The Chancellor of the Exchequer's 2009 Budget contained nothing that was specifically aimed at shipping. That, says shipping accountant Moore Stephens, could be regarded as good news for the industry. Perhaps disappointingly the changes to UK tonnage tax that the industry had asked for were not mentioned.

Moore Stephens tax partner Sue Bill says, “Possible changes to the tonnage tax regime could have included an amendment to the EU flagging rules excluding ships time-chartered into the fleet, and clarification of the position with regard to the changes proposed in January 2008 which were later withdrawn. But these are complex issues to resolve as they depend on agreement with the European Commission.”

“In the current economic climate,” continues Ms Bill, “it is not surprising that the relatively minor change to the tonnage tax regime which has been requested has not been made, and that the UK government’s position has not been clarified. Companies in the shipping sector may in any case have more pressing financial concerns at the moment. And, overall, the fact that there is not a great deal of specific interest for the shipping sector might be regarded as good news, because the taxation regime at least continues to be reasonably stable.”

Further tonnage tax guidance is expected in the next few months from Brussels and is expected to cover issues such as whether ship management companies can be included in tonnage tax regimes.

The Budget does, however, include some provisions which could be of interest to some shipping groups. The Finance Bill 2009 will include an exemption from tax for most foreign dividends. In conjunction with this there are consequent minor changes to the rules relating to so-called ‘controlled foreign companies’ (CFCs). The exemption from the CFC rules which previously applied if the company followed an ‘acceptable distribution policy’ will no longer apply and certain holding company exemptions will also be removed.

Ms Bill says, “An exemption from tax for most foreign dividends may be helpful for some international groups. However, the CFC rules will still apply and those will need to be taken into consideration.”

Baltic chairman Michael Drayton presents Samy Ofer with honorary life membership of the Exchange

Shipping magnate and philanthropist Sammy Ofer, KBE was presented with honorary life membership of the Baltic Exchange last week.

Awarded in recognition of his hugely successful shipping career as well as his charitable contributions to the National Maritime Museum and Cutty Sark appeal, Sammy Ofer was presented his award by Baltic Exchange chairman Michael Drayton.

Speaking on behalf of his father, Eyal Ofer said:

"The honour bestowed on my father is more than appreciated. He has been a major pillar of the international and London shipping community since the 1960's and London has been and continues to be one of the principal bases of the Ofer family's shipping interests."

Other recipients of Baltic Exchange honorary membership have included the Duke of Edinburgh, Winston Churchill, and Maersk Mc-Kinney Moller.

Seafarers' union Nautilus UK says it is concerned by a ruling that could have major implications for masters and, it says, is an example of creeping criminalisation of the industry. A Scottish court fined the captain of an offshore supply vessel for allowing crew members to return to his docked ship against the rules set down in the vessel's safety management policy and the ISM Code. The master initially denied the charge but then changed his plea to guilty.

The ruling related to an incident in 2007 when Alexander Phimister was master of the offshore supply vessel Vos Viper. Captain Phimister went ashore with the second engineer and the chief officer Gordon Buchan to celebrate his birthday at the local pub. Whilst they were there they met some other members of the crew and returned to the ship at around 0100 hours. Mr Buchan went to make a cup of coffee and fell down some stairs and died as a result of his injuries. The subsequent post mortem showed that he was more than three times over the statutory alcohol limit of 35 microgrammes of alcohol in 100 millilitres of breath.

In passing sentence Sheriff Napier said: "Even though the vessel as docked, it was your responsibility to ensure that safety policies were complied with. You knew he was drunk when he boarded, you knew he was drunk and he died."

However, a spokesman for Nautilus said that the Union was "deeply disturbed by the implications of this ruling". "As a judgment the Court raised more issues than it answered. What would have happened if the man had been left on the dock?"

The master is a Nautilus member and was represented by the Union's lawyers. They put before the court the issues involved and the argument that allowing the man on to the vessel where there were crew members who not intoxicated was the safest option. The union also said the case left unanswered the possible criminal liabilities of a port facility that allows entry to premises to drunk seafarers.

Nautilus said it will continue to work to resolve the many unanswered question raised by the case.

Michael Hill

The London P&I Club says that its mutual entry has continued to increase despite a period of unprecedented economic turmoil and turbulence in the shipping industry, and now stands at over 39m gt.

Michael Hill, the underwriting director of the London Club’s manager, A Bilbrough & Co, says, “There is no room for complacency, but it is encouraging to see how the London has continued to make good progress during such a challenging time. The Club has gained a number of new members from the Far East and Europe, including Dalian Hongfeng Ship Management from the PRC, Trust Oil Tankers, Greece, and Vietnam Ocean Shipping (VOSCO). Additionally, there have been other positive developments in the profile of its fleet. For instance, the average age of ships entered with The London in 2008/09 was just over seven years. And more than 55 per cent of the ships now covered by the Club are less than ten years of age.”

Writing in the latest edition of London Club News, Mr Hill concludes, “A number of factors have combined to make the last twelve months very tough for P&I. The unparalleled volatility in the investment markets made strengthening the Club’s financial position important and was one of the key factors behind the decisive calling decisions taken by the Committee last October. The London P&I Club is well regarded for its commitment to mutuality, borne out by its wholehearted focus on giving its members a high-class, responsive service. Our continued growth shows how important these core values are to our members, and illustrates also their support for the continued strengthening of the London’s quality and breadth of operations as we move forward.”

The UK Club says that “decisive reaction to rising claims, negative investment returns and tighter financial regulation” have resulted in a 46% increase in free reserves and capital, to USD334m.

The club says in a statement that it “responded early to heightened investment risk, reduced exposure to equities (3%) and absolute return funds (11%); over one third of investments in fixed interest (bonds) and over half in cash. It also says that a currency exchange loss on non-dollar assets increased total investment loss to USD56m but this was offset by a reduction in the value of non-dollar claims liabilities. The club was also able to raise US D100m hybrid capital before the capital markets closed and global liquidity crisis struck. Other action included levying supplementary premiums on 2006 and 2007 policy years levied in October 2008 to minimise policy year deficits caused in part by high Pool claims in those years.

Commenting on the results after the club’s recent board meeting in Lausanne, Hugo Wynn-Williams, chief executive of Thomas Miller P&I Ltd, managers of the UK P&I Club, said: “The year has been an eventful one for the Club and one that has been marked by the action taken to minimise investment risk, reduce the past policy year deficits and prepare the Club for the prospect of tighter financial regulation through the hybrid capital issue. These steps taken together mean that the Club will be in a strong position to weather the current financial conditions and meet the demands for greater regulatory capital in the future.”

Claims for the 2008 policy year are projected at USD322m, marginally lower than the 2007 projection of $336m, which was more costly in retained claims and still involved a record contribution to the International Group of P&I Clubs’ Pool. The club notes: “People claims; from passengers, stevedores, pilots, visitors and particularly crew for illness, death and injury claims grew more than any other category. Of the $24.6 million increase in member claims from 2007 to 2008, a striking $21.5 million was attributable to people. Escalating crew wages, compensation for crew illness, death and injury, disability payments, and enhanced medical care and hospital costs have driven claims upwards.”

Numbers of crew injury claims actually declined by nearly 28 per cent over 1998-2008 and those involving medical costs or compensation by 16 per cent.

The club notes: “The managers feel these reductions speak well of members’ efforts to maintain high safety standards and screen new crew properly. However, the average cost per crew claim has increased well above normal inflation levels. For illness claims, the average cost rose three times from 1999 to 2008: USD7,525 to USD22,920. This trend is of major concern to all P&I clubs.”

The Cambridge Academy of Transport is running a one day seminar in London entitled “Problem Shipping Loans” on 7 May.

According to the organisers, the programme is a short introduction for loan officers who have never seen a bad market and a refresher for loan officers who can’t remember how bad it can get.

www.catz.co.uk/docs/file/SurvivalBookingFormFill-in.pdf

Capt Stephen Chalk of Lloyd’s Register will be delivering a talk on the ILO Maritime Labour Convention on HQS Wellington, London on 11 May. Hailed by some as an international bill of rights for seafarers, the new convention is currently being ratified.

The talk will cover the convention’s requirements and implementation; labour inspections as well as outline the Lloyd’s Register approach.

Admission to the talk is free. For further details contact Bridget Hogan at the Nautical Institute.

Email: bh@nautinst.org

Imarest is organising a conference on ship lay-up this week (6-7 May) in London. Speakers at the two day event will cover all aspects of why, where and how to lay-up a ship, as well as exploring alternatives, looking at environmental considerations, and discussing the complexities of reactivation.

See www.imarest.org for further details

London-based shipping accountant Moore Stephens warns that shipping companies should be pursuing a policy of robust risk management in order to identify and ameliorate the increased level of financial risk to which they are currently exposed.

Geoff Woodhouse, head of Moore Stephens’ Governance, Risk and Assurance Group, says, “Risk management has become an increasingly important aspect of global business. A mixture of prudence and optimism, and close attention to risk management, is essential at all times in the shipping industry, but the global economic downturn has accentuated the dangers which lie in wait for the unprepared. To manage risk, it is necessary first to identify it.”

Writing in the latest issue of the Moore Stephens shipping newsletter Bottom Line, Woodhouse says: “Long-term charter party agreements should be money in the bank, but there are potential risks. For example, what is the charterer's reputation, how long is the charter for, and how much business is tied up with a particular charterer? The failure of a charterer can start a counter-party domino effect which will have far-reaching consequences for trading partners.”

He continues: “Furthermore, where charters have been fixed at above market rates, what is the risk that the charterer may not be able to fulfil its obligations, or attempt to renegotiate a lower rate? If the charterer reneges, deliberately or through insolvency, the shipowner will have to find a new charterer, most likely at a lower rate in today's market.” Mr Woodhouse explains that there is a risk, also, where the bank or other counter-party owes money under derivative contracts to an owner. The bank or other counter-party may not be able to meet its obligations, and failure to honour the agreement could result in a loss. Another area of counter-party risk concerns shipyards constructing newbuildings, where the ongoing financial viability of both the yard and the associated refund guarantor should be assessed.

He says: “Loan finance availability is currently very restricted, which may lead to an owner's inability to finance newbuildings, resulting in failure of the contract and potential losses to the owner. Shipping companies may also be exposed to interest rate risks on borrowings and to risks from exchange rate fluctuations. “Failure to comply with covenants on existing loans is also a key risk, as banks may call in their loans, threatening the survival of the business.”

He concludes, “While it is impossible to eliminate risk from your business completely, robust risk management will help protect you against the unexpected. Risk management strategies and processes and regularly reviewed risk registers all fall within a strong governance framework. By the end of any risk management project, there should be improved understanding, increased transparency and better controls to monitor and manage strategic and operational risk.”

Mummified rat

A recent court case in London some rats found in mummified form in a vessel after routine fumigation cannot be regarded as turning the cargo into a dangerous one and would make the owner liable for delay caused.

Law firm Pysden Solicitors reports that the Commercial Court, in an appeal against an arbitration award had to decide whether the presence of between 14 and 20 rats in the cargo loaded on board the vessel Darya Radhe at Paranagua by one or more shippers rendered some or all of the cargo loaded “dangerous” for the purposes of (i) the charterparty incorporated into the bills of lading and/or the common law and/or (ii) Article IV Rule 6 of the Hague Rules?

After considering a large body of case law Judge J Tomlinson found that “dangerous” within the meaning of Article IV Rule 6 of the Hague Rules was most unlikely to extend beyond physical danger in meaning and therefore concluded that the findings of the arbitrators were correct that no liability had been established by Bunge under the Hague Rules. He also rejected the submission at common law that the proposition in the Mitchell Cotts case extended to cover cases of unnatural delay and concluded that as the principle in the case only supported delay as being dangerous in cases where there was a legal obstacle in existence relying on the Transoceanica case. He agreed with the arbitrator and dismissed the appeals.