The latest Shipping Confidence Survey by Maritime London member Moore Stephens has revealed a significant drop in overall confidence levels in the market, and an increased expectation that rates in the tanker, dry bulk and container ship sectors will fall in the next twelve months.

The firm's shipping partner, Richard Greiner says, "Our latest survey reflects weakening demand in the global economy and growing concern across shipping markets. The results show an industry less confident about its ability to maintain the momentum it has built in recent years. Market anecdote provided by respondents confirms that the global economic downturn and the credit crunch are starting to bite. Shipping has shown repeatedly that it is a robust and innovative sector. It is likely to need those qualities now more than ever before in order to ride out the storm."

On a scale of 1 to 10, the average confidence level reported by respondents was 5.6, compared to 6.8 in the previous survey in June 2008. Confidence levels fell across all sectors and regions and the greater divergence between respondents suggests greater uncertainty across market participants. Ship managers and owners were the most confident at 6.0 and 5.8 respectively, although these were markedly down on the corresponding figures in June. A number of respondents acknowledged that the shipping industry is very vulnerable to the current global economic downturn, that any recovery will depend on a return to confidence in the financial markets, and that trade will inevitably suffer as a result of worldwide recession.

A number of respondents felt freight markets would never again recover to reach the levels achieved over the last three years, while others noted that difficult market conditions would likely force out under-capitalised and over-exposed operators, to the ultimate benefit of the market as a whole.

There was some evidence of a reluctance to conduct business with first-time customers, with one operator explaining, "Right now we prefer not to work than to work and not get paid, so we will rely on regular customers or at least on new ones whom we know we can trust". Other respondents, however, saw reasons for optimism in sustained growth in China and India, where energy demands will continue to drive tanker business. Some hoped that recent falls in commodity prices would support demand in the dry bulk and container ship sectors, albeit at reduced levels. Demand trends, the cost and availability of finance and competition are now clearly respondents' key concerns.

Although Moore Stephens' operating costs benchmarking report, OpCost, recently confirmed that ship operating costs had surged by over 11% last year, this survey reveals that just 10% of respondents expected such costs to significantly affect their performance over the next year. As with confidence levels, there was a wider range of sentiment on the likelihood of respondents making a major investment during the coming year. Ship managers replaced ship owners as the most likely, but their expectation level of 5.6 out of 10 (against an average overall score of 5.2) was still significantly down on the previous survey.

Owners, meanwhile, dropped a whole point, from 6.5 to 5.5 in this category. There was a fall from 66% to 60% in the number of respondents who expected finance costs to rise over the next twelve months. However, the proportion of respondents expecting lower finance costs rose from 9% to 19%. Brokers, managers and owners led those who expected costs to rise over the next year.

In the freight markets, there was evidence of a significant shift in expectations towards lower rates, most strongly in the tanker and container ship sectors. In the tanker market, for example, 52% of respondents expected rates to fall whereas in June, 45% expected them to rise. The number of owners expecting rates to fall was also up, from 37% to 45%. Regionally, North America and Asia, with 29% and 23% respectively, led the way in expecting an increase in tanker rates, while in Europe the figure was 18%.

In the dry bulk market, there was an increase, from 35% to 43%, in the number of respondents predicting lower rates, but a rise also, from 32% to 35%, in the numbers of those anticipating increases. While in June responses to this question were more evenly spread, a smaller proportion of respondents in November expected rates to stay the same. More managers and brokers expected higher rates than expected lower while more owners expected lower rates than expected higher.

Finally, 50% of respondents to the survey expected container ship rates to be lower in twelve months' time, compared with 20% who expected them to be higher. This represents a significant change compared to Moore Stephen's June 2008 survey, when respondents' views were somewhat inconclusive.

The United Kingdom Mutual War Risks Association will now cover owners’ war risk insurance from shipowners with no connection with the United Kingdom. Hitherto, UK War Risks has concentrated on UK owned or flagged ships.

A club statement said: “The aim is to secure a broader membership base to spread risks more widely and achieve greater operating economies of scale. Marketing efforts will focus on existing members with vessels not connected with the UK and other owners familiar with P&I mutuality who currently buy their war risks cover in the commercial insurance market. Applications will be considered either directly or through brokers.”

Andrew Ward, director of underwriting and marketing for the UK War Risks Club, explained: “We have grown over the years and have been highly successful in attracting and retaining a blue chip membership. Whilst remaining firmly committed to the UK, we believe that providing a mutual war risks solution internationally will be welcomed by a large number of shipowners, particularly when war risks insurance for shipping is once again front page news. We intend to build on our growth over recent years to make the Club larger and stronger.”

The club has over 850 entered ships, valued at over USD30 billion. The board’s directors include representatives from Carnival, BP and Shell.

Shipping accountant Moore Stephens says the fact that the pre-budget report issued by the UK government on November 24 does not include any measures which significantly affect the shipping sector could be regarded as good news for the industry. Although the government has been asked to make changes to UK tonnage tax, the report makes no mention of it.

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.” She adds: “In the current economic climate, 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”.

Nevertheless the firm points out that the pre-budget report does, however, include some provisions which may be of interest to the shipping industry.

“For example, the Finance Bill 2009 is likely to include an exemption from tax for most foreign dividends, in conjunction with which there will be continued consultation on the options for reform of the rules relating to so-called ‘controlled foreign companies’ (CFCs). The government has also announced a review into the position of the UK’s crown dependencies and overseas territories as offshore financial centres.”

Ms Bill also notes: “An exemption from tax for most foreign dividends may be helpful for multinational groups, but it remains to be seen how CFCs will be taxed.”

In early November Oslo based clearing house NOS Clearing successfully netted 318 FFA OTC contracts worth US$300m on behalf of 38 freight derivative trading companies, "avoiding serious credit stress", attendees at last week's Baltic Exchange-organised Bulk Freight Market meeting were told. It was stated that 99% of outstanding October Forward Freight Agreement (FFA) contracts were successfully settled.

Baltic Exchange vice chairman Mark Jackson who chaired the meeting: said: “Netting has worked well, but it is a short term solution for the OTC market and is not an alternative to clearing. We call on companies to inform NOS, LCH Clearnet or the Baltic Exchange of forward agreements for 2009/2010 to see if the matching or novation of whole contracts can be achieved.”

According to John Banaszkiewicz, managing director of freight derivative broker FIS, an estimated 11,500 Forward Freight Agreements (FFAs) with a notional value of $20.25bn were settled for October. Attendees agreed that all obligations under existing contracts in the physical and freight derivatives market must be met on time and that non-performance by any market participant was unacceptable.

“Today has been a starting point to address tomorrow’s problems,” said Mr Jackson who chaired the meeting. Over 400 attendees representing shipowning, chartering and broking companies from around the world attended the London meeting which dealt with the cash flow issues facing the shipping markets in the wake of the collapse of dry bulk freight rates. In cases of extreme financial distress, attendees were encouraged to engage in open bilateral communication in order to address potential performance problems at an early stage.

Mark Jackson said: “If there are genuine financial problems, then it is better that these are aired sooner rather than later.” NOS managing director Morten Erichsen agreed that he would seek the permission of companies who had already participated in the netting scheme to release their names in order to encourage others to also declare their positions to the clearing house.

Other items on the meeting’s agenda included discussion on counterparty risk in the physical market and the possibilities of using “Exchange For Physical” contracts which are already widely used in other commodity markets. The Baltic Exchange will begin detailed research into the issue and release guidance to members explaining how the system could work. The Baltic will also explore other enhancements to standard charterparty clauses such as the wider use of the BHP Billiton set-off clause which allows for the combination of a counterparty’s physical and paper exposure.

Baltic Exchange chief executive Jeremy Penn told the meeting that the Baltic already had a successful record in dealing with defaulting parties through its posting system. Under the system member companies are able to report market participants who contravene the Baltic Code.

“We encourage member companies to use our service before fixing with a company with whom they have no previous experience,” added Jeremy Penn.

Some of the presentations given at the meeting can be downloaded from www.balticexchange.com/default.asp?action=article&ID=4746

The London Shipping Law Centre is holding a seminar entitled the effect of the credit crisis upon maritime contracts. According to the Centre, this is a scenario-based event in which consideration will be given to the present uncertainty in the market about the legal position with regard to withdrawals from contracts or inability to perform due to credit difficulties.

Key issues to be discussed: Withdrawal of a buyer from an MOA; cancellation of a shipbuilding contract; default in payment of freight or hire in a chain of charter parties with no identical provisions as to lien on cargo, issues arising from the "Breman Max" litigation, contractual or any other legal protection, if any, the other party would have in consequence of withdrawal, cancellation or default.

Chairman: Jonathan Lux - Ince & Co. Panellists: Jeffrey Gruder QC - Essex Court Chambers David Mildon QC - Essex Court Chambers. Simon Crookenden QC - Essex Court Chambers Michael Collett - 20 Essex Street

Monday 8 December 2008, 1800 - 2000
Venue: A. Bilbrough & Co. Ltd., 50 Leman Street, London, E1
Attendance is strictly through pre-registration

www.london-shipping-law.com/bookingform.asp

Maritime London member the London-based Greek Shipping Co-operation Committee (GSCC) has taken the Brussels bureaucracy to task for its recently published strategy for scrapping ships.

In its latest monthly bulletin the GSCC notes: “With perfect timing, while the world is going through an unprecedented economic crisis, while large numbers of ships are scheduled for scrapping, and while IMO has just finalised the draft text of its Recycling Convention, due to be adopted next May, the European Commission has issued a press release to introduce a European Union strategy for the dismantling of ships.”

It adds: “ Needless to say the EU Strategy, would be punitive for the EU shipping industry, as, inter alia, it seeks to persuade Member-States to apply the provisions of the Basel Convention on end life ships. According to the communication, the moment a shipowner signs a contract for the demolition of a vessel, the ship automatically becomes 'hazardous waste'. To this end it proposes better enforcement of current waste shipment rules, i.e. the Basel Convention, which bans the export of hazardous waste to non OECD countries - where the majority of the demolition facilities are located - through more checks at European ports; more cooperation and information exchange between EU authorities; and the establishment of a list of ships that are ready for scrapping.”

The GSCC says: “The proposed Strategy will now be sent to the Council and European Parliament for their consideration and it is to be hoped that the Member-States will object.” Making its opposition to the Brussels plan completely clear the GSCC says: “Ships, sailing under their own power, and complying with international conventions are not “waste”, and do not have to comply with the Basel Convention. This is not only the view of the shipping industry but also of the majority of the Member–States of IMO, including Greece. The latter has already written to the Environment Commissioner, Mr. Dimas, to clarify the point.”

It continues: “Most international shipping practitioners and knowledgeable observers agree that a viable ship recycling industry is crucial to an efficient, safe and environmentally friendly shipping industry and the elimination of sub-standard ships. This is why the industry assisted in the development of the IMO convention, and also developed interim voluntary measures for the dismantling of ships.”

Launching the new strategy, European Environment Commissioner Stavros Dimas said:

“While there have been improvements in industry practices in recent years, the problem of ship dismantling remains acute. Workers in South Asia are being exploited and their lives put at risk working in deplorable conditions, while coastal areas are being polluted and ecosystems threatened. The best way to resolve the ship dismantling crisis is to work together at EU and international level. As we look forward to a globally binding convention next year, the EU is already working to support the new rules. The strategy presented today should ensure that ships with strong links to the EU are only ever dismantled in safe and environmentally sound facilities."

Dino Caroussis, of Chios Navigation, was elected chairman and president of the UK P&I Club at its recent board meeting in Hong Kong, taking over from Tullio Biggi who has retired from the board.

Mr Caroussis, 56, became a director of the UK Club in 1996 and a deputy chairman in 2002. Mr Biggi, 68, of V Ships, had been the Club’s chairman for the past three years, having joined the board in 1998.

Sea Vision UK, the national campaign to raise awareness of the sea and the maritime sector, has teamed up with Practical Photography magazine to launch its annual photography competition and is looking for the best picture of the sea taken around the UK.

Categories:
• Commercial (including ships, oil rigs, fishing vessels etc.)
• Leisure (including sailing, surfing, beach games, aquariums, diving etc)
• Maritime heritage and coastlines

First prize includes a cruise on a Thames Barge for up to 20 people or a Nikon D40 camera kit. For more information and all terms and conditions visit www.photoanswers.co.uk/GLOBAL/Capture-the-spirit-of-the-sea-competition/