London bit.ly/RAX5KP 26-28 February China Iron Ore 2013 Renaissance, Beijing bit.ly/YvkaRQ 3-6 March TPM Conference Long Beach Convention Center & Hyatt Regency Long Beach Long Beach, CA, USA bit.ly/Wq8wsZ 7-8 March Annual Marine Propulsion Conference Venue tbc, London The Annual Marine Propulsion Conference addresses the challenges facing ship operators today. bit.ly/U3kSEd 12-13 March 5th Chemical & Product Tankers Grange City Hotel, London bit.ly/SDI4pJ 12-14 March Green Ship Technology Conference Radisson Blu Hotel, Hamburg bit.ly/U448IR


ICAP Shipping has paid $2.5m for CTI Shipbrokers (India), giving it a wholly owned subsidiary in India, with offices in New Delhi and Mumbai. Henry Liddell, chief executive officer of ICAP Shipping, said that ICAP would now be able to “take advantage of the exciting opportunities and increasing shipping demand in India and the potential for strong growth in shipbroking as a result”.


SAFETY CAMPAIGN FOR MOL Mitsui OSK Lines (MOL) has launched a ship safety campaign that will see its president and executives visiting MOL-operated ships to improve safety. The white-collared workers will meet ratings

and officers onboard to exchange information and opinions about prevention of incidents. Any proposals will then be shared with the MOL group and with other MOL and MOL Group-operated vessels.

18-20 March CMA Shipping 2013 Hilton Hotel, Stamford, Connecticut, US Presented by the Connecticut Maritime Association (CMA), Shipping 2013 brings the shipping community together in North America’s leading commercial shipping centre, for business- and marketoriented activity. bit.ly/T51UfG

www.thebaltic.com WINTER 2012



ECA fuel supplies, additional Singapore barges // EVENTS (CONTINUED)


Establishing minimum standards for the working conditions of the world’s seafarers is essential in ensuring best practice across our industry, especially at a time when recruitment is at a low level and the industry is struggling to attract young people

NEW FUEL SUPPLIES TO EMISSION-CONTROLLED AREAS OW Bunker is to start supplying low-sulphur fuel oil from Balboa, Panama, to meet growing demand from customers in North American Emission Control Areas (ECA). Supplier and trader OW will supply 1% RMG 380cst fuel from local supply tanker Star Alpha.

Jan Christensen, vice president of the Physical Division at OW, commented: “The move to increase supplies of low-sulphur products comes in response to the surge in demand from vessels on transit to the ECA zones. Along the US West Coast supplies of low-sulphur

fuels, and the infrastructure to supply them, have been coming under strain since the implementation of the ECA in August. Panama is very well located to serve vessels transiting on to the West Coast, or through the Panama Canal and on to the East Coast of the US.”


21 March 4th Mare Forum Istanbul 2013 Istanbul, Turkey bit.ly/T5WH8h 7-12 April Singapore Maritime Week Singapore bit.ly/T5WKAM 23-24 April Tradewinds Shipping China Shanghai, China bit.ly/QhRStl 14-16 May Breakbulk Europe 2013 Antwerp, Belgium bit.ly/RGKXXy 4-7 June Norshipping Oslo, Norway bit.ly/ZFNjdt 11 June IGC Grains Conference bit.ly/SQVuOr June (date tbc) Ship Lifecycle Management Conference Venue tbc The inaugural Ship Lifecycle Management Conference brings together the key stakeholders who achieve the efficient management of the ship as an asset through the use of new technology. bit.ly/U3kSEd

SINGAPORE PORT PROSPERITY Strengthening its Singapore deliveries, marine lubricant specialist TOTAL Lubmarine has introduced three new barges at the port. The 700 dwt double-hulled barges –

Marine Champion, Marine Prosper, and Marine Talent – will be operated by Lubmarine’s logistics partner, Singapore-based Ocean Tankers.

www.thebaltic.com WINTER 2012



Cost increases, fuel side effects, Wrist diversification



Consultant Drewry’s latest Annual Review and Forecast – Ship Operating Costs 2012-13 has warned shipowners and operators to prepare for hikes in management and administration operating costs for the coming year as regulatory issues force costs up. Incoming SOLAS Chapter V amendments regarding Electronic Chart Display and Information System, Bridge Navigational Watch Alarm System and Energy Efficiency Design Index requirements will combine to hit operators’ bottom lines. Higher costs in this area have already led to some owners relocating their fleet management operations, according to the consultant. The report also found that while some operating costs have dropped in 2012 – by up to 7% compared with 2011 – this is likely to be only a temporary relief.

I fear the future twoto-three years will still remain in a downtrend. Many people don’t have confidence


WRIST GROUP REACHES OUT Ship services provider Wrist Group has branched out into marine fuel and lubricant trading with the launch of Dynamic Oil Trading. Headquartered in Singapore, Dynamic Oil Trading is headed by Lars Møller, who has 16 years’ bunkering experience. The new company is seeking recruits to add to its team of experienced traders. The company describes itself as going back to the “roots of bunkering, working with, and trusted by, all parties in the shipping supply chain”.

18-20 June Marine Money Week New York, US bit.ly/QLhcHY 11-12 July 11th ASEAN Ports and Shipping 2013 Windsor Plaza Hotel, Ho Chi Minh City, Vietnam Email: enquiries@ transportevents.com bit.ly/fSw9QG

SIDE EFFECTS OF LOW-SULPHUR FUEL REPORTED BY UK P&I CLUB Could low-sulphur fuel be responsible for a rise in sudden loss of ship power as a cause of incidents? In new research, the UK P&I Club has uncovered a marked growth in incidents during and after switching to low-sulphur fuels that are now mandated in certain coastal regions. In an analysis of more than 700 claims, the UK P&I Club calculated that in 7% of its thirdparty claims, property damage claims are down to main engine failures or electrical blackouts. This loss of power has, in many cases, caused extensive damage to berths, locks, bridges, navigational marks, loading arms, cranes and gantries, as well as moored ships. “There is some evidence that compliance with the low-sulphur fuel regulations and changing from one grade of fuel to another may have exacerbated these problems,” said the Club. “Reports from pilots operating in emission control areas where fuel

grade changes have been implemented indicate that these problems have become quite widespread, noting that ships regularly seem to be experiencing power losses, invariably at critical times in their manoeuvres and which are attributed to ‘fuel problems’.” In its booklet Risk Focus: Loss of power, the club urges better communication between deck officers and engineers to improve the situation. “Around three-quarters of all chief engineers questioned reported blackouts caused by starting bow thrusters and deck machinery such as mooring winches or cranes with insufficient electrical power being available. It is clearly not always realised that the starting current of electrical motors can be several times the full ‘on load’ current, and starting large motors can sometimes cause circuit-breakers to trip and lead to blackouts.”

11-12 September 2nd Black Sea Ports and Shipping 2013 The Marmara Taksim, Istanbul, Turkey Email: enquiries@ transportevents.com bit.ly/fSw9QG 23-24 October 8th Southern Asia Ports, Logistics and Shipping 2013 The Leela Kempinski Hotel, Mumbai, India Email: enquiries@ transportevents.com bit.ly/fSw9QG 21-22 November 11th Intermodal Africa South 2013 Feather Market Convention Centre, Port Elizabeth, South Africa Email: enquiries@ transportevents.com bit.ly/fSw9QG Date tbc Shiprepair Networking Event 2013 Venue tbc An innovative networking event with a fresh approach. bit.ly/U3kSEd

www.thebaltic.com WINTER 2012


Energy savings through integrated solutions? Certainly.

With fuel costs representing an increasing share of a vessel’s operating expenses, we at ABB Marine and Cranes believe that the future frontrunners in the shipping industry will be the companies that attain competitiveness through energy-efficient and environmentally-friendly ships. ABB’s global marine and cranes organization offers pioneering technologies to cut vessel energy consumption and reduce emissions. We are the leading supplier of total electric power, propulsion and automation solutions, including optimization and fleet-wide management systems. ABB provides innovative energyefficient solutions to keep you ahead of the competition. www.abb.com/marine



Fuel supply and demand, economic outlook

We are in challenging times. But if we clearly define our challenges, we may be able to overcome the difficulty. Challenging times will provide opportunities. I sincerely hope that we, governments and industry, work together and change this time of difficulty to a time of opportunity to move towards a sustainable future


ICS SHOWS CONCERNS OVER LOW-SULPHUR FUEL AVAILABILITY A decision by the International Maritime Organization (IMO) to reject a call to accelerate a study into the global availability of low-sulphur fuel has drawn criticism from the International Chamber of Shipping (ICS). At a Marine Environment Protection Committee (MEPC) meeting in London in October, the matter was debated and rejected by a small majority of IMO member states.



Concerns that there will be insufficient fuel to allow ships to comply with the IMO regulations on sulphur emissions prompted the call for a comprehensive study.

Speaking after the vote at the IMO MEPC, ICS secretary general Peter Hinchliffe said: “Some governments still appear to have their heads in the sand with respect to fuel availability. What will be

the impact of ships switching to distillate on the availability of diesel for road transport or heating oil for homes? We still think it’s essential that a global fuel study is carried out sufficiently in advance of 2020 to give the refiners adequate time to invest and react. “The major refinery upgrading required could take a minimum of four or five years, perhaps longer, and we believe that completing the study in 2018 would simply be too late.” Fuel is by far the largest operational cost for shipowners, and there is already a 50% price differential between lowsulphur distillate and residual fuel oil. That gap is expected to rise further if supply cannot match demand.

ANALYSIS CARLY FIELDS Unless you have been living in blissful denial for the past three years, it should be no surprise that confidence levels in shipping have reached their lowest since 2008. We can thank Moore Stephens and a bulging order book for these sour findings. Perhaps what is surprising, however, is that this record low comes on the back of three successive quarters of improved confidence. Did the flood of newbuildings scheduled to come onstream look any better at the start of the year? No. Why were shipowners, operators

and charterers more upbeat on entering, against leaving, 2012? Perhaps there was a small hope that the Eurozone crisis would sort itself out, or that the news that the Indian and Chinese economies were slowing wasn’t true. Whatever it was, realism has at last taken hold. And with the prospect of cheaper ships on the horizon – as yard subsidies, reaching capacity and low prices combine to create the perfect ship-ordering storm – confidence has not yet bottomed out.

One respondent to the Moore Stephens survey succinctly aired their grievances: “It is hard to be confident at the moment. Companies are burning up cash reserves at a frightening rate, given the appalling earnings currently on offer. Supply trends are still very negative. Banks are increasingly reluctant to put out any money, let alone new money, except in very specific sectors. The economic outlook, particularly in Europe, is dismal, while China looks increasingly likely to suffer a hard landing. Let’s hope that the darkest hour really is just before the dawn.”

www.thebaltic.com WINTER 2012



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Energy management


Tom Kirk, director of environmental programmes at the American Bureau of Shipping, explains how energy-efficiency management can help meet regulatory requirements while lowering operational cost With the maritime industry coming under increased scrutiny for its energy efficiency and emissions control, new regulatory requirements and business realities will significantly affect operations. In the short term, vessel owners and operators will be required to comply with International Maritime Organization (IMO) requirements for a Ship Energy Efficiency Management Plan (SEEMP) to be onboard vessels of 400gt or more. By using this IMO requirement as an opportunity to review their larger energy-management systems, owners and operators can reduce operating expenses and better prepare for future rules such as the EU’s regulation on ship emissions. The objective of an SEEMP is to achieve sustainable and efficient use of energy, which should reduce the vessel’s emissions. Beginning 1 January 2013, SEEMP will be a non-prescriptive requirement for the industry. Each vessel must have a list of best practices onboard and outline the “Plan, do, check, act” methodology of the SEEMP. The guidelines established by the IMO for the SEEMP are vague, and it is up to the vessel owners or operators to determine the system controls to be implemented. A key tool in a robust energymanagement plan that encompasses an entire organisation is the new ISO 50001 certification (Energy management systems – Requirements with guidance for use). Where SEEMP addresses energy management at the ship level, ISO 50001 is a much broader energy-management tool for the entire organisation. Properly

An ISO 50001 certificate could very well be the differentiator when seeking new business opportunities

aligned, both tools can help drive continuous improvement in energy efficiency, which should reduce emissions. ISO 50001 provides a systematic approach to manage and reduce energyresource consumption. A comprehensive energy-management plan can also allow owners and operators to improve the organisation’s reputation by preparing for future charterer or regulatory requirements centred on energy efficiency and emissions controls. An ISO 50001 certificate could very well be the differentiator when seeking new business opportunities. Implementing ISO 50001 will help to establish a transparent framework that promotes energy efficiency across an organisation. This process can lead to better decisions related to energy consumption, promote energymanagement best practices and facilitate communications related to energy consumption. The organisational benefits of implementing a broader ISO 50001 energy-management plan are numerous. Individually and collectively, the benefits provide a value to the progressive owner seeking to use a robust energymanagement plan to meet existing requirements, lower operational costs and differentiate themselves in the marketplace. A proactive approach to energy management and emissions controls may better prepare vessel owners and operators for anticipated market-based emissions controls being proposed at various levels of government.

GREEN TIDINGS ClassNK is now offering a certification service for ISO 50001 to enable organisations to establish the systems and processes necessary to improve energy performance, including efficiency, use and consumption. So far, ClassNK has focused

on services promoting green energy. Last April, ClassNK introduced the “PrimeShipGREEN/EEOI” software for the calculation and analysis of the Energy Efficiency Operational Indicator (EEOI) into its range of software and services for

PrimeShip. Users can visually confirm variations in energy efficiency and its contributing factors by displaying EEOI calculation results in a trend chart. ClassNK also offers certification services for the Ship Energy Efficiency

Management Plan (SEEMP), which will be required onboard all ships once MARPOL Annex VI Regulations come into force on 1 January 2013. ClassNK believes that these initiatives will help improve the energy efficiency of the whole maritime industry.

www.thebaltic.com WINTER 2012



Third-party ship management

OUTSOURCING CONSIDERATIONS Outsourcing brings many undisputed benefits – mainly centred on reduced costs – but to be truly effective in shipping, owners must choose the activities to be outsourced with care, pick the right manager and enforce a top-to-bottom acceptance of the change. Cardiff Business School’s Dr Kyriaki Mitroussi explains


is a senior lecturer in shipping policy and management at Cardiff Business School, Cardiff University. Dr Mitroussi can be contacted on +44 29 2087 6026 or mitroussik@ cardiff.ac.uk

Outsourcing, initially of supporting services, but more recently also of core company functions, is considered an established, valuable business strategy, offering improvements in performance through reduced cost and enhanced quality, service, market share and speed. Its growing significance and popularity as a strategic option has led to a proliferation of research discussing the benefits, risks and motivation of and for outsourcing. In the maritime world, outsourcing operational and management functions has become increasingly common. Shipping companies have historically relied on third-party entities for activities such as brokerage and crewing, but today the third-party ship-management sector provides comprehensive outsourcing services to shipowners, ranging from crewing and technical to full ship management and other ancillary services. Special characteristics have been attributed to the outsourcing of activities to professional ship managers: it has been seen as leading the restructuring of international shipping and a separation of ownership and management, with companies’ organisational features – such as age and stage in life cycle – potentially affecting its adoption.

Shipowners can turn to third-party ship managers to ensure flexibility – offering the ability to move out of and into market sectors


WINTER 2012 www.thebaltic.com

Research into the reasons for using thirdparty ship managers and the benefits this brings to shipowners has underlined several key issues. Shipowners can turn to third-party ship managers to ensure flexibility – offering the ability to move out of and into market sectors without having to consider employment-related or other issues – and competitive advantage through cost reduction, by becoming a low-cost service provider or by specialising in the operation of new-for-company ship types. The right decision Sometimes ageing principals and a lack of experience or interest of the successors in the business, or family conflicts, can ignite the outsourcing fire. With such a choice, shipowners can generally enjoy – and tend to particularly value – the access to expertise, access to cheap and qualified crew, provision of economies of scale, and relief from dealing with increased legislation. Ship managers, striving to achieve a competitive edge, also invest in tailor-made and wide-ranging standard services. Shipowners rarely make the same level of investment. Such benefits, however, cannot be gained unless those outsourcing successfully identify the activities to be outsourced, make the right choice of service provider and engage in effective internal communication of the outsourcing process to employees. Photis Panayides and Kevin Cullinane (2002) suggest the prevalence of technical ability, reputation and competency as a checklist for the choice of third-party ship-management firms, and responsiveness, trustworthiness and technical ability as evaluation criteria on behalf of shipowners. Yet, although selective and evaluative criteria must be used, they may not always provide a reliable safeguard against the disadvantages of


outsourcing. Literature concentrating on the negative consequences of outsourcing underlines the risk of hollowing out, the loss of skills and weakened innovative capacity, potential limits on a firm’s ability to trade, and the rise of new competitors. Loss of control of assets and cost-control are the two most important disadvantages for shipowners using third-party ship management for their vessels. Although the degree of control given up depends on the areas of ship management outsourced, and even though the company’s offices ashore may remain under the control of the owner, the real asset, in which huge capital investments have been made and from which the profits of the company are expected to derive – the vessel – is in the hands of others. This is because day-to-day operations are an important part of the shipping business because they are tightly connected with cost control. Key considerations Shipping companies strive for profit maximisation, but primarily through cost-orientation strategies, as in reality they have no control over freight rates, their basic source of income, which are determined by worldwide supply and demand.

Loss of control of assets and cost-control are the two most important disadvantages for shipowners using third parties

Less than a quarter of the world’s fleet is controlled by thirdparty managers, according to shipping consultant Drewry. And while there are several large fleet shipowners, they are in the minority; for most, average fleet size is seven to eight ships. For management operations, the corresponding figure is 35 to 45 ships. Fee levels are also said to not be representative of the growing demands of the job, with the requirements of new legislation plus increased difficulties in sourcing seafarers not reflected in static fees.

“The costs and responsibilities associated with managing ships have grown steadily more onerous, yet management fees have shown little improvement for decades,” says Drewry. “However, the stagnation of fee levels does not point to there being much enthusiasm for lower-cost entrants trying to build market share and risking shortterm loss-leader policies. Owners are looking for respectable service providers, and too much cost-cutting might provoke fears that rules are being bent – and that the service will suffer as a result.”

Personal contact with markets and industry constituents can be lost, while outsourcing full ship management has substantial effects on the organisation of the firm, such as the drastic reduction in shore staff and a change in strategic focus. Overall, effective use of third-party ship management can be achieved through the full use of ship managers’ investments, innovations and specialised professional capabilities that would otherwise be prohibitively expensive to replicate. Outsourcing can be attractive and beneficial for shipowners in their quest for competitive advantage, but it should be considered not only in the realms of what ship managers have to offer but also – and perhaps more importantly – in the context of the past, present and desired future of their shipping business. The use of third-party ship management starts as an option for a shipping firm based on the company’s current standing and needs, is filtered by its history, experience and tradition, and shapes its purpose, strategy, structure and culture for the years to come. FOR MORE, SEE OPERATIONS – SHIP MANAGEMENT, PAGE 48

FURTHER READING N Kakabadse and A Kakabadse (2000), ‘Critical review – outsourcing: a paradigm shift’, Journal of Management Development, vol 19 no 8, pp670-728. J Mills, J Schmitz and G Frizelle (2004), ‘A

strategic review of “supply networks”’, International Journal of Operations and Production Management, vol 24 no 10, pp1012-1036.

case of separation of ownership and management in the shipping context’, Maritime Policy and Management, vol 30 no 1, pp77-90.

K Mitroussi (2003), ‘Third-party ship management: the

K Mitroussi (2004), ‘The role of organisational

characteristics of shipowning firms in the use of third-party ship management’, Marine Policy, vol 28 no 4, pp325-333. K Mitroussi (2004), ‘The ship-owners’ stance on third-party ship management:

an empirical study’, Maritime Policy and Management, vol 31 no 1, pp31-45. Ph M Panayides and KPB Cullinane (2002), ‘The vertical disintegration of ship management: choice criteria for

third-party selection and evaluation’, Maritime Policy and Management, vol 29 no 1, pp45-64. GK Sletmo (1989), ‘Shipping’s fourth wave: ship management and Vernon’s trade cycles’,

Maritime Policy and Management, vol 16 no 4, pp293-303. M Useem and J Harder (2000), ‘Leading laterally in company outsourcing’, Sloan Management Review, vol 41 no 2, pp25-36.

www.thebaltic.com WINTER 2012


Fulfil your ambition to reach the top with the world’s premier Executive MBA designed specifically for busy professionals in the shipping and logistics industry. Work through the internet from anywhere in the world on this unique module-based Shipping and Logistics EMBA, joining up for just 8 one-week sessions spread over 22 months.

Executive MBA in Shipping and Logistics The leading part-time executive MBA in the world directly addressing the challenges for the maritime sector, including: ∙ Market understanding ∙ Leadership ∙ Information technology

∙ Globalization ∙ Environmental issues ∙ Strategic planning

Start of the next class: 23 September 2013. For further information please contact Irene Rosberg by e-mail: ir.mbs@cbs.dk or phone: +45 3815 6007. www.shippingMBA.com

Executive MBA in Shipping and Logistics (The Blue MBA)

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 candidate’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 – 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


08 August 2015

20-22 May 2015 05-07 August 2015

Copenhagen Denmark Copenhagen Denmark Copenhagen Denmark Copenhagen Denmark


Asian risk


Years of unprecedented, meteoric economic growth in South East and East Asia came to an abrupt halt in 2008. The region remains a manufacturing powerhouse, and its member states still enjoy steady financial growth, but the boom days are over, after a drop in demand for raw materials. As Tim Maughan finds, that meant a crash in shipping companies’ rates and, in extreme cases, court protection 


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www.thebaltic.com WINTER 2012




The economic boom in South East and East Asia meant lucrative times for those in the maritime sector. Some rode the crest of the wave, but the wave was unsustainable. When seemingly insatiable Chinese demand for raw materials stalled, so did the rates. “The market has been a story of massive expansion, probably over most of the last decade, in a way that was just inconceivable in the rest of the world,” says Steve Tunstall, a risk management consultant for MYR Consulting, based in Perth, Australia. “And yet that train seriously hit the buffers with the global economic slowdown. “In some ways, that was more traumatic for the maritime industry in Hong Kong, and around the region, than it was for most of the rest of the world, because they were just used to this gravy train of ‘each year you bang the rates up even more, and everyone will pay’. But the wheels well and truly came off in 2008/09. A lot of people have been hurting ever since.” Tunstall explains how one of his customer’s rates, a bulk carrier, “went through the floor”. Previously, when such a company was paid “quite a few dollars” to shift loads, it became “cents”, he says. “And that happened in a short space of time. And it isn’t really recovering. It was culturally traumatising because [the rates] had been on the rise for so long.” By comparison, shipping companies with operations in North America and Europe, Tunstall points out, have seen low annual increases in rates, of about 1% to 3%, “with regular hiccups and problems, either in the local economy or the regional economy, which means that they are used to the idea of ‘this year there is no growth’, or ‘this year we have a slight recession’. But, generally, for the logistics industry in Asia, it was up all the way.” Tunstall explains how tumbling commodity prices, particularly of iron ore, came about after Chinese demand dropped. “Iron 22

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ore was coming out of Western Australia, and it is the only real success story in Australia for the last couple of years,” he asserts. But the lack of Chinese custom means that mining “contracts get terminated or suspended” – and that directly affects the bulk shipper. “What we have seen is the first apparent sign of a structural change in the Chinese growth pattern,” explains Danmarks Skibskredit AS in its Shipping Market Review. “The Chinese economy is in the midst of a gradual slowdown and structural changes are expected to gradually alter the rate and pattern of growth. So far, China’s impressive growth has been investment-led and exportoriented. However, the Chinese economy seems to have exhausted its gains from first-generation reforms and the absorption of imported technologies. “As a result, the immediate gains from capital accumulation and labour reallocation are wearing off. Combined with a shrinking labour force due to population ageing, it seems inevitable that growth will slow.” Norton Rose partner Ian Teare notes: “From an economic point of view, China obviously turns the tap of supply and demand on and off, at will, in the bulk market in particular. And that is felt right across the international shipping market.”

After the frenetic boom years, China is settling down



When Chinese demand for commodities slows, says Teare, this has an “immediate effect” on large shippers, who quickly look to adapt their plans on the “infrastructure front”. “With commodity flow,” adds colleague Ashley Wright, “coal and [liquefied natural gas] going from Australia to China, to Japan, and to Korea, you can see the weakening of the Australian dollar, caused by a weakening of Chinese demand. Australia is such a commoditybased nation, with regard to coal and LNG particularly, and it is tied very much to the growth, and the rate of growth, of the Chinese economy, which is the main driver of demand for those commodities.” Based in Norton Rose’s Singapore office, dispute resolution lawyer Wright and energy lawyer Teare report little disruption in South East and East Asian ports. “But you get occasional scuffles in Indonesia,” says Wright. “It can be a volatile place. Things are very quiet, and mannerly, but then, suddenly, the spark ignites the keg of gunpowder, and people run amok – the phrase ‘to run amok’ is an Indonesian phrase. You get a little bit of that, but never the sense that shipping is targeted.”






C3 160,000MT OR 170,000MT TUBARAO – QINGDAO C5 160,000MT OR 170,000MT W AUSTRALIA – QINGDAO







By comparison, Teare adds, French ports have traditionally shown more disruption – a result of strike action – than South East and Far East Asian ports. Wright says that South East and East Asian countries have their own unique ways of doing business – they cannot be seen as a single entity with one shared business culture. “If you come in from Europe, and you try and think that your model has worked successfully in Hong Kong, and so you think that it is going to work in Jakarta, or Kuala Lumpur, or Seoul, you are going to have to think again.” The sheer amount of shipping in South East and East Asia, together with a reduction of demand from traditional North American and European markets, has led to what Simon Su, chief economist of consultancy BMT Asia Pacific, describes as the “intra-Asia” phenomenon. Exports from the region, particularly to the US and European countries, have decreased in the past two years. “But a more optimistic sign,” he says, “is that, within Asia, trade is increasing – this is what we call ‘intra-Asia’ trade.” This regional activity is powered, in part, by rising labour costs in China. Wages and other overheads have increased in the past decade, prompting Chinese manufacturers to

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outsource production to countries such as Vietnam, Thailand and Indonesia. Japanese companies are also transferring their Chinese factories to other South East Asian countries. “At the same time, domestic Chinese companies are trying to invest overseas, and the nearest destination is South East Asia,” says Su. As in all other countries, goods are bought in China – it is not just a case of raw materials going in and finished products coming out. “China is trying to cultivate its own domestic consumption. Their purchasing power is increasing, so they import from other countries. The factories used to supply goods to the US and Europe, but now they are supplying back to China. So they relocate their factories to South East Asia, but they send the goods back to China,” says Su. This means fewer intercontinental ship movements, and more intra-Asia shipments. After the frenetic boom years, China is settling down. Plus, there is a new focus on the use of domestically gleaned raw materials. The country is importing less steel, too. Such factors mean fewer shipping movements, but other states are keen to attract new business, which will boost the supply chain. Speaking of the wider South East and East Asia region, Su says countries

PIRACY While piracy and robberies have decreased in South East and East Asia, vigilance is still needed in some parts, according to the International Maritime Bureau. Its director, Pottengal Mukundan, says that there are no serious security threats to shipping in the region: robberies are sometimes carried out against ships in ports and anchorages, but hijackers target only tugs and barges. The London-based International Maritime Bureau, a division of the International Chamber of Commerce (ICC), was established in 1981 to act as a focal point in the fight against maritime crime. The ICC website publishes a Live Information Report about piracy and robbery at sea. On 8 September 2012, it stated that five robbers boarded a liquefied petroleum gas tanker anchored in Teluk Semangka, Indonesia. After a crew member raised the alarm, the robbers fled. In a separate incident, the website says, robbers, again off Indonesia, tied a crewman up. When that crewman freed himself and alerted the remaining crew, the criminals escaped. “They will take whatever they can pilfer,” says Mukundan, “usually crew’s valuables – books, jewellery and so on.” He states that there have been no crew casualties in South East and East Asia in the past year, but that ship complements can help counter threats by putting certain procedures in place. “They could have, for example, a watchman onboard. And you don’t go into an anchorage and leave your gangway at water level; you lift it up after it is used – just common-sense things. You observe the [International Ship and Port Facility Security Code]. “In most of these cases, if these robbers knew that they had been noticed, they would probably leave. They would go to another ship,” he says. Naval strength has increased in many parts of South East and East Asia, and this has been a key factor in the decrease of maritime crime. Mukundan explains: “Singapore has never had a real problem, because its [maritime security] is very well regulated. And Indonesia and Malaysia got their navies deployed, and a number of the gangs were caught, and that made all the difference.”

www.thebaltic.com WINTER 2012



Asian risk XL Group

CONTINGENCY PLANS Lengthening supply chains creates greater risk exposure, something the shipping industry is far from comfortable with. Pascal Matthey of XL Group explains how the employment of a risk engineer can minimise that exposure


is head marine risk engineer of XL Group, where he provides marine and specie customers throughout the world with riskassessment tools and solutions designed to enhance their supply chain security and assess the risks on large storage exposures

In the past 20 years, the breaking down of trade barriers, outsourcing on a global scale and plummeting transport costs have changed how goods are manufactured and distributed beyond recognition. Two decades of shift toward global outsourcing and just-in-time deliveries leave little room for error. A study by the Massachusetts Institute of Technology Center for Transportation and Logistics of 300 major global corporations found that 51% of these firms’ component manufacturing, 47% of their final assembly and 46% of their warehousing takes place outside their home country, requiring a complex global network of just-in-time delivery. These tight delivery deadlines pose extreme transport challenges. With supply chains getting longer, even the smallest disruption can quickly turn into a complex production shutdown. Perhaps unsurprisingly, 90% of executives surveyed believe that the size and frequency of supply chain shocks were increasing. As a result, many firms are looking at risk engineering to manage their exposures. The destructive impact of the Thailand floods and the Japanese earthquake was felt around the world. Despite Japan having some of the highest building standards to withstand earthquakes and tsunamis, the scale of the disaster caused significant damage to the power supply and the country’s transport infrastructure. Damaged or destroyed roads, bridges, ports and airports caused unprecedented disruption to the global supply chain network, with motor, aviation and high-tech manufacturing industries hit especially hard. With Japan producing around 30% of the world’s flash memory and around 15% of its DRAM memory, any disruption to the delivery process will always be felt beyond its shores. Large car manufacturers were also being hit hard. Toyota had to push back the launch of two new

DANGER DODGING For goods moving around the world, the solutions for the provision of effective loss mitigation can vary significantly. They include using solid security seals for containers, GPS tracking or avoiding appealing advertisement markings on boxes. Other areas to consider 24

include the security of warehouses and distribution platforms with regard to fire, natural hazards and access control or perimeter protection. Planning is essential to building resilience in the global supply process. Plans should

WINTER 2012 www.thebaltic.com

include procurement strategy, engineering management, transport planning, and physical and organisational security measures. If these measures become part of the strategic management, a company can respond to a shortage of supply quickly after

models and manufacturers such as Peugeot in France were forced to source an alternative supplier when Hitachi, their primary manufacturer of diesel engines, was not able to provide parts. As well as these devastating natural disasters, events such as volcanic ash clouds, winter storms, strike action and power supply disruption can also have a severe effect on the supply of goods. Still, the importance of transportation as a critical supply chain function is often underestimated. In Europe alone, an average of 7.7 billion tonnes of goods are shipped along the road network every year. All of these need to be protected not only from theft, but also from delays. Extending delivery times by holding sufficient stock and diversifying the global supplier base could reduce the disruption, but would also prove costly and affect margins. Marine and property risk engineers take a holistic view to identify dangers across the whole system, and can spot the most likely causes for disruption. The risk engineer’s broad perspective will also include the security of warehouses and distribution platforms with respect to fire, natural hazards and access control or perimeter protection. Practical solutions to minimise potential problems could include: š gaining a thorough understanding of the goods shipped and the routes used, including the primary hubs and distribution locations; š preparing a cargo risk assessment and loss prevention recommendation to minimise exposure; š identifying key products, business processes and locations, as well as the types of events that could cause disruption; and š developing security for key warehouses and distribution platforms, taking local requirements, culture and circumstances into account.

a problem and get the business back on track. Since the Japanese earthquake and Thailand floods, organisations have started to recognise that a well-prepared risk mitigation strategy for the transport network can be a competitive advantage.

By planning for “what if” scenarios, reducing sources of risk and putting the right processes in place, companies can manage variability in their supply chains to manage future uncertainties in an economy with global outsourcing and just-intime deliveries.


Providing complete security and peace of mind for your company and crew. Solace Global Maritime is the United Kingdom’s leading Maritime Security Services provider; safeguarding the shipping industry and marine assets across the globe. Believing in the consistent delivery of excellence, it is unrivalled in the knowledge and understanding of its client’s requirements. Solace Global Maritime provides in excess of 1200 transits annually and prides itself on setting the standards for Maritime Security in the modern marine environment.

Solace Global Maritime Limited Twin Sails House, West Quay Road, Poole, Dorset, BH15 1JF, UK T +44(0)1202 308810 E info@solaceglobalmaritime.com W www.solaceglobalmaritime.com

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From warehouse to warehouse, we’re with you Whatever you want to transport, wherever you want to transport it, we have the global reach to cover you around the world. Cargo Blue Water Hull Marine Hull War Marine Liability Marine Risk Engineering Ports and Terminals XL WorldPass At XL Group, we cover risk. From the everyday, to the most complex. Across more than 100 countries. We’re the perfect size. Big enough to protect Talk to your broker or visit us online, and discover how we can help you to keep your business moving forward. xlgroup.com/insurance


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Asian Risk

Raw materials are not pouring into China at the rate they were, but, with new markets opening in South East Asia and the Far East, there is still money to be made

such as Indonesia and Vietnam are trying to attract foreign investment. Raw materials are not pouring into China at the rate they were, but, with new markets opening in South East Asia and the Far East, there is still money to be made. Norton Rose’s Wright adds that ship operators, despite the complexities and challenges of conducting business in the East, can still benefit. “It is not as adverse as people make out. The rewards of being here, given the increasing amount of trade flow, given the fact that you have got big economies which are expanding, which are demanding more consumer goods, more trade, massively outweighs the difficulties of actually being here. “Everyone is looking at Asia as being the engine that is going to pull the economy out of recession – and shipping is going to be absolutely crucial for that.”



Tim Maughan is a freelance journalist based in Osaka, Japan, hailing from northern England. He started writing in 1997, after completing his journalist training. After a time as a court reporter in Sussex, he spent nine years with Reed Business Information in London. There, he specialised as a transport, industry and business writer – a job that took him to naval bases, shipyards, ports and docks across the British Isles. His most memorable work assignments were sailing through a frozen Baltic Sea on a cruise ferry and traversing Welsh terrain in a 62-tonne Challenger 2 battle tank.

DEMAND AND SUPPLY CHINA Shipping firms in South East and East Asia have been under pressure of late – a predicament caused by a Chinese drop in demand for raw materials. Singapore-based Goh Mei Lin, a partner in the asset finance group of law firm Watson, Farley & Williams, explains: “The weakening of the economies, particularly in the West, has led to a dramatic reduction in demand for finished goods manufactured in the East. This naturally impacts on the demand for the raw materials and components required for their manufacture. “Sometimes, the fickle nature of the Chinese import market can result in significant fluctuations in the demand for iron ore and coal. The reduction in demand for the ships has had a significant impact, both on the earnings which these ships are able to generate [and on] the value of these ships. “In addition, the weakened state of the financial market has made

it much more difficult for shipowners and operators to raise money to meet their working capital, or capital expenditure requirements.” In some cases, Goh explains, earnings are insufficient to cover operating expenses, or even the debt service requirements. She says: “When there is a decline in demand for goods and raw materials, this naturally impacts on the parties importing and exporting, and trading the goods, and the parties providing containers for the shipment of the goods.” Some shipping companies, Goh reports, “have had to restructure their financings and to seek waivers of defaults that have arisen. In addition, parties that have chartered in ships, but are no longer able to meet their charter-in hire obligations due to reduced earnings, have sought to renegotiate the charter-in rates. Certain companies have had to seek court protection.”

www.thebaltic.com WINTER 2012



Asian risk Solace Group


Managing offshore risks will take a collective effort to find and follow the right solution, says Solace Global Maritime’s Tom Brind TOM BRIND

is senior operations manager at Solace Global Maritime, a UK-based maritime security services company, offering services to safeguard the maritime industry and marine assets around the world

Fuel costs are up, the global economy continues to walk a tightrope and successful pirate attacks are as low as they have been in the past two years. Perhaps it is time to re-examine the levels of risk that we are comfortable with and to find efficiencies in our routes where we can. As a provider of global maritime security I would warn against this, but then I would say that. The international shipping community must understand the threat, know what is at stake and find a practical solution that makes sense. Some shipowners have chosen to use the heavy monsoon seas as protection against piracy and are now preparing to re-arm as the seas calm and reports of pirate activity increase. They are taking a pragmatic, day-to-day approach to risk management. Risk management can, of course, be as simple or as complex as we wish to make it. What must be the bedrock of all risk management is accurate and useful intelligence. There is little point in trying to avoid piracy if we don’t really understand it, which is where intelligence comes in. The more information we have on pirates, the better we can plan against their operations. Knowing where and how they operate, their trends and what affects them is critical. Only when we have gathered, analysed, understood and communicated the situation effectively are we really able to manage the risk. The activity of international naval powers and military forces, as well as the widespread uptake of Best Management Practice 4, has gone some way to mitigating the risks, but the situation is

multi-faceted, as should be the solution. However, it is the shipowner who needs to carry out further assessments to determine whether additional protection is required. For the shipowner, it’s usually about weighing the seriousness of the threat to the vessel, crew and cargo against the cost of fuel and insurance premiums when skirting around the high-risk area or employing a private maritime security company and going direct. But once a vessel is lost to a hijacking, it will remain lost until a heavy ransom is paid. So, in many cases, prevention is better than cure. The employment of armed guards is a decision that shouldn’t be taken lightly. Nobody needs reminding of the unfortunate incident regarding the Enrica Lexie several months ago when Indian fishermen were misidentified as pirates by Italian marines. As a maritime security provider, Solace Global Maritime absolutely understands its responsibility to ensure it does everything possible to prevent mistakes of this kind occurring. Reputable providers of maritime security will have robust procedures to prevent exactly this. Looking to the future, assessing the threat continuously will determine how the risks can be mitigated. In competition or conflict there are always developments and counter-developments. As one party finds the advantage, the other will respond by changing tactics and seeking vulnerabilities, so it is crucial to watch for developments and signs of tactical advances to make the appropriate counter-measures in good time.

The management of risk can of course be as simple or as complex as we wish to make it. What must be the bedrock of all risk management is accurate and useful intelligence

www.thebaltic.com WINTER 2012





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While off-site computing solutions could be the white knight for shipping companies’ depressed bottom lines, the promised reduction on software and server overheads needs to outweigh anticipated security issues. Greg Knowler reports »

Shipping has never been at the forefront of technology innovation. It’s surprising, really, to consider that despite being responsible for more than 8.4 billion tonnes of cargo a year, the industry still relies heavily on the phone, email and even fax as its primary business tools. That may be about to change as operators struggle against the global economic downturn. Few container lines expect to make profits this year, with consumers holding off spending in a Europe crippled by debt and a stagnant US economy. But one carrier is not waiting for the tortured global economy to recover. Maersk Line is turning to investment in technology to cut costs, improve efficiency and boost competitive advantage. The line recently inked a $150m deal with Hewlett-Packard (HP) for a private cloud computing environment. In the five-year agreement, the Danish carrier will use HP’s cloud-enabled data centres and HP Workplace Services in what is known as an “instant-on enterprise”. There is no shortage of jargon in the IT business, but HP’s instant-on enterprise runs on applications and services that are always available and can easily adapt to new opportunities. Technology is embedded across the system to allow customers, employees and partners instant access to information around the world, which is crucial for a global shipping line.

If it sounds awfully technical, that’s because it is. HP said in a statement that it is creating a private cloud computing environment for Maersk. This secure environment will create a flexible, agile technology infrastructure “that allows Maersk Line to stay ahead of changing business needs and strengthen its ability to compete globally”, an HP spokesperson said. Adam Gade, chief information officer for Maersk Line, told reporters after the deal was announced: “Maersk Line operates in a competitive global industry that demands innovation to create the agile technology infrastructure we need to be a leader among our peers. HP’s global scope, combined with its proven expertise in standardising technology across large enterprises will help us deliver greater value to our business and support our ability to remain the world’s most reliable container shipping company.” Maersk was not prepared to comment further, and nor could other major shipping operators be convinced to outline their cloud network strategies. This reticence extended into the supply chain, with logistics operators, forwarders and trading companies all declining an opportunity to discuss their move into the cloud. It is an understandable position. The “cloud” is still a hazy concept for most people not developing IT solutions. A place where Steve Jobs reclines with his www.thebaltic.com WINTER 2012



Technology VIEW FROM THE US The second-biggest US container port and a main East Coast terminal operator are convinced of the benefits of the cloud, writes Martin Rushmere


harp and looks after the music and apps on your iPod while charging you rent to use them. But what, exactly, is cloud computing? In laymen’s terms, it is using remote servers to host services that are delivered over the internet to store, manage and process data, rather than it being handled by a local server. This is the cloud network’s greatest strength – instant global access while saving users hardware and software costs and reducing in-house IT requirements – but is also the source of its biggest problem: how to persuade prospective users that their data is safe. This is easily the top issue cloud computing service providers have to address, and industry surveys confirm a perception that data critical to operations and revenue management is vulnerable while floating around in a cloud. HEAD IN THE CLOUDS In a recent eyefortransport survey, for instance, the conference and media company found that lack of control and security risks topped the list of reasons for transport and logistics providers not joining the cloud. Without transport providers willing to comment on cloud computing, The Baltic turned to the technology companies and those providing solutions. “The biggest concern for us is security,” said Merwin Wilfred, operations director for IT giant Qualcomm, at a high-tech conference in Singapore. “What can we put out there? We don’t want to put data up in the cloud that is visible to everyone.” Roxane Desmicht, Infineon’s senior director of corporate supply chain, says cloud strategies are best suited to supplier networks that are already exchanging information on electronic data interchange (EDI) systems. “But security in the cloud is a key point,” she says. “And there is always a risk when deploying new technology.” Okay, we get it. Security of data is important. But what solutions are the cloud computing people

FAST FACTS What’s in a name?

The history of the term cloud computing is, well, cloudy – to say the least. Some say it derives from the use of stylised clouds to represent networks in diagrams of computing and communication systems. Others say it represents the existence of a domain about which not all details are known: it’s hard to measure a cloud, just as it’s hard to describe what exactly is in the “cloud”.

Global Container Terminals (GCT), which runs facilities in New Jersey, is setting up the cloud for its New Jersey terminal, due for completion in 2014. Rich Ceci, vice president of information technology at GCT, says he is aiming at a system that “allows external suppliers to work on the Navis4 platform, mixing cloud-based services with VMWare. “I am also considering a cloud-based status function for the new facility that will allow company smartphones to keep on top of productivity and alert situations. That is still very early days. The biggest gain is that scalability is very easy. The cost is reasonable. If and when you decide to bring the service inside, the economics make the decision for you. Right now I am using Amazon ECS/AWS and it’s pretty good.” He says the cost of a dedicated system, on hand 24 hours a day, is less than $500 a month. “You have to make a decision on how missioncritical a service is. For disaster recovery, are you prepared to wait for, say, three days before everything is back up, or do you want the system restored immediately? Long Beach port has two private cloud centres: one near the port and one in Arizona, more than 600km away. “We chose that because it is in the region least prone to natural disasters in the US,” says Doug Albrecht, director of information management for the Port of Long Beach. The

cost has been put at between $500,000 and $1m. The centres are linked by two dedicated internet services (one as a backup), plus a satellite link for emergencies. “It is slow but we can get our absolutely basic functions operating and about 5% of staff back online. “With a cloud you get 90% utilisation rate compared with 20% with a dedicated system. It saves on everything – power, air conditioning, floor space, the lot.” Although a public cloud is much cheaper than a private system, “we would not use a public cloud service because of the security issues of storing our data”. Security is of concern to GCT. “I would not put sensitive data on the cloud until this becomes more mature,” says Ceci. Albrecht is on the IT committee of the American Association of Port Authorities and says that all members are using some sort of cloud technology. “I would advise any operation of more than 100 employees to go for a private cloud,” he says. Ceci adds: “Internal clouds will drive more specialisation and could end up increasing support staff size. External clouds will still require a fair amount of IT staff because they are not trivial to set up. I don’t think staff savings is the real payoff. The hardware and scalability are the potential big wins.” Albrecht says the port has increased the number of servers, “but the payback is that costs get cheaper per server”.

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30/10/2012 09:45


Technology offering, and how can they benefit the transport and logistics industry? Doug Daugherty, chief technology officer at Triple Point Technology, says cloud-based IT solutions allow users to benefit from product improvements quickly by enabling upgrades to be implemented “significantly faster” than they could be with locally installed solutions. “With a cloud-based solution, IT staff can roll out upgrades to all users, no matter where they reside, from one location,” he says. “If a company has its headquarters in Europe, and branch offices in the US and Brazil with no on-site IT staff, upgrades don’t require a plane trip – everything can be done from headquarters – which also results in considerable cost savings.” Those savings are driving interest in cloud services, but it will be years before the technology is ready to be used throughout the supply chain. “Cloud-based solutions are more scalable and more easily deployed and maintained than their locally installed counterparts, but the trade-off is that you don’t have complete control over your data,” says Daugherty. “If a company deals with very sensitive information, they might feel that the benefits of a public cloud

Yet further up the supply chain, transport and logistics companies using cloud-based applications are better off for it. The eyefortransport survey found that almost 90% of them successfully used the cloud technology for track and trace, and managing transport. Evan Puzey, chief operating officer for logistics solutions provider Kewill, confirms this. “The areas that will receive more broad-based adoption throughout the supply chain from a cloud perspective are visibility and track and trace,” he says. “The ability for all the players to put their data in one centralised location and then the ability for all other users to pull information down off that level is going to be critical. “A lot of time between business today is being spent arguing over whose spreadsheet has the right data, whereas if we can agree on a single central repository system and everyone inputs the agreed data, people can get on with driving the business based on that visibility and track and trace they set across multiple enterprises in the supply chain.” The challenge, however, is how to integrate legacy systems with cloud-based systems without compromising IT services.

The ‘cloud’ is still a hazy concept for most people not developing IT solutions. A place where Steve Jobs reclines with his harp and looks after the music and apps on your iPod while charging you rent to use them are outweighed by the risks, and opt to forgo a cloud model altogether, or else choose a hybrid model where they can keep the more sensitive information stored locally and use a public or private cloud for less confidential data. A company’s decision can also be affected by how much business it does in thirdworld countries and emerging economies, where internet access can be unreliable, rendering cloudbased solutions susceptible to more downtime.”



Greg has more than two decades of journalism experience, covering transport and supply chains in Asia for the past eight years. Based in Hong Kong, Greg is editor and publisher of Cargonews Asia, and is a respected blogger for Maritime Professional.

COMING BACK TO EARTH Dr Torsten Büssow, vice-president of the Maritime Software Unit at Germanischer Lloyd, says that, for now, cloud services for shipping companies can address only the office side of the software system, comprising functions such as maintenance, purchasing, order entry and crewing. “The vessel side of the software system needs to be installed on the vessel and it will take many years before broadband will be available on all oceans reliably and at low cost that enables a vessel to be treated like a land-based ‘branch’ with online access to the system in the cloud,” Büssow says. What about the terminals shipping lines call at? “Port operators have a different model from shipping lines like Maersk that manage their data centrally at a global level, tracking containers and information about shipments,” says a DP World spokesperson. “We obviously have extensive e-services, but generally our data resides with us and we manage it at a terminal level, so we make limited use of cloud services.”

iFleet Systems’ Tim Fairchild says his company has developed cloud-hosted business-to-business trading hubs and freight transport solutions for shipping lines to help them add value to their services, improve operational efficiency and reduce administration costs without the need for significant investment by the fleet owners. “Recently, iFleet Systems developed and integrated cloud-hosted EDI systems to manage vehicle, ro-ro and break-bulk cargo from Chrysler, General Motors and Caterpillar on the Siem Shipping car-carrier fleet,” Fairchild says. This has enabled Siem Shipping and its customers to improve services and efficiency by having greater visibility of the global supply chain, without the cost and time associated with deploying large infrastructure projects. The cost savings certainly sound impressive. Fairchild says the reduced requirements for hardware and software saved $40,000 per office, not counting the time savings from less maintenance, which allowed Siem to focus on its core business of shipping. HP’s deal to create a private cloud for Maersk is made possible by the economy of scale derived from the carrier being the world’s largest. Smaller companies would have to be accommodated in a multi-tenancy or hybrid cloud network, and while service providers insist security of data is tighter than anything found at an individual company, it will take time to convince a sceptical market. www.thebaltic.com WINTER 2012


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iFleet Systems


iFleet Systems finds that, despite sluggish industry uptake, cloud computing has many advantages over traditional IT systems The shipping industry’s reluctance to move with the times does not need labouring: consider the humble telex’s stubborn refusal to take its leave from shipbrokers’ offices. And it seems that the adoption of cloud computing has suffered from those same dogged-traditionalist values. “The shipping industry tends to move with more caution when it comes to adopting new technologies,” confirms iFleet Systems’ Tim Fairchild. “I don't think the shipping industry is necessarily more complex, but there [do] tend to be more legacy systems in addition to the obvious connectivity issues that come with ship-to-shore-based communications.” However, when evaluating the cost of running existing systems and their legacy software it often becomes apparent that there are significant cost savings and improvements to be made by using cloud-hosted services, Fairchild adds. Further, no job is too small for cloud coverage: “I don't think a company can be too small to benefit from cloud technologies, and in many ways it can help level the IT playing-field by enabling smaller shipping organisations to quickly establish low-cost global IT and B2B systems that their larger competitors already have,” says Fairchild. Security, or a perceived lack of it, is the usual excuse for not moving into the cloud, but it’s a poor one, according to iFleet Systems. The company maintains that online data-protection practices and policies behind the delivery of many cloud services exceed those found in most shipping organisations. iFleet, for its part, has brought Star Reefers to the cloud party. Fairchild’s company is in the process of building and integrating cloud-hosted fleet management solutions for Star Reefers. “iFleet are currently deploying a cost-effective solution for the fleet operations team to manage auditing, maintenance, parts and procurement across all the Reefer Ships,” explains Fairchild. TIM FAIRCHILD

iFleet Systems www.ifleetltd.co.uk




The shipping industry’s reluctance to adopt cloud technology will be short-lived, according to cloud software specialist MESPAS Despite a perceived lack of security, the benefits of using cloud computing stack up. “Cloud computing services and SaaS – software as a service – applications will play an increasingly important role in the shipping industry in the future,” says Gino Fiore, marketing and sales director for MESPAS. He predicts that growing numbers of businesses will outsource to external service providers and data centres. “With SaaS, these companies will benefit from professional software applications without having to worry about all of the hardware resources.” With a harsh economic environment putting increasing strain on shipowners and operators, players have to react and adapt faster and more frequently to their changing environment. This calls for agility and flexibility in operations. “Cloud computing solutions are in these cases by far the best solution,” says Fiore. “Cloud computing is absolutely scalable and not at all location-bound. A cloud-computingbased IT solution evolves along with the company’s business. So shipowners and operators can focus on modelling their core business activities without having to worry about time and, more important, cost implications which any changes in business structure and processes might have on their IT.” MESPAS runs its software on a SaaS subscription basis, so expenses are transparent and predictable. Using the cloudbased mespasR5 software means the end users do not need to run their own server infrastructure for their technical fleet management systems. This reduces capital as well as operational expenses, while keeping costs under control. “For shipowners and ship managers using our cloudbased solution, adding or removing vessels under scope is a matter of days or weeks, and not months. Time can be saved while scaling up and money can be saved while scaling down when additional resources are no longer needed. Our cloud-based solution evolves with the customer’s business, supporting agility and flexibility,” says Fiore. “Master data, such as [original equipment manufacturer] data, manuals, spare parts, etc, is provided by MESPAS on the central server. Each customer’s data is kept securely on the central server and it is accessible by all relevant stakeholders via the internet. Since data is stored in one secure place, it becomes comparable: across products, vessels or across the entire company. With real-time data at the fingertips it is possible to create and monitor [key performance indicators] across the fleet, and thus make informed decisions.” www.thebaltic.com WINTER 2012



Tim Huxley


When Eric Liddell declared that he had “no formula for winning the race” in Hugh Hudson’s Oscar-winning Chariots of Fire, his words captured the imagination of a young extra whose path in shipping was still to be mapped out By Carly Fields Playing the part of a French athlete in the iconic movie Chariots of Fire, Tim Huxley knew little about the maritime world beyond the shipbuilding activity that took place on the Tyne, close to his home town. His first glimpse into the business was the construction of the very large crude carrier Esso Northumbria on a slipway at Swan Hunters in the late 1960s. However, it was another 13 years before he fully grasped the industry: he joined shipbroker Clarksons in 1982, the year the company brokered the sale of the Esso Northumbria for scrap. The scrapping of the ship that had been his gateway to the shipping world was a neat cradle-to-the-grave encapsulation of the market, and provided a unique view of the wider shipping market, an experience that would prove crucial to his later career choices. SETTING SAIL A vicar’s son from the North East of England, shipbroking was an unlikely career choice for Tim. “Once I realised I didn’t have the talent to be a racing driver or the rhythm to be a drummer in a rock band, I wanted to be a journalist so I could write about them,” he says. “But then I realised the pay was rubbish.” His school headmaster thankfully came to the rescue and gave Tim the tools he needed to succeed in his career choice. Tim describes Dennis Silk as “a brilliant headmaster who wanted to identify in every pupil something they were good at”. He knew not everyone could be in the first rugby team, but he knew that everyone had a talent somewhere and

he would draw it out. He encouraged Tim to take up public speaking and writing, skills that last “long beyond the hanging up of your rugby boots”. While he is now fully entrenched in shipping, Tim didn’t entirely drop those writing ambitions that Silk so skilfully nurtured. “I do write a fair bit for various publications, usually under a pseudonym, and I suppose that there is a novel in there somewhere,” he confides. Later in life, it was Hugh McCoy, the former chair of Clarksons and the Baltic Exchange, who inspired a young Tim. He was the person who persuaded Tim to go to Hong Kong, a place he has now embraced as his home. In Hong Kong, Tim works alongside the vice chair of Wah Kwong, Sabrina Chao, covering all aspects of the operation of what is now one of the largest privately held shipowning companies in Hong Kong. This involves everything from day-to-day ship management to financing, the commercial operation of the fleet, sourcing new customers, keeping existing customers, and positioning the company to withstand the downturn and take advantage of the opportunities that are increasingly out there. “Being a part of a company with a great history and a bright future is a huge motivation, as is building a team of skilled professionals to take the company forward,” says Tim. “I have been in the shipping industry for 30 years, mostly as a shipbroker, but now being wholly immersed in the shipowning side is in many

HUXLEY’S VIEW “2013 is probably going to be pretty brutal. We still have way too much of an imbalance on the supply side, China’s continued growth might have a question mark over it and problems in Europe are going to continue to affect demand, but more importantly, it’s going to make finance continue to be difficult to source. There will be a few casualties, but just like in the mid-1980s, strong, well-run companies will have plenty of opportunities to position themselves for the upturn that will eventually come.” 38

WINTER 2012 www.thebaltic.com

FAST FACTS Age: 51 Born: Newcastle upon Tyne, UK

Marital status:

Permanent bachelor


Shipping, Half the Sky, writing, lively argument

Book you are currently reading: The Art

of Racing in the Rain, by Garth Stein, a brilliant observation on human life

Album you would take to a desert island:

None. Freedom from noise is the best incentive to be stuck on a desert island

Favourite film: The World of Suzie Wong. Old Hong Kong at its finest

www.thebaltic.com WINTER 2012


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

t We supply armed guards for transits in high risk areas tAll British teams tFully licensed in Djibouti, Sri Lanka, Oman and S. Africa for the use of military grade weapons tWe are ISO9001 certified, Panama approved and a member of SAMI tInsured for 5 million USD tOwn operations centre in UK staffed 24/7 tOwn bases in Djibouti, Fujairah and Sri Lanka tComplies 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.


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


Tim Huxley

There is no point losing sleep over bad markets, and managing the everyday stresses is important for a healthy life

respects more satisfying, as you are involved in every aspect of the business.” The experience of both sides of the shipping coin – first on the broking side and then on the owning side – gave him a two-pronged insight into the deeper workings of the market, far more so than if he had pursued just one strand. FULL STEAM AHEAD “I reckon if I went back to being a broker now, I would probably be much better at it,” he says. “It’s amazing how many shipbrokers think that all shipowners do all day is talk to brokers!” The draw of the tight-knit Hong Kong shipping community also helps him drive the Wah Kwong business. “Being a part of the Hong Kong shipping community, working with talented people and dealing with people across the globe, many of whom I have known for years and are great friends, is a huge plus. The fact that shipping impacts everyone’s life, is a truly international business and is affected by almost every economic and political development means you are really in a perfect storm all the time.” A key challenge at the moment – one that is shared by many shipowners – is to capitalise on the opportunities of a difficult market. “My immediate goal is to help to ensure the future prosperity of

Wah Kwong in a difficult market and continue the smooth transition to the third generation of the Chao family who are now at the helm,” he says. Tim takes the depressed markets in his stride, worrying little over what he can’t ultimately control. “There is no point losing sleep over bad markets, and managing the everyday stresses is important for a healthy life. I have seen too many people worry themselves to death. Do your best in the areas you can control, and try and manage your risk in areas where there are things you can’t. “No matter how bad markets are or how stressful your job might be, there are still plenty of good things in life, so enjoy them.” However, he can’t rest as easily when it comes to the threat of piracy. “Of course there are risks with a fleet of 30 ships, and I certainly worry when we have ships in the areas affected by piracy – I consider our crews as colleagues and I don’t like them being at risk.” Aside from that concern, Tim says he is in a great place and is enjoying the Hong Kong experience. “In ten years’ time I hope I will still be part of the Hong Kong shipping community and living life to the full in this great city. I don’t think I will ever get bored of that. “Hopefully it will be a while before people are saying ‘Do you remember that chap Huxley?’ When I do finally bow out, it would be nice to be remembered as someone who was always honest and decent to deal with.” A sentiment that would have rung true with Tim’s Chariots of Fire memories. The Eric Liddell character had no formula for winning the race, but recognised that “everyone runs in her own way, or his own way”. How true that became for the impressionable extra who was to move from shipbroking to shipowning, and from England to Hong Kong, to become a familiar face in the world’s biggest business.

HALF THE SKY In 1997, when Jenny and Richard Bowen adopted a toddler from a welfare institution in southern China, their eyes were opened to the harmful effects of institutionalising small children. Their little girl suffered from severe developmental delays and was emotionally shut down, and it took a year of loving care and attention from her new family to bring her out of her shell. The experience made the Bowens realise that they wanted to help more children in China, so, in 1998, Half the Sky, named for the Chinese adage “Women hold up half the sky”, was born. This Beijing-based nongovernmental organisation opened a Hong Kong office in 2006, and Tim Huxley was approached by executive director Jenny Bowen to become a director.

“This is a remarkable charity that aims to provide a caring adult in the lives of every orphaned child in China. We do this through a partnership with the Chinese government where we provide training for child carers in orphanages throughout China and run programmes for children of all ages,” says Tim. “At present, we are looking after around 7,000 children, but the plan is that Half the Sky-inspired programmes will be in every childwelfare institution in China in the coming years. That’s over a million kids.” In its 14 years, Half the Sky has already improved the lives of more than 70,000 orphaned children. “All of us in shipping have benefited from China’s economic growth – this is an opportunity I have to put something back and help those who got left behind.”

www.thebaltic.com WINTER 2012



Beyond hedging


Forward Freight Agreements are more than hedging tools; today’s shipping companies use derivatives to manage relationships. Simpson Spence & Young’s Duncan Dunn discusses the next phase of freight derivatives » A brief look at a Forward Freight Agreement (FFA) reveals a simple financial structure that confers an obligation on the holder to either pay or be paid, on the basis of the difference between the individual pricing of the FFA in question and the settlement price, as determined by the relevant panellists for the underlying freight index. The market in FFAs has developed over the past few years to enable buying and selling to be done quickly and relatively cheaply. Regulation and clearing have added the ability to transact with confidence in the systems employed. Most FFAs are bought and sold, or indeed sold and then bought back, well before they reach settlement. On the face of it, even with the enhancements mentioned above that accompany a mature market, the FFA is still just a way to take a position in the freight market that enables the user to profit whether the market is going up or down, so long as the user gets the direction right. This may be why some freight market participants still scorn the humble FFA, which, in this simple form, is in effect just a bet. Shipping and freight trading are complex businesses, so why would a senior decision-maker running a complex business want to head for the FFA casino and become a hostage to fate? The answer, of course, is that an FFA is not just a bet on the market’s direction, but a supremely flexible component that can be added to the complex machinery of a shipping 42

WINTER 2012 www.thebaltic.com

business to achieve several possible outcomes. It is a simple but reliable tool in a complicated business. CHANGING TACK The first and most straightforward impact of an FFA, when added to a company’s strategy, is to transfer an existing freight exposure from a fixed rate to a floating rate, or vice versa. This is a simple strategy and, depending on the risk appetite of the company involved, it might be used either to remove risk or to add it back to a business.

An FFA is not just a bet on the market’s direction, but a flexible component that can be added to the machinery of a shipping business

One example of this might be a company with a vessel coming off time charter in the new year: until the company fixes a new charter, its earnings are floating: it will be determined by the spot market in the new year. Selling an FFA can fix the rate until the company finds a suitable charter, at which point the FFA is closed. The FFA will generate a profit or loss, which, when added to the rate achieved on the physical charter, gives the net charter rate. An example of the alternative fixed-tofloating transaction might be an owner with a time charter fixed for next year at around break-even. The owner sees the market improving, so buys an FFA, effectively floating their earnings on the time charter. The owner’s net earnings are the revenue from the time charter plus or minus their profit or loss on the FFA. The first strategy is for the riskaverse owner; the second is for a more adventurous one. These are simple examples, but they are important as they illustrate the wide range of attitudes

to risk and solutions being provided by the FFA market. MAKING WAVES However, the main thrust of this article is, having established the simplicity of the FFA and its ability to supply an effective and reliable solution to various scenarios, to consider what it might bring to the user beyond the obvious. Most people, when asked about what attracts them to shipping, will mention that it is a people-based business. What they particularly mean is that shipping is a business of relationships and partnerships – from the broker who adds value by understanding the market and developing a valuable insight for customers, to the shipowner who prefers to work with charterers that they have a long relationship with, demonstrating reliability and prompt performance. FFAs are quick to execute and are usually held for a relatively short term, so how do they figure in the building of long-term relationships? The answer


TRANSPARENCY TO LEAD TO MORE ROBUST CLEARING Mandatory clearing is hanging over the derivatives industry, but the timing for when the reforms will hit the freight market is still uncertain. The US is enforcing its Dodd-Frank Wall Street Reform and Consumer Protection Act, bringing in the most significant changes to financial regulation in the US since the regulatory reform that followed the Great Depression. The EU, for its part, has its European Market Infrastructure Regulation legislation, which will introduce significant changes to the over-thecounter (OTC) derivatives market by mandating central clearing for standardised contracts and imposing risk-mitigation standards for non-centrally cleared contracts. The international clearing house LCH.Clearnet fully supports the global regulatory reforms and has played an important role in the development of derivatives regulation. “This new era will ultimately lead to more transparency, efficiency and security. We’ve been working closely with regulators and our clients as the regulatory landscape has evolved,” says Isabella Kurek-Smith, director and head of freight and OTC commodities at LCH.Clearnet. “We’re focusing on ensuring that market participants receive the support they need, so that they are able to identify and address key issues and take full advantage of opportunities that arise from the introduction of clearing.” As market participants increasingly focus on transparency and risk management, the clearing house expects to see more demand for robust clearing services. “We are likely to see a more diverse range of institutions look to clearing of FFAs at this critical time of regulatory and industry change.”

www.thebaltic.com WINTER 2012



Beyond hedging

BALTEX AND ITS ROLE IN RISK MANAGEMENT STRATEGIES The Baltic Exchange’s freight derivatives trading platform Baltex continues to support risk management strategies for owners and charterers. Recognising the recent declines in freight rates, in September Baltex lowered its transaction fee from $10 per lot to $5 per lot, with the reduced cost to last until further notice. Clearing houses have been advised of the change and will collect fees calculated at the new rate in the usual way. The Liquidity Provider Scheme and the Rebate Scheme for Broker Aggressed Trades both remain in effect.

to this has been increasingly apparent since the collapse of the dry bulk market in the second half of 2008. At a time when a stressed market looked at standard practices nervously and critically, it became apparent that the humble FFA had developed characteristics that, for a while, led the physical freight market to conclude that it should change its ways to encompass them. What emerged was that the vast difference between the physical and paper markets gave them enormous strength together: the sum of the whole was greater than the sum of its parts. The core difference is that a physical freight transaction is usually transacted between two

Experience in business brings the ability to see that companies must adapt to compete in changing markets and to adopt new ideas that bring strength counterparties at a fixed rate. The obvious problem with this relationship in 2008 was that if the fixed rate was very high, there would be great pressure on the contract when the markets were very low, one side being locked in a contract perceived to be injurious to its ability to compete in its core business, potentially leading to bankruptcy and non-performance of the contract. EBB AND FLOW The FFA market, by contrast, had developed a clearing system where a central counterparty stood between the two sides of the deal. The central counterparty’s function was to guarantee performance and manage this in part by re-valuing the contract on a daily basis and transferring money owed between the two counterparties, so any default had only a limited effect on them. The value of this function in the turmoil of a falling market cannot be overemphasised. It is positive to note that, since 2008, FFA market participants have increasingly been able to lean on this structure, enabling them to transfer their counterparty risk away from their physical 44

WINTER 2012 www.thebaltic.com

Run by and for the shipping market, Baltex offers a centralised and transparent derivatives marketplace. In a further improvement of its offering, an enhanced version of Baltex has been released, which includes request-for-quote capability, as well as other new features. Launched in June 2011, membership of Baltex has grown from eight to 33 principal members. Regulated by the UK’s Financial Services Authority as a multilateral trading facility, Baltex provides live dry FFA prices and online execution, and enables error-free, straight-through processing to the international clearing houses.

market activity, which remains counterparty to counterparty and uncleared, and into their cleared FFA business. This is achieved by having a long-term physical relationship with a floating rate and arranging fixed pricing in the cleared FFA market. This enables the counterparties to a trade to pursue the most beneficial pricing available in the market without their partner being tied into a longterm deal that will be damaging to their business. In effect, both sides agree that they will forge a relationship based on the provision of their services at a floating rate, leaving their partner free to fix their pricing via a secure, regulated market with guaranteed performance. Needless to say, this mechanism has been increasingly favoured by market participants in the more volatile cape markets, where the ability to forge long-term partnerships but maintain the potential for increased earnings in the future is particularly valuable. A frequently voiced concern about FFAs is that the benefit of fixing earnings in the short term is not sufficiently valued by a market where earnings are expected to fluctuate in the long term. Old and wise scions of the shipping world have seen boom and bust and know that a robust long-term strategy is their best course. It can be hard for the youthful FFA broker to argue against this. However, experience in business brings the ability to see that companies must adapt to compete in changing markets and to adopt new ideas that bring strength through increased competitiveness. As the FFA matures it is increasingly bringing opportunities to its users that go beyond the obvious and include advantages that are often not apparent at first glance. The more opportunities the pioneers find in FFAs, the more everyone else will be forced to adopt them. One thing is certain: FFAs are here to stay.



Duncan is a senior director at Simpson Spence & Young Futures Ltd and a director of the Baltic Exchange, where he sits on the Freight Index and Futures Committee.


FEDNAV Reliable Partner




Beyond hedging


THE CLEAR BENEFITS OF RISK MANAGEMENT International clearing house LCH.Clearnet explains the importance of protection from counterparty risk, and why Singapore is becoming the shipping hub for Asia ISABELLA KUREK-SMITH

is director and head of freight and over-thecounter commodities at LCH.Clearnet. www.lchclearnet.com

Trade in freight derivatives, trade in risk management – that’s the mantra attached to freight paper markets. But if the counterparty can legitimately walk away from the deal, any notion of risk management evaporates. In 1985, when freight derivatives first surfaced through the innovative but ultimately under-used Baltic International Freight Futures Exchange, the risk of counterparty defaults was generally accepted to be an inherent part of derivatives trading. Things have moved on since that tentative start, and today companies trading in freight derivatives can protect their positions through clearing, an industry that has grown at a prolific rate, indicating the modern-day need to assess and manage risk. “When LCH.Clearnet began clearing freight derivatives in 2005, only about 10% of the market was being cleared. The market picked up incredibly quickly and within a few years around 85% to 95% was cleared. Today, the majority of FFAs are cleared, as a diverse range of shipping counterparties take advantage of the benefits of centralised clearing,” explains Isabella Kurek-Smith, director and head of freight and over-the-counter commodities at the international clearing house LCH.Clearnet. “We currently clear around 70% of the dry FFA market through our robust risk-management framework.”

The fact that our risk-management approach and the resilience of our systems have been proven gives the market the confidence in using us as a clearing house

The collapse of the physical freight market in 2009 contributed to heightened interest in clearing, as some companies failed to honour their physical commitments, and in some cases their FFA contracts, too. One of the many benefits of clearing is the mitigation of counterparty risk. By clearing FFA transactions, participants are provided with increased protection: if either party defaults on the trade, the clearing house becomes accountable for the liability. Kurek-Smith explains: “As a clearing house, we sit in the middle of a trade as the buyer to every seller and the seller to every buyer. Risk management is at the core of what we do. In order to safely clear trades we have to consider both the counterparty risk and the market risk – that is, our exposure of movements in any given market. We therefore adopt stringent membership criteria, appropriate margining and the maintenance of adequate default funds.” As an international clearing house with a long history as a multi-asset clearer, LCH.Clearnet has experienced several counterparty defaults. “We have successfully managed a number of defaults in the past with no recourse to the default fund. The fact that our risk-management approach and the resilience of our systems have been proven gives the market the confidence in using us as a clearing house.” Much of the growth from the freight market is coming from the Asia-Pacific. Many shipping companies, as well as financial players, are setting up or relocating their trading desks to Singapore, which is fast becoming the shipping hub for Asia. “Asia is important for the FFA market, with trade flows to and from the region one of the major drivers of growth,” confirms Kurek-Smith. “We currently clear for ClearTrade, an MAS-regulated multilateral trading facility, and work closely with our clearing members and the brokers in Singapore to ensure that our service meets their needs and their clients’ needs.” Looking ahead, the company is committed to supporting the development of the freight derivatives market as it continues to grow globally. www.thebaltic.com WINTER 2012


OPERATIONS Ship management


Ship managers have once again proved their immunity to downturns, as owners take on the rationalisation and efficiency on offer. But will the trend towards joint ventures continue into the upturn? John McLaughlin reports » Tough economic times are often good to ship managers and this crisis, in many ways the most dangerous and the most stubbornly resistant to political remedy since the Great Depression, appears to be no exception. Leading ship managers report a clear increase in demand for their services in the four years since Lehman Brothers collapsed and the global financial crisis began to shift into the real economy. Yet although this is one segment of a battered shipping industry that appears to be faring relatively well, challenges continue to dog the sector’s progress. At InterManager, the international trade association for the ship management industry, secretary general Captain Kuba Szymanski concedes that there has always been a debate over whether his members and the services they provide are a benefit or a cost. He answers that question with another: “How many ship managers have you seen going bust recently?” He argues that the broad expertise, economies of scale and lean organisational structure that he says characterise the effective ship manager are particularly valuable in times of economic stress. “If you look at a major shipowner, they might employ thousands of people to look after hundreds of ships. By comparison, the third-party ship manager might have between one and a half and three people, and a maximum of five, per vessel. The third-party manager can’t afford any fat: they have to be lean. Almost by definition, they are forced to be more efficient.” At leading international ship manager V.Ships, which manages more than 1,000 ships, around half under full management, and which has an active roster of 30,000 seafarers, company president Roberto Giorgi says the calculations a shipowner makes in taking on a ship manager have changed over the years. He notes that in the market crisis of the mid-1980s, with freight rates in free-fall, “a shipowner 48

WINTER 2012 www.thebaltic.com

could lower his costs dramatically” by shifting to a flag of convenience and adopting cheap crews from the developing world. “Today, they don’t have this possibility. They might save a little, but costs, including crew costs, are very well defined. Now, the ship management advantage is more about the effectiveness with which the ships are managed.” In the boom times, many owners buoyed by high freight rates and healthy profits allowed costs to rise sharply. In today’s more demanding environment, he says, “they need to rationalise those costs and, unlike in 1985, it has to be done in a way that does not compromise performance vis-à-vis the environment, the International Safety Management Code and the charterer. Delivering a good performance while rationalising costs is the ship manager’s forte.” On the cost front, owners can benefit from the volume discounting available to ship managers in the purchase of everything from stores and spare parts to lube oil and bunkers. “It’s about operating the ship efficiently with the best costs,” Giorgi says. “The core business is commercial. And the very successful owner wants the best chartering, the best sale and purchase, and the best operation.” He adds that “in a bad market, an owner might also choose to diversify because their traditional business is losing money. But in entering a market they don’t know, where the stakeholders are different, they might need people who are competent in this particular niche. Again, a good ship manager might fit the bill.” On cost-cutting, “this might be a change of approach by the shipowner of their own free will, or it might be forced on them by a bank or a shareholder who reasons that, ‘if today the issue is cost, let’s ensure that we deal with it sooner rather than later’.” Giorgi adds: “Globally, the ship management industry is growing faster because of this situation. I’m not

talking here about distressed assets, but owners deciding to partner with a manager or to put five or six vessels with a manager to benchmark for the rest of their fleet.” Enough shipowners have partnered with ship managers recently that it may just constitute a trend. Perhaps the most prominent is tanker operator Teekay, which in May announced a joint venture with Hong Kong-based Anglo-Eastern Ship Management, initially to handle around 50 of its conventional crude and product tankers. Teekay cited AngloEastern’s “technical and systems scale, and cost-effective support services” as critical to the deal, and anticipated cost savings as a result, starting from the fourth quarter of this year. In Greece, meanwhile, Tsakos Shipping entered a ship management joint venture two years ago, with Cyprus-based Columbia Shipmanagement, dubbed Tsakos Columbia Shipmanagement (TCM). Company executives declined to comment on its performance, citing its clients’ desire for discretion. However, publicly listed Tsakos Energy Navigation, which has 50 ships with TCM, said in its 2011 annual report that the manager had been instrumental in helping it control costs while maintaining standards. At Wilhelmsen Ship Management, president Carl Schou cites three drivers for the increased outsourcing of vessels through the crisis: economies of scale and the purchasing power to reduce operating costs; competence, delivered by the advantages of a large organisation offering specialist knowledge in everything from emerging rules and regulations to environmental issues and port state control; and a global footprint on the management and crewing side. Wilhelmsen’s strategy has been to focus on three discrete, high-end segments: liquefied natural gas, ro-ro carriers and seismic vessels, and to offer a broad palette of services that includes lay-up assistance and green recycling.

The third-party manager can’t afford any fat: they have to be lean. Almost by definition, they are forced to be more efficient



Thirty vessels in its managed fleet are Wilhelmsen-controlled, but it is the third-party business that is powering its growth, with 150 vessels under technical management and a network of 10,000 seafarers crewing 400 vessels. Schou claims that “growth for growth’s sake is not the aim”, but he anticipates that, by the end of this year, the fleet will have grown by 77% since 2009. However, challenges remain. Though Wilhelmsen’s focus on relatively wellperforming niche markets means it has not faced serious issues with client solvency, Schou says crewing remains a challenge. “Today, as in the past, there is a bottleneck. There is not enough competent crew around.” And although the frenzied poaching of masters and engineers that prevailed before the crisis has died down, the continuing flood of tonnage on to the world’s waters means the availability of competent seafarers remains tight. V.Ships’ Giorgi agrees, though he adds that, “in 2008, the wage scale for senior officers of certain nationalities increased 25%. But now the market is so depressed that there are no increases in salary and most of the crew tend to stay onboard. There is more retention.” Nonetheless, crewing is likely to remain a challenge for some time. Captain Szymanski of InterManager adds that shipowners pay insufficient attention to the training of cadets, who he describes as “the masters of ten years from now”. In particular, he notes: “It is very difficult to persuade owners to provide cabins for cadets who need onboard training. Some have pledged



to take two cadets on every vessel, but others haven’t. It’s about planning, and having the will to do it, but if they don’t invest it won’t happen.” Crewing aside, Giorgi says there is increased pressure on ship managers to control costs in a market where “every cent counts”, and a greater focus on risk management in terms of client relations. “It is a challenge to do a proper risk assessment of the business you are taking on. You have to make sure there is no sign of distress. And you have to ensure there is no pressure to compromise on safety, the environment or training.” He adds that: “In general terms the market has improved quite a lot in these areas compared with 20 years ago: the majority of owners are not compromised. But it is also true that when there is not enough money to pay for running costs, or the bank no longer supports the owner, it can become very difficult and result in terminations.” For Captain Szymanski, trust is an equally pressing issue in the relationship between shipowners and their managers. “I’m amazed by how big accounting departments are at many third-party managers, because they are constantly sending information to owners who are micro-managing them.” By the same token, unlike many other industries, “performance-based contracts are almost non-existent in shipping”. Again, Szymanski argues that it comes down to a lack of trust. “If an owner really trusted a third-party manager, they would set out clear goals and objectives and pay based on the job done.”

John has been a freelance journalist for 25 years. He has written extensively about shipping, primarily for Lloyd’s List, where he was New York correspondent for almost two decades. Before moving to the US, he was Milan correspondent for Fairchild Publications. He writes on politics, popular culture, travel and sport. His work has appeared in the New York Times, the Village Voice, Harper’s Bazaar, Men’s Journal, Travel & Leisure and the Daily Telegraph, among other publications. He is currently based in the UK.

Trade association InterManager aimed to improve the ship management industry’s operating performance – and, not incidentally, burnish its own image – by launching a key performance indicator initiative last year, developed in concert with the Norwegian Research Council, Marintek and Wilhelmsen Ship Management. The aim is to build a critical mass of enrolled vessels that gives it a basis for a range of meaningful performance benchmarks for the industry. Secretary general Captain Kuba Szymanski says that as of September 1,300 vessels were enrolled with the independent key performance indicator association. He hopes it will reach 2,000 vessels by the end of the second year, and adds that, as more ships are enrolled, “the increased robustness of the data will allow us to create better models”. Owners are particularly enthusiastic about the project, he adds, not just because of a desire to access reliable performance benchmarks, but “for other benefits, such as housekeeping and internal communication”. KEY PERFORMANCE INDICATORS MEASURED:

KPI001: Ballast water management violations KPI002: Budget performance KPI003: Cadets per vessel KPI004: Cargo-related incidents KPI005: CO2 efficiency KPI006: Condition of class KPI007: Contained spills KPI008: Crew disciplinary frequency KPI009: Crew planning KPI010: Dry-docking planning performance KPI011: Environmental deficiencies KPI012: Failure of critical equipment and systems KPI013: Fire and explosions KPI014: Port state control performance KPI015: Health and safety deficiencies KPI016: Human resources deficiencies KPI017: Lost time injury frequency KPI018: Lost time sickness frequency KPI019: Navigational deficiencies KPI020: Navigational incidents KPI021: NOx efficiency KPI022: Officer retention rate KPI023: Officer experience rate KPI024: Operational deficiencies KPI025: Passenger injury ratio KPI026: Port state control deficiency ratio KPI027: Port state control detention KPI028: Releases of substances KPI029: Security deficiencies KPI030: SOx efficiency KPI031: Training days per officer KPI032: Vessel availability KPI033: Vetting deficiencies

www.thebaltic.com WINTER 2012



Fossil free

FOSSIL FREE Fossil-free shipping is moving from concept to reality with a prototype of a new variety of 100% fossil-fuel-free cargo ship, but will the industry accept a return to sail power? Max Glaskin reports »


WINTER 2012 www.thebaltic.com

There’s no such thing as a free launch, but an emissions-free launch could be on the cards: a pioneering new ship setting sail on the oceans could slash fuel costs and operate without emitting any carbon whatsoever. To achieve this fossil-fuel-free glory, the innovation harnesses both definitions of “wind”. Computercontrolled sails catch the breeze for most of the journey and the Rolls-Royce engine, when needed, is fuelled by methane derived from waste food. It’s not been done before, partly because the price hasn’t been right – or rather, bunker prices are now so wrong that alternatives get a look in. Another driver is the pressure for shipping to clean up its act – it accounts for 3% of the world’s carbon emissions. If shipping was a country it would rank sixth for its greenhouse gas emissions. So B9 Shipping’s 3,000 dwt hybrid concept has moved off the drawing board and through the wind tunnel and test tank at Southampton University’s Wolfson Unit, albeit as a scale model. “Now we need funding to build a demonstrator,” says Diane Gilpin, the company’s business development director.


How much? “Harland and Wolff is helping us to finalise the build price,” says Gilpin, who has been involved for 20 years. “It’s not going to be significantly different from a conventional vessel, except for the extra steel for the three masts. There will be extra design and system integration costs for the electronic mast control and for the design of something to ensure the hull moves smoothly upwind – probably a retractable centreboard. I’m costing those at the moment so that we can assess the capital and operational costs of our vessel and stress-test the commercial benefits.” Being a hard-headed industry, shipping would probably snap up the new concept if it is shown to perform as well as conventional vessels and is cheaper. But what if it doesn’t quite reach these

Being a hard-headed industry, shipping would probably snap up the new concept if it is shown to perform as well as conventional vessels and is cheaper standards? “We encourage innovation and we encourage reductions in carbon emissions,” says a spokesperson for Intercargo, which represents bulk carriers. Intertanko, the tanker sector forum, is equally phlegmatic. “Most of our members are up for innovation if it’s beneficial to the environment,” says a spokesperson. Yet the first item on the checklist remains bunker price. “When a ship is using between 15 and 100 tonnes a day and the price of it is not only high but also volatile, that’s a critical part of the equation,” says Intertanko’s spokesperson. NEW HORIZONS Gilpin knows well that high bunker prices are the most important element driving shipping towards considering her ideas. “It has made a business environment that is fertile for B9 Shipping,” she says. “We are aiming to build a commercially viable ship and it just happens to be 100% fossil-fuel-free.” Several players in the industry have seen the financial opportunities of breaking from bunker fuel. The British Chamber of Shipping supports B9 and Gilpin says that P&O is “very interested”. Others are keen to espouse their commitment to the next item on the checklist of potential gains: the environment. “We are always looking at how we can help our customers to meet their environmental goals,” says Jacob Sterling, Maersk’s environment head. Slow steaming has been implemented by Maersk for almost five years, increasing transit time but improving the predictability of arrival, while cutting fuel consumption, and hence carbon emissions. Maersk is also looking into using biofuels in twostrokes, collaborating with two Danish universities and three other companies to test this more environmentally friendly development. The biofuels would be derived from waste such as biomass residuals. So would the shipping line go as far as adopting a combination of sail and engines fuelled by methane derived from waste food? “B9’s idea is something very different. While sails are proven, they would be starting from scratch with

GOING ROUND IN CIRCLES Humans have always turned natural resources into waste. All other living things operate similarly, but their waste is usually useful to yet more living things. To our shame and detriment, however, our waste is often damaging. The challenge today, when the supply of natural resources is dwindling, is to make sure that every step of an operation produces as little waste as possible and that what is produced is turned into something useful. This is the principle of the circular lowcarbon economy. It’s promoted by Dame Ellen Macarthur, among others, and it is one route to improving the environmental impact of shipping. Considering that B9 Shipping is part of a group that is the biggest onshore wind farm operator in the UK, it’s no surprise that a circular economy is an ingredient of its plans. “One solution we’ve been exploring is

importing biomass white pellet. It is becoming a longterm carbon-neutral feedstock to enable UK plc to meet its carbon reduction obligations,” says Diane Gilpin of B9 Shipping. “Our vessels run on wind and wastederived biogas, so we can deliver the pellets to a port-side power generation facility without creating more waste. “The port could also have an anaerobic digester to produce more biogas from waste food. We would use the biogas to refuel the vessels. At the same time they could collect waste residue from the anaerobic digester and ash from the power generation facility. Those two waste products could be formed to make a fertiliser that we could then take back in our fossil-fuel-free vessels. Then it could be used as a non-fossil additive for the production of the [biomass pellet] feedstock.”

a new ship type to serve specific markets,” says Sterling. “I’m really looking forward to seeing it in practice. I wish them all the best and I hope it’s something we can learn from.” Hapag-Lloyd says the environment is part of its decision-making process, too, and that its approach is not determined solely by economics. “We have always had a sense of social responsibility and today you would say that includes the environment,” says a spokesperson. The shipping line cites its record of enabling sea-trials of new technologies together with industry partners, such as novel refrigerated containers that use carbon dioxide instead of climate-killing gases. It also uses cleaner fuels in ports, and adopted the low-sulphur fuels required by European ports well ahead of legislation. Slow steaming and electronic valve control to improve fuel consumption are other examples of the line’s commitment to reducing its carbon footprint. Of course, for B9’s vessels to operate according to plan, ports must have a supply of methane derived from waste food. This is not standard anywhere, but Gilpin has it covered. “We call it the liquid www.thebaltic.com WINTER 2012



Severn Trent De Nora has over 35 years of leadership and expertise in electrolytic disinfection treatment solutions. Setting new standards with the Type-Approved BALPUREÂŽ ballast water treatment system, we have created a simple, reliable and cost-effective solution for both new and existing vessels. -

Easy to install Easy to operate Low capital cost Low operating cost Non-corrosive Operator safe Suitable for hazardous cargo area installations Surpasses IMO D-2 standards by ten-fold

Visit us at Sea Asia, Marina Bay Sands Singapore, 9 –11 April 2013 stand F07 basement 2 To learn why BALPURE is the right ballast water treatment solution for you, contact sales@severntrentdenora.com or visit www.balpure.com


01/11/2012 14:46


Fossil free

FAST FACTS In trials on the Perini Navi-built superyacht Maltese Falcon, B9 Shipping recorded the following findings after 12 months of operation:


23,310 nautical miles


Atlantic twice


12,179 individual sail sets


24.9 knots top speed; 381 nautical miles in 24 hours – twice


Sail 61% of time at sea


biomethane supply scheme. Liquefied natural gas (LNG) supply is an evolving infrastructure and shipping views it as a fuel of choice for the short to medium term because its emissions are pure. The Rolls-Royce engine we’ve identified for our vessels is part of that trend,” she says. “So the network of LNG will evolve as fleet demand grows. We will spike the gas grid with liquid biomethane produced in anaerobic waste food digesters.”


We’re not suggesting that the B9 solution is applicable to every route in the world, but it is potentially valuable in windier regions Other new port-side infrastructure might also be required so the fossil-fuel-free ships can work. ”The masts provide some loading and/or discharge challenges,” says Gilpin. “The solution for that is a work package we’re developing at the moment. If it’s dry bulk or liquid it’s blown in and vacuumed out. We think that is going to be acceptable but we’re working with commercial shippers and ports on looking at that situation. If we assume that it’s just going to be an engineering challenge it’s not going to be a showstopper.” QUESTION OF COSTS When funds are raised, the show will go on with a demonstrator that will be tried on two routes, one

probably transatlantic and the other between the UK and the Baltic. “Then we can see how we compare against a conventional vessel on those routes,” says Gilpin. “We’re not suggesting that the B9 solution is applicable to every route, but it is potentially valuable in windier regions and, not by chance, these tend to be where the trade routes first developed.” The demonstrator will be built using self-jigging steel for the hull, joined by hand-welding. The aim is that this process can be devolved to small island communities so they can build their own. “Small island communities are particularly vulnerable to fossil-fuel imports and are subject to the worst impacts of climate change already, so there’s a lot of momentum to find solutions to support them,” says Gilpin. “We’re talking to people in the Caribbean and Fijian islands about the potential. But the aim is to develop the technology here in the UK and Europe, and create the template for building and operating the vessels, then pass that back to the small islands.” The B9 offering is holistic, apparently realistic and refined over two decades. The technologies it uses are proven separately but the combination is new. The benefits it promises are tempting – and timely. So who’s going to pay for launch?



Max is an award-winning freelance journalist. He has contributed to UK newspapers and magazines including New Scientist, Discovery and The Engineer. He has presented a BBC television series and his book, Cycling Science, is to be published in the US and the UK.

www.thebaltic.com WINTER 2012



Ballast water technology



Ballast water technology is developing quickly despite convention delays CONTACT

Seven Trent De Nora 1 Maritime Square #09-51 Harbourfront Centre Singapore 099253 T: +65 6737 9565 F: +65 6887 5026 www.severntrent denora.com

Despite the slow ratification of the International Maritime Organization (IMO)’s Ballast Water Convention, ballast water technologies have been evolving quickly. The Ballast Water Convention was adopted in 2004 to address the problem of transferring invasive species in ships’ ballast water, but by the end of September 2012, only 36 states had ratified the convention, representing 29.07% of world tonnage. The Convention can only enter force 12 months after ratification by “not less than 30 states, the combined merchant fleets of which constitute not less than 35% of the gross tonnage of the world’s merchant shipping”. But while ratification of the Ballast Water Convention is moving at a snail’s pace, ballast water technologies are speeding through. The number of ballast water management systems that have received IMO approval now stands at 27, one of which is Severn Trent De Nora’s BALPURE Ballast Water Management System. Says the manufacturer: “Continued delay to ratification of the Ballast Water Convention will only result in the appearance of flagrant disregard of good environmental stewardship – thus making the entire market suffer negative public opinion. Even the early adopters will be lumped together with the truly guilty, and reputation recovery will be all the more difficult.” Severn Trent De Nora recommends that the marine industry reacts by adopting best practices and

Continued delay to ratification of the Ballast Water Convention will only result in the appearance of flagrant disregard of good environmental stewardship


selecting ballast water management system vendors to partner with. “Just waiting until there are no more choices and hoping the convention goes away will eventually backfire on the industry. “As the US Coast Guard (USCG) and Environmental Protection Agency rules eclipse the IMO Convention enforcement, the rest of the world will not be able to explain why such effective actions were not taken when equipment to meet the standards was available.” Severn Trent De Nora has installed and sold 18 systems in the past 15 months since receiving IMO type-approval in July 2011. The latest order was from a Chinese shipowner for the BALPURE system to be installed in very large crude carriers (VLCC). “We are finalising more orders over the coming months,” the manufacturer adds. “All of the contracts have been for new builds. There remains a slow early adopter stance for most owners – given the clearly stalled IMO ratification process and outlook. There are many questions about the dual-certification prospect for both IMO and USCG type-approved systems.” Severn Trent De Nora has installed and sold BALPURE for use in vessel types ranging from bulk carriers to VLCCs, offshore barges, pipelay vessels and liquefied natural gas carriers. BALPURE has type-approval from Bureau Veritas, as well as a certificate of design assessment from the American Bureau of Shipping, plus type-approval applications with other classification societies.

HOW IT WORKS Severn Trent De Nora’s BALPURE ballast water treatment system uses electrolytic disinfection technology to clean ballast water. 54

This electrolytic process lends itself to scaling up production rates to meet the demands of large ships with high ballast flow rates

WINTER 2012 www.thebaltic.com

(above 3,000m³/hr) or poor incoming ballast water quality. Standard BALPURE systems are available to treat up to 5,000m³/h of

ballast water flow, and custom units are available to treat higher flow rates up to 20,000m³/h. The operating and capital cost savings

from scaling up electrolytic disinfection ballast water treatment systems can be significant, says the manufacturer.


Open registries


The debate is on: fly the national flag or support open registries? James Graham and Carly Fields report » Selecting which registry flag to fly has never been easy. The choice of flags and registers available can, at times, seem overwhelming for operators. In this tough economic environment, should they favour their national flag to boost prestige and, perhaps more importantly, the domestic coffers? Or should they look after the bottom line and support open registries with the promise of fiscal incentives and non-national crew? The choice can be between a rock and a hard place. However, there is a happy medium that has, in the past, been overlooked as the battle for national versus open registries raged on. International registers, which allow nationals and non-nationals to fly a traditional flag with less onerous requirements than with the true national flag are starting to come of age. While international registries are not a new phenomenon – Norway’s international ship register celebrated its 15th anniversary this year – the more recent rise of the UK Ship Register (UKSR) and the imminent introduction of an Australian international 56

WINTER 2012 www.thebaltic.com

shipping register prove that interest in international registers is increasing. The rising popularity of UKSR can be partially attributed to its home-grown attitude. The register offers a 24-hour service to its customers, with a single point of contact through customer accounts managers and technical support through customer service managers. And, rather than delegating initial, intermediate or renewal audits to recognised organisations, it uses its own Maritime and Coastguard Agency (MCA) surveyors to undertake inspections. This policy allows UKSR to keep tight control over the standards of its registered tonnage. All security audits and plan approvals are free to UKSR customers. Debasis Mazumdar, head of UKSR, tells The Baltic: “We try to do all our audits ourselves; that is the only way we have control over the company as well as the ship. If we do the audits then we know exactly how the ship and company are working, which allows us to offer advice for continuous improvement.”

It’s difficult to overstate how important the new Australian International Register is here and as a model for others. It’s secured the future of our national shipping. For Australians, this new model means employment, better business and the safeguarding of a vital resource



Many other registers outsource their auditing to classification societies. UKSR also carries out a general inspection of the ship free of charge at the same time as the audit. As the MCA inspectors are also Port State Control inspectors, they can immediately point out any obvious defects to the Master. STEADY, MANAGEABLE GROWTH This strategy has paid off for UKSR: deficiencies in its ships are consistently low and the register has long maintained a top-five position on the Paris Memorandum of Understanding white list. All this over a period where the gross tonnage on its register has more than doubled: rising from 6.5m gt in 2001 to 17.8m gt and counting in 2012. UKSR is one of few flags to provide ISO 9000 and ISO 14000 certification to its customers, and ISO audits are harmonised with other mandatory audits onboard and in office.

While international registries seem to be speeding up, UKSR stresses that it will not expand for expansion’s sake: “Our intentions are to be open to quality ships and quality owners. But we need to be careful to balance our resources with the number of ships we have, otherwise standards may drop. We are pursuing steady growth at a pace that we can manage.” It’s a model with at least one admirer. According to ITF president and MUA national secretary Paddy Crumlin, Australia is “heavily influenced” by the UK, as it sets up an international ship register. “It’s difficult to overstate how important the new Australian International Register (AISR) is here, and as a model for others,” says Crumlin. “It has done nothing less than secure the future of our national shipping. “For Australians, this new model will mean employment, better business and the safeguarding of a vital national resource.” But it goes beyond that, he says. The ITF believes that this type of international register provides a viable alternative model to the open registry option. “The AISR also enshrines regional labour cooperation, providing for regional workers from the Pacific and Timor Leste to work on Australian flagged ships under Australian collective agreements to ITF minimum standards, while protecting the rights

A TALE OF TWO LINES In late 2011, Cunard ended a 171year tradition of UK registration by moving its cruise ships to the Bermuda Registry. At the same time, the decision to flag the cruise liner Deutschland in Malta by owners Peter Deilmann Cruises was overturned by the threat of director resignation. Had it gone ahead, no German-owned cruise liner would have been German-flagged. A subsequent statement from the line stated: “Given the great interest in the [flagging of Deutschland], we have decided to abstain from the proposed change of flag and leave

the German flag. We do this in the hope that all those who have fought so vigorously for the German flag will also assist in addressing the consequences of this decision.” Only 530 of some 3,700 German-owned ships fly the German flag. Cunard explained its move will allow it to stage weddings onboard. Currently, such marriages are not legal on UK ships. The move also came shortly after the British parliament passed the Equality Act 2010, which would require all staff on British-flagged ships to be paid wages equal to those of British crew.

www.thebaltic.com WINTER 2012



Open registries


Maintaining a quality fleet is particularly challenging these days when many owners are watching every penny to maintain profitability. The Registry has been working more closely with owners and operators to ensure that quality remains a focus



of Australian resident seafarers to carry cargoes between Australian ports.” However, while this interest in international flags is great for traditional shipping nations, there is still a mountain to climb in terms of winning back typical open registry tonnage. While 84% of the world’s registered tonnage is in the hands of the top 20 ship registries (a list that includes a mix of register type), the top three registers – Panama, Liberia and the Marshall Islands – control 40% of the world’s registered tonnage. All are open registries. And while historically open registries were a Prohibition-era ruse to avoid US anti-alcohol laws, among other legislation, things have changed. “Many companies don’t differentiate between the way they run their national flag and [open registry] ships. Tax and other financial regulations are usually the reasons for using [open registries]; crewing restrictions are less of an issue,” says one London-based expert. REGISTRIES AND BEST PRACTICE Dr Dale Neef, management consultant and founder of DNA Maritime, accepts the permanence of open registries and suggests where they can raise the bar in best practice. Dr Neef says: “I suspect that [open registries] are here to stay and that our best hope is that some of the registries, pressured by operators, begin to differentiate themselves by establishing higher levels of corporate social responsibility

behaviour – creating a tiering of [open] registries that ranges from ‘may be bad’ to ‘are demonstrably bad’. Any movement in that direction is to be welcomed.” Nothing in business is ever static, and change is coming for registers and shipping lines in the form of the Maritime Labour Convention 2006. Next year’s implementation of the convention will set seafarers’ rights to decent conditions of work and will help to create conditions of fair competition for shipowners. The convention enters force on 20 August 2013, and Bill Gallagher, president of International Registries for the Marshall Islands, believes responsible registers will implement it. He adds that the convention matches the ambitions of the Republic of the Marshall Islands (RMI) to be responsible for owners and labour, and that the RMI register has put a premium on quality since its inception – and is now the third largest in the world. He says: “Maintaining a quality fleet is particularly challenging these days when many owners are watching every penny to maintain profitability. Communication is a critical factor in working with cash-strapped vessel owners and operators. The Registry has been working more closely with owners and operators during this global financial downturn to ensure that quality remains a focus.” While the industry continues to pit closed, international and open registries against each other, UKSR has a closing comment that may temper the debate. It regularly meets with competitors in a drive for continual improvement in safety standards. “We are all part of the same industry and are all working for the common cause of safety at sea,” says Mazumdar. “We remain open to discussions with other registers, whether they are competitors or not, for the greater good of the maritime industry.” JAMES GRAHAM

After a career on daily newspapers, James started in business-to-business transport journalism in 1995, and specialises in ocean and rail-cargo transport. Outside journalism, James works for a leading transport PR agency, producing material for two of the world’s most innovative freight forwarders.

According to the United Nations’ (UN) Review of Maritime Transport 2011, the 35 largest flags of registration accounted for 93.8% of world shipping. Of those, the largest flag is Panama, with 306 million dwt (21.9% of the world fleet), followed by Liberia, with 166 million dwt (11.9%), and the Marshall Islands’ 99 million dwt (7.1%). Together, the top five registries accounted for 52.6% of the world’s tonnage, while the top ten registries accounted for 72.7%. The UN identifies that, by number of vessels, the largest fleets are flagged in Panama (7,986 vessels of 100gt), the US (6,371), Japan (6,150), Indonesia (5,763), China (4,080) and the Russian Federation (3,485). Except for Panama, these fleets include general cargo and other vessels that are employed in coastal, inter-island and inland waterway services. Panama caters mainly for owners from China, Greece, Japan and Korea, while Liberia is used mostly for German and Greek-owned ships. Marshall Islands Registry clients are principally from Germany, Greece and the US. The client base of the Bahamas is broad. The largest group of owners for the Maltese Registry is from Greece. Carriers from China, Japan and Korea rely mostly on the Panama flag, while German owners register their ships mainly in Liberia.

www.thebaltic.com WINTER 2012


‘Very good! come back next year.’ P Nielsen, Danish Ship Finance

‘I gained a lot out of this event. most of the topics have been very interesting for my work.’ S Claussen, Imtech Marine




10th Year


NEW FOR 2013




For further information on the programme or to register please email MARITIMECUSTSERV INFORMACOM call   or visit HTTPWWWINFORMAMARITIMEEVENTSCOM&+4"!!$ Organised by:

Official Publication:


Open registries


Barbados Maritime

ISLAND LIFE Described by Charles Kingsley as “that lovely isle, the richest gem of all tropic seas”, Barbados boasts a long maritime tradition, and centuries of social and political stability


is principal registrar at the Barbados Maritime Ship Registry ja@barbados maritime.com +44 20 7636 5739 www.barbados maritime.com

Since the 1650s Barbados has played a key role in international shipping. This tradition continues today in the form of Barbados’ International Ships Registry (trading as Barbados Maritime (BM)), as well as in the continuing presence of some of the world’s largest cruise ships and as a transhipment point for much of the region. This maritime excellence is supported by an infrastructure that is internationally recognised as world-leading. BM continues Barbados’ tradition of high-quality, value-for-money services supported by excellent personal attention. This is a national tradition of which Barbados is justifiably proud. Long before BM was established in the mid-1990s, Barbados as a country had invested heavily in its people and its infrastructure in the firm belief that knowledge, technology and excellent service make the difference between the good and the great. The result is a small developing nation that has repeatedly punched above its weight internationally across many sectors, including international business in general and ship registration in particular. This is shown not in its own words but in the words of many international organisations. Presented below are some select international rankings for Barbados. BM has been built on this solid foundation and distinguishes itself in a crowded market in the following ways: š Market-leading turnaround times – time is money. BM provides immediate solutions for emergencies and same-day completion for most




š š š š š š š

other issues. These include initial ship registration, endorsements under the Certification of Receipt of Application, dispensations and exemptions. Better customer service and personalised care – based on customer feedback from those that have come from other flags (especially closed registries) and from those with multiple ships across multiple flags. Barbados is consistently reported to have the fastest and best service. Direct customer access to decision-makers, including the principal registrar – no need to liaise with junior team members who cannot make quick and important decisions when deadlines are under threat. No tricks and no hidden charges, just honesty – what you see is what you get (or even better, we often deliver services for free to regular customers, just to say ‘thanks’). BM does not give low quotes and then charge for everything customers need help with. BM listens and is flexible. A long-established presence on the Paris Memorandum of Understanding White List. One of the first countries on the Qualship 21 list. ISO 9001 Certification via Germanischer Lloyd. 24/7 access and emergency number. International registrar and inspector networks. Strict quality standards for BM’s ships.

BM is confident its service and organisation is among the best. Bring your ships over to Barbados Maritime and prove it for yourself.






Network readiness


Latin America / Caribbean

World Economic Forum


Global competitiveness


Latin America / Caribbean

Global Competitiveness Report


Soundness of banks

2nd / 11th

Latin America / Worldwide Caribbean

Global Competitiveness Report


Availability of latest technologies


Latin America / Caribbean

Global Competitiveness Report







Human development


The Americas



Classified as a “developed” nation for human development by the United Nations Development Programme (UNDP) *Estimate by UNDP report

www.thebaltic.com WINTER 2012




EXPORT MARKET PUSHES THROUGH THE GLOOM Shaky economic signals have failed to dampen enthusiasm for port capacity growth in Europe, as the bloc looks to trade its way out of the doldrums. Alison Roberts reports »


European deepwater capacity looks set to keep growing despite the uncertain outlook: while the global crisis may have put some investments on hold, many observers argue that Europe will need to trade its way out of recession. Officials in Brussels lament sector inefficiencies and a lack of a continent-wide strategy, but they back infrastructure investment to kick-start growth. As for port operators, with most deep-sea trade being with Asia for the foreseeable future, their fear is that if they do not expand to welcome as many ultra-large carriers as possible, “we will become the spoke on somebody else’s hub”, as one UK manager put it. The start of operations on 21 September at Germany’s first deepwater container port is just one sign of the times. Eurogate says its terminals at Bremerhaven and Hamburg have handled 650 vessels over 10,000 teu capacity since 2006, but its new JadeWeserPort at Wilhelmshaven can take the largest ships at any time, with no tidal restrictions. In a statement, German economy minister Philipp Rösler stressed the North Sea ports’ “key macroeconomic importance for Germany as an export nation”, but also highlighted the need to keep up with the neighbours. “Apart from Rotterdam, these vessels will now also be able to call at Wilhelmshaven,” he noted, casting it as a future international hub. CONTINUED GROWTH Not that the global downtown has had no consequences. The £1.5bn ($2.4bn) London Gateway project was on hold for most of 2009, as the downturn hit trade and the property market in


WINTER 2012 www.thebaltic.com



Dubai, home to operator DP World. But dredging and construction resumed in 2010. By the fourth quarter of 2013, one ultra-large berth is to be in operation; in five years’ time, six. Even then, demand could remain flat. But adding capacity is a slow process: the public inquiry for London Gateway was a decade ago, when port congestion was a problem and DP World had not yet taken over P&O, which planned the gateway.

Officials in Brussels lament sector inefficiencies and the lack of a continent-wide strategy, but they back infrastructure investment to start growth But DP World’s existing UK terminal at Southampton is also spending £150m ($242m) on new capacity for vessels of 16,000 teu and over. Associated British Ports, which runs the port and has a 49% stake in the terminal, says it is essential to cater to ultra-large carriers plying the Far East to North Europe route. EUROPE’S INTERNATIONAL CONNECTIONS “Nearly all our containerline customers will be deploying these vessels over the next three years,” explains ABP’s Lindsay Mulholland. While “mindful” of expansion by state-run ports in Europe, ABP says its decision was based on its relationship with its customers. Still, competition from North Europe is among motives cited by officials at Felixstowe for its recent expansion. With nine ultra-large berths, Hutchison’s self-styled “port for Britain” will still have the UK’s largest container terminal once London Gateway



Alison is a Lisbon-based freelance journalist who works as a correspondent for many outlets, including Platts and BBC News, as well as Englishlanguage broadcasters. Her past employment in Portugal, Germany and the UK includes work as a correspondent, bureau chief and editor with Bloomberg News and the Financial Times group. She spends much of her time reporting on the ramifications of the eurozone crisis.

is completed. As the government banged the drum for manufacturing, Felixstowe officials estimated an 8% year-on-year increase in exports handled in the first half of 2012. But for a port at the intersection of global trends – as well as shipping routes – look to Portugal, whose economic crisis has laid bare the fact that exports are the only way forward. And trends do point to the country wiping out its trade deficit for the first time since 1943. “If anything is working right now in Portugal, it’s exports,” says Rui Pinto, general manager of Terminal XXI at Sines, operated by PSA Singapore. “What we’re seeing is Portuguese companies looking for markets outside Europe: Latin America, the Far East and the US, which nevertheless is doing a bit better.” The first deepwater berth at Sines, in 2004, heralded a revolution, says Pinto. Where all Portugal’s maritime exports used to be carried by feeder ships to ports in North Europe or Spain, to be transhipped for its final destination, “now it’s Spanish ports that are using Sines to tranship their cargo, so this is a major contribution to the Portuguese economy.” In the first five months of 2012, the terminal’s export volumes were up 15% on the year, thanks to the completion in March of a second ultra-large berth. The third is to be ready by year-end, and by 2015 the terminal should be handling more than 1 million teu per year. Sines dubs itself “Europe’s Atlantic Gateway” and sees Panama’s expansion as a game-changer. “We believe that once the Panama Canal is ready, we will see round-the-world services coming back,” says Pinto. “If you imagine a ship coming from China transiting Panama and having Sines as the first port of call, you see how important this project might be for us.” www.thebaltic.com WINTER 2012


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From the publishers of Guide to Port Entry and The Ships Atlas Reigate Hill House | 28 Reigate Hill | Reigate | RH2 9NG | United Kingdom Tel: +44 1737 242255 | Fax: +44 1737 222449 | email: info@portinfo.co.uk | web: www.portinfo.co.uk Follow us on

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DUTCH STALWART The Port of Amsterdam is building on its traditional cargo dominance to develop its budding renewable business



Port of Amsterdam www.portofamsterdam. com

The Port of Amsterdam already has a proven track record in energy and agribulk handling, but this Dutch stalwart has set out to prove that it has even more to offer. The port has set its sights on a rising business that promises to take a leading role in energy generation in the future: renewables. As part of its efforts to make the energy supply more sustainable and lay the foundation for a “biobased economy”, the Dutch government wants renewable energy to account for 14% of national energy consumption by 2020. The port’s strong position in handling mineral energy and agricultural products gives it a foot up the renewables ladder, marrying existing expertise with extensive infrastructure for the storage, transhipment, processing and blending of energy sources. Marleen van de Kerkhof, unit manager of marketing and consultancy at the Port of Amsterdam, describes renewable energy as “well integrated” into the port. “Biomass and biofuels operations are growing steadily, and biogas has also become important, with biogas production at Greenmills and Waternet.” Another example is oil terminal Oiltanking Amsterdam, which provides space to biodiesel plant Vesta Biofuels on its site. “They produce the biodiesel and we provide the port facilities, such as jetties, tanks, storage and transhipment facilities, and blending,” says Oiltanking managing director Peter van Wessel. Biomass activities are also growing in the Port of Amsterdam. Biomass cargo arrived at the port’s OBA Bulk Terminal in May 2012 on a ship from Vancouver, Canada, carrying nearly 47,000 tonnes of wood pellets for the power company RWE, the Germanbased parent company of energy provider Essent and other companies.

Marcel Gorris, commercial manager of bulk logistics at the Port of Amsterdam, adds: “It’s not yet clear to what extent biomass will contribute to German electricity generation, but Germany has the potential to become a major biomass market, and Amsterdam can play a key role in facilitating the logistics.” There are also promising developments in offshore wind farming. The port has ample space for the transport, storage and assembly of wind turbines for wind farms. Beyond physical space, the port is also home to several key logistics companies, boasts strong infrastructure, and has technical, maritime and logistics expertise close at hand. “Having previously facilitated oil and gas platforms and played a role in the assembly of two wind farms off the Dutch coast, IJmuiden already has extensive experience in offshore activities,” Van de Kerkhof says. Gorris adds: “Renewable energy means long-term business. It requires a constant stream of products and, in turn, generates a constant stream of products as well. For example, at the Waste and Energy Company (AEB) one of the profitable activities is increasing the recovery of metals from bottom ash (the non-combustible residue of combustion). There’s so much value in that activity that it’s very interesting from a financial perspective.” Amsterdam’s central location, the availability of storage, transhipment, processing and production facilities, the high quality of the business environment, and the increasing number of renewable energy activities allow companies to conduct solid, future-proof business in the renewable-energy market. Van de Kerkhof closes: “As a result, the port of Amsterdam is increasingly becoming an attractive international logistics hub for renewable energy.”

PORT POWER Potential for renewable energy in Amsterdam (in tonnes) 2010








Offshore wind farms




www.thebaltic.com WINTER 2012



Rosneft Marine Strengthening its presence in the Baltic and Black Sea, as well as in China


osneft Marine has continued to expand rapidly since it was established in London in 2010. A subsidiary of Rosneft Oil Company, Rosneft Marine has now set up a new office in Beijing while expanding the number of ports that it services in Russia. The company officially opened its second office this May in Beijing, China to service its growing Asian client base. Staffed with a multilingual team, the new office aims to support its regional customers with ease of communication and greater access to premium-quality marine fuel in the Far East. In addition to expanding Rosneft’s presence in Asia, this move allows the company to provide specialised services to regional clients without any compromise on its existing offering to the global and European markets. The formation of this second office in Asia also comes at a time when environmental concerns are changing the landscape of international shipping.

Increasing demand Demand for low-sulphur fuel oils is expected to increase following the introduction of Emission Control Areas in North America, particularly for vessels travelling from Asia to the West Coast of the US. The company intends to work closely with regional ship operators who have US-bound vessels to supply them with ECAcompliant low sulphur fuels of the highest quality at attractive prices. An integral part of its strategy for the China office will be to establish long-term partnerships with customers. The company hopes to collaborate with customers particularly on the basis of long-term formula contracts, as it is one of the few suppliers able to guarantee a reliable and consistent supply of high-quality fuel in the region. As part of a plan to strengthen its presence in the Baltic and the Black Sea, Rosneft Marine extended its bunker supply network to include the western ports of Ust-Luga, Kaliningrad and Novorossiysk in April this year. The servicing of additional ports brings greater ease of access to Rosneft’s high-quality marine fuel in a wider range of bunkering locations to customers.


Rosneft Marine’s sister company RN Bunker is the logistics and domestic marketing arm of Rosneft’s bunkering business. It has just taken delivery of a new bunker tanker in the port of St. Petersburg under the terms of a 10-year time-charter agreement. The RN Polaris is a 6,800 metric tonne-capacity tanker that is also registered as an ice-class vessel. It will be operating in St Petersburg, Ust-Luga and other parts of the Russian end of the Gulf of Finland.

Raising standards In order to further the company’s commitment to unparalleled assurance of quantity and quality, Rosneft Marine, together with its RN Bunker, is currently in the process of establishing Rosneft’s first full-quality management standard for its bunker supply chain in the port of Nakhodka (NQMBS). Standardising Rosneft’s bunker supply process ensures a reliable, consistent supply of premium marine fuel that is second to none in the market. Rosneft Marine aims to have a similar implementation of standards across its entire bunker supply network in the future and will continue to seek expansion in other parts of the world with the aim of providing global clients with superior, localised service while still delivering premium quality fuel in Russian ports.

World Bunkering Winter 2012


LATEST NEWS FROM THE DOCKS An update on ports around the world, from Asia to Africa and from the UK to the Middle East HONG KONG


From 26 September 2012, ocean-going vessels can apply for a 50% reduction in port facilities and light dues if they use cleaner fuel while berthing in Hong Kong waters. Owners and operators, or their agents, who are looking to take advantage of the opt-in scheme must first complete a one-off registration of their vessels with the Environmental Protection Department. To apply for the reduction after registration, two declaration forms must be submitted to the Marine Department to verify the use of fuel with a sulphur content of not more than 0.5% while at berth. The forms must be submitted for each vessel and signed by the shipmaster for every port call to Hong Kong. (Source: Government of Hong Kong Special Administrative Region Marine Department Notice No 132 of 2012)



An integrated radar and automatic identification system for coastal surveillance has been installed in Dar es Salaam, Tanzania. The system was officially launched at a ceremony attended by the special representative of the secretary-general of the International Maritime Organization (IMO) for maritime security and anti-piracy programmes, Hartmut Hesse.

The IMO, in partnership with the governments of the United Republic of Tanzania and the US, has spent 12 months developing the system designed to unite civil and maritime law enforcement across Tanzania to tackle security threats, including piracy. The Automatic Identification System provides a coastal picture to the Tanzanian People’s Defence Force and the civilian authorities at the Dar es Salaam Maritime Rescue Sub-Centre and the Integral Information Sharing Centre. (Source: International Maritime Organization Briefing No 37)



The Maritime and Port Authority of Singapore (MPA) has issued guidance on the use of privately contracted armed security personnel (PCASP) onboard Singaporeregistered vessels while transiting high-risk areas. The MPA’s guidance is in line with the revised interim guidance being promoted by the International Maritime Organization (IMO). In its Shipping Circular No 15 of 2012, dated 18 September 2012, the MPA states that, taking into account the guidance provided by the IMO, there may be scenarios in which shipowners may consider the use of armed guards for ships transiting the piracy high-risk area, due to the increased threat by Somalia-based pirates.

The new quay space will benefit a wide range of harbour users However, the use of PCASP should not be considered as an alternative to best management practices and other protective measures. UNITED KINGDOM


Lerwick Port Authority has given the go-ahead for two new projects to further develop the harbour. The Port Authority has awarded a two-project contract to a local development company to reclaim land and establish a new 151-metre quay at Holmsgarth, Lerwick. The quay space is expected to be completed in July 2013. Although predominately serving the fishing industry, the new quay space will also benefit a wide range of harbour users, including the offshore oil and gas sector.



Navies and representatives from more than 20 nations and four continents have taken part in a military-style exercise in the international waterways of the Middle East. The International Mine Countermeasure Exercise included a symposium and a coordinated on-water exercise. The exercise, hosted by the US Navy, was defensive and showed the community’s ability to work together to ensure free and secure trade. The exercise centred on inert mine shapes. It took place in the Arabian Gulf, but outside the Strait of Hormuz and beyond commercial shipping lanes, to avoid posing any hazard to commercial traffic. (Source: Maritime Liaison Office News, September-October 2012, www.cusnc.navy.mil/marlo)


www.thebaltic.com WINTER 2012





recent survey of shipowners in the Baltic region, conducted by classification society Det Norske Veritas (DNV), indicated that most are interested in liquefied natural gas (LNG) as fuel. “Not long ago, this would have been a surprising result because it is commonly argued that many shipowners globally are reticent about LNG, despite the low levels of SOx and NOx emitted to the air when it is burnt as fuel,” says Lars Petter Blikom, LNG segment director for natural gas at DNV. But times are changing for shipowners, ports and oil majors. “The perception that LNG for shipping will be an insignificant market for oil and gas majors is misguided,” says Blikom. “As a theoretical example, if the maritime fuel consumed in the Baltic Sea was replaced by LNG it would require the capacity of a full-scale import terminal. For the whole of Europe, it would require ten times that.” The construction of LNG bunkering facilities is underway in Zeebrügge and plans have been developed for small-scale LNG terminals in Rostock, Gothenburg, Turku, Swinoujscie, Padilski and Porvoo. Germany, too, is taking action. The Hamburg Port Authority and Linde Group are currently preparing

a feasibility study on the commercial use of LNG in the Port of Hamburg. The findings will form the basis for the required infrastructure developments there. Brunsbüttel Ports and Gasnor have already embarked on plans for LNG bunkering at Elbehafen Brunsbüttel, close to the entrance of the Kiel Canal. Shipowners have been understandably reluctant to invest in LNG technology. Choosing the right marine fuel for a newbuild ship can be challenging, says Blikom. However, a recent DNV study using data from two energy analysis firms – the US Energy Information Administration and IHS – compared life-cycle economics for a typical ship based on fuel prices and broadly supported LNG as a fuel


Shipowners who embrace liquefied natural gas as an alternative fuel choice could find themselves saving cash, with the added advantage of saving the environment. Wendy Laursen reports

LNG offers a potentially superior alternative to switching between heavy fuel oil and low-sulphur marine diesel oil www.thebaltic.com WINTER 2012



FAST FACTS More than hot air

Recent LNG bunkering news makes encouraging reading. Lars Petter Blikom, LNG segment director for natural gas at DNV, comments on the latest developments: The world’s largest bunkering hub, Singapore, has communicated clear ambitions for supplying LNG by 2014 at the latest. Almost all large North European ports have communicated plans for LNG availability by 2013-2014, including Rotterdam, the world’s third-largest bunkering hub. Ports and port authorities are demonstrating action – it is not just talk. One year ago, the oil and gas majors were not interested. The volumes were too small, they said. Since then, they have clearly done the maths, and many of them now indicate significant interest in the growing maritime market. Risk analysis and operational procedures are being developed for various places, and they will all be unified in time. Various small players are looking for their angle in the LNG supply and bunkering business.

Introducing liquefied natural gas (LNG) as the future fuel for vessels means shipowners and bunker brokers have to find new ways of purchasing and accessing the fuel, writes Skangass’s Roger Göthberg The current method of bunkering has been used for a long time, and shipowners today enjoy the luxury of being able to access a bunker point virtually everywhere they call. Now, LNG is being introduced as an alternative fuel for vessels to comply with stricter emission regulations in a cost-efficient way, but there is currently limited infrastructure to serve the bunker market. The vessels running on LNG today are mainly small vessels trading in a limited area (mainly along the Norwegian coastline). These vessels are bunkered from small land-based terminals or directly from trucks. Such solutions work well as long

as the vessels are of limited size and require small bunker volumes, but as bigger vessels convert to LNG propulsion, more suitable bunkering solutions will be required. One solution to bunkering high capacities of LNG can be seen in the product tanker Bit Viking, which trades along the Norwegian coastline for Statoil. Bit Viking bunkers directly at the Skangass LNG plant in the Risavika Harbour, outside Stavanger. This solution combines good availability of LNG with a bunker flow rate of up to 400 tons/hr; however, it is a static solution that only works for vessels trading in the area. Another example is the approach developed for Viking Lines’ new passenger vessel Viking Grace, trading between Turku and Stockholm from January 2013. Viking Grace will require bunkers in the port of Stockholm every day, but the lay time is limited to

45 minutes. To meet this demand, LNG supplier AGA has developed the world’s first purpose-made LNG bunker barge for this operation. The bunker barge will be loaded via tank trucks and will bunker Viking Grace while passengers and cars leave and board the vessel. It is crucial that the industry investigates new cost-efficient solutions to bunker LNG in an effective, safe and attractive way so that shipowners can rely on LNG as the fuel for the future. And in that respect, it will surely not be long before the market witnesses the first large LNG bunker vessel, enabling swift and safe LNG bunkering in much the same way as fuel oil is currently delivered in and outside large ports. Roger Göthberg is director of sales and marketing at Skangass, a Norwegian company responsible for the operation of the Risavika LNG plant.

choice. A mark-up of $6/MMBtu was added to the speeds, and, to reduce energy use, they will be built prices of LNG to accommodate additional costs for as lightweight as possible, with materials such as distribution and bunkering. “It is indicated again, like fibre-reinforced plastics, aluminium and titanium in several studies before, that LNG offers a potentially becoming more common. superior alternative to switching between heavy fuel More than 30 LNG-fuelled vessels are currently oil and low-sulphur marine diesel oil.” on order books globally, many to DNV class. These Despite the uncertainty surrounding fuel prices, new vessels include ro-pax, ro-ro, general cargo and now is the time to decide on fuel choices, as air coastguard vessels, in addition to ferries and offshore emission regulations tighten in the Baltic and supply vessels. Four conversions of existing vessels globally from 2015, says Blikom, adding: “The are also planned. Larger ship designs are expected situation in the Baltic is dire.” Of the many soon. DNV has shown the feasibility of large LNGenvironmental threats the region’s marine fuelled ships through concept studies: Quantum, a ecosystems face, the most serious and difficult 9,000 teu container ship; Triality, a very large crude to tackle with conventional approaches is the carrier oil tanker; and two different-sized bulk carriers. continuing eutrophication of the waters, as excess To help owners assess the market, DNV has nutrients accumulate and stimulate excessive plant developed a large-scale computer simulation using growth. Air pollution from shipping is contributing shipowner and cargo fleet census data that predicts to the problem. the deployment of various emission-reduction Passenger and ro-pax vessels are particularly technologies up to 2020. The modelling indicates important, as although these vessels make up only that about 40% of the world fleet will be affected 5% of shipping traffic, they account for approximately by the 0.1% sulphur limit coming into force in 2015. 27% of NOx emissions – more than the Baltic’s general An analysis of fuel choices reveals that between cargo vessels and tankers combined. This is a result 10% and 15% of the newbuildings delivered before of cargo density: tankers can carry more cargo than 2020 will have the capacity for burning LNG as fuel. passenger vessels for the same engine size. This equates to 1,000 ships. DNV continues to work DNV predicts that, in the future, passenger and with regulators, ports and shipowners to reduce ro-pax vessels will have a much greater focus the impact of shipping on the Baltic Sea, and looks on optimal energy use and will be designed forward to a cleaner future. with emission-reduction technologies such as hybrid // WENDY LAURSEN power systems that include Wendy started as a freelance journalist in 2004 after completing a burning LNG as fuel. Fuel Master of Science research degree in marine ecology, a diploma in cells and batteries will also journalism and a certificate in advanced communication skills. Initially be included in the future. As writing on topics such as medical science, biofuels and chemical the need for energy increases engineering for international magazines and newspapers, she started writing for maritime magazines in 2005. exponentially with speed, ferries might operate at slower www.thebaltic.com WINTER 2012


Anchored by excellence. Out-of-the-box doing requires out-of-the-box thinking. BBC Chartering’s industrialized global transport capabilities provide clients with the right people, skills, local expertise and hardware to deliver cargo, service and safety with greater reliability, quality and productivity.



Industry developments


Heavy-lift shipping is seeing rapid growth thanks to new projects in key sectors and developing economies By Clive Woodbridge



pecialist operators of heavy-lift vessels have seen an increase in project bookings and cargo volumes this year. Three core segments – infrastructure and transport, power and energy, and mining and construction – are providing most of the cargo, with investment in emerging economies in South America and Africa, as well as projects in the Middle East, driving demand. As Peter Bloch, commercial director for the Dutch company Jumbo Shipping, points out: “At the end of 2011 we expected that the heavy-lift shipping markets in which we are active would perform more or less the same in 2012 as they did in 2011. Now that we are more than halfway into 2012 we can say that the markets are performing 10% to 15% better than anticipated.” This sector of the shipping industry has its problems, however, as operators have invested heavily in new tonnage in recent years, and there is more on the way. Raymond Fisch, senior vice president of BBC Chartering, observes: “The increase in demand is not yet necessarily leading to higher rates. The market continues to be under pressure through the ongoing increase in shipping capacity.”

One element of the market that is buoyant at present is the movement of port equipment, including ship-to-shore container cranes, bulk loaders and unloaders, rubber-tyred gantries (RTGs) and mobile harbour cranes. Fisch says: “We have observed a lively trade in new and used cranes as there are many ports around the world that are looking to develop or increase cargo-handling capabilities. Used cranes are sold and shipped to less developed ports, and are usually replaced by cranes with higher handling capacities, which also need to be shipped.” Germany-based BBC Chartering notes that it is involved in many shipments of this type every year. One big job, undertaken in December 2011, involved the movement of two cranes from the Netherlands to Paranaguá, Brazil, onboard the 7,500 dwt BBC Greenland. “One of the cranes was shipped fully mounted, allowing it to be put into service immediately after discharging, adding significant value to our clients,” Fisch points out. Another notable port-related job for BBC required the transportation of seven RTGs from Zhangzhou in China to Balboa in Panama on the BBC Nile. MAKING WAVES Jumbo Shipping is also active in port equipment transportation. ”We see this is a growing market in our industry,” says Bloch, “and we have carried out a number of projects already this year.” Jumbo recently moved two large port equipment items from China to Australia, with a shiploader being transported from Nantong to Geraldton, together with a reclaimer that was moved from Xiamen to Port Hedland, both on the Fairpartner. In another project, Jumbo transported two Liebherr mobile harbour cranes to Nassau in the Bahamas, while two Gottwald mobiles were moved from Kandla to Hazir in India. In the coming months Jumbo will execute several other port equipment www.thebaltic.com WINTER 2012


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projects, including a shipment from Dalian to Port Hedland for ThyssenKrupp and the transportation of Sandvik equipment from Nantong to the South African port of Richards Bay, both on the Fairpartner. SAL Heavylift, a subsidiary of K Line, reports a major port equipment move this year in connection with the Karara Iron Ore Project in Australia. The company’s 2011-built 12,500 dwt Svenja transported and positioned five bulk loaders, weighing up to 700 tonnes each, for a new iron ore berth in Geraldton. SAL explains that these modules, which were loaded in Thailand, were discharged onto a relatively unprepared quay surface that required accurate and careful cargo handling.

BBC TARGETS WIND-POWER BUSINESS BBC Chartering claims to be the market leader in transporting heavy-lift items for the wind power business, including the movement of nacelles, hubs, blades and tower components. To build on its strong position in this fast-growing market, BBC is developing new services in response to industry demand for ‘intelligent‘ heavy-lift shipping solutions, including services for transition units or monopiles. The company has recently repositioned the BBC Germany, a 7,500 dwt vessel with 2 x 250 tonnes lift capacity, into the North Sea to cater for such transportation requirements. The vessel is currently employed handling transition pieces for the German Meerwind offshore wind farm project, shipping components from Bremerhaven to Cuxhaven, a short sea voyage of less than

THINKING BIG SAL sees this as a market with growth potential. In particular, as executive officer Toshio Yamazaki observes: “Mining industries need to expand their export capacity. For this reason they are intending to add and renew port equipment, which will boost demand for heavy-lift services.” Hansa Heavy Lift (HHL) of Germany also reports good activity in the port market, and recently

This sector of the shipping industry is not without its problems as operators have invested heavily in new tonnage in recent years, and there is more on the way undertook a voyage carrying a shiploader from Germany to a new facility in Punta Lackwater, Chile, to support a local mining venture. HHL notes that, as part of the contractual obligations, the vessel was employed to erect the shiploader in port and in difficult weather conditions. Partly to meet growing demand for port equipment moves, but primarily to meet a requirement for very heavy lifts in the offshore sector, operators continue to upgrade their fleets. BBC Chartering has an extensive fleet renewal and modernisation programme under way, and aims to operate 22 vessels with lift capacity of 700 to 800 tonnes by late 2013. Currently it is operating six out of eight 9,300 dwt BBC Everest-class vessels, each equipped with two 350 tonnes heavy-lift cranes. The latest of these, BBC Rushmore, was delivered in July 2012. In addition, the company has taken delivery of five


100 nautical miles. In between these wind farm project shipments the vessel is used flexibly for other purposes, including the movement of subsea cables, array cables, crew transfer vessels and workboats. Jumbo Shipping is also targeting the wind power sector. In September the company completed the installation of transition pieces for the Anholt Offshore Wind Farm, off the Danish coast. Jumbo’s dynamic positioning class 2 Jumbo Javelin installed a total of 111 TPs, each weighing up to 180 tonnes. HHL says that more than 20% of its workload now derives from wind energy installations. This is the result of backing from key manufacturers, such as Siemens, Vestas, Acciona and Gamesa, which require equipment deliveries this year.

out of the 14 BBC Amber-type vessels it has ordered. The most recent in the series, the 14,360 dwt BBC Citrine, equipped with two 400-tonne cranes, was deployed this August. BBC also has on order eight 8,000 dwt BBC Bergen-class multipurpose vessels, which have two 80 tonnes capacity cranes onboard. The latest in this series, BBC Brisbane, arrived this June. Jumbo Shipping is also upgrading its fleet and has recently ordered two K-3000-class vessels. These new-generation heavy-lift ships will have a lift capacity of 1,500 tonnes, allowing tandem lifts of 3,000 tonnes at an outreach of 20 metres. The vessels, which are being built at the Brodosplit yard in Croatia, will also have an ice class 1A rating, making them suitable for work in the Arctic. The first vessel is due to enter service in the autumn of 2013, with the sister ship following six months later. SAL has no newbuildings on order, but has invested in upgrading existing tonnage specifically for the offshore market. Last November it upgraded the MV Lone to dynamic positioning class 2 (DP2) and says it plans to strengthen its position in the offshore heavy-lift market by converting another vessel to DP2 in the near future. HHL completed its newbuilding programme in March this year with the delivery of its tenth new P2 series class vessel, the 20,000 dwt HHL Kobe. The company now has 21 vessels, with lift capacities of 300 to 1,400 tonnes and an average age of less than two years.


Clive is a freelance journalist who has been writing about shipping, ports and transportation for more than 30 years. He has contributed to many leading trade publications, including Lloyd’s List, Seatrade, Passenger Ship Technology and Container Management, and edits Ship Repair and Conversion Technology for the Royal Institution of Naval Architects.

www.thebaltic.com WINTER 2012


Option pricing


Fresh research on the pricing of options has revealed a more accurate calculation method that could benefit owners and charterers alike. Cass Business School’s Nikos K Nomikos, Ioannis Kyriakou, Nikos C Papapostolou and Panos K Pouliasis explain


WINTER 2012 www.thebaltic.com


he market for shipping freight has undergone a fundamental transformation over the past decade, from a service market where freight rate was simply viewed as the cost of transporting raw materials by sea, to a market where freight rates can be bought and sold for investment purposes like any other financial or commodity asset. Overall, we have found evidence for high volatility in the physical freight market and a corresponding growth in the derivatives market, with the increasing participation of non-shipping players such as investment banks and hedge funds. Market participants generally trade Forward Freight Agreements (FFAs), which are forward contracts to settle the average spot freight rate over a specified time. Although FFAs are effective hedging tools that enable participants to lock in a given freight rate, they lack the flexibility to enable users to take advantage of favourable movements in the market and maintain the hedge if the market moves against them. Options on freight, on the other hand, offer this flexibility. Here, shipowners may buy put options that compensate them for a decline in freight rates and



The freight options market has gained in popularity in recent years: trading volume in 2011 was 250 million tonnes, which is about 30% of the corresponding volume in Forward Freight Agreements loss of earnings in the physical market. Similarly, charterers buy call options to protect themselves against an increase in the cost of transportation. The freight options market has gained in popularity in recent years: trading volume in 2011 was 250 million tonnes, which is about 30% of the corresponding volume in FFAs. DOING THE MATHS Freight options are generally negotiated over the counter, though most trades are later cleared through a clearing house, and are thus free from counterparty risk. They settle the difference between the average rates of the trip-charter basket routes of the Baltic Capesize (BCI), Panamax (BPI) and Supramax (BSI) indices in the settlement month at a pre-specified strike price, which is why these options are also called average price options. In general, such options provide a good defence against market manipulation, since the average of the spot price is hard to manipulate. They are thus popular in thinly traded or highly volatile markets, such as the freight market.

Until now, pricing freight options has been a nontrivial task. Market practitioners seem to favour the Turnbull-Wakeman approximation formula for the option price, which assumes a log-normal evolution of the spot freight rate. Although mathematically tractable, this model cannot fully capture the stylised features of the market, in particular the fact that freight rates may undergo unexpected large – positive or negative – movements caused by the inelastic demand for seaborne transportation and the inability of supply to immediately adjust to changes in demand due to the time lag in the shipbuilding process. Recent research carried out at Cass Business School proposes and empirically tests a new valuation framework for freight options that overlays the continuous spot freight rate model, commonly used in the market, with jumps of random arrival and magnitude. Under this construction, the continuous part reflects periods of relative market calmness, whereas the jump part can be interpreted as the response to supply-demand imbalances and changing market conditions. Freight rates exhibit sudden and sharp changes from time to time, attributed to changes in demand, inelastic supply (due to limited spare capacity) and non-storability of the freight service. Jumps in the mathematical model for pricing options can capture those effects by inducing fat tails on the distribution of returns. Figure 1 shows the difference between two distributions, one generated by the jump diffusion and the other by a normal model without jumps. The first graph (top left) compares the overall shape of the two densities. The second graph (top right) details the shapes around the peak area. The two graphs at the bottom display a closer look at the tails of the two distributions. It is evident that










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Option pricing








+Q +2CAL

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the jump diffusion model produces densities consistent with the empirical characteristics of freight rates. To test the model, we used the Baltic Options Assessments (BOAs) for capesize, panamax and supramax vessels. We found that jumps in freight rates were mainly positive from January 2008 to July 2010, and they became more frequent and negative during the financial crisis (September 2008 to February 2009). This was also confirmed visually in Figure 2, which illustrates the annualised estimates for the jump frequency (expressed as expected number of jumps per year), mean jump size and volatility of the BCI spot index for each week in the sample period. We also noted the relatively high volatility of the capesize index from September 2008 to February 2009, while in the remaining periods the volatility fluctuates around 100%. FINAL RESULTS Across all sectors, jump frequency is highest for quarterly contracts and declines markedly for the calendar contracts (see Figure 2 for +Q v +2CAL contracts). Also, volatility of dry bulk indices decreases for more distant contracts, although it seems that jumps have a non-trivial, albeit diminishing, impact (in terms of magnitude) on pricing longer-term contracts. The significant impact of the 2008 crisis is reflected more in the capesize and panamax sectors, given that they are less adaptable in finding employment; supramax vessels are more flexible in securing employment, partly mitigating the adverse effects of economic downturns. This is also evident in the volatility of the spot index, which is 66%, 85% and 94% for the supramax, panamax and capesize sectors, respectively. Finally, Table 1 compares the option pricing errors from the jump diffusion and log-normal spot model currently used in the market. The errors reflect the accuracy with which each model can capture the observed premiums in the market. They are measured both in percentage terms and dollars


JAN-08 MAY-08 OCT-08 FEB-09 JUL-09 NOV-09 APR-10


MEAN PERCENTAGE AND DOLLAR-PER-DAY PRICING ERRORS Jump diffusion model Log-normal spot model BCI BPI BSI BCI BPI BSI 16.98 19.52 17.08 34.99 45.11 54.79 % (996) (810) (579) (3,109) (2,113) (2,012) ($/day) Notes The table reports the average pricing errors between the option pricing models and the market price of options, expressed in percentage terms and in dollars per day. For each week in the sample period, the error metrics are calculated as: Percentage absolute pricing error = market price – model price market price Dollar error = market price – model price

per day. Both metrics show that the log-normal model generates higher errors than the jump diffusion, across all sectors. For the BCI, for instance, the mean option pricing error is 16.98% for the jump diffusion, and the corresponding figure for the log-normal model is 34.99%; results are similar when we consider the errors in terms of dollars per day, as well as for the BPI and BSI. This suggests that mean errors generated from the log-normal model are at least twice as large as those from the jump diffusion, which indicates that the proposed model can generate accurate option premiums that reflect the risks of the freight market. To conclude, the jump-extended model provides a flexible framework for modelling abrupt and unanticipated freight movements, and hence a superior option-pricing performance compared with the methods used so far in the industry. In terms of risk management, this research has important implications for shipowners and charterers, as for them the major consideration is for the price of the option to be accurate and to reflect the risks in the market, something that this model achieves.



Nikos is professor of shipping risk management in the Faculty of Finance at Cass Business School. His research papers have been published in international finance journals and have been presented in conferences worldwide. Nikos is the corresponding author for this paper.

www.thebaltic.com WINTER 2012


“There is Posidonia, Nor-Shipping and CMA Shipping”


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Galleon Marine Insurance Agency Galleon provides liability insurance for marine and offshore professionals such as (but not limited to) ship brokers, agents, managers, marine surveyors and consultants. We also cover cargo and third party liability for logistic providers, freight forwarders and transport operators as well as cargo “all risks” insurance. Our Insureds benefit from the following: • Extensive cover that can be tailored to suit each Insured’s business needs; • Policies that are supported 100% by underwriters at Lloyd’s of London; • Fixed premium insurance; • 10% no claims rebate which increases after 24 months of continuous cover; • A supportive and efficient claims service with prompt assistance; • Knowledgeable and experienced staff that have the time and resources to respond quickly and effectively We are very proud of our claims service. We believe it is of utmost importance to work with our Insureds to settle a claim quickly whilst supporting them to maintain their business relationships. We also have a network of professionals around the world with specialist knowledge acting as advisors (including long standing member of The Baltic Exchange – Ron Church of Ron Church Chartering who has over 50 years experience in the industry). Contact: Chris Curran (Underwriter) or James Munn (Deputy Underwriter) Galleon Marine Insurance Agency, 10 Fenchurch Avenue, London, EC3M 5BN Tel: +44(0) 20 3178 8866 E-mail: contactus@galleon.uk.com Galleon Marine Insurance Agency is a trading name of Crispin Speers & Partners Ltd which is authorised and regulated by the Financial Services Authority (FSA). Our registration number is 311507.

To learn more about Galleon and our products or why this insurance is integral to the protection of your business please contact us (either directly or via your insurance broker). Alternatively you are welcome to visit our website www.galleon.uk.com



The number of debt collections reported to the International Transport Intermediaries Club is running at record levels. Unpaid commission is often a problem for shipbrokers, but never more so than when times are difficult. ITIC’s Andrew Jamieson provides an overview of some of the most common situations



any unpaid commissions purely involve unpaid invoices, when the broker’s right to payment is not in dispute but the commission simply hasn’t been paid. All industries have bad debts. Recently, shipping has seen bankruptcies in such diverse jurisdictions as Korea, Norway and the US. Often, brokers will find that, if they receive anything, it will be a modest percentage paid years later. Some of these claims are unavoidable, but many invoices are often considerably overdue. Even allowing for the pressures of maintaining commercial relationships, shipbrokers are rarely good at credit control. Apart from reacting to unpaid invoices earlier, another self-help remedy is getting the details on the invoice right. If the worst happens and a claim has to be pursued, either in litigation or liquidation, claims are frequently delayed and even rejected because the broker has made the invoice out either in the name of the wrong company or simply in a vague way.

Occasionally, principals will seek to justify a delayed payment by claiming that they will only settle commission at the end of the fixture when all matters, including demurrage, have been settled. Unless that was specifically agreed, there is no legal basis for such self-proclaimed policies. Commission is payable on money received by the principal. The Baltic Code has long made it clear that withholding payment of commissions is unacceptable. Recently, various fixtures have been cancelled, and brokers often feel they should receive something to cover their forward orderbook. Unfortunately, English law has long held that, unless there is a specific provision in the charterparty, brokers will not be entitled to compensation if the fixture is cancelled. Some forms do provide such compensation. The Barecon 2001 commission clause, for example, provides that, if the parties agree to cancel the charter, the owners will indemnify the brokers for the lost commission, which is limited to the brokerage on one year’s hire. In most cases, however, the broker will get nothing if the fixture is simply cancelled. www.thebaltic.com WINTER 2012


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INSURANCE BRIEFING Commission The courts have stressed that this general rule only applies if the contract is truly cancelled. The situation is different if the same business is continued but in a revised manner. Few fixtures are simply cancelled with no money changing hands. Brokers frequently ask if they are entitled to commission on sums paid as compensation for early redelivery. Surprisingly, given how frequently the question comes up in practice, there is little English legal authority on this point. An American court has held against a broker in these circumstances. The basis of its finding was that damages did not constitute “hire as paid”, which was the expression used in the charterparty commission clause. Attempts to renew, continue or extend charters, cutting out the brokers, are another cause for complaint. The Baltic Code makes it clear that “… the occasional practice of owners or charterers avoiding the payment of commission due to brokers on direct continuations of time-charterparties or contracts of affreightment in which a broker or brokers were originally involved or covered for commission, is considered to be unacceptable by the Baltic Exchange”. The code suggests that brokers should try to have a clause confirming their right to commission on any continuation of the charterparty. The New York Produce Exchange (NYPE) commission clause

English law has long held that, unless there is a specific provision in the charterparty, brokers will not be entitled to compensation if the fixture is cancelled expressly provides that brokers should receive commission “on hire earned and paid under this charter, and also upon any continuation or extension of this charter”. The NYPE clause does not prevent all disputes, however. A frequently heard argument is that the clause refers to “this charter” and that the renewed charter is wholly different because it is contained in a different document at a different rate. In essence, courts and tribunals will look at the realities of the situation and will not allow brokers to be unfairly denied commission on the basis of contrived differences. Simply recording the renegotiation in a new document as opposed to an addendum to the original would not influence the court at all. A revised hire rate does not make it fundamentally different business. Alterations in the hire rate dictate the amount of commission payable but not the obligation to pay it. A period when the vessel is off-hire between the original and the new arrangement is unlikely to be relevant unless it significantly separates the transactions. Deciding whether the broker is entitled to commission can be a balancing act. One area where this is especially true is when a broker believes that, having introduced the parties, the broker is cut out of the negotiations and deprived of the chance to earn commission. The principal may reply that they

THE BENEFITS OF CONTINUITY For the 17th year in succession, the International Transport Intermediaries Club (ITIC) has paid a renewal credit to its members. For the year ended 31 May 2012, members received a total of $5.2m. In the past 17 years, ITIC has returned more than $67.3m to members in credits. ITIC chairman Peter French says: “One of the unique strengths of a mutual is the absence of shareholders, allowing its members to benefit from any financial surplus. [The EU’s Solvency II directive] will have an impact on the future capital requirements of the business, and will necessitate our maintaining strong reserves not only to ensure compliance, but also to sustain continuity credits at renewals in the future.” Professional indemnity insurers tend to see a sharp increase in both the number and the

value of claims during an economic downturn, and ITIC is experiencing claims inflation of 10% each year. French says: “It is often easier for a client to sue or countersue its service provider than to settle an invoice or a claim. Claims increased significantly in 2009, levelled off a little in 2010 and initially showed an increase again in 2011. However, there are now signs that this higher claims activity may be starting to reduce.” At renewal, ITIC introduced special deductibles for those types of claims that occur most frequently, such as demurrage claims for shipbrokers, refrigerated cargo claims for ship agents and legal costs in US litigation for ship managers. In this way, the club has increased its premium income while continuing to retain approximately 95% of its members at renewal each year.

are frequently contacted by many brokers offering the same business with people they already know. The legal test for whether a broker has a right to commission has been in place for more than a century and was reviewed by the High Court in 2010 in a case involving a yacht broker. Without a specific agreement between the broker and principal, the established test is whether the broker was the “effective cause” of the transaction. While the test is easy to state, it can be difficult to apply in practice. There is no authoritative definition of “effective cause”, but the following is a helpful passage from an earlier judgment: “‘Effective cause’ means more than simply ‘cause’.” The enquiry is whether the actions of the agent really brought about the relation of buyer and seller, and it is seldom conclusive that there were other events that could be described as a cause of the ensuing sale.



Andrew is claims director at the International Transport Intermediaries Club, a global insurer for professionals who provide services to the transport industry.

www.thebaltic.com WINTER 2012


Crewman in Dar es Salaam, Tanzania

The Mission to Seafarers is the world’s largest charitable port-based welfare service, working 365 days a year in over 250 ports, to give help and vital support to seafarers. Whether providing post-traumatic care for victims of piracy and their families or offering a lifeline to those stranded in foreign ports, the Mission delivers an increasingly essential service for the globe’s 1.3 million We would like to thank The Baltic Exchange for its support this year and congratulate The Baltic magazine on their relaunch.

To discuss ways that you and your company could work with us at The Mission to Seafarers, please contact: Tara Fox, Head of Corporate Partnerships, telephone: +44 (0) 20 7246 2980, or email: Tara.Fox.missiontoseafarers.org The Mission to Seafarers St Michael Paternoster Royal College Hill, London EC4R 2RL www.missiontoseafarers.org/support-us/corporate-support @FlyingAngelNews Registered charity no. 112613

P&I BRIEFING Counterparty risks

EARLY WARNINGS In today’s volatile economy, the notion that any company is too big to fail no longer holds true. Now, more than ever, companies need to ask how well they know their business partners. The Charterers P&I Club’s Gavin Ritchie explains how to evaluate and manage counterparty risks



et’s start with a reminder: a charterer is not in control of the ship, but can be responsible contractually, or at law, when things go wrong. And, as everyone involved in the industry knows, shipping can be a very risky business. Risk factors such as the type of ship (age, class, insurance), nature of the cargo carried (International Maritime Organization or liable to liquefy) and port restrictions (draft limitations) are usually straightforward to analyse; however, in the experience of the Charterers P&I Club, the greatest risk to which a charterer is exposed is the default of a counterparty. Since the financial crisis, default has become all too common. Even large, well-known companies, previously regarded as financially solid, have ended

up filing for protection or simply ceased trading, leaving their contractual partners high and dry. As a specialist charterers’ liability insurer, we have 25 years’ experience in managing risk. On a daily basis we review vessels, cargoes, ports, charterparties, bills of lading and other forms of shipping and trading contracts to assess the charterer’s potential exposure to loss. Our success as a business is determined not only by our ability to manage and insure such risks, but also by how we use our expertise to mitigate the consequences when things going wrong. There is no simple way to properly evaluate counterparty risk. Quality information can be difficult to find and the limited information available often makes a sound and objective assessment difficult. Effective vetting requires an active approach and a system that is flexible enough to be tailored. It is an informed process that requires judgement, but the effort will pay dividends and could save millions of dollars. The three key elements of any vetting process are an assessment of market reputation, financial standing and the corporate persona. For an assessment of market reputation, past fixtures are a useful guide to how active the company is and their experience in certain trades. It is also useful to see the type of companies with whom they are contracting, as this can be an indicator of the type of company that they are, or how reliable they are likely to be. The reputation of your counterparty can often be freely established through your own contacts www.thebaltic.com WINTER 2012


P&I BRIEFING Counterparty risks EXPOSURE LIMITATION Over the past 25 years, some of the largest claims that the Charterers P&I Club has handled have arisen not as a direct result of the charterer’s exposure in respect of the contracts of carriage, but because of the default of another party. In one case, which involved the total loss of a ship, both the owner and his P&I club defaulted, leaving the charterer faced with a massive claim from the dependants of the crew. In another serious case, regarding the loss of a bulk carrier

and her crew, the sub-charterers were men of straw and had not purchased charterers’ liability insurance. Our client had assumed that they were back-to-back in the charterparty chain, but in fact they were left footing a large proportion of the claim brought by the shipowner for the loss of the vessel. In both these cases there is little that the charterer could have done to prevent the casualty in the first instance. However, a proper process of vetting and due diligence

could have had a dramatic impact on the charterers’ ultimate exposure. In the first case the owner was clearly not a blue-chip operator, and his P&I club had a poor reputation and was already rumoured to be in financial difficulty, yet the charterer still fixed this ship. In the second case the charterer simply chose not to insist, or check, that the sub-charterer was properly insured against its potential liabilities. As a result they were unable to successfully enforce a claim against them.

in the chartering community. There are owners and operators with good pedigrees; likewise there are those that have a reputation for being difficult or unreasonable post-fixture, or when it comes to dealing with commercial issues, disputes or claims during or following the execution of the charter. Another area to look at is who they are insured with and the financial standing and reputation of those underwriters. Of course, the Baltic Exchange also provides a service to its members that names companies that are prone to causing problems, for instance in failing to honour arbitration awards. When assessing financial standing you should check who they bank with and ask for banking references. How well known is this bank, how long

The final element, assessing the corporate persona, is one of the most important aspects. Who controls the company, how do they make decisions and what is their attitude towards risk management? How does the company project itself; are they just out to make a quick buck – fly-by-nights or men of straw that will evaporate at the first sign of real trouble? Or are they a serious long-term player, committed to their clients, market sector and staff; a company that takes corporate responsibility seriously and will always endeavour to perform properly? What sort of service providers – for example lawyers, insurers or shipbrokers – do they deal with, and what is the reputation of those parties? How reasonable are they likely to be in settling a post-fixture dispute? Do they have a reputation for being litigious or difficult? Ultimately, trade is driven by commercial necessity, and even the most diligent vetting process is never foolproof. A company can get into financial difficulty very quickly and sometimes a problem does not become evident publicly before it is too late. While any prudent charterer should always buy liability cover from a reputable underwriter, they should be aware that a wilful disregard for counterparty vetting procedures is a basis on which an underwriter might reduce the extent of cover available, refuse to put up security or, in the worst case, simply deny cover. Finally, it is also worth taking account of the fact that simply buying insurance is not the only solution to managing counterparty risk, because handling the consequences of a serious default can be costly and time-consuming for both the charterer and the underwriters. The Charterers P&I Club will always try to respond positively and quickly to any requests from clients to share, in confidence, views on a proposed counterparty. Some clients find this service to be very valuable, although in truth many of our clients are understandably much better informed than we are, and already adopt sophisticated vetting systems. That said, we still encounter far too many charterers who adopt a minimalist attitude

Even large, well-known companies, previously regarded as financially solid, have ended up filing for protection or simply ceased trading, leaving their contractual partners high and dry have they been with that bank, how many times have they switched banks in the past few years? Maritime information services can be used to access information. If they have good-quality, recent information on a company, this can be very useful. However, it is important not to rely solely on the advice that such services provide because the core of the information at their disposal is often gained from the public domain, which can be out of date. The best approach is to regard these services as one of the tools that you have available, and it is sensible to check the quality of the data on which they have made their assessment: where has it come from and how recent is it?

and seem happy to simply keep their fingers crossed and hope that nothing goes wrong. There are clearly pitfalls to this approach, and there are clear potential benefits to being more proactive and analytical.



The Charterers P&I Club has been providing professional insurance solutions to charterers for the past 25 years. Gavin is the underwriting director of the management company and has 20 years of risk management experience in this specialised field.

www.thebaltic.com WINTER 2012


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LEGAL BRIEFING Charterparties


Sliding freight markets have prompted an increase in charterparty repudiation, much to the chagrin of shipowners. However, new precedents have raised the evidential bar for charterers looking to bail out of existing contracts. Norton Rose’s Philip Roche and Peter Glover explain


ontract law is one of the fundamental pillars of English law, and one that has its origins in the 19th century with the rise of the phrase “freedom of contract”. Against this evolution of contract law, the influence of shipping cases cannot be disputed. Modern contract law, as reflected in the charterparty, remains one of the last bastions of laissez-faire capitalism and its associated doctrine of freedom of contract. Charterparties – at least those recognisable in the modern form – can trace their origins back nearly two millennia. Today, both shipowners and charterers have a wide range of standard charterparty forms they can choose to charter against: Shellvoy 6, ExxonMobil Voy 2000, New York Produce Exchange Form and the Baltic and International Maritime Council Standard Bareboat Charter 89, to name but a few. Freedom of association with the charterparty does not, however, equate to profit. In this the charter market has endured yet another year of severe rate pressures. On the bulk commodity side, many industry participants are large multinational corporate buyers who use freight transport for large quantities of raw materials. In doing so, these buyers are able to exercise significant financial muscle to negotiate strongly on price, particularly in an environment of tonnage oversupply. On the container side, the latest trade statistics predict a gloomy picture, with falling demand putting pressure on freight rates. In an environment characterised by falling container-trade volumes, the price of freight is forecast to be under pressure

The decision of the shipowner must be ‘beyond the pale’ or ‘perverse’ before they can be said to have no legitimate interest in maintaining the charterparty

for the remainder of the year. This could have commercial and legal consequences, leading to parties examining the fine print of their contracts to exploit weakness and avoid onerous terms. Providing certainty can be ascertained, English courts will strive to uphold the bargain the parties have agreed between them. Notwithstanding clauses that govern when a contract can be terminated, and the contractual remedies that are available in these circumstances, one of the parties to a charterparty may nonetheless declare that they will no longer be bound by the terms of the charterparty. English law views such conduct as repudiation of the contract, and there are serious consequences for such steps. Given the depressed state of today’s shipping market, repudiation of contracts has become more frequent and, with the recent decision in the Aquafaith, the repudiation of a charterparty can once again be said to be contributing to the rich body of English contract law. The decision in the Aquafaith concerned a charterparty on an amended NYPE form in which the vessel was chartered by the owner to the charterer for 59-61 months and which contained an express warranty “that the vessel will not be redelivered before the minimum period of 59 months”. In an admitted anticipatory breach of the charter in 2011, the charterer stated that they would redeliver the vessel on the last outward sea pilot after discharge in China under the then current voyage. In this the charterer made it plain that it had no further use for the vessel for the balance of the minimum period of charter. The owner then commenced arbitration, before redelivery occurred, seeking a partial final award declaring that the owner was entitled to refuse such redelivery and to affirm the charterparty, holding the charterer liable for hire for the balance of the minimum period. The alternative position for the owner would have been to accept the repudiation and take redelivery and claim for damages. The charterer, on the other hand, submitted that, on the facts, the owner could not complete the charter without the charterer cooperating, and that the owner had no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages, and ought not www.thebaltic.com WINTER 2012



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LEGAL BRIEFING Charterparties to be allowed to saddle the charterer with an additional burden. The dispute therefore concerned the scope of the principle enunciated in the House of Lords decision of White and Carter (Councils) Ltd v McGregor. In White and Carter it was held that if one party to a contract repudiates it, in the sense of making it clear to the other party that they refuse or will refuse to carry out their part of the contract, the innocent party has the option of either accepting that repudiation and suing for damages for breach of contract, or refusing to accept the repudiation and affirming the continuation of the contract. If the innocent party can complete the contract without the need for any action on the part of the contract breaker, they will be in a position to sue for the agreed price. This principle is subject to two exceptions where the claimant will be limited to a remedy in damages. The first is where the defendant’s cooperation is required before the claimant can complete performance. The second is where the claimant has no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages. White and Carter has been considered in several maritime cases. In The Puerto Buitrago, the charterer redelivered a vessel in a state of disrepair that meant repairs would have cost $2m, but that at the end of those repairs the vessel would have been worth only $1m. The court stated that the White and Carter principle had no application where the plaintiff ought “in all reason, to accept the repudiation and sue for damages provided that damages would provide an adequate remedy for any loss suffered by him”. In The Odenfeld the charterer repudiated a time charter with six and a half years to run. In this case the court considered the facts in The Puerto Buitrago to be extreme, and rejected the charterer’s contention that the owner was not entitled to affirm the charter, holding: “It follows that any fetter on the innocent party’s right of election whether or not to accept a repudiation will only be applied in extreme cases, viz ‘where damages would be an adequate remedy and where an election to keep the contract alive would be wholly unreasonable’.” In The Alaskan Trader the court was asked to consider an eight-month-early redelivery of a vessel under a two-year time charterparty following a major engine breakdown. In finding that the owner was not entitled to sue for the hire, the court reasoned that the shipowner had no legitimate interest in performing the contract and that the court was bound to hold that there is some fetter on the right to election only in extreme cases. Similarly, in The Dynamic, a case that also involved premature redelivery under a time charter, the court stated: “The exception to the general rule applies only in extreme cases: where damages would be an adequate remedy and where an election to keep the contract alive would be unreasonable.” In the Aquafaith arbitration, the arbitrator found for the charterer. The owner appealed the decision of the arbitrator under section 69 of the Arbitration Act 1996 on the following question of law: “Whether, as a matter of law, owners were entitled to refuse early redelivery of the Aquafaith (the vessel) at Jintang on 9 August 2011 and affirm

FAST FACTS Aquafaith

Year of build: 1997 Owner: Isabella Shipowner SA Flag: Greece Deadweight: 167,110 dwt Ship type: Bulk carrier Charter period: minimum of 59 months Charterparty: amended NYPE form Date of charterparty: 19 September 2006 Date of redelivery: 9 August 2011, 94 days before end of time charter

the charter, or whether they were bound in law to accept early redelivery and merely entitled to sue for damages.” Having reviewed the authorities, the High Court asked whether a time charter was subject to the rule in White and Carter. That is, could the owner claim hire from the charterer under the time charter without the need for the charterer to do anything under the charter? The court’s answer was yes: if the charterer failed to give any orders, the vessel would simply stay where it was, awaiting orders but earning hire. To complete its side of the bargain, the owner does not need the charterer to do anything to earn the hire in question; the earning of hire after purported redelivery did not depend on any performance, by the charterer, of its obligations. Having brought the dispute within the orbit of White and Carter, the next question was whether the exception to the White and Carter principle applied. On this the arbitrator had found that because the owner could accept the repudiation, mitigate their loss by trading on the spot market and claim damages, representing the difference between the rate so obtained and the rate under the charter, the owner had no legitimate interest in keeping the charterparty alive. Consequently the arbitrator found for the charterer. In this the court found that the arbitrator had never directed his mind to the principles set out in The Puerto Buitrago, The Odenfeld, The Alaskan Trader or The Dynamic. The court found that the matter did not fall within the exception to the principle in White and Carter. The court found that the owner would have no legitimate interest in maintaining the contract if damages were an adequate remedy, and their insistence on keeping the contract alive would be “wholly unreasonable”, “extremely unreasonable” or, in the Court’s words, “perverse”. The charterer was seeking to foist upon the shipowner the burden of seeking to trade in a difficult spot market, where a substitute time charter was impossible. The Court found that the arbitrator should have “been asking himself whether or not this was an extreme case of the kind where damages were an adequate remedy and the owners’ conduct was so beyond the pale that they should not be allowed to keep the contract alive. That he did not do.” In today’s depressed charter market there has been a rise in the repudiation of charterparties. In the light of the reformulation of the test for repudiation as set out in Aquafaith – namely that the decision of the shipowner need be “beyond the pale” or “perverse” before they can be said to have no legitimate interest in maintaining the charterparty – the evidential bar has been raised for charterers seeking to avoid the bargain they originally agreed to.



Philip (left) is a partner and Peter (right) is a senior associate at international law firm Norton Rose.

www.thebaltic.com WINTER 2012


LEGAL BRIEFING Slow steaming


Holman Fenwick Willan’s Daisy Rayner discusses the economic conditions and environmental scrutiny


he shipping industry has seen a return to slow steaming since the credit crunch in 2008 and as a result of reduced freight and increased bunker rates. Together with an increased focus on environmental efficiency, this has thrown up several interesting legal and commercial issues. The former is most notably in relation to the implied charterparty obligation of due despatch and deviation for delay under bills of lading. There is an obvious conflict between an obligation to prosecute a voyage with utmost despatch and an obligation to slow steam. The new Baltic and International Maritime Council (BIMCO) fuelefficiency terms for time charters recognise this and provide that if the master exercises due diligence in the performance of their instructions, they will not be in breach of the reasonable despatch obligation. However, the problem does not end there. The utmost despatch obligation may also be on a contractual footing under the bill of lading. This exposes carriers to the risk of claims for deviation or delay. The BIMCO fuel efficiency terms seek to redress this by obliging charterers to ensure that the terms of the bill of lading, waybills and other documents evidencing the contract of carriage issued on or behalf of owners state that compliance by owners with the fuel efficiency clause will not constitute a breach of the contract of carriage. The clause also requires charterers to indemnify owners against all consequences and liabilities arising under the bill of lading to the extent that they are a result of owners’ breach of the obligation to proceed with utmost despatch or are held to be a deviation. It is foreseeable that disputes will arise where there is a failure to incorporate the terms. Owners attempting to slow-steam under existing charters that do not incorporate the BIMCO terms should pay particular attention to these dangers, as they are exposing themselves to claims for breach of both the charterparty and the bill of lading. While it may be possible to obtain retrospective agreement from charterers, this will not be feasible under the bill of lading. Despite these potential pitfalls, slow steaming remains attractive because of the economic benefits and increased environmental scrutiny. The benefits of fuel efficiency have long been recognised in the container industry. However, with the financial recession and bunker rates now exceeding $700 per tonne, slow steaming has become more widespread, including in the dry bulk sector. There has been increased pressure on the shipping industry to reduce the 3% to 4% of global CO2 emissions from international shipping, as well as sulphur emissions. This pressure is likely to increase

with the International Maritime Organization’s sulphur requirements, due to come into force in 2015 for Emission Control Areas. Despite the oversupply of tonnage and low charter rates, the combination of increased environmental regulation and spiralling bunker costs has seen owners who are in the market for new vessels ordering eco-ships. Owners seem keen not to lose out in the future by failing to invest in more fuel-efficient vessels, as long-term success in shipping could increasingly be seen to hinge upon whose ships can carry the most cargo and burn the least fuel. This change in attitude has also seen a renewed call to retro-fit older vessels with fuel-efficient

With the financial recession and bunker rates now exceeding $700 per tonne, slow steaming has become more widespread, including in the dry bulk sector technology, such as engine modifications and hull coatings. However, a major barrier to this is the current split of incentives between owners and charterers, where the charterer of a retrofitted vessel stands to save on bunker costs, but owners are uncertain whether they will gain a share of the savings if charter rates do not increase, and so see the capital investment as a risk. The Sustainable Shipping Initiative is currently developing methods to align incentives for retro-fits by reapportioning the risks and fuel-cost savings between owners, charterers, banks and technology providers. In summary, owners who are keen to implement slow-steaming will find the BIMCO fuel efficiency terms a useful starting point. However, owners should also be aware of the increased scrutiny of the shipping industry and ensure that their fleets are ready to meet the more stringent environmental regulations. Despite the financial conditions, some owners appear to be rising to these demands by looking to bring eco-vessels into charter.



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

www.thebaltic.com WINTER 2012



Sports fixtures, freight derivative forum, round table series


BALTIC HIT LSE FOR SIX, BUT BOWLED AWAY BY LLOYD’S The stunning surroundings of Wormsley cricket ground, lovingly created by the late Sir Paul Getty on the family’s estate in Buckinghamshire, was a fitting venue for the sixth annual City Twenty20 cricket competition. For the second consecutive year, Lloyd’s Cricket Club (CC), The Stock Exchange CC and The Baltic Exchange CC all competed for the “Giraffe Trophy” in support of the Professional Cricketers’ Association Benevolent Fund. The round-robin tournament set off on 4 September at 10am with the Baltic taking on the London Stock Exchange (LSE). The Baltic made a fast start, with batsman Joel Pope dispatching LSE captain James Bruce for

two sixes in the first over of the day on his way to an imperious 77. The wicket-keeper took a starring role as the Baltic racked up an impressive 165-7 against a strong LSE team, before excellent bowling from Justin Granger and ICAP’s Oli Dannatt secured a comfortable win. After lunch, Jamie Freeland’s team took on Lloyd’s CC – the eventual winners – a match that ended in defeat despite an excellent 67 not out from Angus Proctor of ACM Shipping. Among the familiar faces cheering the teams on were former Angelicoussis chartering king Colm Nolan and ICAP sale-and-purchase managing director Greig Macpherson.

The Baltic made a fast start, with batsman Joel Pope dispatching London Stock Exchange captain James Bruce for two sixes in the first over of the day on his way to an imperious 77



In September, the Baltic Exchange and Forward Freight Agreement Brokers’ Association (FFABA) hosted a forum in Amsterdam on showing the relevance of freight derivatives to riskmanagement strategy for shipowners, charterers and financial institutions. The forum was part of a series organised by the Baltic Exchange and the FFABA. The one-day events offer a unique opportunity for senior traders and brokers to meet and discuss current freight derivative issues. In Amsterdam, Holman Fenwick Willan’s Robert Finney discussed regulation for FFAs, while Demetris Polemis looked at exploiting the shipping industry from a hedge fund perspective. Other speakers included Simpson Spence & Young’s Duncan Dunn and John Banaszkiewicz from Freight Investor Services. Download the presentations from the ‘Forums’ links in the FFA section of www. balticexchange.com

SPRING LUNCH LAUNCH FOR THE BALTIC MAGAZINE DISCUSSION SERIES The spring issue of The Baltic magazine will mark the start of a series of roundtable features, in the form of a moderated debate of industry experts giving 94

WINTER 2012 www.thebaltic.com

their views on a particular thorny issue. The round-table will be hosted by The Baltic and will take place in the Baltic Exchange’s dining room.

For the launch feature, the round-table will discuss ‘Charterparty defaults’ at a luncheon in the new year. Members are invited to apply to attend the

round-table by sending an email to the editor. Write to carly.fields@thinkpublishing. co.uk with your contact details and your stance on the discussion topic by 10 January.


// EVENTS Training course dates 2013 The 2013 schedule for the Baltic Exchange’s Freight Derivatives & Shipping Risk Management and Advanced Freight Modelling & Trading training courses has been finalised with courses taking place in London, Singapore and New York. Both courses are led by Professor Nikos Nomikos and Dr Amir Alizadeh from the Centre for Shipping, Trade & Finance at Cass Business School. Full details can be found at www.balticexchange.com/ training


Simon Cox

Despite the best efforts of our team, we were pipped to the post by Lloyd’s of London on 22 September in the 50th running of the Finn Trophy sailing race. Our six-boat team were denied only by the vagaries of the wind as our two lowest handicapped yachts were unable to complete the course within the time limit, denying us a result. Baltic Exchange Sailing Association commodore George Eddings presented

the IRC trophy to Mark Ross (Jumping Jellyfish) and the ISC trophy to Mike Robson (Miss Reality), as much for the quality of the catering onboard as for the sailing! As usual we had a wonderful meal at the Royal Yacht Squadron, which this year was enjoyed without the worry of looking after the enormous trophy – it’s always a wonder how the team manages to hang on to it as we traipse round Cowes looking for late drinks.

On a personal note, I managed to win the ‘mug of the day’ award, tearing a calf muscle when attempting to leap from the boat and ending up half-submerged, clinging to the pontoon. The team would like to say a big thank you to Clarksons and Gray Page for chartering yachts, to Peter Morton for entering his beautiful boat and entrusting it to some novices, and to Alan Hyne-Jones for again persuading Michael Frith to enter his vintage craft.


THE FOLLOWING COMPANIES HAVE JOINED THE BALTIC EXCHANGE SINCE JULY 2012: Bery Maritime AS Chubu Energy Trading Singapore Pte Ltd Ningbo Shipping Exchange Co Ltd


Wisdom Marine Lines Co Ltd (Cayman) Munich RE Gulf Maritime Shipbrokers & Consultants Co


Freight Derivatives & Shipping Risk Management This course aims to give participants a grounding in the use of derivatives to manage financial risk in a shipping operation. While much of the focus is on freight risk management and the use of Forward Freight Agreements (FFAs), the course also covers bunker, interest rate, foreign exchange and credit risk. Singapore: 28-29 January London: 11-12 February New York: 15-16 April London: 10-11 June Singapore: 1-2 July London: 14-15 October Advanced Freight Modelling and Trading This course builds on participants’ knowledge of FFAs, with a focus on value at risk, options pricing and forward curve construction. Singapore: 30-31 January London: 13-14 February New York: 17-18 April London: 12-13 June Singapore: 3-4 July London: 16-17 October In brief The Baltic has updated its Code of Conduct to reflect developments in shipbroking practice. This edition provides an introduction to chartering. Download from www. balticexchange.com.

www.thebaltic.com WINTER 2012



SEVERN TRENT DE NORA Severn Trent De Nora 1110 Industrial Blvd Sugar Land, TX 77478, US T: +1 281 240 6770 F: +1 281 240 6772 sales@severntrent denora.com www.severntrent denora.com

WE UNDERSTAND BALLAST WATER TREATMENT As a market leader in the design and manufacture of electrolytic seawater disinfection systems, Severn Trent De Nora brings over 35 years of electrochlorination experience to the treatment of ballast water. Ballast water is the most frequently cited cause of the introduction and transfer of non-indigenous species (NIS) into waterways. Ballast water treatment systems, especially those based on electrochlorination disinfection, are a proven approach to limiting the introduction and transfer of NIS. BALPURE® – designed for retrofits and newbuilds The Type-Approved and patented BALPURE® ballast water treatment system by Severn Trent De Nora uses electrolytic disinfection technology which is superior based on efficacy and durability with low operating costs. The system was designed to be a simple and straightforward design solution for both the newbuild market, as a single unitised system, and the retrofit market, as a multi-skid configuration broken down and optimised to fit the most challenging space restrictions. Electrolytic ballast water treatment systems typically pass the entire ballast flow stream through the electrolytic cells. The BALPURE system diverts a slipstream from the main ballast line or, better still, from a source of heated seawater from the discharge side of the seawater/freshwater central cooling systems on motorships or from condenser discharges on steam ships to the electrolysers to generate a disinfecting solution in situ and on demand to treat the ballast water. This slipstream approach allows the unit itself to make

Excellent scalability and sizing The electrolytic process lends itself to significantly scaling up production rates to meet the demands of large ships with high ballast flow rates (> 3,000 m³/ hr) or poor incoming ballast water quality without a corresponding significant increase in footprint. This is accomplished by simply increasing the size and number of electrolyser electrodes (plates in each electrolyser) and adding additional DC current. Therefore a BP-5000 with ten times the capacity of a BP-500 requires just 2.5 times the space. Approved and trusted It is crucial for shipping operators that the ballast water treatment systems they select are robust, cost-effective and have all the necessary approvals for international trading. BALPURE received IMO Type Approval in July 2011 with BSH Germany as the approving agency. The system has type approval from Bureau Veritas, as well as a certificate of design assessment from ABS. While electrolytic ballast water disinfection systems share the same basic chemistry for electrolysing seawater, commercially available electrolytic disinfection technologies differ significantly. Understanding the technical and commercial performance criteria of the various electrolytic ballast water treatment technologies is therefore critical to the equipment selection process. For more details on BALPURE’s many advantages, visit www.balpure.com.

Ballast water flowrate max (m3/h)

1% slipstream seawater feed to BALPURE (m3/h)

12 ppm

8 ppm

6 ppm

4 ppm












































































Nominal power (AC kW) ballast only*

* Electrical power consumption is provided for full ballast water flow rates at a maximum dosing rate of 12 ppm and a minimum dosing rate of 4 ppm with full marine salinity seawater (36PSU) at 15°C slipstream (1%) feed to the BALPURE. Under normal conditions of operation, the injection (dosing) rate will be in the range of 6-8 ppm.


use of available existing locations remote from the main ballast lines and gives the design engineers and shipyard flexibility over how the unit is located onboard the vessel.

WINTER 2012 www.thebaltic.com

Footprint (m2)**

Pressure drop Pressure drop (nominal bar) (max bar)

** Footprint for sub-assembly system design noted. Footprint will vary for the unitised system design. *** Neutralisation typical at 1ppm TRO. Information subject to change.

Sodium bisulfite (litres/hr)*** deballast only

GALLEON MARINE INSURANCE AGENCY Galleon provides liability insurance for marine and offshore professionals such as (but not limited to) shipbrokers, agents, managers, marine surveyors and consultants. Contact: Chris Curran (underwriter) or James Munn (deputy underwriter) Galleon Marine Insurance Agency, 10 Fenchurch Avenue, London EC3M 5BN, UK +44 (0) 20 3178 8865 contactus@galleon.uk.com www.galleon.uk.com

What is it? This insurance is designed to protect firms and individuals within the maritime industry from allegations and claims made by customers or third parties arising from an error or omission made while performing an insured service. Why do I need it? For those who have never had a professional negligence claim you will no doubt argue the risk is low – but our experience would beg to differ. It is often hard to imagine, as professionals, a claim being made against you, but unfortunately as our culture becomes ever more litigious it seems to be an increasing trend. Whether you are responsible or not, the cost of investigation and defence can rise very quickly and even the best business relationships can experience claims. It is at times such as these that you need protection, support and peace of mind.

Why Galleon? Galleon’s extensive cover provides protection from (but is not limited to) responsibilities for errors and omissions, fraud of employees, loss of documents, libel, slander and breach of warranty or authority. Extra extensions are also available. Our policies are supported 100% by underwriters at Lloyd’s of London and our insureds benefit from continuity credits. We understand the unique and broad roles within the maritime industry and our wording is tailored to cater in this respect. Every firm is different and we want to work with you to ensure your insurance needs have been met. Most importantly, we are there for you when it counts. Galleon also covers cargo and third-party liability for logistic providers, freight forwarders and transport operators as well as cargo “all risks” insurance. For more information, please get in touch or visit our website www.galleon.uk.com Galleon Marine Insurance Agency is a trading name of Crispin Speers & Partners Ltd, which is authorised and regulated by the Financial Services Authority. Our registration number is 311507.

FREIGHT FORWARDING D’Alessandro Logistics Espace Méditerranée, Zone Commerciale Portuaire, 2040 Rades Port, 1125 Rades Salines, Tunisia T: +216 71 448 054 F: +216 71 448 217 dalessandro. logistics@gnet.tn

D’Alessandro Logistics has a well-established global freight and trade network, offering a single-source solution to manage and transport goods. With an extensive network of professionals, D’Alessandro Logistics offers the best-fit solutions with its unique access to a vast agent network of air, ocean, or road transport facilities. Being an efficient international ocean freight forwarder, we provide comprehensive services to locations worldwide. Our experienced staff is trained to guide you through the complexities of international shipping. We offer tailored programs to meet our clients’ FCL and LCL requirements and transportation cost objectives.

D’Alessandro Logistics can provide the solution to any shipping requirement and serve as a single-source logistics window

By contracting with multiple carriers, D’Alessandro Logistics can provide the solution to any shipping requirement and serve as a single-source logistics window for all products moving through your supply chain. Project Cargo Project cargo requires specialised skill, commitment and flexibility to execute complex cargo movements. D’Alessandro Logistics’ global network of professionals provides the skills and strength that guarantee safe and timely delivery worldwide. Having a proficient team with project cargo experts gives us an edge to handle heavy cargoes with ease. We operate in a wide variety of sectors, including construction, heavy machinery, oil and gas, and mining. D’Alessandro Logistics can help you achieve success. Large project logistics management and procurement services are what we do best. Our process begins when the purchase orders are issued and involves moving cargo of all sizes and dimensions from anywhere in the world to your final site location. We assist clients with in-time deliveries to meet their project schedule.

www.thebaltic.com WINTER 2012


BACK What a day!

FREIGHT FAN For ten years Freight Investor Services has championed the freight derivatives market, promoting it from its fledging beginnings to the multibillion-dollar business it is today. Founder John Banaszkiewicz talks The Baltic through the daily issues that he encounters at this energetic broking firm – and at his favoured football club There’s no such thing as a typical day at Freight Investor Services (FIS), but one thing they have in common is an early start. These days, with a bigger team in place, I can spend more time in the morning helping my wife Tracy with our four children. After that it’s a quick train ride from Blackheath to the FIS office. The company celebrates its tenth anniversary in 2012 and a couple of years ago we outgrew our original premises and moved to the top floor of 80 Cannon Street, with panoramic views across the City. Our London base is one of three main offices, along with Singapore and Shanghai, and we have smaller offices in the US, India and South Korea. My work day starts as soon as the BlackBerry goes on, and the first hours are spent catching up with the teams in Asia. The paper market still doesn’t really get going until London opens, and from then on it will be flat-out until just before the Baltic indices are published, which sets the tone for the afternoon’s trading. After the first ten years focused largely on the Forward Freight Agreement (FFA) market, we have become two companies. FIS focuses on swaps and options in freight, iron ore, ferrous metals, fertilisers and bunkers, while Commodity and Freight Services provides physical shipbroking and commodity cargo broking. We used the financial crisis as an opportunity to diversify our derivatives business, first into iron ore swaps and most recently into steel and scrap. I’ve recently moved my seat to the ferrous desk and I’m spending most of my time sitting with the steel team as we develop these new products. Iron ore has been a huge success for us and we think steel has similar potential. Many of our existing customers are already looking at these new markets alongside freight. There is always a risk to being first into these new markets, but I’m philosophical about it. Not being there is a much 98

WINTER 2012 www.thebaltic.com

The paper market still doesn’t really get going until London opens, and from then on it will be flat-out until just before the Baltic indices are published

bigger risk. What really helps is having the FIS team behind me – we’re more like a family, really – and our success is due to their dedication, too. Innovation has always been a big part of our business. Most recently we’ve tried to imagine what the freight and commodity derivatives market will look like in future. What’s clear is that the regulators haven’t forgotten about us and the future will be about trading on-screen with broker support. This realisation persuaded me to invest in the Cleartrade Exchange in 2009 to provide a neutral, regulated venue for swaps trading. Starting with FFAs, Cleartrade Exchange has listed swap contracts for fertilisers, steel and scrap, and will soon add our latest new product, a bunker swap tradable in lots of one tonne upwards. Travel is the other regular feature of my life. I’ve recently become partowner of a mine, US Iron, and my next trip is to Las Vegas. Sadly, there won’t be any time at the blackjack

tables as I’m going to look at mining equipment and meet customers. My other love – besides my wife and family – is Burnley Football Club. I was proud to be elected co-chairman of the club this year, and I try to get to as many games as I can. We have some famous fans, including Prince Charles and Alastair Campbell, and I was honoured to meet the Queen in Burnley earlier this year. Football is pretty different to freight, but, just like shipping, sport is changing. Maybe we’ll see football players traded on a global electronic exchange – regulated, of course – in the not too distant future!



John co-founded Freight Investor Services Ltd UK in 2002, building on his freight-trading experience at Simpson Spence & Young and Cargill International. He is the inaugural chairman of the Iron Ore & Steel Derivatives Association and was the first chairman of the FFA Brokers Association. John is a member of Baltic Exchange and an FSA registered representative.

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