Despite the turmoil in the financial markets, London’s shipping sector is continuing to perform very strongly, the City of London Lord Mayor David Lewis told a group of Maritime London members last week.

Speaking at a networking lunch hosted by law firm Norton Rose, he urged members to continue to lobby to government and highlight the maritime services sector importance to the UK’s economy.

The UK’s maritime services sector contributes over £1bn in overseas earnings and provides employment for around 15,000. “There are people in government who don’t understand this and pressure needs to be brought to bear so they do.”

Maritime London works closely with the Lord Mayor’s office and has recently undertaken promotional trips and hosted meeting with shipping companies and governments in Moscow, India and Norway.

Maritime London chairman Robert Woods added that whilst there was no room for complacency for the UK as a centre for maritime excellence, the sector continued to offer the best range and depth of support services in the world. He noted that P&O had recently ordered two new ferries from Aker Yards, and that without the support of the UK’s legal and financial network it would not have done so.

Key players from London’s maritime services sector joined the Lord Mayor, Maritime London, the Baltic Exchange and the London Stock Exchange on a promotional trip to Moscow at the beginning of the month.

Top of the agenda was a meeting with Sovcomflot’s senior management team. Sovcomflot, the world’s fifth-largest tanker company, is understood to be undertaking a major restructuring later this year and assets will be divided into five separate companies under the SCF Group umbrella.

The delegation was informed about Sovcomflot’s activities - something viewed by the Russian hosts as a sound basis for developing mutually beneficial relations between the Sovcomflot group and its British partners.

New Department for Transport (DfT) statistics show sustained shipping growth, but the Chamber of Shipping warns that London is under serious threat unless the tonnage tax regime supports the industry. The UK registered fleet is now almost five times the size it was when tonnage tax was introduced in 2000, but the Chamber of Shipping has warned that its continued strength is dependent upon the UK’s ability to offer shipping businesses a stable and ‘safe’ tax regime that encourages long-term investment.

UK needs to offer shipping businesses a stable tax regime

According to the Chamber uncertainties over the taxation status of non-domiciles and tonnage tax has already had an impact on the industry, with some shipping business already migrating away from the UK.

It says that the challenges and opportunities are great – but a constant eye on the ball is required, both in Westminster and Brussels, to ensure British shipping stays strong and London maintains its status as the centre of the maritime world.

The DfT's Transport Statistics show:

The Chamber says that this continued growth – founded on the fiscal and regulatory reforms of the late 1990s – has enabled the UK to take advantage of the long shipping boom.

But the Chamber cautions: “What is clear is that the next few years will see more difficult trading conditions and uncertainty, as the markets digest the effects of the turn-down in British and other economies, the expectation of continued high prices for fuel, the worldwide shortage of skilled seafarers and the uncertainties of the eventual application of climate-change policies to shipping. At the same time other global shipping centres – notably Dubai and Singapore – are aggressively marketing themselves as shipping business centres, determined to usurp London’s pre-eminence.”

As an economic slowdown approaches marine insurers must maintain underwriting discipline and write for profit rather than market share, Lloyd’s franchise performance director Rolf Tolle, told delegates at last week's International Union of Marine Insurers’ Conference at Vancouver.

While calling for prudence he expressed optimism that the sector would continue to perform. He believed that, although the marine insurance faces challenges: “There is still money to be made for marine insurers as long as they are prudent and calculate risks effectively.”

He said that low inflation, huge rises in commodity prices and the growth of import-export activity of emerging economies has boosted the marine and energy sectors over recent years, but the outlook is mixed. According to Mr Tolle the good times are not yet over – the number of vessels is expected to increase by as much as 40% in the next five years, freight rates are rocketing and average day hire rates have risen by 170% – there are significant challenges ahead for insurers, led predominantly by the global economic slowdown.

Mr Tolle said: “The thirst for raw materials from emerging countries has abated and the once healthy Asia-to-Europe route, buoyed by the fast-growing Eastern Europe economies and strong Euro, has suffered a decline in confidence, problems of over-capacity and a deceleration of Chinese exports.” He cautioned that financial difficulties were likely to cause the potentially massive fleet growth to be curtailed by new building cancellation or delays: “The current liquidity problems in the financial markets and the reluctance of banks to lend money will have a major impact on the affordability and feasibility of the new build programme.”

Ship owners are also dealing with the dual difficulty of not being able to pay for the ships they have ordered and rising steel costs.”

Tolle told conference attendees: “The performance of the shipping sector is closely linked to the health of the global economy and we all know that it is in the sick bay at the moment. The erratic rise of oil and the threat of a global recession may lead to a slow down in consumer spending, a general economic slowdown and a reduction in demand for tonnage. The insurance cycle is not working in our favour and we are seeing significant softening across all lines of business. Almost without exception, terms and conditions are under increasing pressure and rates are either falling or are already at very soft levels.”

Proposed changes to immigration rules may make it easier for London-based companies to employ foreign workers with sea experience in shipping related jobs. The Chamber of Shipping is says it is pleased to see that the Migration Advisory Committee has recognised that there is a shortage of ships' officers in the UK in its report – Skilled, Shortage, Sensible: The recommended shortage occupation lists for the UK and Scotland.

The officers' union Nautilus UK has however taken a different view saying that making it easier to employ foreign officers removes an incentive to train sufficient British officers. New recommended lists of occupations for which there is a shortage of skilled workers in the UK and Scotland were published last week by the Migration Advisory Committee, as part of the Committee’s first major report.

The Chamber says that it lobbied to have ship's officers being recognised as a shortage occupation but Nautilus says it was not consulted and plans to challenge the committee's recommendations.

Tim Springett, the Chamber's head of labour affairs, says: “We are pleased that the industry’s skills shortage in these key areas has been acknowledged by the Committee. There is a shortage of ship and hovercraft officers in the UK and throughout Europe. Provided the Government accepts the Committee's recommendations, operators of ships to which the points-based system applies, or will apply, will be spared the obligation to undertake fruitless local labour market tests before bringing officers from outside the European Economic Area to work on their ships.”

Shipowners are paying considerably less for hull insurance now than 14 years ago, according to a senior Lloyd’s hull underwriter. Speaking in London, Simon Stonehouse, chairman of the London market’s Joint Hull Committee and a member of IUMI’s facts and figures committee, said that insurers experienced a relatively low incidence of major losses for the first half of 2008. However, attritional losses would have an adverse effect on underwriting accounts.

“Premium rates have been level for owners with good claims records, and they may achieve a continuity bonus or profit commission. But owners with poor records are facing premium rises and increases in deductibles.” He went on to say that rates were still only 60% of 1994 levels in terms of dollar per deadweight ton. This was against a background where underwriters face huge increases in repair costs, increased exposures in terms of vessel values, and higher risks because everything related to shipping is stretched and under pressure, especially crews.

“This is already having an effect on the number of (insurance) players in terms of their security rating, but still new capacity enters the market,” he said. The JHC chairman added that the intelligent reinsurance market was demanding more information from underwriters, and in some cases was influencing the terms which the original underwriters offer.

High or volatile oil prices and environmental concerns, point to the need for new designs capable of operating efficiently at different speeds but Lloyd’s Register warns that care needs to be taken when running at reduced power outputs.

The classification society says that most container ships trading today, and on order, were designed for a world of relatively low energy prices. With oil at recent high levels many owners have been implementing or considering slow steaming strategies.

Slow steaming may also be seen at present as an answer to over-capacity. But having reached historic highs of USD147 a barrel in July this year, the price of oil fell back to below USD 100/barrel last week. As a result ship operators need to be prepared to manage high oil prices and volatility.

LR notes that container ship designs have reflected the prevailing price environment at the time of construction resulting in the delivery of ships that are highly unsuitable in future years when the oil price fluctuates.

Operational flexibility, enabling owners to respond to different oil prices, is however an area that Lloyd’s Register has been addressing. It believes that the industry needs flexible designs capable of operating most effectively across different power output bands.

It says that there are diminishing returns in slow steaming with machinery designed to operate at higher outputs - particularly when reducing speeds to below 20 knots. There are technical considerations involved in running at reduced power outputs: to ensure reliable operation from engines designed to run optimally at higher outputs, closer surveillance of engine performance and operating parameters, fuel quality, lube oil consumption and power-speed conditions will be required.

Pirates have captured dozens of ships around the Horn of Africa this year, making the waters off Somalia the most dangerous in the world.

Representatives of the European Community Shipowners' Association (ECSA) had talks on Friday with EU officials responsible for co-ordinating a European response to the ongoing piracy crisis in the Gulf of Aden.

The talks took place soon after two more vessels had been seized. At the meeting the owners' representatives stressed the following priorities:


1. For EU Governments to recognise the seriousness of the situation and to urgently deploy more warships to the Gulf of Aden and to the seas off the coast of Somalia with the required rules of engagement to enable direct action to be taken against the pirates.

2. To provide an ongoing international basis for action, EU Member States must press to extend the UN Resolution 1816 beyond its current expiry date of 2nd December 2008, preferably for an indefinite period.

3. For European shipowners to maintain and foster close links with the newly created EU Naval Coordinated Cell in order that, through exchange of information and the setting up of communication channels, it can make a valuable contribution to increasing the security of merchant and cruise vessels.

ECSA welcomed early contact with the recently formed EU Naval Coordination Cell established by the EU Foreign Affairs Ministers on 15 September to support UN Resolution 1816 to improve security for vessels in that part of the world.

ECSA reports that the EU Cell is expected to be fully manned and operational in the coming weeks. ECSA says it will remain in close contact with the EU Cell and will put pressure on EU member states for "a clear engagement to act forcefully against piracy and to re-establish safety and security in these important trading seaways where European shipping companies are key players.”

Maritime Education & Training Limited (METL) provides evening classes in central London for the professional qualifying examinations leading to membership of the Institute of Chartered Shipbrokers. Although the new term started last week, there are still places available.

Anyone interested in enrolling should contact METL.

Email: rita@metl.info
www.metl.info

Petrospot is running a Marine Credit Risk Assessment (2-4 Nov) – a residential training course, focusing on credit risk in the maritime sector, with particular emphasis on the bunker industry. It digs deep into the complexities of the high risk, volatile shipping and bunker markets, offering comprehensive sector risk analysis that helps delegates avoid problems and get out of trouble.

Click here for further details.

A consortium of private equity firms looking to purchase Informa Plc, the publisher of Lloyd’s List, has withdrawn its £1.9bn bid. Informa owns more than 2,000 trade publications, arranges around 10,000 business conferences each year and has a presence in some 40 countries..

The Chamber of Shipping has reacted with dismay to a government decision to allow the building of an offshore windfarm off the North West Coast of England.

The Chamber says:

“The UK Shipping Industry is extremely disappointed that the Department for Business, Enterprise & Regulatory Reform (BERR) has given consent to the development of the West of Duddon Sands Wind Farm site in Morecambe Bay without properly taking into account either the safety of seafarers and passengers or the environmental costs of forcing ships to detour around the site.”

The Chamber notes that the wind farm will “sit right across the normal shipping route from Heysham to Douglas (the life-line route to the Isle of Man) and the bad weather route to Northern Ireland for other ferry services”.

It adds: “While the consent requires the developer to negotiate compensation with shipping companies affected, it appears that the very real safety and shipping concerns have been overridden. This may mean that in addition to the detrimental effect on shipping services, the environmental benefits of the wind farm will be negated by the extra fuel used (and thereby the CO2 emissions) by ships having to detour. “

At this stage, the Chamber says, it is not possible to quantify the level of compensation that will be demanded, but ships will be diverted every day of the year whether or not the wind farm is operational. It points out that diverting ships around the site will also add to passage times, thereby adding additional crew duty time and reduced port turnaround times, which may also result in the “loss of port slots and the consequent inability to move essential goods”.

“Most importantly,” the Chamber complains, “the proposed wind farm will present an additional hazard to ships navigating in the east Morecambe Bay area. It will seriously restrict ships’ sea room particularly in bad weather and may lead to berths being blocked by ships unable to sail. This will affect ships sailing both to the Isle of Man and to Northern Ireland – as a result of bad weather routes not being available – and could cause major disruption.”

The Chamber believes that sufficient weight was not given to these concerns when the consent was determined.

The Port of London Authority is organising a public meeting on 25 September giving people an opportunity to discuss current and future matters concerning the Thames.

The meeting - entitled ‘Your tidal Thames - today and tomorrow' takes place in Gravesend.

Commenting, PLA chief executive Richard Everitt said: “This meeting will discuss our continuing work to improve the River and is an opportunity for us to listen to people’s concerns, thoughts and ideas. It will be of interest to the many local people who care about the Thames today and into the future.”