Buoyant freight markets underpinned record UK maritime services exports of £2.1bn in 2008 with nearly half originating from shipbrokers. The two-yearly Maritime Services report from International Financial Services London (IFSL), the independent organisation promoting UK financial services around the world, confirms London’s position as a leading centre worldwide in the supply of business services to the international maritime community.

In particular, IFSL’s report highlights London’s strength in the following key areas:

Strong freight markets in the first half of 2008 pushed shipbroker earnings to £948m

Shipbroking: London’s 400 shipbroking firms generated net exports of £948m in 2008, 23% up on £769m in 2007. The Baltic Exchange Dry Index (BDI) has reflected the drop in seaborne trade, with a peak-to-trough decline from 11,793 to 663 during 2008, and averaging 2,400 in 2009 up to mid-September. Shipbrokers in London perform a key global role matching ships and cargoes for 50% of the tanker and 30-40% of the dry bulk chartering business. They are also involved in the sale and purchase of over half the world’s new and second hand tonnage. The notional value of Freight Forward Agreements (FFAs) traded by shipbrokers in over-the-counter derivatives market reached a record $163bn in 2008, but is expected to drop to $40bn in 2009.

Insurance: With 17% of premiums in the international marine insurance market in 2008, London remains the leading centre in the face of fierce competition from Japan, the USA and Germany. London is also the largest centre in the management of protection and indemnity insurance, with P&I clubs operating in the UK accounting for 62% of the global market in 2008.

Ship finance: In ship finance, the loan book of $50bn provided by commercial banks in London accounted for 13% of the world book at end-2008, down from 16% in 2006. The world loan book soared to $391bn in 2008, on the back of the surge in shipbuilding orders, but is expected to contract sharply as the supply of finance is limited by banks’ capital and credit constraints.

Ship classification: Lloyd’s Register is the second largest ship classification society in the world, accounting for 18% of the world fleet.

Legal services: London is the leading centre in legal services involving about 30 law firms. English law is widely applied to shipping disputes, usually involving foreign interests.

Commenting on the report, Maritime London chief executive Doug Barrow said: “These figures show how profitable the sector was last year, but the challenge for the UK’s maritime services industry is to continue to dominate the market in more difficult times. The independence and excellence of the UK maritime services sector in all areas is an attractive proposition for end-users seeking the best advice and service possible.”

The report’s author Duncan McKenzie, IFSL’s director of economics, notes: “The global economic downturn has contributed to an expected 10% drop in seaborne trade in 2009. The knock-on impact on maritime services means that UK overseas earnings in 2008 represent a high point unlikely to be exceeded for a few years.”

Ship operating costs surged by almost 16% last year, mainly as a consequence of "soaring crew wages", according to the latest OpCost report from shipping accountant and Maritime London member Moore Stephens.

Moore Stephens partner Richard Greiner says, "For the first time, the OpCost indicator has broken through the 15% barrier. This is sobering news at a time of depressed freight markets, and creates something of a double-whammy for owners struggling to survive in a climate of falling revenues and increased costs."

Seafarer wages up 21%

The firm's ship operating costs benchmarking tool shows an annual average increase of 15.8% in total operating costs for the range of vessel types covered in 2008, the financial year covered by the survey. The average rise in crew wages over that period peaked at 21.4%, the highest level since OpCost was first published, in October 2000, and more than double the increase (10.3) recorded the previous year. In almost every vessel category, crew costs accounted for the single largest increase in expenditure. For bulkers and tankers, the average increase in crew costs was between 22% and 23%. All vessel categories experienced an increase in total operating costs over the twelve-month period and, generally speaking, the increases were more marked than in any previous year.

The OpCost bulker index saw the largest overall increase of 27 index points, or 18.6%, on a year-on-year basis. The OpCost tanker index, meanwhile, experienced a 24 index point, or 15 per cent, rise. In contrast to the previous year, when it produced the highest overall increase of any vessel type, the OpCost container ship index this time recorded the lowest increase, of 16 index points, or 10.2%.

In the Stores total category, the increase in costs came out at just 7 per cent, well down on the previous year’s average of 16 per cent, and almost two-thirds lower than the 20 per cent increase recorded in OpCost 2007. The comparatively large increases for 2007 and 2006 were principally accounted for by a sharp rise in lube oil costs, which eased in 2008. Indeed, in all vessel categories other than reefers and ro-ros, increases in lube oil costs dropped, and the average year-on-year increase for this item was just over 7 per cent, compared to the 25 per cent recorded the previous year.

Classification societies American Bureau of Shipping (ABS) and Lloyd’s Register (LR) have agreed to use common software for the assessment of scantlings of bulk carriers and oil tankers designed to comply with the new IACS Common Structural Rules. The new common software draws on the existing applications of both societies with the LR approach being used for the initial scantling evaluation (CSR Stage 1) and the ABS approach being used for the finite element assessment (CSR Stage 2).

The announcement comes after two years of detailed work by dedicated teams from both societies to identify and implement the best amalgam of the strengths of both societies’ existing CSR software.

“Although shipyards, designers and shipowners have welcomed the adoption of the IACS Common Structural Rules, they have made repeated requests for a similar approach to be taken with the software needed for the application of the Rules,” said ABS chairman and CEO Robert Somerville. “This joint initiative by two of the leading classification societies directly addresses that need.”

LR's chief executive Richard Sadler emphasised that the goal of the Common Rules can only be met if, ultimately, the societies use a common approach to the software used for the evaluation of the designs. “We have moved from ten sets of Rules for tankers and another ten sets for bulk carriers to a single standard for each ship type,” Mr Sadler said. “Yet the classification societies have developed multiple software programs for each of the new Rules. It is inevitable that such an approach will return different results and our experience to date has shown this to be the case. That dilutes the intent of the Rules and introduces an unnecessary element of confusion for the designers and shipyards.”

Testing of the new joint software is being finalised and design review engineers from both societies are scheduled to begin intensive training on its application in early October. Once this process has been concluded, each of the societies will withdraw their existing CSR software and all new designs presented to either society will be evaluated using the new common software. In the interests of promoting technical consistency and maritime safety, the two societies have also announced that, once the exhaustive testing of the new software has been completed, it will be made available to other IACS members.

“At that time we will welcome any approach by our colleagues from the other societies to join this endeavour to introduce a standardised approach to the application of the Common Rules for these two ship types,” Somerville stressed. Such usage will merely require a simple licensing agreement, he added.

The IACS Common Structural Rules for Tankers and Bulk Carriers were unanimously adopted by the ten member societies in December 2005. They became effective for vessels contracted on or after 1 April 2006. They apply to all double hull tankers of 150m in length and above and to single and double side skin bulk carriers of 90m in length and upward, other than ore carriers.

In his review of the first half of 2009 West of England P&I Club's managing director Peter Spendlove says the club’s strong operating result for the first half of 2009 has been encouraging. The club says its free reserves have risen to about USD180m, returns on investment have exceeded USD40 for the year to date while releases have been reduced for the 2007 and 2008 policy years and claims have been lower so far for 2009.

He says: “Some stability appears to have returned both to claims activity and investment markets. Claims costs seem to be moderating, and the Club’s investment portfolio has performed strongly. Tonnage has continued to grow steadily. However, claims and investment environments remain fragile and volatile so that firm conclusions cannot be drawn from these positive developments until trends become more established. We shall continue to work closely with members and their brokers to ensure that we achieve balanced underwriting results.”

There is, Mr Spendlove says, no easy explanation for the apparent drop in frequency and cost of claims over the last six months, not least because there is not yet an established trend. Reduction in shipping activity and falling values of ships and their cargoes may be significant factors for certain types of claim, but environmental and personal injury claims may be less influenced by the global economic downturn.

The International Transport Intermediaries Club (ITIC) has urged shipmanagers to limit their liability to a sum which reflects the growing proportionate gap between ship values and the level of shipmanagement fees.

Ahead of an impending revision of the standard industry shipmanagement agreement, ITIC notes that the standard shipmanagement agreement, BIMCO Shipman, has been around for over twenty years.

It says, “The current version is BIMCO Shipman 98 and it is expected that another version will be published very shortly. The common thread through all these agreements is the ability of shipmanagers to limit their liability for acts arising solely from their negligence or gross negligence to ten times the annual management fee. The value of ships has increased significantly since 1988, when the first contract was drafted, but the level of shipmanagement fees has not. Therefore the need for a shipmanager to limit its liability to a sum commensurate with the fee that it is earning is more important in 2009 than ever before.”

ITIC claims director Andrew Jamieson says, “The club never recommends that a shipmanager signs an agreement that does not limit its liability to a multiple of the fee it earns. Of course it might not always be possible to limit liability to ten times the management fee (even though the overwhelming majority of contracts do), but a great deal of effort should be made to limit liability to a reasonable sum. If shipmanagers have no limit of liability in their contract they will face more claims from opportunistic owners wanting them to contribute to every operational loss. Also, managers may suffer a sharp increase in their professional indemnity premium as the underwriter will look at their ability to limit liability under contract when assessing the premium.”

“Furthermore,” says Mr Jamieson, “all shipmanagers should exclude all liability for the negligent acts of the crew. A manager is usually acting as an agent for and on behalf of the owner and is arranging the employment of the crew. It is for the owner to insure the negligent acts of the crew, not the shipmanager.”

The Nautical Institute’s London and Solent branches will be running a conference on terrorism, piracy and war risks. Taking place in Southampton 6-7 November, the event will feature presentations from Simon Stonehouse (Joint Hull Committee), Nick Taylor (Chevron), Capt Richard Farrington (Royal Navy) and many more.

According to the organisers the aim of the conference is to provide practical advice to mariners, shipowners, charterers, brokers, lawyers and others in the maritime industry, on how to manage the risks which arise when a ship is required to transit an area where terrorism or piracy is, or may be, present.

See www.nautinst.org/london/ for further details.