A stream of worrying shipping industry headlines (source: Lloyd's List September)

Overall confidence levels in the shipping industry fell to their lowest level for three and a half years in the three months ended August 2011, according to the latest shipping confidence survey by shipping accountant and Maritime London member Moore Stephens.

The firm said that fears about overtonnaging and continuing uncertainty about the global economy were the main reasons for the decline in confidence. It added that the rising cost of marine fuels was also a cause for concern. In August 2011, the average confidence level expressed by respondents in the markets in which they operate was 5.3 on a scale of 1 (low) to 10 (high), compared to 5.6 in the previous survey in May 2011. This was the lowest figure recorded since the survey was launched in May 2008 with a confidence rating of 6.8, which remains the highest rating achieved so far.

Moore Stephens shipping partner, Richard Greiner, said: “The drop in shipping confidence to a record low is a disappointment. But it has been coming. Given what has been happening in the world, and in the industry, confidence remained surprisingly high last year, but it has started to slip in 2011. Indeed, in many ways, it is back to the levels of two years ago.”

He added: “We are starting to see now what many had predicted would happen much earlier. Banks are calling in their loans, shipping companies are filing for bankruptcy protection, ships are being arrested and auctioned around the world, and the courts and arbitration tribunals are starting to see an increase in their workloads. Financiers wants their money, and are ready to take what they can get now rather than wait in the hope that the markets will recover and enable them to achieve a return on their investment. This results in a situation in which everybody loses something. Financiers need to continue to work together with shipping companies and external financial advisers to find a way forward for viable long-term businesses, perhaps exploring the opportunities offered by independent business reviews.”

Referring to a continuing squeeze on owners Mr Greiner said: “Meanwhile, costs are going up all the time. Bunker prices are the big worry. The cost of fuel has to be met and passed down the chain, at a time when money is tight for everybody. After a lull, the indications are that operating costs are once again likely to increase. The cost of raw materials also continues to rise. At the same time, freight rates are tumbling through the floor, stock markets are falling around the world, the US and European economies continue to stutter unsatisfactorily, political unrest in the Middle East shows no sign of abating, and the general economic gloom deepens.”

Confidence over the three-month period covered by the latest survey fell most noticeably on the part of owners, down from 5.8 to 5.1, the lowest owner rating recorded during the life of the survey to date. Confidence levels among charterers were even lower at 5.0, but the fall in comparison with the previous survey (from 5.4) was less than that for owners. Confidence on the part of managers fell from 5.8 to 5.6, while brokers held on to their already comparatively low rating of 5.1. Geographically, confidence remained lowest in Europe, falling from 5.5 to 5.0, its lowest level since the survey was launched. Asia, meanwhile, held steady at 5.7.

One respondent observed, “Until recently, things looked quite optimistic, but recent doubts over US loan credibility and EU financial worries have severely dented confidence.” Others referred to “the most unpredictable period since the beginning of the global financial crisis” and suggested that the market was “back to levels last seen in 2001.” Few could see a short-term solution to the difficulties.

Moore Stephens said that overtonnaging was a recurrent theme throughout the comments. “Markets are at rock-bottom,” said one respondent, “and will stay there for some time because of the large number of new vessels due to come into service. Older vessels and speculative investors, as well as low-grade operators, will have to disappear before the situation can start to improve.”

Another respondent noted: “The situation looks pretty grim, given the massive amount of over-ordering.”

In a clear sign of owners battening down the hatches, expectations on the part of respondents of making a major investment or significant development over the next twelve months fell, on a scale of 1 to 10, from 5.6 to 5.1 – the lowest level since the same figure was recorded in November 2009. Just one year ago, in August 2010, respondents recorded the highest figure (6.0) in the life of the survey to date. This time, owners recorded the biggest drop in this regard, while managers and charterers were also less confident. Geographically, expectations of making a major investment were down across all the main regions covered by the survey.

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The shipping industry needs to rethink its approach to negotiations with pirates work according to Stephen Askins of Ince & Co. Speaking at the International Chamber of Shipping's recent International Shipping Conference in London Mr Askins said: “The payment of the ransom normally falls to the hull and cargo underwriters under the general average principle while the liability insurers, the P&I clubs, are not usually involved. The negotiators are usually skilled and experienced but with little understanding of the shipping industry and are briefed to settle for as low a payment as possible. The result is that negotiations drag on for longer than necessary."

That results in increased suffering for seafarers, not only because they are deprived on their liberty for longer but also because the pirates are resorting to torture and bad treatment to put pressure on the owners to pay up. Tactics employed include telephoning family members and letting them hear seafarers being beaten up and also posting clips of the captives being mistreated on the internet.

As well as the humanitarian aspect, Mr Askins argued, long, drawn-out negotiations are costly to the industry. Last year the average time a ship was held by Somali pirates was 201 days. A typical ransom paid was USD4.5m. Mr Askins calculated that in the case of one vessel the loss of earnings during that time would have been USD13.9m.

There is a need, he said, to speed things up. He said that right at the beginning of the hijacking all parties involved should get together and decide what the ransom amount should be. Then the negotiations should be aimed at achieving that without delay. He also said that there needs to be some sort of safety net in place to enable ransoms to be paid where hull and cargo insurers have no obligation to pay. This can happen when the value of ship and cargo is less than the average ransom being paid for other vessels. The situation is even more difficult where seafarers have been taken ashore and kept when the vessel is released.

Mr Askins says that the P&I clubs need to be involved and the industry needs to work out how to put a safety net in place. However Nigel Russell of insurance brokers RFIB told London Matters that most, but not all, ships going through the areas at high risk of hijacking by Somali-based pirates are covered by Kidnap and Ransom (K&R) insurance. Some owners, however, choose not to buy K&R insurance because of the cost although charter parties now often pass the cost of K&R to the charterer. He added that if there is no K&R insurance it is the war and cargo underwriters who pay the ransom under general average and even where there is K&R cover the K&R underwriters can claim against the cargo interests.

Mr Russell also noted that P&I clubs, so far not normally involved in meeting hijacking costs, could become involved where ships are abandoned or crews taken ashore and not released with the vessel.

The North P&I Club has put out a press release about a recent club seminar held in Hamburg on “Sanctions, Drugs and Guns” which says that “many shipowners are also considering taking out additional kidnap and ransom (K&R) insurance”. According to the club K&R policies can provide certainty of cover, including payment of ransoms while in transit and the costs of negotiators and medical fees. The club says that K&R cover can also be “fairly laborious to obtain, requiring detailed voyage and vessel details”.

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The UK government has given its support to a joint campaign by seafarers’ organisations, shipping companies together with business leaders and the biggest ever group of shipping industry associations which operates under the banner of www.saveourseafarers.com against Somali piracy.

The global campaign has received a welcome boost from the British and Philippine Governments. Correspondence between members of the SOS campaign and the, Minister for Africa, the UN, Overseas Territories and Conflict Issues, Henry Billingham, has led to the minister expressing deep concern at the latest developments in pirate tactics, particularly the distressing and intolerable conditions in which seafarers are being held as well as the increasing incidents of violence being used against seafarers.

Mr Billingham said: “The Government supports the campaign and the key actions it has prioritised. Together with the Minister for Shipping, Mike Penning and the Minister for the Armed Forces, Nick Harvey, I intend to hold another meeting with the shipping industry soon to discuss the action the Government is taking against the priorities of the campaign as well as the wider fight against piracy.”

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Supply and demand in balance

Expectations five years ago of a substantial shortage of ship's officers now have not been borne out, according to the 2010 Industry Update On The Global Seafarer which has just been unveiled by the International Shipping Federation (ISF). It found that there were about1.4 million seafarers employed on the world fleet last year: 626,000 officers and 747,000 ratings.

Presenting the results of the survey at the recent International Chamber of Shipping/ISF Conference Douglas Lang of Anglo Eastern Group the study was the most comprehensive assessment of supply of and demand for seafarers conducted on a global scale. The first such study was carried out in 1990 and it is updated every five years. The latest update was undertaken by Warwick Institute for Employment Research, Dalian Maritime University, BIMCO and ISF Staff.

Mr Lang said the study showed continued positive supply and demand trends despite the recession. There was a notable improvement in supply numbers over last five years, particularly China, India & the Philippines but also in several OECD countries.

He told delegates: “Demand has grown apace; despite the financial crisis and the worldwide recession. Supply and demand are in approximate balance. There is a slight shortage of officers, 2%, but that is not as severe as envisaged by the 2005 Update.”

The study found some recruitment & retention problems. Shortages were more acute in specialised sectors such as tankers and offshore support vessels. The significant supply increases in some countries were due to improved training and recruitment, but the study said levels must be maintained to avert future problems. There was underlying concern about current and future senior officer availability for certain nationalities. Despite current economic problems the study found that future demand prospects were bullish as the world economy recovers and it expected both supply and demand likely to increase substantially.

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The UK’s Department for Transport has commissioned Deloitte and Oxford Economics to conduct an independent assessment of the economic requirement for seafarer training in the UK. The study will look at UK based shipping companies’ need for individuals to work at sea and ex-seafarers ashore and the government’s Support for Maritime Training (SMarT) scheme.

See www.dexsurvey.deloitte.com/nb?XID=30229 for further details.

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The UK’s Parliamentary Transport Committee has invited written evidence on the implementation of IMO and EU regulations on sulphur emissions by ships, with a view to holding an oral evidence session in October.

According to the Committee, it is particularly interested in the impact on shipping of more stringent limits on sulphur content in fuel, due to revisions to Annex VI of the IMO’s Marine Pollution Convention (Marpol); the possible implications for other sectors, such as road haulage; the steps which the UK Government could take to assist the maritime sector meet its obligations under Marpol; the European Commission proposals to implement the revisions to Marpol, and the UK Government’s stance on those proposals.

Click here for further details.

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The International Convention on Arrest of Ships 1999 (“the 1999 Convention”) came into force on 14 September 2011 amongst its 10 acceding states, following the accession by the tenth state Albania six months ago, Hill Dickinson reports.

The law firm and Maritime London member notes that the 10 states to which the 1999 Convention applies are as follows: Albania, Algeria, Benin, Bulgaria, Ecuador, Estonia, Latvia, Liberia, Spain and Syria. The 1952 Convention, however, remains the dominant convention and is in force in seventy-seven countries while in the UK, arrest of ships continues to be subject to the Supreme Courts Act 1981.

Hill Dickinson says the 1999 Convention widens the ambit of the 1952 Brussels Convention on the Arrest of Sea-going Ships (“the 1952 Convention”) by increasing the types of claim giving rise to a right to arrest. In addition, the new convention clarifies the ambiguity of the 1952 Convention by stating that it applies to any vessel. The 1952 Convention is unclear as to its effect on vessels which are not flying the flag of a contracting state.

The additional types of claim for which arrest is permitted under the 1999 Convention (but not the 1952 Convention) include the following: outstanding Insurance Premiums (including P&I calls) commissions, brokerages and agency fees; damage, or threat of damage, to the environment (including the clean-up costs and reasonable steps taken to avoid damage); wreck removal; loss or damage in connection to goods (including luggage) and not just damage to the goods themselves; provisions, bunkers and equipment (including containers) which are supplied for the ship’s operation or maintenance (these not being specifically provided for in the 1952 Convention); port, canal and pilotage dues (affirming that this convention applies to vessels that navigate inland waterways and not just sea-going vessels); disputes arising from a contract for sale of a ship.

Hill Dickinson comments: “The 1999 Convention is a positive step towards a clearer and more all-encompassing approach to ship arrest for marine claims. But claimants should be reminded that its current application is limited to those states listed above. In addition, it is important to note that each country adopting the 1999 Convention will do so individually and there may be differences as to how the new convention is applied.”

Click here to download the law firm's in-depth comparison of the 1999 and 1952 Conventions in its “At A Glance Guide” to the Arrest Regimes.

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The first premium income survey conducted by the International Underwriting Association shows that the London company market is bigger than realised, with marine and energy bringing in £1.9bn of premium income in 2010. The Lloyd’s market’s figure for marine and energy insurance was about £2.25bn. According to the IUA half of such business came from clients outside the UK and European Union. The research shows the company market as a whole was worth at least £12.6bn in 2010 net of commission.

IUA chairman Stephen Riley commented: “Questions about the size of the company market in London are frequently asked by a wide range of interested observers. But until now the best answers were only ever a rough estimate based on a limited amount of centrally processed business.

“The IUA has now completed a major statistical survey clearly demonstrating what we have always suspected – that the London company market is substantially bigger than previously stated. “The results of this exercise will be valuable to IUA member companies in benchmarking their own performances and give us greater influence in our relations with government and other regulatory bodies.”

Figures from the IUA statistical survey also include breakdowns by line of coverage, method of placement and domicile of client. These results show that more than 80% of the London company market’s premium is accounted for by direct and facultative business, with less than 20% written as treaty contracts. Non-marine business is shown to dominate representing 75% of all company premium written in London for 2010 and 45% of the total comes from UK clients.

Further surveys are planned to seek more detailed information by line: hull, cargo, liability, and energy for instance in the case of the marine class.

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Ince & Co Hamburg is celebrating its tenth anniversary this month. According to the law firm it now employs more than 25 lawyers in Hamburg focusing on the firm's core industry sectors of shipping, energy, trade and insurance and is the only international shipping law firm in Germany to be practicing both English and German law.

Ince & Co's Hamburg managing partner, Jan Heuvels, commented: "We are very pleased to be celebrating our tenth year in Hamburg with significant growth in the office, in response to our clients' requirements for excellent legal advice. I am delighted that we maintain our close links to the shipping and insurance markets and the banking community, and are extending our reach into the energy and offshore sector.”

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The course will cover some basic and advanced welding processes used in shipping

Lloyd’s Register (LR) is offering training courses in the properties of marine materials, welding techniques and non destructive examination (NDE), some of the cornerstones of ship construction, repair and maintenance. The course, Basic Principles of Materials, Welding and NDE for Existing Ships, has been designed for superintendents, ship-managers and the technical staff who are responsible for keeping their ships safe and operating efficiently.

Lloyd’s Register’s senior technical training specialist, Steve Robson, said: "Most materials and welding courses do not cover the specific problems encountered by marine superintendents and engineers. This course has been developed and tested with marine clients who have faced real difficulties and is ideal for developing the knowledge of superintendents and engineers."

"It demystifies an area of engineering that is so often overcomplicated. Participants will enhance their knowledge and be able to get to grips with what is required to ensure correct materials are used, that the correct procedures and techniques are selected for joining the materials and ensure that repairs are tested and examined properly."

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The UK P&I Club says its Pre-Employment Medical Examination (PEME) Programme is proving extremely successful with shipowners and managers and recently completed its 250,000th seafarer examination since its launch in 2005. Garry Jose G Ramos, who first went to sea in 1997, undertook the 250,000th examination at the scheme’s accredited Angelus Medical Clinic, Makati in the Philippines.

An oiler employed by Döhle-Philman Manning Agency, Mr Ramos passed the examination with flying colours, as he has done on nine other occasions over the past 14 years, and is now free to continue his seagoing career with Döhle-Philman.

Captain Manolo T Gacutan, president and general manager of Döhle-Philman, said: “Ensuring that their crews are fit and healthy should be important to any owner or manager. It reduces significantly the risk of crews becoming ill while serving on vessels and reduces the probability that a crew member will require hospitalisation overseas or need to be repatriated by air.”

He added: “For the seafarer, PEME offers a regular health check-up that can catch illnesses in the early stages, increasing the likelihood that he or she will make a quick and full recovery after treatment. It also reduces the worry that the seafarer shares with the owner/manager that he will become ill far from home and if in mid-ocean, far from professional medical attention.”

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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. The new term started on 12 September, but anyone interested in enrolling please contact METL via email to admin@metl.info or visit the website www.metl.info.

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A charity concert for Mission to Seafarers is being held in Chichester Cathedral on 19 November with participants from Royal College of Music and Winchester Cathedral amongst others. The audience will be treated to performances of Faure's Requiem, Karl Jenkins The Armed Man: A Mass for Peace and John Rutter's Feel the Spirit.

For more information please contact Dai Somerville-Jones (daisj@btinternet.com) especially if willing to support with a small amount of sponsorship or visit www.chichestertickets.co.uk or call 01243 813 595 for tickets.

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