NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL 5

p24 Are the vultures circling?

COVER STORY FIRST PERSON

SHIPMANAGEMENT FEATURES

T H E M A G A Z I N E O F T H E W O R L D ’ S S H I P M A N A G E M E N T C O M M U N I T Y ISSUE 16 NOV/DEC 2008

NOTEBOOK

8 STRAIGHT TALK - Would the last person out, please turn off the lights

9 Frontline considers steamingaround the Cape to avoid piracyattacksThis could be a real possibility for a lot of

vessels if the continued fall in charter rates

makes transiting the Red Sea an

economically unviable option

11 On the RecordAlbert Chan - Global Marketing

Manager, Castrol Marine

EMS chooses Gulf of Aden butwith convoysVessels managed by EMS Ship

Management will continue to pass

through the Gulf of Aden but will now

connect to naval convoys to protect

against attack from Somali pirates

12 OverheardPaul F. Friedberg, President of Goltens

Worldwide

13 InterManager should build on itsreputation to boost training urges its new President

14 Marketforces couldsolve our problems andimprove qualityclaims Thomeboss

Ship Managers are ‘credit crunch’winners and costs could fall too

20 How I WorkSMI talks to industry achievers

and asks the question: How do you keep up with the rigours of the shipping industry?

36 InsightAndrew Sukawaty - Chairman

and CEO, Inmarsat

54 P&IAs the shipping crisis worsens,

and bust replaces boom,

shipowners who are members of

the 13 P&I mutuals which belong

to the International Group will be

asked to dig deep in their pockets

when the annual renewals come

round in February

62 Taking neighbourhoodwatch to a new levelThe Southern Gothenburg

Archipelago has a num-

ber of claims to fame. It

boasts 5,000 permanent

inhabitants living on

two clearly defined but

differently-named clus-

ters of islands, is com-

pletely car free and is

the home to one of the

world’s unique maritime clusters – the Donsö owners

85 Debate - Resolving shipping’s imagecrisisShipping has long complained of a poor image. But

how much of an issue is image and what role can the

Far East play in defining shipping’s raison d’etre and

help to boost its attraction as a recruitment opportunity

for the future?

90 Asia calling loud and clearThe Asian voice in international shipping is finally

becoming stronger and clearer in global

maritime forums, says S.S. Teo, Chairman of the

Singapore Maritime Foundation and President

of the Singapore Shipping Association and Managing

Director of Pacific International Lines

16 Ulf RyderPresident and CEO of Stena Bulk.“The name of the game for StenaLine now with the escalatingbunker costs is to enlarge theships, and we also have to makethem more friendly for cargo”

SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 20086

TRADE ANALYSIS

50 Bulk trades face liquid crisisAs the words ‘credit crunch’ become a household term infused upon

every newspaper page, web feed, and broadcast going, the bulk

shipping trade is finally feeling the sharp wound of financial ruth-

lessness snapping up every business sector it can sink its teeth into

72 Predicting theseverity of thecoldblastSpecialist refrigerated

cargo vessels are still

very much in demand

due to the world’s seem-

ingly insatiable appetite

for fruit consumptionDISPATCHES

44 TrainingThe Samundra Institute of Maritime Studies in Lonavala, India are a

far call away from the adjoining paddy fields and haystacks of bucol-

ic simplicity

56 Where the threat of the bullet really countsIn an exclusive report for SMI, the BBC World Affairs Correspondent

Mark Doyle travelled to Mogadishu to find out what was the real

motivation behind the pirates terrorising shipping in the Gulf of Aden

69 The Arctic thawThe shipping industry has found

itself in the centre of global

interest as the major maritime

powers turn to the task of

assembling a legal regime for the

Arctic to administer peacefully

and profitably the opportunities

created by global warming

92 Piracy still rife in theMumbai film worlda hybrid of criminality and plagia-

rism undermines India’s sincere

effort to make a standing in the

world of cinematic creation

94 It’s good to talk evenin 30 foot wavesIn its 35 year old history the

Volvo Ocean Race has never been

more connected thanks to

Inmarsat choosing to showcase its

FleetBroadband technology on the

world’s most famous yacht race

REGIONAL FOCUS

49 Banking turmoil tests industry’s mettle

NEWBUILDING

31 How digitisation is navigating the futureSteeped in the midst of a global financial crisis, shipping navigation is

creating a revolution of its own as it enters into the futuristic realm of

digitisation and technological sophistication.

BUSINESS VIEWPOINT SHIP REPAIR

46 Further investment at ASRY

38 MumbaiBucking the trendThere is a well known phrase that ‘everything which goes up must

come down’, and this well-grounded philosophy is the sanguine

stance adopted by the Mumbai shipping industry as it valiantly rais-

es its shield against the global economic crisis currently sinking into

the flesh of world shipping

76 PanamaIts growth all the way, butvery quietlyIt’s very much a softly, softly

approach to growth for the world’s

most significant isthmus and if it is

lucky the financial meltdown could,

only could, pass Panama by with lit-

tle more than a glancing blow

LIFESTYLE

Frontline has not ruled out redirecting its tankers

around the Cape of Good Hope to avoid the

escalation of piracy attacks in the Gulf of Aden.

Indeed, it has suggested this could be a real

possibility for a lot of vessels if the continued

fall in charter rates makes transiting the Red

Sea an economically unviable option.

It follows the decision by Norwegian chem-

ical and products tanker owner Odfjell to redi-

rect all its vessels around the Cape of Good

Hope because of what it describes as ineffec-

tive action by governments to stem the increas-

ing piracy threat.

Frontline CEO Jens Martin Jensen told SMIthat the Cape option was being considered, fol-

lowing confirmation that two other owners that

includes Odfjell and possibly Stolt Nielsen had

decided to redirect their vessels around the

Cape. At the time of press, Maersk was also

considering a similar move.

He told SMI: “We have already had one pira-

cy attack on the Front Voyager one month ago

which was fended off by two naval ships and

we will have to go via the Cape if the situation

doesn’t improve and the financial reward for

going through this area is not there

“We need a more unified approach to this

problem, probably warships or helicopter sup-

port down there; we need to act more firmly.

Ships passing through could have soldiers

onboard like during the Gulf War.

Terje Storeng, President and CEO of Odfjell,

said: “Unless we are explicitly committed by

existing contracts to sail through this area, as

from today we will re-route our ships around

Cape of Good Hope. We trust our customers

will appreciate this decision which we have

taken to safeguard not only our crews and

ships, but also the ships' cargo. The re-routing

will entail extra sailing days and later cargo

deliveries. This will incur significant extra

cost, but we expect our customers' support and

contribution.

“Several chemical tankers have been

hijacked at gunpoint, and although hostages up

to now reportedly have been released seeming-

ly unharmed, we do not know if this will be so

in the future. Odfjell is frustrated by the fact

that governments and authorities in general

seem to take a limited interest in this very

serious problem. The efforts that are being

made do not seem to put an effective end to

what can best be described as ruthless, high

level organised crime

“When sufficient protection is in place or

action taken to prevent attacks from pirates in

this area, Odfjell will resume sailing through

the Gulf of Aden and the Suez Canal,”

he said.

Meanwhile, Guy Morel, General Secretary

of InterManager defended shipping’s right

to trade safely in international waters, claim-

ing that routeing vessels away from piracy

hot spots was nothing short of giving in to

them.

He told reporters: “There is a concept that

the seas should be free for trading; they are

international and to be used for free trade. It is

the world at large that has the responsibility of

ensuring that trade remains free on the high

seas. To say that our ships cannot trade where

they normally trade but have to go somewhere

else would be an outrage.”

Meanwhile, Stolt-Nielsen confirmed that

Stolt Valor had been released on November

17th by its hijackers, who took control of the

ship two months ago. All crew members were

unharmed.

The Stolt Valor, which is on time charter

from Japanese owners to Stolt Tankers. was

seized while transiting the Gulf of Aden on

September 15.

Since that time the owners worked continu-

ously with the assistance of the relevant author-

ities and professional negotiators to secure the

release of the vessel and the crew members

on board.

The Company, however, remained deeply

concerned with the welfare of the crew mem-

bers of the Stolt Strength, also a time-charter

ship, which was hijacked on November 11 and

continued to be held by the hijackers in the

Gulf of Aden. ■

9NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONALSHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 20088

The Shipping BusinessMagazine today’s owners andmanagers have been waiting for

The possibility of a paradigm shift in shipping is

as remote and unlikely as the unicorn or the long

awaited return of the dodo.

A time when tonnage supply and cargo sup-

ply/vessel demand are in equilibrium, doing way

with the cyclicality of the industry, is something

that only dreams are made of. As long as you

have market forces in shipping you will have

shipping cycles. I say market forces, but you can

claim market greed or maybe slightly more fairly,

fear of your neighbour. If he has ordered five

new ships then I need to order six: after all the

market is strong, it can take it – for the time being

at least.

Indeed, while the shipping industry rues its

cyclical heritage as damaging to long-term

investment and planning, it comfortably cites it as

the sole reason ‘for the mess we are all in’. “Oh

shipping is always cyclical which is why we

are not surprised the market is the way it is

today,” the stakeholders cry. “We will get through

this crisis but we need to ensure we learn from

our mistakes.”

Hmm, where have I heard that before?

The fact of the matter is that we were sur-

prised. The difference this time round was that

the financial meltdown, or the credit Armageddon

as you can call it, caught the shipping industry

with its pants firmly around its ankles. The writ-

ing may have been on the wall, but the shipown-

ing decorators were out with their tins of paint,

ready to gloss over the worst case scenario. After

all, the market can take it, can’t it?

So the unthinkable has happened. Over-ambi-

tious and under financed newbuilding orders have

been cancelled, ship owners are going bust and

capes are being fixed below £2,000 per day. An

absolutely absurd turnaround to the heady days of

the summer.

What is more absurd is that shipping is being

abandoned by the very organisations who helped

get it into the mess in the first place. The banks

have closed their doors to shipping, at least until

January if we are lucky, and they have no inten-

tion of taking up the shipping slack unless it’s on

their terms.

Unfortunately for the banks, we are not talking

about a poorly sold mortgage deal or an over-

stretched business overdraft. We are talking about

the impact of a slowdown in world trade, impend-

ing recession, massive job losses and a wave of

bankruptcies never before seen. We are also talk-

ing about the need to keep the world economy

moving to ensure we don’t start tasting rampant

deflation and a deep and long-lasting economic

gloom. Shipping is essential to this stabilisation

and recovery but it needs the banks to start behav-

ing as the trusted borrowers of credit and start

releasing letters of credit. Letters of credit are the

lifeblood of trade, so why should it be the banks

who decide when they can be released or not?

They talk of a lack of trust between each other but

if governments are forced to put their hands in

their pockets and throw the banks a lifeline, then

the banks must show the same understanding

when it comes to helping the shipping industry

and helping world trade.

What goes round comes round, and shipping

will recover, I have no doubt about that. But who

will be controlling our fleets; how strong will our

industry be and how well will it be able to cope

with any fluctuations in world trade? Shipping

has done a lot over the last three years to clean up

its image and reputation but it has done so in the

knowledge that the industry is here to stay. Let’s

hope that hope is not just another pipe dream.

Happy Reading

Sean Moloney

STRAIGHT TALK

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Ship Management International Editorial BoardRajaish Bajpaee (Bernhard Schulte Shipmanagement)

Guy Morel (InterManager)

Nigel Cleave (PB Maritime Services)

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Dirk Fry (Columbia Shipmanagement)

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Svein Pedersen (EMS Ship Management)

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Would the last person out,please turn off the lights

Welcome to Ship Management International

NOTEBOOKSHIPMANAGEMENT NEWS AND REPORTS FROM AROUND THE WORLD

Frontline considers steaming around theCape to avoid piracy attacks

NOTEBOOK

Vessels managed by EMS Ship Management

will continue to pass through the Gulf of Aden

but will now connect to naval convoys to protect

against attack from Somali pirates, writes Sean

Moloney from Mumbai.

Addressing a conference of over 250 EMS-

employed officers in Mumbai, Svein Pedersen,

company President, said there were two vessels

waiting at Fujairah to join the first convoy, but

all EMS ships would join a naval escort, he

stressed.

He told the officers: “I know there are a lot of

concerns from seafarers about whether we go

through the Gulf of Aden or not. I attended a

conference in London at Intertanko where it was

generally accepted that with the increasing num-

ber of naval vessels in the area, the Gulf of Aden

would be safe enough to transit.”

Meanwhile, EMS has suggested that it will

work to nearly double its current crew pool with-

in the next two years as it seeks to man the 40

newbuildings it will take into management.

Simon Frank, Director of Crewing and

Marine Personnel at EMS Crew Management,

said further development of the company’s cadet

programme coupled with an aggressive move

into the Philippines manning market as well as

crew centres in Indonesia, China, Eastern

Europe and South America would be behind the

plan to increase the manning pool from 6,000 to

10,000 by 2010.

He told SMI: “The strategy at all times is to

develop our cadet programme; to develop our

familiarisation training and to aggressively enter

the Philippines market to pile up numbers that

we have today and to add a few extra local areas

like Indonesia, China and some eastern

European and South American countries.”

Mr Frank said the Indonesian market was

becoming a more realistic recruitment area. “I

have been to see some of training facilities there

and I am pleased with the quality of the

Indonesians. There is a political issue, however,

in that there are problems in them getting a US

Visa – so you have challenges on the trading pat-

terns of the vessels. English is also an area where

we need extra training.

“The cadet programme alone will not secure

our goal of 10,000 seafarers by 2010 but we

have said that our aim is to have at least one

cadet per ship,” he said. ■

EMS chooses Gulf of Aden but with convoys

NOTEBOOK

Q. What is the current situation relating tolubricant supply and pricing, and withvessel operating costs rising, what is theshort, medium and long term outlook?

A.We expect the supply of base oil and addi-

tives to remain tight over the next few years

due to limited investment in building base oil

and additives manufacturing capacity, cou-

pled with the rising demand from developing

economies such as China and India. Other

industries, such as automotive and industrial,

are also competing for the same pool of

resources. Castrol Marine continues to invest

in developing lubrication solutions to reduce

the total operating cost for shipping compa-

nies. We have built strategic partnerships

with our raw material suppliers to ensure

continuity of supply and that our customers

get the products they need. We have also

invested in our global supply network, with

an emphasis on the growth economies of

Asia-Pacific. This year we have expanded

our ports coverage throughout parts of China

and Japan, for example.

Q.What impact will the current levels ofnewbuildings have on the demand supply curve?

A. This will tip the supply/demand balance

further. Security of supply will become ever

more critical for ship operators. This means

building strong partnerships with those sup-

pliers. It also underlines our commitment to

rolling-out our network to improve lubricant

coverage and supply. Suppliers must inno-

vate to look for alternative solutions to meet

the needs of customers. Uncertainty in the

financial markets could have an enormous

impact on the global economy, and subse-

quently, demand for global trade and trans-

portation of raw materials and goods. This

will inevitably affect the profitability of the

marine industry.

recordon the

Albert ChanGlobal Marketing Director, Castrol Marine

12 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008 13NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

InterManager and its core values are better known in the market

than they have ever been and so it needs to ensure that owners and

managers do not abandon the efforts they have made in the last

three to four years in recruiting and training seafarers to fill the con-

tinuing shortage of crew, the association’s newly-elected President

has said.

That is why ship owners should place training at the top of their

manning agendas despite having to deal with the effects of the cred-

it crunch on the global shipping industry.

Speaking on the day he was unanimously elected to succeed Ole

Stene as head of the world trade association for in-house and third

party managers, Roberto Giorgi said the industry must not replicate

the mistakes of the downturn in the mid-1980s when ship owners

cut back on all areas of cost including seafarer training.

“Seafarer training has to be a priority for the industry, because

the age profile of the average seafarer is increasing and the indus-

try needs to invest in a future that has as its backbone, adequate

numbers of well trained seafarers,” he said.

While some in the industry believe the crewing shortage could

improve in the medium to long term because of the cancellation of

ships on order and an increase in the numbers of ships being

scrapped, ship managers were expressing continued concerns over

the lack of trained officers for the immediate future.

Mr Giorgi said his key objectives as President were to represent

the views of both owner-managers and third party managers

throughout the global shipping industry; protect the welfare and

well-being of seafarers, particularly by addressing the issue of

criminalisation and by encouraging consistently high standards for

training within the industry; as well as uphold the values of the new

InterManager KPI system to make sure it is adopted fully by the

entire industry.

He told SMI that by the time he finished his first term as

InterManager President, he wanted to see an organisation with a

membership larger that the 73 companies it has now – both full and

associate members – and he wanted it to be the accepted voice of

the industry. ■

InterManager should build onits reputation to boost trainingurges its new President

NOTEBOOK NOTEBOOK

Roberto Giorgi, President, V.Ships

“It’s hard to tell, and I wouldn’t want to say that the operators are getting

lousy but if you look at the increase in vessels, competency has declined

because there aren’t enough people in the world. It is inevitable that we will

see an increase in outsourced maintenance work because there is not the

capability onboard.

“I have seen statistics on drydocking capacity and it will not meet, by far,

the demand unless people stop building new ships and yards convert to

repair from new building. That might happen but it is not that easy to do

because they are completely different disciplines. If it does, it will start to

happen in the Far East first but we need to find new dry docks in Europe as

well. There are docks in Europe that are not being used anymore and are

lying idle.” ■

OVERHEARDAre you seeing a reduction in technicalcompetency onboard ship in line with thedwindling numbers of seafarers?

Paul F. FriedbergPresident of Goltens Worldwide

14 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

NOTEBOOK

The time has come for the shipping industry to

deploy market forces to solve its problems and

let incentives be the main driver of the right

behaviour, according to the Managing

Director of Thome Ship Management.

Addressing delegates at the 3rd

International Ship Management Summit in

Singapore, Bjorn Hojgaard said this will not

come overnight, but there has to come a time

when charterers and owners become better at

choosing good ships with good managers.

“They need to understand managers' and

ships' performance on a more detailed level

than they do today,” he added.

Mr Hojgaard told the conference that ship

managers don't differentiate enough between

good and sub-par ships and there is no interna-

tionally-recognised system which can inde-

pendently decide if a ship is well maintained

or sub-standard and that is a frustration.

“Similarly, we don't differentiate enough

between good and sub-par officers and instead

we tend to go by nationality – surely an out-

dated concept in today’s globalised economy?

Shipping is probably the oldest international

business but the industry still talks about sea-

farers of different nationalities,” he said.

Interestingly, he also claimed that managers

don’t differentiate enough between good and

sup-par owners. “Even today there are myths

and legends surrounding the ‘ship owner’ but

in fact ship owners in many respects face

exactly the same issues as a restaurant chain or

a microchip manufacturer,” he stressed.

Ship managers who wish to survive in the

longer-term need to start thinking about sea-

farers in terms of competencies rather than

nationalities, he claimed, “which is a totally

outdated concept that no other global industry

would find acceptable in 2008.

“On an optimistic note, I also believe the

scenario I have set is not all gloom and doom

– I believe the good charterers, owners and

managers know this and have already begun to

change in an attempt to benchmark more

effectively and be more transparent,” dele-

gates were told.

“The InterManager KPI project is an

example of more differentiation through

better transparency and visibility. And

Competence Management Systems for man-

aging crew is another example. My own com-

pany Thome has embraced this and we

believe it will make our performance better.

Just yesterday (Oct 16th) we jointly

announced with the DNV classification soci-

ety that our company has become the first

ship manager to set up a Competence

Management System for its entire managed

fleet.

“DNV signed the contract with us to veri-

fy and certify Thome's Competence

Management System in accordance with

DNV standards, and also with reference to

specifications from the Society of

International Gas Tankers and Terminal

Operators (SIGTTO) as well as the Intertanko

Tanker Officer Training Standards (TOTS).

One of the key focus areas of a comprehen-

sive Competence Management System is

'Human Error' on board the vessel, which is

often a symptom of an underlying problem

rather than the cause,” he said.

In evaluating this aspect, DNV SeaSkill

and Thome Ship Management will systemat-

ically examine crew tasks, work tools, oper-

ating environment, mental well-being, train-

ing and experience, and communications

across different ship types, delegates were

told. “The desired outcome of an effective

competence management system would be an

efficient, knowledgeable, healthy and safety-

conscious crew,” Mr Hojgaard said.

“Given today's challenges with crew short-

age and rising operational costs, shipping

companies investing in such an undertaking

stand to gain a competitive advantage,” he

concluded. ■

Third party ship managers are ring fenced

from the ravages of the current financial cri-

sis and could even see business increasing as

owners strive to keep fixed overhead costs

down by delaying taking ships back in-house

and ships repossessed by banks seek third

party management expertise.

According to Guy Morel, InterManager

General Secretary, there is also good reason

to believe that high vessel running costs will

abate “because of the misery being experi-

enced by ship owners,” especially in the area

of lub oils and dry dockings.

“The proof is that during the boom times

when ship owners were making a lot of

money, managers were making the same

amount of money as they were before. That

proved that movements in the shipping mar-

kets are not affecting ship managers,” he said.

“For third party ship managers, the number

of ships afloat will not change and the number

of ships managed will either remain the same

or increase. I do not think in this period of tur-

moil, that we will see any ship owner making

the decision to increase his fixed overhead

costs by taking his management activities back

in house. There will be some but they will be

very daring. Most ship owners will think they

may have to dispose of their assets in time and

will have to remain very liquid.”

This will be positive for ship managers, he

stressed as the level of business from banks

looks to generate more business for ship man-

agers. “All in all we will have a market situa-

tion that will be rather positive for managers.

“Where we will be feeling pressure is from

owners forced to reduce costs in an environ-

ment where running costs were growing at a

very fast rate. But that could be to the advan-

tage of ship managers because the larger

managers will be able to reduce running costs

through their economies of scale. Secondly I

do think crew shortages and the increase in

crew costs may abate because there will be

fewer deliveries and more vessels scrapped

and laid up. So there is likely to be reduced

growth in demand.

“I also think that the number of officers

who have deserted a seafaring career may

return to sea. I am thinking Indians in partic-

ular who have been turning to shore-based

jobs and now may find themselves unem-

ployed. This may just balance things out,” he

told SMI. ■

Market forces could solve our problems andimprove quality claims Thome boss

Ship managers are ‘credit crunch’ winners and costs could fall too

It’s strange what a little financial crisis does to separate the big boys from

the small guys and on close examination it is easy to see why Stena

Bulk’s President and CEO Ulf Ryder is part of the shipping industry’s

‘big boys’ club; there is no doubt about that.

His demeanour and manner smack of a calculating character – a

shrewd operator capable of making the toughest decisions when those

decisions need to be taken.

Tough times call for tough actions and its times like these that you

need someone with Ryder’s experience and market presence to get the

right message across, even if it is linked to a possible foray into the

market to snap up competitors suffering from the plunge in the world

stock markets.

It would seem that the dramatic fall in shipping company stocks forced

by the financial crisis has thrust Gothenburg-based Stena Bulk strongly

on the acquisition trail to the extent that it has targeted a publicly-listed

tanker company that it confirms it will buy by the end of the year.

According to Ulf Ryder, for Stena as a cash rich company, buying

undervalued stock listed companies is “a more natural target than new-

buildings”. Refusing to identify the target company, he confirmed it was

a quality stock listed shipping company. He would only say: “We have

targets in mind and I think you will see us taking over a tanker company

by Xmas.

“I think a lot of smaller owners will be very disappointed with the

bankers who they have invited to the Christmas parties but who have sud-

denly pulled the plug on the owners’ deals,” he told SMI. We are seeing

a lot of that. We have had ship owners coming here who have had long

relationships with their banks who then suddenly say no we can’t support

you anymore. I know banks who have jointly decided that they won’t do

any more ship financing until January when they will revisit the markets,”

he said.

But as one of Sweden’s largest shipowners, does he think the market

will start to stabilise by the first quarter of next year, because all signs

suggest it needs to get back to some level of normality? “I don’t think so,”

he replied. “I think 2009 is going to be a very black year for people with-

out access to real cash. They will have difficult times lifting their ships

from the shipyards and it will have a snowball affect on the shipyards. We

are already seeing the same shipyards, who six months ago came to us

and said they would see whether they could build a ship for us, now beg-

ging for orders. The situation has changed very quickly so I believe you

will see a big fall in shipyard prices next year.”

And presumably an element of further bankruptcy in the ship owning

sector moving forward?

“Unfortunately yes. But then operating morals have decreased dramat-

ically. When I was younger I remember a lot of companies with financial

problems but today, they run these companies into bankruptcy. People say

here are your capes back as we can’t pay for them anymore. Take them

or sue us. So the morals are a bit different this time. So we’re in for a

black 2009 unfortunately in the shipping industry but a good opportunity

for people who have real money,” he replied.

Stena Bulk preceded talk of a further tanker company acquisition

when, at the end of October, it announced it had acquired a 35% equity

ownership stake in the privately held Greek shipping company Paradise

Tankers Holding Corp. The acquisition, which has total share capital val-

ued at an estimated $250 million, provides Stena Bulk with full commer-

cial control of yet another fleet of three newly built Panamax tankers and

two dry-cargo bulk carriers.

The vessels, which will be renamed Stena Callas, Stena Chronos and

Stena Chiron, are modern epoxy-coated Panamax tankers of 73,500

tonnes deadweight, all of which will be withdrawn from the Star Tankers

Pool and immediately enter the Stena Sonangol Panamax Pool. The

Panamax pool is a direct spinoff from the successful collaboration with

Angola’s national oil company Sonangol, involving a 15-tanker strong

Suezmax pool, which Stena Bulk and Sonangol have successfully been

operating for five years.

Commenting on the deal, Ulf Ryder, said: “We will continue our path

forward investing in core areas and quality partners. This is also a return

to dry bulkers, this time on long-term charters to solid customers. The

acquisition we have made in these financially turbulent times would not

have been possible without Stena’s strong financial position.”

He confirmed that the relationship with Paradise was initially forged

back in 2000, when the Athens-based company bought its first tanker

and chartered it to Stena Bulk. “We have known each other for many

years and admire the traditional way of quality operation this long

established company stands for. The transaction provides Stena Bulk

with full control of the Paradise fleet, but does not require our full

commitment of capital.”

The Stena Bulk fleet today consists of around 75 vessels, divided

into two groups: The MAX vessels and other tankers (such as

Panamaxes, Aframaxes and S-47s). According to Stena, the idea to

build the MAX concept started with the need for vessels to be able to

operate in waters and ports with draft limitations. Through the MAX

concept it made it possible to enter shallow waterways, and at the

same time Stena was able to increase loading capacity to handle sub-

stantially more cargo than previously possible. In addition, it claims,

safety was considerably improved.

According to the company, the key is to run vessels that are much

wider than others in the same size class. As Ryder told SMI: “The name

of the game for Stena Line now with the escalating bunker costs is to

enlarge the ships, and we also have to make them more friendly for

cargo.”

Their larger beam gives them a larger loading capacity without affect-

ing their draft. And through double systems for propulsion and manoeu-

vring, proactive safety measures are taken. In 2001, Stena Bulk took

delivery of the first two Stena V-MAX vessels which made up the begin-

ning of a new wide-body product line. Today the MAX series consists of

three different types of vessels (V-MAX, P-MAX and C-MAX), and

more are under development.

In the non-MAX categories, Stena’s Panamax tankers have a

capacity of up to 75,000 dwt. The fleet includes both traditional dou-

ble-hull Panamax tankers and several in-house designed Stena Ice-

Panamaxes. With their ice-class, these vessels provide safe passage

through narrow waters from the Baltic Sea to both the US east and

FIRST PERSON

Ulf Ryder President and CEO of Stena Bulk

SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008 16

“I think a lot of smaller owners will be verydisappointed with the bankers who theyhave invited to the Christmas parties butwho have suddenly pulled the plug on theowners’ deals”

“The name of the game for Stena Line nowwith the escalating bunker costs is toenlarge the ships, and we also have tomake them more friendly for cargo”

west coasts. Its Aframax fleet includes both traditional Aframax

tankers and several in-house designed Stena Ice-Aframaxes, built to

navigate the Baltic Sea, even in extreme conditions with up to a

metre thick ice (ice class 1A Super).

So with acquisition on his mind, and the safety net of wads of cash in

the bank providing sleep-filled nights, is there anything on Ulf Ryder’s

mind? Does the crew shortage situation offer any worries, after all, he

does have a lot of ships to operate and pressure could soon come to bear

on its wholly owned management company Northern Marine

Management to ensure the in-house needs are met ahead of those of the

external clients.

“We have 7,000 seafarers employed by Northern Marine Management

and this is now the big problem we see ahead of us with the seafarer

shortage crisis. Everybody wants to be home at five o’clock or half past

five and the thought of returning home every five six months is not that

popular in modern society.

“We have used a lot of Filipinos in the past who are good seaman, but

we are now switching more and more to Russians. But the world is so

transparent today, and it’s difficult to get any differentiation in salaries.

Everybody hears about whether Teekay are looking for officers and so

will switch which is a bit unfortunate. It’s very very difficult to have a

crew that’s loyal to you and who will stay with you. We have faced more

than a 20% increase in crew wages in the last 18 months alone. Now

some people say with the down turning world economy that it is proba-

ble there will be a lot of ships cancelled, and that more crew will be avail-

able but I’m not so sure that that’s a matter of fact.

But has that increase in crew wages come from switching crew nation-

alities? Not the case, says Ulf Ryder. “I could say that Russians are rather

cheap or Filipinos are expensive but Filipinos are rather well paid and it’s

quite transparent: there aren’t any cheap crews really around any longer.

“I don’t think the financial crisis will have any effect on the crew short-

age because it’s such a shortage and there are so many vessels on order.

Of course I calculate that 30% to 35% of all ships presently on order will

be cancelled by the owners because they can’t get finance and we have

already faced this. We have already been approached by ship owners or

ship yards who say ‘take my 10% deposit and take over the order please’.

So there are many people today who are willing to throw in the towel and

lose their 10% first instalment to escape from the orders. But there are

still so many ships on order and so few skilled seamen and so I think they

will still be in demand,” he stressed.

So concerned is Stena about the situation that there is every chance

Northern Marine Management will stop providing crews to third party

clients by 2010 as its parent company is forced to divert much needed

seafarer capability to its own vessels.

According to Ulf Ryder, Stena tonnage only represented 40% of the

120 vessels of 10 million dwt managed by Northern Marine Management

but the need to crew its own ships including the delivery of six newbuild-

ings in 2010 will mean it will have to stop servicing the needs of the 14

external clients it currently has. ■

FIRST PERSON FIRST PERSON

Recruited at the age of 29 to help establish

Stena Bulk AB, he served initially as a Director

of the holding company, Stena AB, and as

Executive Vice President of Stena Bulk. But

his first responsibility was Stena’s Offshore

explorational drilling activity including market-

ing the employment of Dyvi Stena, a third gen-

eration semi-submersible drilling rig. At the

time, this was Stena's largest single invest-

ment - at $110 million.

He is credited with being the the driving

force behind all of Stena’s bulk & tank mile-

stones of the past 25 years. These include the

formation and listing of Concordia Maritime AB

on the Stockholm Stock Exchange (1984); pur-

chase of the world’s fifth and sixth largest ships

- renamed Stena King and Stena Queen (1988);

purchase of DK Ludwig’s entire VLCC fleet,

later known as the “Concordia Class” (1989);

the Strategic Marine Alliance with Texaco

including the establishment of jointly owned

StenTex (1994); Alliance expansion into the

merged ChevronTexaco (2001); the shuttle-

tanker joint venture with Teekay (1996); and the

development, marketing and commercialisa-

tion of the Stena wide-body concept - the

“MAX” series of tankers (1997).

As CEO Ulf Ryder has been the ‘change

agent’ for each Stena Bulk investment from

deal initiation to consummation and, ultimate-

ly, transformation to the Stena image and phi-

losophy. For example, the Ludwig VLCCs had

been known as quality built ships but lacked

marketing zest. Under Stena Bulk, crew uni-

forms, hull and funnel paint, and informative

brochures created greater market awareness

of the build-quality, performance results, main-

tenance record, 42-man crews and Stena’s

business philosophy. The result was an

enhanced reputation and improved financial

performance.

Prior to joining Stena, Ulf Ryder worked with

the Broström Shipping Group (1974-1982)

where, in his last position, he was Chartering

Manager for Scanscot Freighters, a 20-ship

open-hatch bulk carrier pool of 25,000 to

35,000dwt vessels. He also worked at liner-

agent Hagbard Dennel AB (1970-1974) and

participated in a work-study program at Wm

Brown and Atkinson, Hull (1969-1970).

He completed the Harvard Business

School's Advanced Management Program in

Boston (1987) as the youngest attendee of that

time and graduated from the Gothenburg

Handelsinstitut in 1969.

He is President of Skuld A/S Committe, Oslo

and is a Member of the Board of Lundsbergs

Skola. He enjoys tennis, jogging and time with

his family at their summer house on Haron

Island in the Swedish west coast archepelago.

Ulf Ryder

“There are many people today who are willing to throw in the towel and lose their10% first instalment to escape from theorders. But there are still so many ships onorder and so few skilled seamen and so I think they will still be in demand”

aren’t run of the mill; they need management with the right experience.

That is where we feel we will make a difference,” he said.

“As far as the crew supply issue is concerned, we would say we are

better placed than perhaps some of our competitors,” he said. “We

have experience of crew supply in eastern Europe and India and the

Pacific Rim for many years as Bibby so we actually control some of

the main supply areas. We are closer to that crew market than most

technical managers might be. With us it is all about transparency and

we would hope that the owners would be able to trust us about the mar-

ket rates and how the market is moving because we should be that

much closer than if you were going through a third party crew suppli-

er,” he told SMI.“The main thing we are looking for is full management but we have

a number of customers and we will continue to develop markets that

actually don’t want full ship management but want a segment of ship-

management, whether that’s crew management, crew supply, training

or technical management,” he added.

Osborne gets more excited about offering what he calls a ‘tailored

service’ based on listening to what the owner really wants as opposed

to managing 1,000 ships. “Shipmanagement thrives or suffers as a con-

sequence of what the owner is doing,” he said, “and owners at the

moment are going to be extremely concerned about the credit crunch:

we already know a couple of projects that are certainly in jeopardy

because the banks are closing their books. But having said that, we

have to put it against the context of the investment in shipbuilding at

the moment. So while it would be perhaps an end to one headache if

the current newbuilding situation solved the crew shortage issue, I

don’t think it will. In my view, the vessels that are currently afloat will

continue to enjoy comparatively good times and will continue to trade

and need management. Where it will be affected will be the newbuilds

and the ordering.

Agreeing that supplying a ship’s crew at the drop of a hat in the cur-

rent market conditions is not something third party managers are in a

position to do, Jon Osborne contends that if you plan ahead “you can still

find quality crew and again because we have our grass roots organisations

in Mumbai, the Ukraine etc we can still find quality people.

“The problem is those quality people tend to ask a lot more money

than they did 12 months to two years ago and ship owners have got to

get used to that reality in the marketplace. People never want to recog-

nise when prices are going up and so we tend to go through stages with

each customer where there is denial, then you will try a different

nationality mix to reduce costs which can make a difference at junior

levels but at senior levels the rates are international and are converg-

ing,” he added.

So in these difficult times, what are the concerns facing you as you

enter the shipmanagement sector?

“The main issue we have is that there isn’t a great deal of trust in the

marketplace between ship owners and ship managers. For us we charge

a management fee and that is all we make out of the business which we

have to run profitably. We are aware that other ship managers don’t do

that and will look for other income sources from the owner: because of

that ship owners are not trusting of their management. The difficulty

for us is to not only say we are different but how do you prove it? We

know we are a quality operation, we have DOCs in the UK and India

and manning agencies round the world but we can tailor our solution

to the owner but if the owner is saying it is all very well but your man-

agement fee is more expensive than the fellow down the road and I

know all you lot will rip me off, we will then lose out.

“There has to be transparency. At the moment it is topical to say

that management fees are low and they need to be raised and we would

concur with that but ship owners would say that on the other hand

managers are making money out of me left right and centre without

disclosing that. So if the industry gets more transparent then fees

will rise.

“The industry does need to tackle the issue together. You get lots

of small owners and lots of small managers that don’t all move in the

same way. From our point of view we would look to solve this

through network relationships and if they talk about the cheaper

option down the road, we would say to the owner, if you have a fleet

of six ships, then give us one and give him five and after 12 months

see who you are happier with,” he concluded. ■

HOW I WORK

JON OSBORNEManaging Director, Bibby Line Group

Osborne gets more excited about offering what he calls a‘tailored service’ based on listening to what the ownerreally wants as opposed to managing 1,000 ships.

There are not many shipping companies who can claim over 200 years

of history and boast a name that is synonymous with the city in which

it is based and the industry in which is has plied its trade for so long.

Bibby Line is British shipping and Bibby Line is Liverpool through

and through but as of a few weeks ago, Bibby Line is now also a stand-

alone third part shipmanagement operation that in the view of its

Managing Director Jon Osborne, may be better placed than many of its

competitors to offer the type of segmented shipmanagement service

that it believes the market is looking for.

A family run and independent business since day one, Bibby Line

Group has succeeded in the toughest markets for nearly 200 years from

marine, distribution and financial services. Since it's formation in

1807, the activities of this family-owned British company have

evolved into a group of dynamic, service orientated businesses.

Historically, the Group's main business has been in the ownership,

operation and management of ships, but the present day activities also

include floating accommodation, offshore oil services, contract distri-

bution and financial services..

But on October 1st this year, Bibby Line Group launched a new full-

service ship management venture, Bibby Ship Management Group

because it believed a tougher global economy had highlighted the need

for more flexible shipmanagement expertise. The move followed the

decision by Bibby Line Group to end its involvement in Liverpool-

based Meridian Marine Management after receiving an undisclosed

sum from Pacific Basin. The new company will bring together the

Bibby International Services business with many of the former

Meridian staff.

According to the announcement, Bibby Ship Management Group said

it would headquarter the business in Liverpool and operate a flexible,

tailor-made ship management service comprising all aspects of special-

ist crew and technical management, including training, payroll, insur-

ance, vessel inspection and accident investigation to third party clients.

It will be the umbrella company for subsidiary trading companies in

the UK, the Isle of Man, the Ukraine, India, the Philippines and

Singapore. The Ukraine company, formerly crew manning agency

MA Olevent, is the newest addition to Bibby and was acquired in July

to expand the company’s Eastern European market, particularly in the

supply of crew to the offshore oil and gas industries.

But according to Jon Osborne, Bibby Ship Management will inher-

it from the Meridian Marine Management operation, a fully managed

fleet of 13 vessels “from day one” and around 25 to 30 ships on crew

management. “Where we have traditionally been strong and where we

think we will make headway again is in offshore vessels, gas and

chemical tankers because these types of owners appreciate their ships

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HOW I WORK

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

SHIPMANAGEMENTSHIPMANAGEMENT

workHow I

SMI talks to industry achievers and asks the question: How do you keep upwith the rigours of the shipping industry?

“The main thing we are looking for isfull management but we have a numberof customers and we will continue todevelop markets that actually don’t wantfull ship management but want a segmentof shipmanagement”

“Shipmanagement thrives or suffers as a consequence of what the owner is doing andowners at the moment are going to be extremelyconcerned about the credit crunch”

lar, because we want to enhance the

focus and give members a more

visible ISSA and give them more

value for money. And we will do this

by investing in projects like the quali-

ty initiative and education and all

those things our members would like

us to do,” he added. It is not just the

Register of Ship Suppliers that puts

ISSA members in front of their clients

but also the ISSA catalogue of every

spare part imaginable. Using these two

directories, owners can not only see

and select the ISSA number of the

item they require but order it from a

supplier of their choice at the vessel’s

next port of call. With nearly 7,000

copies of the ISSA catalogue sold

every two years, it is a major revenue

earner for the association. “The next

catalogue is due out and we have

already agreed that we will start to

build on this next generation of cata-

logue; to try to do it better and maybe

slightly differently in several ways so

we can make it a better tool,” Jens

Olsen added.

Sound words indeed, but after such

a highly-publicised presidential elec-

tion surely the priority must be to bring

the association even closer together?

“As I said when we had the elec-

tion on the board, and as always with

an election you have a wedge; you

have two blocks. What I see now is

that we will again put on our working

clothes and we will work as a

team. There will always be different

opinions about things and there

should be but the executive board is

behind me in agreeing that we will

get together and work in the same

track and that is the most positive

thing that I was looking for. There’s

no doubt about it that the strength of

ISSA is the executive board because

we work in the same direction. I don’t

even recall any need for voting in the

executive because when we finish

discussing an issue, as a body we

agree to move forward together and

that is a strength. We have had

extremely positive leadership over

the past nine years and I will try to

continue the same principles even

though of course Wim and I are very

different personalities. But we have

so many things in common and one is

our love for the industry. So that’s

really what’s driving us and that is

what we need to have driving us in

the future.” ■

HOW I WORK

JENS OLSENPresident-elect of the International Ship Suppliers Association, ISSA

Taking over as President is a big responsibility and focusing on the

top job will be that little bit more of a challenge. So it’s going to be

interesting. There’s always room for improvement, there’s always

scope for doing things differently

I suppose if you were to slant that well known saying about ‘what the

four certainties in life are’ to the vagaries of the global shipping indus-

try then it would go something like this: that markets will always go

up and down; that regulators will always want to get involved and that

ship owners will always strive to get the best deal they can. Oh, and

finally, that ships will always need supplying irrespective of the cur-

rent or future financial and economic situation.

OK, in times of uncertainty, margins will almost certainly be driven

down and chandlers may have to wait a little longer for their money,

but nevertheless business has to trundle on. After all, the needs of the

seafarer and of the regulator through enforced rules for vessel stan-

dards and quality will always generate demand for provisions and for

spare parts.

But observers of the heady world of ship supply will know the

anguish the industry has been going through in trying to drive up mar-

gins and respect from the ship owners and to drive out the unscrupu-

lous from the backstreets of the world’s ports. There will always be

someone trying to make a quick buck out of supplying vittals or spare

parts to a visiting ship. According to the International Ship Suppliers

Association, if a supplier doesn’t come up to the required level of qual-

ity then he is not worth trading with. The need for an audit trail in the

industry is essential if the ship owner is to be sure that all the stores he

has ordered will turn up and at the price quoted.

Introduction of a pan-ship supply industry quality standard was the

brainchild of Wim van Noortwijk, the ebul-

lient and charismatic President of the trade

association ISSA but after nine years at the

helm, he is stepping down. And after a

closely fought presidential election battle

between candidates from both sides of the

Atlantic, he will hand over the ‘presiden-

tial’ baton in January, to a Dane.

Jens Olsen was the preferred choice of

just over half of the ISSA executive board,

who voted at the recent ISSA Convention in

Baltimore, and the second choice for the

remainder. But with many years of chairmanship of OCEAN, the

European lobbying arm of ISSA, under his belt Olsen could be right

for believing he is able to step up to the mark and lead the association.

Through OCEAN, ISSA has made strides in the area of customs regu-

lation and has the ear of the European Commission across a broad

church of issues. But by playing an active role in helping to formulate

regional and international regulation through its NGO status at the

IMO and at the ILO, ISSA is punching well above its weight and effec-

tively so. Something many in the industry believe has to continue

alongside the need to look after individual and local supplier interests.

European ship supply is alive and well but so also is it in the

Americas, Far East and Australasia and not forgetting the ship supply

powerhouse of the Middle East. The biggest task facing Jens Olsen,

the President-elect, must be to bring these ship supply communities

even closer together, especially after what was a closely fought elec-

tion battle.

“Taking over as President is a big responsibility and focusing on the

top job will be that little bit more of a challenge. So it’s going to be

interesting. There’s always room for improvement, there’s always

scope for doing things differently but we will address these issues. So

yes, I look forward to the challenge.”

According to Olsen, the key issue has to be adding value to the

association’s membership – a dilemma nearly all the trade associa-

tions face on a daily basis and something that will be brought into

sharper focus when you consider that the additional cost of

being a member of a trade association may be one of the first things

to go when times get bad. ISSA members do share one major benefit

of their membership, however, and that is their inclusion in the ISSA

Register of Ship Suppliers – an annual ‘yellow pages’ of the good and

the great in global ship supply that is used by owners and managers

as their guide to the supplying companies in the individual ports.

“Well at the moment the executive board is trying to focus on a lim-

ited number of different items which we will be addressing in particu-

SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 200822

HOW I WORKSHIPMANAGEMENT SHIPMANAGEMENT

“Well at the moment theexecutive board is trying to focus on a limitednumber of different itemswhich we will be addressing in particular,because we want toenhance the focus andgive members a more visible ISSA and give themmore value for money”

“We have had extremely positiveleadership over the past nine yearsand I will try to continue the sameprinciples even though of courseWim and I are very different personalities”

“They will never be able to get back what

they have invested in. Our theoretical value cal-

culation for a 10 year-old cape is probably $70m

to $75m. So latest transactions conducted at

$90m, down from $130m, are still not enough. If

the theoretical value of a 10 year old capesize is

$70m and that hasn’t been reached yet, then

someone buying now will be buying something

quite expensive. Probably not as expensive as it

would have been two to three months ago,” he

stressed.

Alvin Cheng added: “If you look at the fact

that the orderbook in the dry bulk sector is about

60%+ of the existing fleet, to digest a lot of this

tonnage, even when the world economy recov-

ers, is difficult and we are not seeing a lot of

scrapping yet. There would need to be a substan-

tial amount of scrapping before it all makes

sense. The question of conversions from bulk to

tankers is skirting around the problem, it doesn’t

really resolve the issue.

“There will be casualties but there will also be

winners and these will be the more traditional

ship owners who now have a fleet of ships which

doesn’t include a large number of recently pur-

chased tonnage. These guys will still be making

money in the long term because they have a

lower investment cost. But those guys that

bought their capes for $130m to $140m will def-

initely be ruined. And how big those losses can

be, no one can tell,” he concluded.

The biggest problem facing the dry markets at

the moment is the effect the FFA paper settle-

ments will have on company survivability. As

Alvin Cheng warned, shipping markets should

prepare themselves for more bankruptcies and

shipping company casualties as businesses

struggle to meet the settlement terms for the dry

cargo paper contracts

There are some owners who have speculated

in the paper markets who face astronomical loss-

es, said Mr Cheng. “I understand that the begin-

ning of November will be settlement for a lot of

these contracts. Because the banks are not lend-

ing any money unless on a very specific project-

related basis, I can see a lot of people will be

short of cash. They will have no way of settling

their debt apart from filing for bankruptcy,” he

told SMI.But what of the brokers' view? “We believe

the world is in a degree of panic,” said Alan

Marsh, CEO of leading international ship-

broking house Braemar Seascope.

Speaking at the announcement of a record set

of interim results for the six months to the end of

August, Alan Marsh said: “Owners who signed

contracts 18 months ago still don’t have refund

guarantees. There will be legal cases where

owners have cancelled because they say you

haven’t given us the refund guarantee but the

yard will turn round and say you haven’t the

right to cancel because there is nothing in the

contract to say that if we don’t give you the

refund guarantee you will cancel,” he added.

“We know the English courts will say it is

unrealistic to say that you as a shipyard have got

the right to determine in two years time whether

you will give a refund guarantee otherwise it’s

not an option. So those are the issues that are

coming,” he added.

Ship owners wanting to withdraw from a new

building commitment would be able to do so if

the yard fell seriously behind on delivery. But

failure to obtain ship finance after signing a con-

tract would result in far more than the loss of

down payment, usually around 20%, with the

owner potentially liable for the full price of the

order and exposed to litigation.

Should pre-delivery finance not be available,

or the ship finance bank collapse after a firm

order has been placed, the owner “would be in

real trouble”, added Braemar Seascope director

Quentin Soanes. In that situation the winners

would be the lawyers, who “would have a field

day”. An owner would have the right to with-

draw if the yard was unable to provide refund

guarantees, with any subsequent court case like-

ly to rule in favour of the customer.

But going forward, is the situation good?

According to Alan Marsh, in the short term it

may not be but in the long term it might be

exceptionally good news with the reduction in

the number of ships.”

And newbuilding cancellations there will be.

With estimates ranging from 35% to 50% of the

recently placed orders expected to fail, with the

resultant closure of many of the Chinese

Greenfield shipyards and conversion of other

established building yards into repair facilities,

the future is gloomy. And what of those vessels

due to be completed in 2009/2010? According to

many in the market these will be snapped up by

hungry cash rich owners, once they are con-

vinced the market has hit rock bottom or they

will be repossessed by the banks left holding the

screaming baby.

But as stock prices tumble and company val-

ues plummet, buying stock can be a lot cheaper

than steel, something that is fully understood by

Swedish shipping giant Stena Group.

The dramatic fall in shipping company stocks

forced by the financial crisis has thrust

Gothenburg-based Stena Bulk strongly on the

acquisition trail to the extent that it has targeted

a publicly-listed tanker company that it said it

will buy by the end of the year.

Ulf Ryder, President and CEO of Stena Bulk,

told reporters at Stena’s offices in Sweden, that

buying undervalued stocklisted companies was

“a more natural target than newbuildings for

Stena which is a cash rich company”.

Refusing the identify the company it has tar-

geted, Ulf Ryder said it was a quality stock list-

ed shipping company. He said: “We have targets

in mind and I think you will see us taking over a

tanker company by Christmas,” he told SMI.

If a week is a long time in politics what is

a four week period in shipping’s history

when the markets went from concerns

over a potential economic downturn to a

complete industry meltdown with vessel

values plummeting, charter markets collaps-

ing, ship owners going to the wall and bankers

completely turning their backs on an industry

they have been keen to support and earn from

through the strongest market levels the indus-

try has ever seen and is likely to see for some

decades to come.

Any market commentator worth his salt

would have been laughed out of school had he

predicted such a scenario but the realities are

harsh and many fear could be long-term. While

a return to normality may happen, in time, for

some sectors but not for others, what level

could be considered as normal is difficult to

say and no one is prepared to stick their head

above the parapet to offer a credible sugges-

tion. The markets are in need of a leader to get

it out of this crisis but alas it appears the

shipping industry and the banks may have lost

their nerve.

Dagfinn Lunde, head of shipping at DVB

Bank painted the starkest picture of the financial

crisis affecting shipping when he told an indus-

try conference in November that the downturn in

shipping would be “deep and long” and that in

two years’ time "we will have a crisis very sim-

ilar to that of the mid-1980s", which some

experts believed was the worst ever experienced

by shipping.

"There will be many more bankruptcies," Mr

Lunde told the Lloyd's Shipping Economist Ship

Finance & Investment Conference in London.

"You can see this from the leverage of the com-

panies and the charter rates. It is a question of

weeks and months."

Dagfinn Lunde shares

the macabre but realistic

view that the bankruptcies

will not be sparing of even

the bigger and more estab-

lished names in the market

and would not only involve

dry bulk operators but also

other sectors such as contain-

ership operators.

According to shipping

industry investors like Pacific

Shipping Trust, this is the start

of the great market correction

with improvements unlikely until

at least the first quarter of next year.

Alvin Cheng, Chief Executive Officer, told

SMI: “We have not seen the bottom of the mar-

ket yet and traditionally market rates come

down before asset prices perform a correction.

We are seeing the beginning of this market

correction so I guess that asset prices will fol-

low. We do not expect the correction to sta-

bilise until the first quarter of next year. But on

the other hand, as far as container ship asset

values are concerned, we are confident in the

medium to long term, that the correction will

not be that significant.”

He went further to suggest that in the next

few years “we will probably see a recovery of

the asset price and ultimately for a portfolio

like ours where we hold our assets on a

longer-term basis, we can probably recover

some of this lost ground.”

While he remained confident that Pacific

Shipping Trust would be able to maintain the

value of its investments, this could not be said of

the dry bulk markets, he claimed, for anyone

who has invested money into dry over the last

two years, “will have lost that equity for ever”.

2524 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

DISPATCHESCREDIT CRUNCH

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

SHIP MANAGEMENTDISPATCHES JAPAN

DISPATCHESDISPATCHESS H I P P I N G B U S I N E S S R E P O R T S F R O M A R O U N D T H E W O R L D

Financial Crisis:Fanning the flames of despair

“There will be casualties but therewill also be winnersand these will be themore traditional shipowners who nowhave a fleet of shipswhich doesn’t includea large number ofrecently purchasedtonnage”

“Because the banksare not lending anymoney unless on avery specific project-related basis, I cansee a lot of peoplewill be short of cash.They will have noway of settling theirdebt apart from filingfor bankruptcy”

27

DISPATCHESCREDIT CRUNCH

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

But not all banks are keen to retain their inter-

est in the newbuilding markets. One German

bank was reported to have offered to pay a ship

owner’s deposit plus a $3m bonus to walk away

from the deal. Such is their lack of interest in this

market at the moment.

But one winner throughout the financial crisis

could be the ship managers who could start to

mop up some of the excess tonnage. Indeed,

according to Guy Morel, General Secretary of

InterManager, ship owners will still need ships

which will still need managing. “My feeling is

that the volume of shipmanagement will remain

the same. It is more important that we do a good

job and please our owners, and when the owners

are under pressure they will ask for a tighter

budget. We will try to do everything we can to

adopt to the new circumstances. But except for

26 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

CREDIT CRUNCHDISPATCHES

OfftheCuffMohammad SouriChairman and Managing Director of the National Iranian

Tanker Company (NITC)

Views on the current financial situation from a shipowner’s point of view“Stock market ups and downs have been with us for years andyears and this is the beauty of life but it is not going to damage thetrend of shipping. During the last 53 years of its operation, NITChas been profitable for 50 years of that time and for three years werecorded a minor loss. So this is a good sign that if the markets arebumpy they will not stay forever, so today’s stock market difficultieswill recover. Don’t forget, houses still need to be built, cars have tobe run and factories have to operate so for all these reasons ship-ping will continue. The oil price may come down and if it does it willhelp shipping because the poorer countries will have more moneyto buy oil.”

that, I see no reason why shipmanagement will

be seriously affected.”

This was a view repeated by Roberto Giorgi,

President of V.Ships and the newly-elected

President of InterManager, who said: “Our strat-

egy is always to be diligent with regard to mon-

itoring our exposure to risk – both on a daily

basis and to ensure that we carry out a thorough

risk assessment before taking over new con-

tracts. Historically, the downturns in the mar-

ket of the severity we have seen unfold in

recent weeks, tell us that the banks and other

providers of shipping finance will be faced

with problem loans and will need to turn to

experienced ship managers and other service

providers for help. The extent of the problem is

becoming clearer but you should bear in mind

that we are dealing with a different audience

today than during the last market cycle. Assets

are controlled by diverse companies as well as

traditional ship owners and in certain cases

there will be a big experience gap.”

He added: “Ship managers will play a crucial

role and will be working harder on behalf of

their clients to maintain service standards in the

face of inflationary pressures. The current mar-

ket turmoil, however, where we are seeing a

major slowing down in the rate of fleet growth

and a stronger dollar can help us in our efforts to

control costs. It is important to point out, howev-

er, as other managers have done, that there is no

simple solution. Increasing regulation and pres-

sures to perform mean that owners need to be

realistic in determining vessel operating costs

even though they are seeing asset values and

earnings collapse.”

But how will the financial crisis affect the

composition of today’s third party managers?

Will it be a question of survival of the fittest and

the largest or will the boutique but efficiently

operated and run ship management companies

survive equally as well?

“Again, history tells us that there is room for

the larger, multi-sector, global players like

V.Ships who can utilise a large resource base and

buying power, and the niche specialists who can

hold their own in specialist sectors and maybe

even consolidate their position during hard

times. Talk in the past of shake outs in third party

ship management never came to fruition – per-

haps this was wishful thinking on behalf of some

“The financial crisiswill certainly take its

toll but I think it represents someopportunities for shipmanagement

either because someship owners are left

with some ships theydidn’t plan to have

or other ship ownersare looking to

reduce their costs”

Guy Morel, General Secretary of InterManager

you also have the strange situation where there

are no letters of credit whatsoever, meaning that

there is nothing moving: we are not talking

about a little bit at a lower rate, we are talking

about zero – nothing.

“I know one bank and I won’t say the name,

which has already starting asking for extra col-

lateral from owners. That is the first step. What

you will definitely have and you are already

seeing is more and more people walking away

from deposits. That will have a great impact on

the shipyards meaning they will have to go out

and find someone else to complete the project.

So in this environment, it will not be easy for a

shipyard to find someone to complete a project

because first of all they will have to pull their

pants down regarding price. The market will

find itself in a very strange position where 2011

deliveries will cost $10m to $20m more than

2009 deliveries.”

So does the world need the shipping industry?

“No, the world doesn’t care if ship owners go

bust because there will always be someone else

to take over the ship and operate the trade. What

I do agree with is that the world does need the

goods that shipping transports,” he concluded.

But while the bulk markets contract and

owners start losing their shirts, there still

remains some level of optimism for that other

great shipping trade – tankers. As Lennart

Simonsson, CEO and Managing Director of

Gothenbuirg-based tanker owner Brostrom,

said, some markets will end up better than

others depending on the trades involved.

He told SMI: “If you talk about the tanker

business as such then that is a different ball

game. The tanker industry is focused on deliv-

ering oil for the transportation industry. With

the high oil price everyone has been trying to

ensure they don’t store more oil than is need-

ed so you will see markets in coming years

that will be extremely good and markets that

will be bad. But the overall trend for the

tanker industry is pretty good.

“A lot of people in the oil industry includ-

ing the traders, have been more affected by the

disappearance of letters of credit than anyone

else. But because of the financial crisis you

will see a lot of requests from the banks

regarding financing of existing and new ves-

sels to increase margins and everyone will try

to get as good a result as they can. The under-

lying transportation need in the oil industry is

still there but the question is will we see the

same shipowning groups as we have seen in

the past, but the basis is there.

So when will the market return to normali-

ty? “It depends what you mean by normality,”

said Lennart Simonsson. “To reach stability

will take many years in my opinion but if you

ask what the situation will be like in a year’s

time, I believe you will see good markets and

you will see bad markets but the overall level

will be pretty good I think.”

Speaking just days before Brostrom

had announced a dive in pre-tax profits to

SEK187.5m for the nine months to the end of

September from SEK431.4m in the same three

quarters of 2007, Mr Simonsson said Brostrom

would continue to focus on the sector it is in and

not rush into further newbuildings at this stage.

“I think that from a business point of view we

have focused very much on contracts of

affreightment, and spot markets and making sure

we have the volumes. If we have these, even in

a bad market, we will provide a decent return.

“Spare tonnage will be there and I think

there will be a lot of yards, in Turkey, for

instance, who have produced a lot of vessels

in their own name, who will try to sell them.

There will be more tonnage about but will it

be there to compete in the market because you

need the right crew and the right financial

setup behind it, so I don’t think it will have

that big an impact on the commercial markets

we are operating in,” he added. ■

29

DISPATCHESCREDIT CRUNCH

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

larger players. What we are seeing, however, is

that there is perhaps less of an appetite for

expanding managed fleets unless the rewards

match the growing risks.”

Annette Malm Justad, CEO of Eitzen

Maritime Services, is equally aware of the

opportunities the financial situation could pose

for third party managers. “The financial crisis

will certainly take its toll but I think it represents

some opportunities for shipmanagement either

because some ship owners are left with some

ships they didn’t plan to have or other ship own-

ers are looking to reduce their costs or even have

a more flexible organisation. I think generally

speaking, the crisis will offer some opportunities

going forward,” she said.

Jeremy Hayley Bell, Managing Director of

Pacific Basin Tankers, said that the crewing cri-

sis meant that managers were still being selec-

tive as to the business they take on but there

will almost certainly be an element of ‘ambu-

lance chasing’ going on as managers seek to

manage ships repossessed by the banks. “With

the current issues in the market there will be

casualties and one hates to be an ambulance

chaser, but let’s face it, distress management

has been part of business in the past and we feel

that we’re very well placed to be able to pro-

vide assistance there.

“You’ve also got the question of the value of

ships falling and whether an owner wants to go

through with completing his purchase of the

ship, whether it’s second hand or a new build-

ing. In which case, a ship can be left in some-

one’s hands who hadn’t actually planned to

take it on. Whether they’re shipyards or banks,

they will need somebody to help them operate

those ships and we’re well suited to do that and

well experienced to do that. We’ve done that

for a number of banks in the past and we have

principally the same staff here that were doing

it before, so we’re well positioned to do that.

So I’m sure there will be a lot of opportunities

there,” he added.

But what effect will this crisis, the worst some

are saying since the depression of the 1920s,

have on shipowning as a sector and as an indus-

try? Pacific Shipping Trust’s Alvin Cheng

believes that shipowning has come a long way

and that owners are definitely more professional

and sophisticated than they were years ago. “The

younger generation of owners who took over

from their fathers and grandfathers are far more

educated, more numerically savvy,” he told SMI.“A lot of them have MBAs and come from

investment banking backgrounds so they are

much more sophisticated in the way they look at

the markets. Instead of the back of an envelope

calculation, they use spreadsheets. These owners

I think will come out in tact and they will con-

tinue to grow and they will be even stronger.”

Cheng believes there will be consolidation in

the market but with the traditional owners

being the winners: “Those owners that are rid-

ing on the coat tails of the market will fall and

they will take a huge tumble and they will be

eliminated. Some of the major traditional

shipowner names will still be there, I don’t

think any of the major names will disappear –

major names as in traditional, long standing

established names,” he said.

Asset playing has become too dangerous a

game to play, he stressed, and has become some-

thing more akin to roulette. “If you just look at

the bulk market. How can rates

go up so high and tumble in no

time to where they should be.

We are not talking about levels

which are historically low, we

are talking about levels which

the market should have been at

before, but were not because of

the last two years of absolute

crazy speculation,” he said.

One such younger genera-

tion owner is Evangelos

Pisatiolis, head of the Nasdaq

quoted Top Ships. But he

remains convinced that during

such dire times, ship owners are

powerless to act without the

support of the banks.

In a frank interview with

SMI, he said: “There is really

little you can do, looking at it

from the point that literally

nothing is moving. Even if you

are running 24 hours which

many ship owners who have

outstanding orders and financ-

ing are doing at present, there is little you can

do because there are no banks – nothing, noth-

ing, nothing.

“Even the ones you had with you are rene-

gotiating what you had with them and are try-

ing by any means by reading the small print to

get out of the agreement. So if things don’t

change quickly there will be problems and I

mean big problems and I mean things need to

change quickly over the next month or two

months,” he said.

“Bankrupcies can’t be discounted, but I am

not sure whose fault it is because it is not a mat-

ter of trying harder because in previous crises if

you tried harder the banks were there for you. If

you didn’t have any internal problems and you

had a good name you could somehow navigate

through these troubled waters which is what

many companies did in the 1980s and 1990s and

they are still alive. This time round it is very dif-

ferent: you can see very big names having prob-

lems raising capital and debt. On the dry side,

28 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

DISPATCHES CREDIT CRUNCH

ShootingfromtheHipYudhishthir KhatauManaging Director of Varun Shipping

“The most important issue is to regain financial confidence becausethe situation has been exaggerated because there is an artificialblockage of trade. The reason it is artificial is because letters of credithave stopped. The fundamental tool to shipping commerce is the letter of credit and if ultimately a buyer of a cargo cannot issue a letter of credit and the seller of the cargo cannot discount the letter of credit then you can’t trade and that lack of trade is bottleneckingshipping flows as we see today. If banking confidence is restoredthen current account trade can continue.

“The second issue is the supply of construction material whichrequires infrastructure financing. If the bottlenecking of trade sortsitself out and the banking confidence returns then you will see ratesgoing back up to normal levels, not super normal levels, The banksituation has to rectify itself because you cannot have a double tarifffor money because today you have LIBOR and then you have ablack market for money – the non-LIBOR rate.”

And what of those vessels due to be completed in2009/2010? According to many in the market thesewill be snapped up by hungry cash richowners, once they are convinced the market has hit rockbottom or they will be repossessed by the banks left holding the screaming baby

“The world doesn’t

care if ship owners go

bust because there

will always be others

to take over the ship

and operate the trade.

What I do agree with

is that the world does

need the goods that

shipping transports”

Annette Malm Justad, CEO of Eitzen Maritime Services

Lennart Simonsson, CEO and Managing Director, Brostrom

Steeped in the midst of a global financial crisis, shipping

navigation is creating a revolution of its own as it enters

into the futuristic realm of digitisation and technological

sophistication. As advanced electronic charting systems

take to the seas in place of archaic but long-established paper

charts, the question of technology versus human competence is

still creating waves of ambiguity.

As complex collaborations flood the shipping industry with new and

innovative solutions to safer navigation, concern over the competent

manning of such systems is flashing on red alert. A worldwide crewing

shortage set against the gloomy backdrop of the global credit crunch

does not make for a positive environment in which to implement such

costly and technical devices, with the added necessity for sufficient

crew training to ensure correct and efficient usage of new systems.

The United Kingdom Hydrographic Office (UKHO) has recently

stretched its wings towards navigational chart suppliers in the flight

towards safer navigation. With Electronic Chart Display and

Information Systems (ECDIS) due for mandatory implementation in

2012 under IMO guidelines, and in preparation towards coping with the

vast newbuild order book of 10,000 vessels pegged for delivery in 2012

(although concerns over financing could see that figure drop signifi-

cantly), it’s no wonder that the industry is taking a colossal step towards

digitising charting systems in the bid for safer marine navigation.

Rear Admiral Ian Moncrieff, National Hydrographer at the UKHO,

underlined how the mandation of ECDIS for vessels starting in 2012

will revolutionise navigation. “People are starting to invest in ECDIS,

but despite the technology having been there in recent years, they

haven’t had the ability to utilise the full power of it because of a num-

ber of disparate issues surrounding RASTA charts and ENC availabili-

ty, along with paperwork that’s unofficial. There has been a lot of ambi-

guity surrounding it,” he said.

“Users haven’t yet had the ability to use one single source, but new

technology capable of providing a full admiralty vector service will

deliver to mariners what has been needed for about the last 10 years. It’s

quite a milestone step,” he added.

Through collaboration with renowned chart manufacturers such as

Kelvin Hughes and Transas, the UKHO hopes to revolutionise marine

navigation, creating the forefront to a paperless era defined by techno-

logical innovation. New ECDIS systems coming available to the mar-

ket will come fully pre-loaded with AVCS (Admiralty Vector Chart

Service) data, merging universal shipping regions into seamless layered

charts without the complicated and laborious task of obtaining permits,

loading data, and subscribing to an updating service.

“There has been hesitancy to take a step forward onto it until now.

Barriers to the adoption of

ECDIS were because cover-

age wasn’t there, but it is

now; and because consisten-

cy wasn’t there, but this is

being addressed,” Mr

Moncrieff informed.

Mike Robinson, UKHO

Chief Executive, told SMI:“With regards to digital nav-

igation, it’s about 10 years

since the first ECDIS was

type-approved, but for a lot

of that period there has been

confusion about where you

can get the data from; which ECDIS is required; and how it will work.

It is a huge effort at the moment to load the data initially, with someone

on the vessel loading CD after CD. New systems will simplify the

mariner’s role, and so from a safety perspective this is quite a signifi-

cant step in the whole evolution of digital navigation, while also sup-

porting the adoption and wider use of ECDIS from 2012.”

Technology does not foresee a limit, however, as new developments

31

BUSINESS VIEWPOINT

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

BRIDGE DESIGN & NAVIGATION

How digitisation is navigating the future by Amy Kilpin

Rear Admiral Ian Moncrieff, National Hydrographer

at the UKHO

credit crisis, and given the

dowdy financial outlook,

the question of how the

cost implications of these

advanced systems affect

ship owners and managers

is flaring up uncertainty.

Mr Moncrieff stressed

that “the cost of these sys-

tems was prohibiting their

implementation, but this

is driving down,” and

given that the installation

of ECDIS charts is soon

to become mandatory, it

is an operational cost that will have to be accounted for. The UKHO

hopes that the new development of navigational systems will prove

cost-effective as a long-term future investment; and there is the added

question of whether a price can really be placed on vast improvements

in human safety.

“It’s essentially what shipping companies have been waiting for – the

ability to really go paperless. Until recently, because of lack of cover-

age and lack of a one-stop solution to the market, very few shipping

companies have actually gone paperless which means not only have

they got the expense of the ECDIS and the electronic data, but they’re

also maintaining a full paper portfolio, which doesn’t make sense,”

Mike Robinson said.

With claims costs and P&I cover currently soaring through the roof,

ship owners and operators are in a precarious position of financial

volatility, and so prevention against marine accidents and navigational

safety is paramount in the avoidance of hefty expense.

Russell Gould, Managing Director of UK chart supplier Kelvin

Hughes, highlighted how complex electronic charting systems pre-loaded

with AVCS will prove both a safer and more economically viable solu-

tion to marine navigation as a long term solution. “It’s an indisputable

fact that electronic charts make for a safer passage – shipping companies

don’t normally have a budget for groundings and collisions, but we are

seeing rapid acceptance that this technology not only prevents accidents

but also reduces the workload onboard the bridge as well.

“From a financial standpoint alone it does make sense, and from an

operational point of view it’s an absolute no-brainer that electronic

charts are the way to go,” he added. The digital era has only just begun,

however, as talk of ‘e-navigation’ buzzes across the industry alongside

growing demand for onboard communications – all of which is good

news for promoting safer navigation at sea but perhaps not such an

appealing prospect for owners and operators who will be scraping

together sufficient funds.

“Communications costs at sea are still horrendous when you com-

pare them with the equivalent land-based communications costs, so the

33NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

are constantly being made to aid the mariner with safer and more efficient

navigational systems. While onboard communications are currently an

expensive and not so common investment for most ship owners and oper-

ators, the astonishing and rapid progression of technology hope to even-

tually see vessels equipped with communications devices in line with

land-based systems, and advanced electronic display systems providing

comprehensive information to the mariner at the touch of a button.

Mr Moncrieff noted that “establishing an official carriage-compliant

solution through a type-approved ECDIS is a starting point, but there is

future focus to build upon it. Other developments are in some cases

already available in digital form, such as sailing direction incorporated

as layers on top of the chart, but there’s also information beyond that

which may be incorporated such as weather, port regulations, MAR-

POL and other things that a mariner wants to have at his workstation at

a one-stop-shop, without the need to go dragging other publications in

front of him.

“With fully-compliant electronic systems, the workload on the bridge

is reduced in the execution of navigation. The mariner is spending more

time looking out at the front and he’s got the added functionality of set-

ting alarms as the system also assists his safe usability. If both the plan-

ning and the execution of navigation is done on one work station, it is

making the mariner’s life that much easier,” he added.

With such technological evolution paving its way through the

shipping industry, there still remains the burning debate of the global

BRIDGE DESIGN & NAVIGATIONBRIDGE DESIGN & NAVIGATION BUSINESS VIEWPOINTBUSINESS VIEWPOINT

Russell Gould, Managing Director, Kelvin Hughes

“Communications costs at sea are still horrendous when you compare them with theequivalent land-based communications costs,so the internet may be coming available to theshipping community but it’s at a price – it’s certainly not a cheap service”

“People are starting to invest in ECDIS, butdespite the technology having been there inrecent years, they haven’t had the ability toutilise the full power of it because of a numberof disparate issues surrounding RASTA chartsand ENC availability, along with paperworkthat’s unofficial”

“It is a main concern for the future of navigation that proper training for the mariner is available, along with the issue of how to present data on the bridge in a safe and easy to understand manner to the mariner. It is a concern which needs to be addressed urgently”

internet may be coming

available to the shipping

community but it’s at a price

– it’s certainly not a cheap

service,” Mr Gould warned.

While at present a rather

expensive indulgence, there

is the inherent likelihood of

communications services

becoming more affordable in

the future as the shipping

industry acclimatises itself to

the era of digitisation.

However, while the ques-

tion of navigational safety is answered by the eminent glow of electron-

ic competence, the crew shortage epidemic spreading across the ship-

ping industry is to hit hard on vessels boasting shiny and newly-

installed composite charting systems. With electronic data charts in

place, technological sophistication is futile when left to the operations

of improperly trained crew.

“ECDIS has so much more functionality than is obviously provided

by a paper chart, and while it inherently makes for safer navigation, you

do need to know how to operate it – in untrained hands it could be the

exact opposite,” Mr Gould warned.

Despite the call for appropriate training schemes, Ian Moncrieff

talked of a new league of mariners with an appetite for technological

progression, and “more au fait and comfortable in a generation

used to using computers and displays and working in a very digital-

based environment.”

The issue of training is a predominant concern for chart supplier

Transas, which has recently introduced electronic charting systems

fully pre-loaded with AVCS and IMO-compliant technologies in line

with new consumer demand. Peter Mantel, Deputy MD of Transas

acknowledged that electronic charts will improve safety at sea only “as

long as industry legislators will mandate that all mariners are to be

trained properly on how to use ECDIS.”

“It is a main concern for the future of navigation that proper training

for the mariner is available, along with the issue of how to present data

on the bridge in a safe and easy to understand manner to the mariner. It

is a concern which needs to be addressed urgently. The technology

itself, if used correctly, will allow for more efficient navigation by less-

er qualified personnel, however training is essential and needs to be

addressed seriously by legislative authorities,” he added.

Competent manning of bridge and navigation systems is a pressing

issue, and given the widespread adoption of new and advanced elec-

tronic charting devices, safe marine navigation does not necessarily lie

solely in the hands of technology. And in some cases, relying too much

on electronics in the face of safety is a dangerous endeavour itself, as

the extent of how far digital technology can offer complete situational

awareness and detect risks is limited; irreplaceable by sound human

judgement, system monitoring and intelligent observation and analysis

against potentially hazardous situations.

Hugh Phillips, head of digital products at the UKHO, confirmed that

“without proper training, hi-tech equipment loaded with complex data

(as in an ECDIS with ENC data) will not be correctly used, and in

extremes could even prove to be dangerous. The indubitable benefits of

digital navigation will only properly be realised if crews have both

generic and specific ECDIS training and bridge operating procedures

are adapted appropriately to encompass the differences between paper

and digital operation,” he added.

As a new era of shipping navigation unfolds, a new generation of

qualified personnel with completely different skill sets will be required

as the proficient operation of digital systems becomes a prevailing

issue. But the cost logistics in mandatory installation of ECDIS and the

consequential expense of crew training courses hardly paves the way

for a positive digital revolution in such hard and meagre times.

Yet safety at sea is the pinnacle of importance; especially in a global

climate submerged in such economic turmoil that avoidance of an acci-

dent and any resulting outlay could potentially land one in very deep

financial water. ■

34 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

BUSINESS VIEWPOINT BRIDGE DESIGN & NAVIGATION

Hugh Phillips, head of digital products at the UKHO

“The indubitable benefits of digital navigationwill only properly be realised if crews haveboth generic and specific ECDIS training andbridge operating procedures are adaptedappropriately to encompass the differencesbetween paper and digital operation”

SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 200836

SHIPMANAGEMENT

band fleets are invested and the fleets are up there, we have good cash

flows from existing services both land, sea and air, and that will contin-

ue. We will be a healthy company, we’re fully funded and we don’t have

debt issues: we have the lowest debt levels in our industry. So we’ll be

here. The question is are the people taking up new services as rapidly as

we expected? Probably not, probably there’s a slow down given capital

expenditures that go with

new terminal installation.

But so far we’ve seen no

signs of that” he stressed.

Inmarsat recently made

the headlines when Maesk

Line contracted to retrofit

150 of its vessels to

Inmarsat’s broadband opera-

tions. According to the

Inmarsat Chairman, the

Maersk deal underlines the

shipping industry’s commitment to its broadband operations. “I think it’s

a landmark deal because it is a move into broadband for Maersk to serve

a variety of different applications including crew connections to the

internet which is a big driver for them. Also it says quite clearly we shot

for a sweet spot in the market. A lot of people have been talking about

VSat and they get the monthly cost for Vsat, it’s fixed at much higher

levels and what we shot for is a sweet spot in the market which is we

can provide high bandwidth on demand in a pay as you go fashion. It

may not be four megabytes, its half a megabyte but its something that’s

very economical that you can budget for. In the case of Maersk with a

highly budgetable and predictable payment scheme, so this is some-

thing you can share between ships and you can continue to use even in

a high bandwidth environment.”

“We’ve seen 17% growth in data services over the last five years in

the maritime industry and again that’s accelerated in recent times.

I think new terminal installations on new ships clearly may go

down but I don’t necessarily see the take up slowing because of the

demand for the automation monitoring and crew welfare,” Andy

Sukawaty confirmed. ■

37

INSIGHT

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

INSIGHT SHIPMANAGEMENT

While the shipping markets may be in meltdown exuding complete

uncertainty over the way the financial institutions are planning to sup-

port the dwindling shipping markets, Andy Sukawaty is clear about one

thing: crews out at sea need communication and Inmarsat is there to

deliver on its promise.

And he could be excused for remaining bullish about the maritime

market because as Chairman and CEO of Inmarsat, he is dedicated to

serving the needs of the shipping sector.

“I think if we look at every operating metric today, and this is mar-

itime, air and land, we are not off any of our growth estimates for min-

utes of use, megabytes of use and terminal activation,” he said.

Admitting that there are a couple of exceptions “especially when you

consider we’ve 14 different service categories”, he is adamant that if

you look at the overall trading, Inmarsat remains right on target. Yet,

as he contends, there is an acknowledgement that no one is immune

from what’s going on in the world and that something has got to give at

some point.

“We think that the services we’ve introduced in the last few years are

being used in ways that make ship owners either more cost effective, or

meet other needs that even in a difficult environment, will look to have

served their needs. That can be crew welfare or it can be ensuring some

of the monitoring and maintenance systems ships have onboard can

work properly with higher bandwidth requirements,” he stressed.

Given the small incremental capital involved with upgrading, he

does not believe his company will be heavily affected by the financial

crisis over the long term. “And even in the short term I would say the

numbers indicate that people are continuing to carry out these upgrades.

Of course the newbuild market will be affected which will involve new

terminal installations but I still think the global shipping market is

fairly healthy in maritime: at least that’s our current thinking.”

He went on: “One mainstay of Inmarsat for the last three years has

been maritime and we have always respected our customers’ invest-

ments in the hardware. They spend a lot of money getting the installa-

tions done onboard ship so when we put up a new constellation, it is

backward compatible to the old. So if I've got an Inmarsat B terminal

and I want to keep it for 15 years, I can keep it for 15 years. If on the

other hand for whatever operational reason I want to upgrade, I can also

choose to upgrade during that period of time and probably start the

clock running again on another 15 year terminal. So that’s been a main-

stay: backward compatibility making sure that we were not forcing peo-

ple to upgrade, so I guess it’s in our customer’s hands as to whether they

see fit based on their own operational requirements to go to a newer

technology or not.

“For the first time ever, we recently turned off Inmarsat A, our old

analogue service. We had a trickle of customers in the end primarily

from the northern Pacific who still had terminals and were using them

every day. We gave the industry five years notice of our intention to

turn off a service that has been out there for 27 to 28 years. So we were

as delicate as we could be,” he said.

According to Andy Sukowaty, the shipping industry tends to be con-

servative and wants to see things proven to them before committing

themselves, only then will they change. “So when we introduce new

satellites, we make sure we’re backward compatible to everything and

create a path so people can upgrade as they see fit.

“With Inmarsat Four we went one step further and took our fleet

broadband from 144 kilobyte speeds up to 438 kilobyte speeds. This

extends the life of all our services, including safety services, to 2023

and beyond so when ship owners make the investment in that terminal,

they know that it’s now their choice, I have made the investment I can

amortise it over a very long period of time if that’s what I want to do

and in these tough times that’s what they choose to do,” he said.

But in these times of uncertainty, can you be sure that ship owners

or ship managers will continue to treat crew communications as a

priority? “Well if they’re at sea, if they’re blue water, they need us and

we’re there to serve them. We’ve been very sharp with our pencils in

the last years, we’ve dropped our prices on voice and we’ve dropped

prices on data services dramatically which helps in these hard times.

We’ve recently introduced a lower end terminal, fleet broadband 150

which breaks the $5,000 price barrier which is by far the lowest cost

terminal we’ve ever put out there. So there are options that give own-

ers a much lower cost path to having the services they need.

“Have our plans to date been affected by the financial crisis? I have to

say no! It’s been such a short window since this has happened. If we see

a slow up in new terminal activations, it’s not a killer to us. The broad-

Andrew SukawatyChairman and CEO, Inmarsat

• President and Chief Executive Officer at Cable Partners Europeand he has been the Chief Executive Officer of Inmarsat Holdings since March 2004 and Chairman since December 2003.

• He has exceptional global operational and business develop-ment experience in wired and wireless communications arenas and boasts a track record of delivering on operational performance and shareholder value.

• From September 1996 to June 2000, he was the President and Chief Executive Officer of Sprint PCS. There, he directed a team that made Sprint PCS the fastest growing wireless provider in the US and grew the business from a privately held partnership to a publicly traded entity valued at over $50 billion. Under his leadership, Sprint PCS led the US wireless industry into a phase of explosive growth and into the wireless and Internet convergence.

• Prior to joining Sprint PCS, he was the Chief Executive Officer of NTL Limited and from 1989 to 1994, was Chief Operating Officer of Mercury One-2-One.

• He has also held various positions with US WEST Inc., AT&T, and Northwestern Bell. He has considerable experience in the mobile telephone industry and is considered a pioneer in the paging and cellular industries since their inception.

• He received a B.B.A. from the University of Wisconsin in 1977 and an M.B.A. from the University of Minnesota in 1982.

“We think that the services we’ve introduced in the last few years are beingused in ways that make ship owners eithermore cost effective, or meet other needsthat even in a difficult environment, will look to have served their needs”

“The country should use this time to balance its lopsided develop-

ment. We have been exporting for so long and although exports have

slowed down slightly, it is time to start using the situation for our own

requirement. The slowdown is a blessing in disguise for India,” Mr

Agarwal said. So with the slowdown not affecting the Indian economy

and with Mumbai acting as a driving force for internal growth and inter-

national presence, prosperity is certainly on the cards.

“India will use a lot of these economic factors to start setting up its

own infrastructure, so when these prices come down, companies can

invest in services and assets not earlier available until now. With activ-

ity slowing down, these assets will be available to India at a cheaper

rate, so India can look inwardly and use this capacity to build up its own

infrastructure which has been lagging for so long,” Mr Agarwal added.

Captain N Dholakia, Director of the locally-established Transatlantic

Shipmanagement in Mumbai, supplemented this notion: “Infrastructure

is the need for today. The requirements are there but the infrastructure

has not been in place, and therefore India has not been able to compete

fully with the international community yet. The government is working

on this now and is trying to build up the infrastructure. If all these things

are in place it will be a good incentive for trade business to develop and

flourish, boosting India’s economy tenfold,” he said.

“What is special about Mumbai at the moment is that the government

is opening up a policy to give preferences to the maritime industry,”

Captain Dholakia added. Pushing the government for support and rear-

ing its head as a macro maritime influence, Mumbai is flaring its

nostrils against major players such as Singapore and Dubai. India is

preparing for an aggressive fight towards shipping dominance and trade

strength, flexing its muscles against the economic superpowers as it

reigns as a strong contender in the game play of world trade dynamics.

Looking inwardly to fortify its position towards the helm of interna-

tional shipping, India is steeling itself against the world economic sce-

nario by jumping in for bullish acquisition of ships as international

owners watch their finances sink to the bottom of the ocean. Indian

company Essar Shipping, Ports & Logistics is a strong player hovering

on the edge of the sale and purchase market, and its Director AR

Ramakrishnan is feeling Mumbai’s cash-rich opportunity-grabbing

manoeuvres towards global trade domination.

With a newbuild orderbook of 12 ships, he said the financial situa-

tion “creates openings for strong Indian players, and as a result we are

seeing opportunity in the face of these challenges. In foreign shipyards

we hear about owners not being able to meet their commitments in pay-

ments, or shipyards not being in a position to give refund guarantees

because of banks backing off or becoming too cautious. That gives us

an opportunity for slots coming open or ships being built which will

come up for sale, and also owners who are willing to let go of their

ships because they just can’t meet today’s requirements. We are contin-

uously on the lookout for a ship on the water,” he added.

IMS Ship Management asserted that Mumbai stands in good stead to

dig its claws into international shipping markets as a result of its large-

scale development projects and strategic geographical position. “In

India we have a very large shipping and port development with projec-

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The armoured stance of Indian ship owners, managers and

port operators is generating a force to be reckoned with as

the nation’s steel-plated optimism acts as a buffer against

the credit crunch war zone. Fortifying its resilience

against potential financial downturn, the shipping hub of

Mumbai is driving ahead with full-power, sparring any potential impact

on the Indian economy with thrusting aggression.

Despite the global battleground of costs, Mumbai-based shipping

companies are creating a tactical diversion to the world’s financial fatal-

ities by assuming a robust position of potent confidence and positivism

on the front line of India’s economic growth potential. With major

expansion and development plans in the pipe line, India’s rise to super-

power status is becoming less of a pipe dream.

As some of the world’s major players sit and wait sniper-like for small-

er companies to fall to the ground, the Mumbai region is contravening the

hostilities with buoyant plans for a healthy future shipping force.

Mumbai’s shipping economy has multiplied with meiosis-like rapidity,

and now the international markets have caught the viral trend towards set-

ting up major offices in the region, and where smaller operations have

thrived with pathogenic potency, larger companies are feeding off India’s

capital of trade and commerce with an insatiable appetite.

If the global economic crisis is anything to go by, the Indian econo-

my is almost an antibody against the financial malady, and with strong

companies at the very foundations of the city’s shipping activity, world-

wide industry concern is substituted with sheer optimism. Despite

widespread international presence, Bernhard Schulte Shipmanagement

acknowledged that its Mumbai office is one of the biggest assets in the

company’s group.

BN Prasad, Managing Director of Bernhard Schulte

Shipmanagement (India), said: “India is very optimistic that the econo-

my will stabilise. Shipping is always cyclical and the last few years

have been too high to sustain but now that bust has to come. Anything

that goes up like this has to come down, and it is not a worry for us

because people cannot survive without the transport of goods.”

While the western markets hang their heads into the murky mire of

economic stagnation, India has experienced no visible impact and quite

conversely, is using the period of downtime to invest in its own econo-

my. “We are in a position of strong growth at the moment and see it

more as an opportunity,” Mr Prasad revealed.

“There’s a lot of interest coming from outside now. Mumbai is

becoming a backdrop for all shipping centres and all major global ship-

management companies and owners are now strengthening their pres-

ence in the region as it grows larger and larger. A lot of private invest-

ment in port development and shipyards is taking place as well, with

fast growing interest in shipbuilding activity in India – it is a positive

time for everybody to get a job here,” he added.

Bibby Ship Management (India) is one such company which has

recently latched on to the lucrative opportunities offered by Mumbai as

a rapidly flourishing maritime cluster. And for good reasons as well.

Om Prakash Agarwal, Managing Director of the Mumbai office, pre-

dicted that “India is definitely moving forward, and will become a

major economic force because it’s got a coastline of 7,000 km and has

huge potential for development.”

Shying away from commenting on world economics, Mr Agarwal

maintained that “the global credit crisis hasn’t affected India that much

because it is a growing country even today. Its growth is not dependant

on external factors; it is dependant on internal factors. India will grow

in its own way, it doesn’t need support coming from the US or Europe

to grow. Trade can affect to an extent but the macroeconomics are not

relevant to India at the moment,” he said.

38 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

MUMBAIREGIONAL FOCUS

Buckingthe trend

There is a well known phrase that

‘everything which goes up must come

down’, and this well-grounded philosophy

is the sanguine stance adopted by the

Mumbai shipping industry as it valiantly

raises its shield against the global economic

crisis currently sinking into the flesh of

world shipping, writes Amy Kilpin.

“India is very optimistic that the economywill stabilise. Shipping is always cyclicaland the last few years have been too highto sustain but now that bust has to come.Anything that goes up like this has to come down, and it is not a worry for usbecause people cannot survive without the transport of goods”

BN Prasad, Managing Director of Bernhard Schulte Shipmanagement (India)

“We have a got a few shipyards coming up and as far as India is concerned theinfrastructure needs a lot of money todevelop it. In the boom everyone wants to invest, but India could take this as anopportunity to get some of these thingsdone at lesser costs because of the downturn”

Captain KS Nair, Director, The Shipping Corporation of India

tions set in place for the next five years, and these plans are already laid

out in much detail for expansion of shipmanagement, port operations,

infrastructure development, and shipbuilding,” said Captain Kairoze

Motishah, Chief Operating Officer.

“People will look at this downturn time as an investment opportuni-

ty. Owners will capitalise, especially with unfinanced vessels – it is just

a matter of waiting for the right time to acquire them. I don’t think there

will be a very big supply demand gap for shipmanagement, because

these vessels will flow,” he added.

The Government-run Shipping Corporation of India retains a similar

horned stance, and Captain KS Nair, Director of the bulk and tanker divi-

sion, affirmed that “it provides an opportunity because we have the facil-

ity to buy ships, and during this time we can cover the costs of the ships.

We are in a strong position to sit and look at what is happening to the mar-

ket, as there is a good opportunity to obtain some ships at a discount.”

While vessel purchase interest is strong on the agenda despite

already having 36 ships currently on order, Mumbai is in a stalwart

position for exercising its regional prowess and financial stability. “We

have got a few shipyards coming up and as far as India is concerned the

infrastructure needs a lot of money to develop it. In the boom everyone

wants to invest, but India could take this as an opportunity to get some

of these things done at lesser costs because of the downturn. Ports will

be required for new consumption, and we need to be ready with larger

ships at these new and bigger yards,” Captain Nair stressed.

Focusing on magnifying its current assets and poising itself for future

superpower status, India is swiftly realising that while Mumbai is a

sturdy centre of shipping activity and accounts for 90% of the country’s

trade, there is also an unquenchable appetite for expansion, and the

heaving city of Mumbai might not be able to absorb all of this. While

Mumbai acts as the nucleus for shipmanagement, in terms of capacity

it is virtually maxed out, as Captain Suresh Khurana, President of the

locally-based Pacific Shipmanagement, described.

“Companies from Hong Kong and various other maritime centres in

Europe have set up their base in Mumbai, and with more than 200 ship-

management companies it is generating great international presence.

Mumbai is bursting at its seams though, so there is no option but to have

other gateways for import and export. Mumbai will still retain its

importance but at the same time other ports are coming up and also

becoming important. There is an attraction to stay in a big city like

Mumbai, but when all space is filled up, people will move to other

ports,” Captain Khurana said.

The feeling is mutual across the hubbub of congested streets and sky-

rise offices, and Captain Rajesh Tandon, Managing Director of V. Ships

India, is similarly positive. “Large shipmanagement companies are set-

ting up main offices in Mumbai now, replacing what was previously a

back office. Given the economic growth forecast, I think there’s enough

appetite to take up all these new facilities and ports which are spread-

ing outside of the city,” he said.

“The port of Mumbai has got limitations as it is already working to

capacity, but the other ports outside of Mumbai will only increase ship-

ping activity and will not affect Mumbai’s port trade. Infrastructure

within the country has been growing at a very high pace, and people

have been saying that our growth rate might be bigger than China’s in

15 to 17 years, and the growth has been forecast at 8 % despite the glob-

al situation,” Captain Tandon added.

And it’s not just the shipmanagement companies revelling in the

encouraging factors brought on by the global fallout, as Mumbai’s mar-

itime prowess compels the country to realign its attention onto its own

needs, nourishing its starved and malnourished infrastructure with

much-needed industrial fodder.

Mundra Port and Special Economic Zone is a major development proj-

ect in the booming region of Gujarat, based on the western coast of India.

Operated by a private global trading company driven to develop a port

because of the lack of India’s infrastructure and the current constraints

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“We are building for the demand that willoccur in years to come. Unlike the currentports which are built with cargoes alreadyexisting and so are following the demand,we are building ahead of the demand”

Sandeep Mehta, Chief Executive Officer, Mundra Port

Pipavav Shipyard, also located in the blossoming region of Gujarat,

highlighted: “In India there is a huge pool of skilled workers and engi-

neers, and the technical capabilities and standards of English are at

much higher levels than other nations.”

Despite the abundance of training institutes in the region, Mumbai is

suffering from the universally-afflicted crewing shortage and with supple-

mentary governmental hurdles to jump involving gargantuan tax issues,

it’s not all high-flying for the Indian economy. “Indian ship owners have

increased in number but there are still not enough and the Indian share of

the world shipbuilding market is only 1%,” Mr Stewart said.

“In the 1980s Indian flagged ships had a market share of over 40%

of all seabourne trade coming out of India, today it’s 12%, and to main-

tain that 12%, according to the Indian National Shipowners

Association, they have to spend $20bn dollars in the next five years just

to maintain that small percentage. The government should be giving

some encouragement to do that, but ironically, it’s actually more expen-

sive for an Indian ship owner to order a ship in their own country than

it is for a foreign ship owner to order a ship there, because if we sell it

to an Indian ship owner there are additional taxes to be paid purely

because it is for India,” he added.

Tapas Icot, Shipping President of the Great Eastern Shipping

Company, asserted similarly that “aside from cost issues other concerns

involve the availability and quality of crew. There are also other issues

to contend with, such as seafarers getting heavily taxed. The biggest

problem is that we are bound by the law in that you have to hire all

Indians, and that is restricting the market for hiring people. India is a

large country, though, and we’re getting a lot of people who are still

interested in the career who are coming out of Mumbai’s many training

institutions,” he added.

Alok Mahajan, Chief Financial Officer of the subsidiary energy and

offshore company Greatship (India), added: “Logically India is in the

right place in the sense that a lot of trade is happening, there are skilled

people and it also has the management capabilities so there’s no logical

reason why India shouldn’t become a huge international influence, but

we just need to get the infrastructure in place with sufficient govern-

mental support in order to get everything together.”

So while it might have some barriers to encounter as it races full

speed ahead towards the goal posts of economic super-status, Mumbai

as a flourishing maritime cluster is leaping over the sinkhole of finan-

cial depression with sound investment in its own markets. With all the

requisite ingredients in place, however, the concoction for a piquant

feast of economic indulgence is a banquet well spread. ■

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faced by the Mumbai ports, it is government-supported by the provision

of a physical site and land for expansion, currently totalling 100 sq km.

Sandeep Mehta, Chief Executive Officer, said of the large-scale

investment project: “We are building for the demand that will occur in

years to come. Unlike the current ports which are built with cargoes

already existing and so are following the demand, we are building

ahead of the demand.”

With head office operations based in Mumbai, the venture is a signif-

icant step for India to take control of its own economy and focus its

operations and assets in the right direction – towards a larger and more

dominating presence in the world shipping economy. Currently in its

embryonic stages of production, the port will have an extensive deep

water terminal, something that Mumbai lacks due to physical restric-

tions and logistical inhibitions.

It will certainly offer a plethora of economic maturity for India, and

with its own airport, hospital, direct railway network, multipurpose

berths, offshore facilities, and power stations, its ambitions are vast, with

every intention for India to step into the limelight on the stage set of

world trade. “It also has its own car terminal, because we believe India

will become a major exporter to Europe of small cars, and these cars are

being built in the northern part of India. It is being handled now through

the old ports of Mumbai which are not geared up to handle larger vessels

and has no dedicated facility for automobiles,” Mr Mehta revealed.

He added: “At the moment there is a lot of gloom, but India needs all

the infrastructure it can get, and in fact it is giving the country some

respite now that there is a little bit of market downturn in that that we

can efficiently build now, with the sufficient time to build. We are build-

ing for the long term – you cannot build when there is just a period of

upturn, you have to build new containment for the next boom.”

Mumbai has propelled the need for greater investment in its own

shipping interests, and as the requirement for physical space increases

as fast as the country’s GDP growth, the coastline is soaking up great

waves of investment activity. Newly emerging shipyards are rife across

India as the need for internalised shipbuilding dawns on the shipping

economy with glaring palpability. Rubbing shoulders with future com-

petitors such as Singapore and Dubai, Mumbai and the surrounding

region has upped its game in shipbuilding, shrugging off the economic

gloom with calculated indifference.

Anil Sahasrabuddhe, Associate Vice President of the up and coming

ABG Shipyard in Gujarat, said: “We are not concerned with the slow-

down. The Indian economy is not affected to such an extent as other areas

because the economy is growing and the companies are growing. There

is enough orderbook, there is enough liquidity, there is enough technical

capability and manpower, there is no shortage of resources or raw mate-

rials, so what is happening in the rest of the world is not hitting India.

“India was not big in shipbuilding in previous years but it is becoming

more prevalent. India has a long coastline and certain states around

Mumbai and beyond are focusing on shipbuilding with support from the

government, and things are now improving like anything. Today India is

miniscule compared to the percentage of the world’s shipbuilding enter-

prises, but with the kind of development we foresee over the coming years,

the nation will be a big player coming into the international markets, and

we will benefit more and more because of the extent of qualified manpow-

er and technical shipmanagement available,” Mr Sahasrabudde revealed.

“Indians are decision-makers, manning ships all over the world,

shipmanagement is becoming huge, and training colleges are all grow-

ing, and with the growth in shipbuilding, this will support many other

industries and provide extensive employment. The generation of jobs

and funds will all come together to generate widespread economical

growth,” he added.

Mumbai’s blooming presence is greater nourished by its powerful

labour force, as Ray Stewart, CEO of the fast-germinating project

42 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

MUMBAIREGIONAL FOCUS

“People will look at this downturn time asan investment opportunity. Owners willcapitalise, especially with unfinanced vessels – it is just a matter of waiting forthe right time to acquire them. I don’t thinkthere will be a very big supply demand gap for shipmanagement, because thesevessels will flow”Captain Sood (left) and Captain Kairoze Motishah, Chief Operating Officer, IMS

Ship Management

Looking inwardly to fortify its position towardsthe helm of international shipping, India issteeling itself against the world economic scenario by jumping in for bullish acquisitionof ships as international owners watch theirfinances sink to the bottom of the ocean

another angle with those who come from a

rural background; those are the ones who need

boosting to become seafarers and to take it on

and pass it down the line, although more

importantly at the moment is the country’s

general exposure to the seafaring profession,”

Ms Singh added.

Professor Swamy acknowledged similarly that

“today, awareness of the merchant navy and its

highly rewarding nature is not very well known

so we have to make an effort to educate people

all over again and bring out that awareness.

There are quite a few maritime institutes in this

country trying to do their bit, so maybe in a few

years time the awareness will be much better.”

But underneath the stage-set of exemplary

marine training and the valiant endeavours

to raise industry awareness, eager cadets await;

alert, primed and uniformed to perfection. It’s all

very well painting a golden-hued, rose-tinted

depiction of a well-established maritime training

centre, but what about the real core of the estab-

lishment – those who provide the genetic make-

up of the whole entity?

SMI rocked the boat with some serious

grilling time with the cadets, delving deep into

the nitty gritty of why they selected a mar-

itime profession at one of the country’s most

prestigious institutions. With reiterations that

“most careers in India involve software,” the

striving towards something different was

made more than evident.

“India has become totally ‘IT city’ and every-

one chooses software as a career option. I want-

ed to choose something different so I chose this

field where there’s discipline and challenges in

everyday life. Every day we learn new things,

and at every juncture we have to meet those

daily challenges,” an ambitious student stressed.

“This field is diverse and interesting. You’re

part of an industry which can contribute to

enhancing the economy of your own country –

that’s the most rewarding thing about this

profession,” another officially-attired cadet

answered. Admirable assertions, to say the least.

Interestingly enough, only one of the eight

or so fresh and spirited youngsters interviewed

came from a seafaring family, a seemingly fad-

ing tradition in the contemporary age of com-

puter technology and the ivory tower of acade-

mia. With enthusiasm bouncing off the walls it

becomes even harder to see the rationale

behind the global crewing dilemma, as the gen-

eral consensus about the profession was

slammed home with hard optimism and gen-

uine seafaring passion.

A further cadet stressed: “Working at sea you

can earn a great deal of money and you also get

a lot of prestige as a merchant navy officer in

society. At the same time you can move around

a lot of places, see the world, and have an ample

amount of time to enjoy the money you earn.”

Categorical dedication seems to be key, but such

unfeigned fervent enthusiasm is patent: “Every

industry has its negatives, but I don’t see many

negative factors here,” he added.

Manning a ship is no easy task, and after the

strict minimum academic requirements, written

entry exam, interview and medical assessment,

the daily challenges do not cease to trial the stu-

dents, with a gruelling daily schedule of practi-

cal and physical challenges and training supple-

mented by copious extra-curricular sporting

activities. Teamwork is at the core of the insti-

tute’s philosophies, regular sports competitions

offer goals and targets for team house point-

scoring, all in the name of maritime solidarity.

“Especially during this time when there is a

huge shortage, people are required for man-

ning ships, and if you are thinking about a

long career then this is the sector, with scope

for about 15-20 years. There are also always

new opportunities because of the wide

spread of technical engineering expertise,”

acknowledged an enthused student.

All well and good for the current enrolees,

well-infused in industry pursuits as they step

onboard a voyage of learning towards full

seafarer qualification and certification.

But given the worldwide deficiency of marine

personnel, it’s not a collective problem solver

for the entire shipping industry, and at the

apex of the crisis is the lack of vocational

awareness.

The astute cadets stressed that “young people

need to be told about the industry because many

people only know about the basics, or they hear

about fairytale stories that you get to see places

and you get to have good money. But they need

to know that there are challenges, it’s not just

about adventure.”

Professor Swamy added: “In India there are a

large number of seafarers but actually it is a very

minor portion of the population. We have over a

billion people, but out of that a couple of thou-

sand is nothing, so in that respect it is not a very

well-known career. India is a huge country and

the northern part is landlocked, yet most of our

navigation officers come from the north which is

made up of mountains and valleys, and many

haven’t even seen the sea before they come into

the industry.”

While the Samundra Institute of Maritime

Studies demonstrates a glistening example of

the valiant efforts to raise the profile of a

career at sea, India seems to be joining hands

as a nation to get the message across to the

youth of society about the lucrative opportu-

nities offered by such a profession. With

greater involvement from the government as

new campaigns and advertisements spatter the

country, India is fortifying its resolute drive

towards a future economic boom with a

strong force of first rate seafarers, and with

campuses on par with luxury holiday resorts,

it’s got to be win-win for all. ■

45

TRAINING

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

Alarge scale venture undertaken by

Executive Ship Management, the

academic enterprise is one of many

new seafarer training institutes

springing up across the region, dis-

tinguishing itself on its transition into a whole

new green zone of environmental credibility.

The largest green project in Asia, the institute

flaunts renewable energy systems integral to

the design and construction of the entire cam-

pus, from its reservoir for recycled and treated

water supply to its self-sufficient solar-panelled

electricity resources.

In a bid to up recruitment in the fast-diminish-

ing crewing sector, the shipping industry is bat-

tling against a monumental image crisis, undeni-

ably hindered by the stormy economic climate.

No less impacted by the unanimous worldwide

seafarer shortage, India prides itself on its valued

culture of seafaring competence, with a strong

contribution to the world fleet. But with such

pressing global issues creating a sizable dent in

the maritime industry, the Samundra Institute is

set to open the golden gates to whole new plains

of seafarer fine-tuning.

Behind the scenes of the state-of-the-art mir-

ror-fronted, solar-panelled design, a whole

world of creative input has been planted into the

seed of this polished and cultured training facil-

ity. Every iota of thought has been put into the

construction and operation of the academy,

moulding scales of comfort and technology

above and beyond the necessary requirements of

its students.

It’s no wonder the facilities wreak refined and

scholastic fulsomeness, from the very imple-

mentation of design the project has been metic-

ulously composed, with the architect sent

onboard a commercial oil tanker for 10 days in

order to extract every drop of marine-going

inspiration possible, all for innovative reproduc-

tion of cutting-edge concepts in the erection of

the campus buildings.

Ubiquitous water features and statues inter-

spersed among the gleaming contemporary

buildings are only complemented by perfectly-

manicured lawns and dazzling white pathways.

But scholastically-speaking, the college excels

with its glazed academic faculty, nautical sci-

ence atrium, practical engineering edifice, and

full-sized functioning vessel simulator with one

of only four lifeboat training drill facilities in

the world.

Primarily focusing on generating a new

league of premium-quality seafarers with the

utmost skill sets of unrivalled competence, insti-

tute Principal, Professor DVB Swamy, high-

lighted the desire for “seafarers to be committed

seafarers for decades to come. Once upon a time

this was a very sea-going country but over the

years it has slowly become industrialised, and

the shipping side of it has taken a back seat.”

The highly-respected establishment offering

highbrow degrees in nautical science and marine

engineering rewards itself on its ability to “con-

tribute to the industry,” as Founder and Trustee

Sikha Singh, underlined. “We have 13,000 -

14,000 certificated post-sea trained cadets, and

while not all of them are with us now, indirectly

we are helping the industry,” she said.

“A good proportion of cadets are coming

from metropolitan cities but it’s also more of a

tradition thing, involving those with seafaring

families. We are now trying to recruit from

44 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

TRAININGDISPATCHES DISPATCHES

Nestled in the shaded valley of a mountainous range high in the pastoral hills of rural India, itwould barely seem possible that the horn-blasting, dust-clouded streets of the commercial capitalof Mumbai was less than 90 minutes drive away. However, the sharp lines and clean edges of modern living defining the Samundra Institute of Maritime Studies in Lonavala are a far call awayfrom the adjoining paddy fields and haystacks of bucolic simplicity, writes Amy Kilpin.

A learning curve of the modern kind

“Today, awareness of the merchant navyand its highly rewarding nature is notvery well known so wehave to make an effortto educate people allover again and bringout that awareness”

“Most of our officerscome from the northwhich is made up ofmountains and valleys, and manyhaven’t even seen thesea before they comeinto the industry”

Professor DVB Swamy, Principal, Samundra Institue

The extensive work involves installation of all machinery, piping

system, electrical system, accommodation, including the modification

and upgrading of the seismic equipment system from six streamers to

12 streamers. Other major work includes the modification and exten-

sion of the vessel heli-deck structure.

Measuring 93 m x 22 m, Geowave Voyager will join Wavefield’s

fleet of large-capacity 3D vessels as one equipped with the latest seis-

mic technology capable of towing up to 12 streamers.

Atle Jacobsen, CEO, Wavefield- Inseis ASA said: “We chose ST

Marine based on its track record in marine seismic vessel conversions

of this magnitude. We look forward to a successful working relation-

ship with ST Marine, and an end product that surpasses our expecta-

tions.”

See Leong Teck, President of ST Marine said “This contract further

demonstrates ST Marine’s excellent track record and capability to han-

dle both naval and commercial vessels including the complete outfit-

ting of such highly complex seismic research vessel for Wavefield, our

new customer. We are pleased that Wavefield has chosen to work with

us to enhance its fleet and we look forward to a long term relationship.”

Cruise refurbishment contract for GBSFreeport’s Grand Bahama Shipyard (GBS) has signed a deal with

major cruiseship operator Holland America Line (HAL) for a refur-

bishment project involving five of the ‘S Class’ cruiseships. Work will

involve the installation of new sponsons and a complete upgrade of the

aft end of each ship including the installation of 48 new cabins, a

swimming pool and an additional deck. The first vessel to arrive will

be the 55,451 grt Veendam in April 2009 followed by the 59,652 grt

Rotterdam in November 2009.

This latest contract is part of the long term strategy of the shipyard

to, not only be involved in the schedule repairs of the world’s largest

cruiseships, but also move into the cruiseship upgrading market, which

has, in past years, been a North European market.

Part of this target has been the purchase of the large 55,000 tonnes

lifting capacity floating dock from Le Havre. The 330 m x 54 m unit

arrived in the yard on September 13th following a tow from Le Havre,

which began on August 5th. There was a team of engineers from GBS

in Le Havre for the past four months carrying out strengthening opera-

tions to the wingwalls involving some 600 tonnes of new steel. Part of

this work was carried out by Cardiff Craftsmen and EAPL (Newcastle).

The dock will be position during October and will become operational

by the beginning of 2009. Both the Veendam and the Rotterdam will be

drydocked in this facility. GBS has also recently won contracts for

minor modifications to Carnival’s 110,320 dwt cruiseship CarnivalLiberty and two Princess Cruises-owned vessels – the 113,561 grt

Crown Princess and the 112,894 grt Caribbean Princess.

Currently in the yard are the semi-submersible heavy lift vessel MightyServant 111, which is being re-built after sinking, Fairmont’s 15,375 grt

ro/ro vessel Mar Caribe, Iino Maritime’s 30,553 dwt tanker CisneBlanco, and Carnival’s 101,509 grt cruiseship Carnival Triumph. ■

47

SHIP REPAIR

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

Bahrain’s ASRY has announced another expansion plan for the next

five years following on from the $30 million construction of two slip-

ways earlier this year.

As the slipways were officially opened in Bahrain, the Board of

Directors announced a further $188m plan to construct a 1,200 metre

long berth (with all the necessary services) to be operational within five

years – the first phase, comprising 600 m, will be operational within the

next 2.5 years. There is also to be a new construction area for offshore

structures (building and repair) with a load out facility for launching

operations. A fleet of four new tugs will be built for the yard – the

design to be bought-in from an established tug designer. This latest

expansion programme will also include refurbishment of existing work-

shops, new sub-contractor facilities, a new administration block and

new blocks for the labour camp.

Chris Potter, CEO of ASRY, said: “The first phase will be fast-

tracked to allow the yard to take advantage of the current strong repair

market. The yard currently has a slight problem with berthage for ships

awaiting to go to, or coming from, the drydock and two floating docks,

or vessels in the yard for alongside repairs. The yard has been mainly

involved in the general repair market since the beginning – we are now

looking to move into other markets – especially the offshore fabrication

and offshore rig refurbishment sectors.”

Chris Potter now leads a management team which includes Fermino

Martins (Production General Manager), Rolf Eriksson (Commercial

General Manager), Magdy El-Sharkawy (Ship Repair Division

Manager) and Magdy M. Moustafa (Technical Resource Manager).

The yard is reporting a very busy year with some 140 vessels

repaired so far in 2008, worth some $200m – which gives an average

contract value of over $1.4m per project, which is an increase on last

year’s average.

The new slipways, both of which have a lifting capacity of 5,000

tonnes, have been very successful since May when they both became

fully operational. During mid-October saw two ships, Great Lakes

Dredge’s 5,600 cu m trailing suction hopper dredger Noon Island and

the 13,143 dwt locally-owned limestone carrier UCO XX on the slip-

ways for general repairs. The slip-

ways were originally developed for

the small and medium size repair

markets – especially harbour tugs,

offshore support vessels and

dredgers. All these market sectors

have been using the new facility on

a regular basis.

Recently in the yard were two

chemical tankers from Norway’s

Odfjell A/S, Bergen, the 37,369 dwt

Bow Cecil and her sistership BowFlora, these being the ninth and

tenth vessels from this owner

repaired by ASRY during 2008. The

37,455 dwt Bow Cedar also dry-

docked during late October. ASRY

has a ‘fleet agreement’ with Odfjell

for repairs to its large fleet of chem-

ical tankers. Odfjell has an extensive drydocking programme for next

year with many of the Kvaerner-built tankers (built in Scotland’s Govan

and Norway’s Kleven) due for their first drydocking.

Another regular customer of ASRY this year, with over eight repair

contracts completed is Brazil’s Petrobras. Recently in the yard was

Petrobras’s 30,551 dwt product tanker Rodeio.

More conversion orders for SingaporeSembawang Shipyard, a wholly-owned subsidiary of Sembcorp

Marine, has secured a S$99m contract from Dynamic Producer Inc, part

of Brazil’s Petroserv Group, to convert a 111,567 dwt tanker into a dp

floating, drilling, production, storage and offloading (FDPSO) vessel,

to be named Dynamic Producer.

The major conversion workscope includes shop engineering, based

on owner’s supplied basic and detailed design, procurement of bulk

materials, construction and outfitting of owner’s supplied machinery,

OFE, systems outfitting and assistance with commissioning. major fab-

rication and installation work expected include approximately 4,700

tons of steel (involving moonpool and utility rooms for drilling opera-

tions, four azimuth thruster rooms) 7,000 pipe spools, cabling work of

some 233 km, and installation of owner’s supplied drilling equipment.

the shipyard will also construct the new accommodation structure,

which will comfortably house a complement of 106 persons.

When completed, the new dp FDPSO will have a crude oil drilling

and storage capacity of 300,000 bbls. The vessel is expected to be deliv-

ered to owners in last quarter of 2009. Upon completion, the new dp

fdpso will be operated by Dynamic Producer inc. on long-term charter

to Petrobras at the Espirito Santo, Campos and Santos basin off the

Brazilian south-east coast.

Meanwhile, ST Marine has secured a S$28m contract from

Norway’s Waveship AS, a subsidiary of Wavefield-Inseis ASA

(Wavefield), for the complete outfitting works on its seismic research

vessel, Geowave Voyager. Work commences at ST Marine’s Tuas yard

immediately and delivery is expected in second half of 2008.

46 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

SHIP REPAIR

The dredger Noon Island and the limestone carrier UCO XX on the slipway in ASRY

Further investmentat ASRY

MyView

Bjarn KoitrandManaging Director, Cityvarvet

“Life in the shiprepair industry was very very busy but you get thefeeling that it is dropping a little. It is not as busy as it used to be butmore back to normal I would say.

“This is partly due to the season as it is more difficult to do paintworkbut I also believe it is part of the general economy. Ship owners aremore careful: before there was more of a rush to have their shipsrepaired but now they admit caution. Shiprepair is an internationalsector but it is also locally-driven. Our main clients are trading hereand of course we have competitors but areas like China are not really affecting our business.”

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL 49

NEWBUILDING

BANKING TURMOIL

TESTS INDUSTRY'S

METTLEBy David Tinsley

Events in the banking sector and on stock markets

around the world have put paid to what had been an

exceptionally long period of overall newbuild mar-

ket buoyancy. Given the turmoil in the financial

markets and with finance drying up, alongside

plunging dry cargo rates and apparent resistance by

shipyards to lower prices, owners' confidence and

interest in entering into further newbuild contracts

has largely evaporated. Moreover, there are widely

diverging views within the maritime community as

to the extent to which existing orders will be can-

celled or delayed, although there appears to be a

consensus that any such action will have a negligi-

ble affect on 2009 delivery volume at least, against

the backcloth of ebbing freight earnings.

Samsung Heavy Industries accordingly laid great

store by its success in bringing an order for three

aframax tankers to conclusion during October. The

$250m deal for the series of 115,000dwt newbuilds

involved two shipping companies, one of whom

was identified as Turkish owner Geden.

The tanker order assumed particular significance

against the backcloth of the global financial crisis,

and pushed Samsung's tally of new orders secured

so far this year to $13.9 billion, some 93% of its

original target of $15bn for 2008 as a whole.

Most significantly, the higher added-value com-

ponent to the company's workload now accounts for

some 80% of the orderbook, which was only recent-

ly augmented by a contract for a 220,000 cubic

metre-capacity LNG-FPSO(floating production,

storage and offloading unit), to be delivered into

service off Nigeria in 2011. Samsung has 40 months

of orders by way of its $48bn construction pro-

gramme, ensuring forward production continuity

through the uncertainties surrounding present trad-

ing conditions. The fact that the company has

hedged 100% of foreign exchange from newbuild

contracts since 2001 has contributed to its stability

through periods of currency volatility.

As illustrated by the innovative FPSO order,

South Korea's vibrant, export-orientated shipbuild-

ing sector is continuing to attract a flow of offshore

-related and industrial newbuild projects, despite the

reduction of the contract inflow for new mercantile

tonnage to a trickle.

Boxship contracting has plummeted, a situation

that has particular implications for Korean ship-

building as the leader in this field of construction.

Once again, however, the fact that confidence had

not disappeared wholesale was underscored by two

new tranches of Maersk fleet development during

the summer, entailing the placement of 34 ships

with Korean builders, and by new German commit-

ments to seven 13,000teu vessels, also favouring

Korean prowess in construction and contractual per-

formance. The series of 'MegaBoxers' was awarded

by MPC Capital to Hyundai.

Affording a measure of recent years' rush to ever-

greater economies of scale in the liner sector,

Germanischer Lloyd recently reported that 158 con-

tainerships of 10,500teu and larger were set to enter

the world fleet by early 2012.

Since the main constructors have comparatively

long orderbooks, the lull in new contract receipts

does not immediately threaten production continu-

ity. Nonetheless, with the idling of containership

tonnage increasingly being considered by owners

and operators as a short-term expedient, there are

signs that recovery in the newbuild market may be

further off than the shipyards would like. How the

easing of pressure on berth availability will influ-

ence new construction price levels beyond the pres-

ent work backlog remains to be seen.

In the meantime, it is reported that CMA CGM,

with one of the most extensive commitments of any

company currently to newbuild boxship tonnage,

has no plans to cancel orders and has already

secured finance for the bulk of vessels scheduled to

be delivered by the end of 2011. Also on a more pos-

itive note, it would appear that Maersk Line, despite

pulling capacity from the Asia-Europe trade and the

Pacific, has no containerships in lay-up as such.

Amid the chaos and confusion in global financial

markets, various structural changes are taking place

in the industry worldwide, including South

America. So as to help sustain the resurgence of

Brazilian shipbuilding, which has emerged as piv-

otal to major programmes of investment in the

national fleet and the country's offshore sector, the

government is to boost so-called 'soft' financing

directed via the Merchant Marine Fund. Brazilian

yards' revival has largely been founded on major

projects launched and planned by the Petrobras

group, embracing tankers, oil platforms, offshore

service vessels, drillships and other vessels. The lat-

est pledge of R$10bn by the government is intend-

ed to ensure that the business momentum is main-

tained in shipbuilding, in turn benefiting vital areas

of the Brazilian economy.

Moreover, the Indian government is thought to be

considering reinstatement of its subsidy for new-

build contracts at domestic yards. The 30% subven-

tion, which had been applicable to domestic tonnage

of 80m-plus in length and to all export work, was

discontinued in 2007. It is widely felt that restora-

tion of the facility could help ensure the momentum

of business growth at Indian yards, which have been

strengthening links with European and other own-

ers, and which are proving competitive with China

in a number of fields, including bulkers and multi-

purpose vessels. ■

NEWBUILDCONTRACTS

“Forecasting the freight market is not simply a case of weighing up

supply and demand. A whole raft of elements makes this a challenging

market for all participants to call. This increasing complexity and

resultant volatility has made the paper markets a necessity to all those

exposed to freight risk,” he added.

While freight trade patterns are not solely cultivated out of supply

and demand trends, there is the inevitability of market fluctuation, and

the logical prediction for bulk trading lies mainly in the expectation that

lower freight rates will heighten demand and a reversal in costs will

eventually filter through the supply chain, resulting in a rebound in

Chinese demand and consequentially freight rates.

However, while inflationary pressures may be abating alongside a

decline in oil and other commodity prices, the outlook is still very much

bleak for the shipping industry, with forecasters predicting a full-blown

economic slump on the cards as the struggle to climb out of the deep-

ening downward spiral of depression becomes a more unattainable feat

by the second.

Dahlman Rose analyst Omar Nakta indicated that the current col-

lapse in the market is likely to continue as demand remains uncertain

and financing issues place the industry in an exceedingly volatile posi-

tion. Amid rabid concern over ship owners finding financing to cover

the building of new ships, and a rapidly shrinking sale and purchase

market, the values of drybulk ships and freight rates are on a steady

downward slope.

“The dry bulk market has been especially hit hard and we believe

companies face significant net asset value corrections. At the current

depressed rate levels along

with very little long-term

time charter activity, dry bulk

ship prices may be reverting

back to 2006 levels. Overall the outlook for shipping during the next 12

months remains somewhat difficult,” Mr Nakta said.

Freight rates are collapsing to the lowest levels since 2003, but

despite stagnated shipments of iron ore from Brazil due to price nego-

tiations, Australia’s imports of iron ore have managed to cover for some

of the static trading operations. However, the dwindling number of

ships deployed to long range trading routes to and from Brazil has had

a significant impact on the global ship supply and demand balance.

Many drybulk carriers are finding themselves trying to claw out of a

fast-sinking pit of debt as a consequence of stilted international trading.

Precious Shipping’s Managing Director Khalid Hashim announced in a

recent conference that letters of credit and credit lines for trade were

“frozen”. “Nothing is moving because the trader doesn’t want to take the

51NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

TRADE ANALYSIS

As the words ‘credit crunch’ become a household term

infused upon every newspaper page, web feed, and broad-

cast going, the bulk shipping trade is finally feeling the

sharp wound of financial ruthlessness snapping up every

business sector it can sink its teeth into.

And after a fruitful and blossoming spring to summer boom as a

result of a hungry and insatiable East Asian demand, the rosy glow of a

healthy appetitive is beginning to drain away into a grey and bleak star-

vation period for the bulk trades.

Bulk charter rates are virtually vanishing into non-existence, as

rapid deterioration of bulk trade movement has caused a near collapse

of the entire world economy. With the credit crisis causing a momen-

tous squeeze on lending, ship owners and ship yards are feeling the

pinch, impacting massively on worldwide trade of bulk goods.

Robust growth in markets in China and India, coupled with huge

infrastructure investments, has caused a three year backlog of new-

build order books. However, while penning an order might be a sim-

ple enough process, finding sufficient credit to fund such newbuilding

projects generates a completely different problem altogether.

As banks back off warily from doling out the dollars, the tightening

on lending conditions is causing violent ripples across the world’s

financial waters, with order cancellations spattering across shipyards

with vigour. As a knock-on effect, letters of credit provided to exporters

by way of bank guarantee for payment of goods are becoming sparse,

resulting in stranded cargoes and unpaid goods unable to be exported or

delivered – with a monumental impact on global trade operations.

With commodity prices climbing to record highs at the peak of the

summer freight boom, this price scenario has since plummeted with

gathering speed, as financial turmoil in international markets has led

to a drop in raw material costs due to weakening demand – but while

demand may still be present, it is the lack of liquidity in trade opera-

tions that is stilting the movement of goods.

In the prosperous summer months for freight charters, the record-

high Baltic Dry Index (BDI) saw some modern capesize dry bulk car-

riers of 170,000-dwt and more obtain up to $234,000 daily on the spot

market, but severe market decline has seen the index tumble into dire

straits with many dry bulk charters now operating at just 10% of their

record-high rates in mid-2008.

Aside from extortionate steel prices and an Asian boom, the sharp

global economic slowdown can largely be attributed to the weak dollar

and euro exchange rates, leading to a slower GDP growth coupled with

weaker consumer spending and business capital investment. This has

since been accompanied by a sub-prime lending crisis, credit tightening

and global inflationary pressures from rising food and oil prices.

While it might seem all doom and gloom, where exactly does this

leave the world economy given that 90% of world trade relies on ship-

ping? While Europe, Japan and the US still retain a large influence over

the global economy, both as importers of dry bulk and as markets for

manufactured products made in countries importing raw materials,

China has been the dominating dry bulk trade growth, with South

Korea, Taiwan and India in close accompaniment.

But tightening policies and weakening external demand have slowed

down the impetus of China’s exporting success, with iron ore and steel

trade diminishing off the back of reduced lending, credit tightening and

previously high commodity prices. With China acting as the driving

force behind global trade, the knock-on effect of such a multitude of

factors hits hard.

James Leake, Managing Director of ICAP Shipping Research, said:

“Freight market prospects continue to be largely dependent on the

Chinese economy and its demand for key industrial raw materials, but

recent months have seen price differentials in the delivered cost of com-

modities, not traded volumes – the key determining factor of absolute

freight rates.

50 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

TRADE ANALYSIS

Bulk trades face liquid crisis

by Amy Kilpin

After a fruitful and blossoming spring to summer boom

as a result of a hungry and insatiable East Asian

demand, the rosy glow of a healthy appetitive is

beginning to drain away into a grey and bleak

starvation period for the bulk tradesQuentin Soanes, joint Managing Director,Braemar Seascope

120

100

80

60

40

20

02003 2004

Total Bunker Cancellations

2005 2006 2007 2008 2009 2010 2011 2012

Total Bunker DeliveriesMn Dwt

Total Bunker Deliveries and Cancellations

Source: Maritime Strategies International

undermined by the potential for further downfall; the only certainty

being uncertainty. With regards to the future for bulk freight rates,

Quentin Soanes stressed that “there is unlikely to be any consistent pat-

tern. A lot will depend on what tonnage has been fixed on period char-

ter and whether the fixing was speculative or not.”

Shifting commodity prices will automatically alter freight rates, but

the burning question is not only when, but in which direction it will

take. Which brings another prominent issue to the forefront, that of the

freight-futures market. There is eminent concern percolating through

the industry over the level of value at risk, and with some speculators

holding contracts that have dropped in value by more than half, it is no

surprise that the fast-growing likelihood of having to pay out is causing

some degree of panic.

Richard Hains, dry bulk futures specialist at Simpson, Spence & Young,

indicated that the paper market is likely to suffer as a result of a volatile

and financially corrupt industry. “The dry bulk market has suffered in par-

ticular due to a number of significant economic shifts worldwide. The

paper market is currently very unpredictable, and while the industry is

unlikely to pick up relatively soon, with every fall comes an inevitable

rebound – it is just uncertain as to when this is likely to happen.”

Values diminishing in the physical and credit market have seen FFA

contracts slowly rot as the financial carcass of the world economy

decays even further, and with liquidity thinning, the prospect for replen-

ishment is seemingly bleak.

Maritime Strategies International has shed a positive light on future

potential, forecasting 2009 as “the beginning of a tsunami” where deliver-

ies are expected to “more than double”, despite the financial tensions cur-

rently spanning across the industry. While the future remains uncertain, the

summer highs which saw yard orderbooks straining at the seams will have

undeniable repercussions in a market experiencing such turmoil.

Karim Coumine, shipping analyst and MSI Managing Director Mike

Payne, reported that “While the forecast remains ominous from the per-

spective of future earnings, it has been tempered by cancellations. Based

on recent events, we have significantly increased our expectations on the

number we now expect. The precarious stance of the newly established

and greenfield yards in China was of particular concern, but supposed firm

contracts at established yards are now coming under intense scrutiny.”

With freight rates sunken to near non-existence and vessel values

steadily plummeting, the scrap market is also expected to suffer, with

industry professionals forecasting a steady decline in ship demolition as

difficulty in obtaining letters of credit have resulted in freefalling rates

for demolition tonnage. Some vessels due for scrapping are stranded

alongside their cargo-transporting neighbours, as a dramatic decline in

rates has left vessel values hovering at their financial nadir.

A widespread freeze in credit lines has certainly frosted the industry

as the bulk trade enters a bitterly hard winter for trading, and with the

sun now sunken low over the market, it is unclear as to whether a ray

of light will be shed over these testing times, and gradually breathe life

into an astonishingly perished industry. ■

53NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

TRADE ANALYSIS

risk of putting cargo on the boat and finding that nobody can pay,” he said.

Lack of sufficient credit guarantees being produced for merchandise

has left many cargoes temporarily stranded in Canada and South

America, according to the London-based Grains and Feed Trade

Association (GAFTA). Difficulties in financing shipments has predom-

inantly affected Brazil, Argentina, Russia and Bangladesh, where the

credit squeeze has stunted shipments of high value cargoes such as

grain and steel.

Despite an unremitting boom in Asia’s economy, an inevitable

worldwide slowdown is predicted as a chain-effect of the economic col-

lapse. Quentin Soanes, joint Managing Director of London-based bro-

ker Braemar Seascope, predicted that “the freight market will settle at

significantly lower levels than the last five years, with a consequential

impact on values.”

“Growth in China and India has underpinned the dry cargo market

and both economies should continue to grow – albeit at a slower pace.

However, prospective newbuilding orders now outstrip this growth

which is why a rocky couple of years ahead are expected,” he added.

Brokers are expecting tough times for the industry as the sale and

purchase market recedes virtually into non-existence and banks batten

down the hatches against future credit loans, for fear of a major liquid-

ity crisis. “Lack of bank finance and tougher finance conditions will

exacerbate the fall in values. There is also a serious overhang of unfi-

nanced newbuildings and these major problems are expected to unfold

over the next 12 months,” Mr Soanes said.

While “cancellation of newbuild orders will speed up the recovery”

of the market, according to the broker, there are other major financial

issues to be rectified before some alleviation to this financial pain is

felt. Mr Soanes added: “The long-term outlook is reasonable, but only

if the market manages to get over the current newbuilding bubble as

well as scrapping the older tonnage that has enjoyed the boom years.”

It’s not a particularly positive stance for the bulk trade, as the strug-

gle to climb out of the chasm of despair currently facing the market

appears lingers on the edge of impossibility. Spiralling into the depths

of a financial depression is far easier than the arduous ascent to the high

and seemingly out of reach realm of financial comfort.

Such an unpredictable future facing shipping, and in particular the

dry bulk trade as it nears total disintegration, leaves little to be desired

for smaller bulk operators as financing troubles cause potential to flood

many companies into a liquidity crisis, leaving third party managers

responsible for bankrupt lines. With freight rates fluctuating like tumul-

tuous oceanic waves, a hazy and unstable future ahead seems the only

feasible prognosis for the near future.

Brokers are unsure of what the forthcoming months and even years

will bring, as the toss up between an expected pick up in the market is

TRADE ANALYSIS

90

80

70

60

50

40

30

20

10

090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12

Mn Dwt

Bulker delivery history and forecast 150+k Dwt

80-150k Dwt

50-80k Dwt

10-50k Dwt

Source: Maritime Strategies International

The looming crisis for the P&I clubs has been widely

flagged, but a flurry of announcements during October and

early November confirmed the bad news that the clubs,

even the biggest, are facing very serious problems. A relent-

less rise in claims, and higher individual claims, is punishing all clubs

and pushing free reserves to dangerously low levels as the all-important

investment income falls off the cliff.

Norwegian marine insurer Gard has produced one of the biggest

shocks, with a $49 million first-half loss. This has led to a 15% gener-

al increase in P&I premiums in February, with deductibles set to rise by

$2,000. Gard is the granddaddy of the clubs, having overtaken the UK

Club, insuring a 170m gross tons fleet. It also plays a dominant role in

hull insurance, being involved in 6,400 vessels, and has a substantial

offshore energy account.

Calling the current situation a 75-year storm, Gard’s chief executive,

Claes Isacson, is nevertheless quietly confident. It has not sold any invest-

ments and has no plans to do so. In the first half of its underwriting year,

Gard made nearly $19m underwriting profit from its hull and energy busi-

ness, but incurred a $27m loss on P&I, while free reserves are down by

8.4% to $532m.

The other big cheese in the IG is the UK Club, whose members must

be somewhat shell-shocked. At their board meeting in Hong Kong, the

directors took the drastic decision to call for substantial top-up payments

for previous years, in addition to a 12.5% general increase next February.

Rumours about the financial state of the club and its weakened reserves

have been rife since it arranged a $100m subordinated loan a few months

ago, saying the move was a cost-efficient way of increasing solvency cap-

ital without making a call on members. Now members in the 160m gt fleet

are being asked to pay supplementary premiums of 20% and 25%, respec-

tively, for the 2006 and 2007 years, with a supplementary premium of

20% estimated for 2008. The 2006 and 2007 deficits have increased, and

are currently estimated at $61m and $83m, respectively.

If the recession deepens, said the club, claims costs may fall but it is not

clear how soon the situation could improve. If it does, it might be possi-

ble to reduce the cash calls.

Its weak financial position was one reason that the Tyser insurance

broking group in October relegated the UK Club from the premier league

of mutuals, placing it in the second division.

Another club in trouble is the London which in October announced a

$90m cash call.

In an overview of the current scene, Joe Hughes, chief executive of

Shipowners Claims Bureau Inc., managers of the American Club, says it

is abundantly clear that the clubs at large will in future no longer be able

to rely on investment returns to subsidise chronic underwriting losses.

“The production of solid technical results will be an imperative for

the industry as a whole going forward. Some clubs, but by no means all,

have made progress in this direction over recent renewals; but much

remains to be done in this area if respectable operation results are to

be achieved.”

Hughes thinks it inevitable that most clubs will need to seek more than

token increases for 2009. It is unlikely they will be huge, however, given

that the mutual system generally tries to pace itself in this respect.

He adds: “There may well be further reliance on supplementary calls –

either budgeted or unforecast – to balance policy years in the future, this

SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 200854

P&I

being the more likely to characterise the performance of a growing

number of clubs if the investment markets continue to slump.”

Hughes claims that the decline in his club’s asset values has been

relatively modest in recent weeks, while its pure underwriting results

for the policy years 2003 to 2007 inclusive are among the very best in

the IG, being nearly 20% better than the weighted market average on

this measure.

Meanwhile, the annual P&I report from broker Tyser, headed

“Armageddon”, has caused quite a stir. As men-

tioned earlier, the UK Club, along with

Shipowners, is placed in the second division,

although the North of England, Skuld and

Steamship Mutual are in the premier division

alongside Gard and Britannia.

Other second division clubs are the

Swedish, West of England, British Marine

and the London, while the third division

occupants are the American, Japan,

Navigators, South of England and

Intercoastal Financial Group.

Report compiler Martin Hubbard, a veteran

club underwriter turned broker, admits that

clubs remain fearful of cash calls for the dam-

age they will do to their image as well as the

likely loss of tonnage if owners switch clubs.

He suggests also that in addition to higher claims and lower investment

returns the clubs will soon be facing a third threat as older ships are

scrapped or sold in a more difficult trading environment.

Back to renewal decisions, and Britannia again led the pack in being

first with its announcement. This is the club that sought the highest renew-

al increase of all the IG members last year when its advance call and

deferred call combined to produce a rise of 23.8%. In February it will look

for a more modest 12.5%, to which, as usual, will be added any addition-

al cost from the IG’s excess of loss reinsurance programme. Britannia is

reckoned to be the second wealthiest club after Gard.

Last year, the Shipowners’ Club based its increase on factors such as

trading area and ship type, says HSBC Insurance Brokers. This year it has

reverted to the more common standard general increase before a mem-

ber’s individual claims record is considered, and has opted for 10%.

However, in a surprise move, it stated that the increase will be inclu-

sive of any changes to reinsurance costs. Another surprise is that it will

no longer require a release call from members who choose to leave the

club. HSBC comments: “Shipowners is one of a very elite group of

clubs that has not had to make an additional call at some point in the

last quarter century. Presumably, even in these difficult economic times,

it feels sufficiently confident in its financial strength to consider this

safeguard unnecessary.”

In Scandinavia, the Swedish Club has indicated it is prepared to lose

business as it pushes ahead with significant premium increases in

response to spiralling hull claims. Like Gard, the club has a mixed portfo-

lio of hull insurance and P&I cover.

New managing director Lars Rhodin believes the hull market has great-

ly under-estimated claims inflation levels, and wants premiums to reflect

the true risks. He said: “Most players have been content to rely on an

inflation estimate of 5%. In reality, the true figure is much higher as a

result of the protracted shipping boom, high steel

prices, limited yard capacity, currency move-

ments and a host of other factors.

Rhodin is cautiously optimistic that the current

financial turmoil will accelerate current attempts

to raise hull insurance prices.

The same optimistic comments have been

heard in the London market. However, because of

the highly competitive nature of the market and

excess capacity, wholesale rate increases are

unlikely. Underwriters need to apply pressure

selectively based on insureds’ claims patterns and

sound, disciplined underwriting decisions.

“What ship owners need going forward,”

remarked one underwriter, “is stability, security

and commitment from their insurers to ride out

the storm. This way everyone helps each other.”

The storm clouds were getting blacker and Hurricane Ike was caus-

ing massive devastation when the International Union of Marine

Insurance held its annual conference in Vancouver in September. Fred

Robertie, the retiring American chairman of IUMI’s ocean hull com-

mittee, said that poor results in a poor-performing business had result-

ed from too much capacity and too much competition, rather than bad

risk exposure.

The 450 underwriters present heard that the rising cost of everything

from steel to slots at shipyards had been compounding the impact of loss-

es as claims continued to climb across all major underwriting lines.

Robertie argued that claims inflation is at least 8% per year, while

deductibles have failed to increase in line with ship values since 1993.

He assessed the hull market as being marginally profitable between

2003 and 2005, but even in 2005, the best recent year, the pure loss ratio

was 70%. He put the hull loss ratio for 2006 at well over 80% and, for

2007, perhaps 10% higher, indicating red on the bottom line.

Meanwhile, IUMI is pressing ahead with a claims database that will

record all hull, cargo and energy losses over $15m, complementing the

extensive statistics on marine insurance and the world fleet which IUMI

compiles and publishes twice a year.

If this comes to fruition, it will be a most valuable bank of information

for insurers, owners, charterers and ship managers. ■

P&I SHIPMANAGEMENTSHIPMANAGEMENT

Digging DeepAs the shipping crisis worsens,

and bust replaces boom,

shipowners who are members of

the 13 P&I mutuals which belong

to the International Group will be

asked to dig deep in their pockets

when the annual renewals come

round in February.

“Shipowners is one of a very elitegroup of clubs that has not had to make

an additional call at some point in thelast quarter century. Presumably, even

in these difficult economic times, itfeels sufficiently confident in its

financial strength to consider this safeguard unnecessary”

Lars Rhodin, managing director, the Swedish Club

line from Nairobi, the Kenyan capital. But that

scheduled flight was where all semblance of

normality stopped. I was met off the steps of the

plane, as had been carefully arranged in

advance, by soldiers I trusted from an African

Union peacekeeping force.

Two years ago the African Union promised to

send 8,000 soldiers to Somalia to help rebuild

the ultimate "Failed State" that is Somalia. But

today there are only about 3,000 African sol-

diers on the ground - men and women from

Uganda and Burundi. The full contingent of

8,000 soldiers would anyway probably be

insufficient to keep peace in Somalia, even if

there were a convincing peace agreement to

keep - which there is not.

The well-meaning, brave African troops are

severely overstretched and have a difficult

mandate. Their role is supposed to be to protect

the institutions of a future, rebuilt Somali state

structure by shielding the Presidency, for

example, and the key infrastructure of the

national port and airport in Mogadishu.

But the African Union troops are seen by the

armed opposition as supporting their enemies

in the current government and, in reality, they

do provide bodyguard duties to the incumbent

President, Abdulahi Yussuf. The soldiers of the

African Union are not so much "peace keepers"

as potential "nation builders". But they are too

few, far too few, to achieve this massive job.

The current war in Somalia is between the

weak government, backed by troops from

neighbouring Ethiopia, versus an

insurgency made up of a mixture of

Islamist and Nationalist forces.

The US stands behind the

Ethiopian intervention. The US has

a major military base in nearby

Djibouti that is dedicated, among

other tasks, to confronting what

Washington says are the Al Qaeda

elements in the Somali opposition.

Just north of the Presidential

complex in Mogadishu are street

after street of apartment blocks

and former Italian colonial com-

mercial buildings that have been

reduced to rubble by fighting. Few

of these concrete carcasses, some

57

DISPATCHESPIRACY

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

The capture by Somali pirates of a

Ukrainian ship, the 9,019dwt ro-ro

Faina, that contained tanks and other

heavy military weapons has drawn

more attention to Somalia than the

crisis-ridden country has had for many years.

It was a dramatic event, if only one of an

increasing number of attacks by pirates off the

coast of Somalia, and especially in the Gulf of

Aden, one of the busiest shipping lanes in the

world. With about 19,000 ships are estimated to

pass through the Gulf every year - or about one

vessel every 30 minutes, the pickings are

indeed rich.

Over 30 large 'main battle' tanks were

onboard the Faina - enough, potentially, to tip

the balance of war in some of the many armed

conflicts in the Horn of Africa. The capture of

the tanks produced a flurry of military initia-

tives.

The US Navy closely tracked the Faina with

several warships; Russia despatched a ship

from its Baltic Fleet to protect Russian vessels

that might get into similar difficulties; and

NATO promised to step up its patrols off the

Somali coast.

In the past year there have been at least 50

pirate attacks off the coast of Somalia, many of

them successful for the pirates, and the trend is

upward. The promised international naval

action "against pirates" had a sexy ring to it and

looked good for politicians. But a recent report

by consultants Exclusive Analysis concluded

that increasing security in Somali waters and

the Gulf of Aden would not significantly

reduce piracy unless security on land improves.

This conclusion rings true to anyone who

has visited Somalia and seen the almost com-

plete breakdown of government control

throughout the country.

The pirates have safe havens in Somalia

because there is little law or order on the land.

Warlords and criminals find space to operate

there with impunity - and the pirates have pros-

pered too. And the government itself includes

former warlords now called Ministers.

Somalia is one of the most dangerous places

in the world. The capital Mogadishu is the epi-

centre of the power struggle. Not only is the

city subject to daily urban warfare, but kidnap-

ping has become rife as well.

"It is suggested", said UN Coordinator for

Somalia Mark Bowden in his office in neigh-

bouring Kenya (it's far too dangerous for the

UN to have anything but skeleton offices inside

Somalia); "that the going rate for a western

hostage is about half a million dollars. But the

UN never pays ransoms."

Ship owners, though, often do. A million

dollars or two to get back a ship that's worth

many times that sum is apparently a price

worth paying – not to mention to assure the

safety of its officers and crews.

The Somali pirates generally treat their cap-

tives decently. Injuries to people – crews or

pirates – and damage to ships, tend only to hap-

pen when armed rescue missions are mounted.

I flew to Mogadishu on a local scheduled air-

56 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

DISPATCHES PIRACY

The audacious hijacking of the VLCC Sirius Star 450 miles off the Kenyan coast shows Somali pirates are organised and ruthless and survive not because of the lack of naval intervention but because of the lack of land-basedsecurity. In an exclusive report for SMI, the BBC World Affairs Correspondent Mark Doyle travelled to Mogadishu to findout what was the real motivation behind the pirates terrorising shipping in the Gulf of Aden.

The Somali pirate: desperado or opportunist?

Where the threat of the bullet really counts

The BBC's Mark Doyle in Mogadishu

Armed Canadian sailor on the Ville de Quebec escort ship

African Union peacekeeper from Uganda on patrol in destroyed part of Mogadishu

“The pirates havesafe havens inSomalia becausethere is little law ororder on the land.Warlords and criminals find spaceto operate there withimpunity - and the pirates have prospered too”

“African Uniontroops are seen by thearmed opposition as supportingtheir enemies in the current governmentand, in reality, they do provide bodyguard dutiesto the incumbent President, Abdulahi Yussuf”

ten stories high, have roofs; all of the win-

dows and doors have been taken long ago.

One of the tragedies of Somalia is that in this

area one can still just about see, in the ruins of

the architecture, that Mogadishu was clearly

once a bustling and beautiful place. It was a

major trading centre on the shores of the Indian

Ocean where rich merchants would eat the

superb local lobster while planning their next

deal with partners in the Gulf or the rest of

Africa.

Today, the really eerie side to driving

through these dead concrete jungles is the lack

of people. About half of the population of the

capital have fled the daily battles between the

Ethiopian-backed Transitional Federal

Government (TFG) and the opposition.

Some of the destruction in Mogadishu was

caused in the early 1990s. This was the era

that made Somalia infamous in the Hollywood

movie, Black Hawk Down. The film told

the American side of an earlier failed interna-

tional intervention that began as an attempt to

end famine, but ended up with the Americans

fighting Somali warlords and nationalists who

hated the US presence.

Eighteen American Rangers were killed and

thousands of Somalis died in one key battle

which subsequently saw the US, and an associ-

ated UN force, withdraw in diassaray.

Today, a typical confrontation sees the

Islamist insurgents firing mortar rounds or

rocket propelled grenades (RPGs) at govern-

ment or Ethiopian positions. The Ethiopians

often then respond by firing mortar rounds or

artillery shells in the general direction of the

source of the incoming fire.

Almost every Somali I have spoken to in the

refugee camps on the outskirts of Mogadishu,

or further afield in UN refugee facilities in

neighbouring Kenya, refers to the "indiscrimi-

nate" nature of Ethiopian reprisals. Of course,

the insurgents' guns and roadside bombs also

sometimes hit civilians.

The Ethiopians intervened in late 2006, with

encouragement from the US, to oust an Islamist

regime which many Somalis saw as having

brought a measure of law and order compared

with previous regimes.

The Islamists were routed in 2006 by the

superior conventional army of the Ethiopians

(aided by US intelligence and a few long range

US missiles). But they have now regrouped as

a mixture of hard line Islamists and more prag-

matic nationalists who all hate the Ethiopian

and US presence in Somalia.

The insurgents have made large parts of south

and central Somalia ungovernable, or brought

these areas under their control. The country's

third largest port, Kismayo, for example, was

taken by the Islamists in August.

58 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

DISPATCHES PIRACY

Nicky PappadakisChairman of Intercargo

“Events since mid-July have remindedus that the costs of transporting drybulk and other commodities, includesa human one if the voyage is onewhich passes the coastline of Somaliawhere modern-day pirates terrorisethose that are fully entitled to enjoytheir Right of Innocent Passage. At itspeak, six bulk carrier and over 137seafarers were denied this basic right,and more including those on othertypes of vessels.

“Although some of these Bulk Carrierswere owned by our members andsome were not, this makes no differ-ence whatsoever and we call on allparties to free these hostages andcease their activities immediately.”

The Panamanian-flagged Golina being loaded with UN food aid at Mombasa port

“The insurgents havemade large parts ofsouth and centralSomalia ungovern-able, or brought these areas undertheir control”

Despite these official-sounding names the

pirates are not, formally at least, linked to the

government.

But some individual pirates are said to have

a military or coastguard background. Anecdotal

reports (which I cannot confirm but which in

the Somali context sound plausible) say some

pirates have benefitted from training thanks to

earlier western-backed initiatives to train up a

bona fide Somali coastguard.

Some of the pirate groups are organised into

teams with military precision. One of the ros-

tered groups scouts the seas for target ships;

another works in a backup role, either in a cap-

tured Mother Ship or onshore; while a third

team rests back in Eyl or in another port.

The International Maritime Organisation

(IMO) warns that the ships most vulnerable to

piracy are low-decked or slower vessels which

are easier to board. But recently even high-

decked ships have been taken. The pirates tend

to use small open boats with a pair of powerful

outboard motors. Their typical

modus operandi is to warn ships to

stop by threatening fire with RPGs

or AK 47 assault rifles (available in

Bakara Market and other trading

centres in Somalia from around just

$200).

If they manage to take control

after boarding, the pirates either

take the ships to a safe haven (such

as Eyl, where facilities exist to hold

hostages) or they stay at sea with

armed men onboard. Resisting the pirates is

dangerous but sometimes possible.

The IMO recommends strict watch rotas.

Some Masters have successfully resisted pirate

boardings if given enough notice of their

approach. Manoeuvering fast to stop boarding

or using deck hoses to resist attacks are both

techniques that have worked in the past.

But of course this can be dangerous and

make already desperate, armed men angry.

There are no easy options, and certainly no rec-

ommendations that this writer or any of the

official bodies will be held to account by.

But if pirates do get onboard your ship the

best advice – for the sake of safety – is to coop-

erate with them. Some of these men are desper-

adoes from a desperate country.

And some of the Somali pirates have a sort

of political commitment. Fiercely nationalist,

some genuinely believe that they are perform-

ing a patriotic duty by “taxing” people who are

"exploiting Somalia" - a reference to past

instances of illegal fishing and alleged toxic

waste dumping in Somali waters.

They may have a point of sorts, even if it is

a little undermined by their own criminal

activities.

A Coalition Task Force known as "CTF

150", made up of ships from various navies,

has designated a sea lane, or corridor, that it

says is the safest route through the Gulf of

Aden because it mounts some patrols there.

The coordinates of the corridor are: 12-15N

045-00E, 12-35N 045-00E, 13-35N 049-00E,

13-40N 049-00E, 14-10N 050-00E, 14-15N

050-00E, 14-35N 053-00E, 14-45N 053-00E.

CTF 150 makes no guarantees to ships that

travel in the corridor but says that if you sail

anywhere else in the Gulf of Aden you cannot

reasonably expect a response from the coali-

tion force. ■

61

DISPATCHESPIRACY

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

American naval officers expressed concern

that the tanks on the Faina might fall into "the

wrong hands". This was presumed by most

Somalis to mean the "hands" of the Islamists

that Washington accuses of being associated

with Al Qaeda.

There's little doubt, of course, that the insur-

gents would have welcomed receiving the

tanks. But it's also true that the Islamists have

less connections with the pirates than many of

the other warlords in Somalia. Indeed, the

Islamists have tended to clamp down on piracy

in the areas under their control.

It's no coincidence that most of the

ships seized over the past year have been

taken off Somalia's northern coast, not the

south where there is a stronger Islamist pres-

ence, including that of the Islamist youth

wing, Al Shabaab.

However, the Exclusive Analysis report

warns: "There is a risk that as Islamist groups

continue to splinter, and the US intensifies

its policy of targeting hardline Al Shabaab

leaders, new factions will abandon the Islamist

opposition to piracy and instead use it to

finance themselves."

Chris Dickinson, the commanding officer of

The Ville de Quebec, a Canadian Navy frigate

that that took a turn escorting UN World Food

Programme (WFP) food-aid ships in Somali

waters, analysed the pirates' motives;

"It started off as fishermen who would go

onboard fishing vessels in Somali waters and

tell them; 'This is our fish, give us the fish'. It

went from there to holding crew members

hostage, and the vessels slowly got bigger

and bigger. Now they're onboard major

commercial vessels and asking for ransoms in

the millions of dollars," he said.

The Canadian frigate escorted the WFP food

aid ships from the safe Kenyan port of

Mombasa into Mogadishu at a distance of

roughly 1,000 yards - a clear signal to anyone

with malign intentions.

Armed Canadian sailors also went onboard

the food aid ships themselves as a further disin-

centive to the pirates. On the whole, the deter-

rent worked.

Chris Dickinson's ward for several months

was the 1977-built Golina, a rusting general

cargo carrier captained by Mohammed Shoiab.

When I met him as he loaded up sacks of

grain in Mombasa, and again as he offloaded

the cargo in Mogadishu, Captain Shoaib

seemed to revel in the attention he got from the

Canadian navy.

"Friends of mine captaining other ships have

been hijacked by pirates", the chain-smoking

Bangladeshi said, as nets full of 50 kg sacks of

WFP supplies swung behind his shoulders:

"They took everything from the crew, you

know, right down to their underpants."

The head of the WFP's Somalia operation,

Dutchman Peter Goosens , said that without the

food aid shipments the long-suffering people of

Somalia would face famine. According to the

UN over three million Somalis require aid.

Many of Somalia's pirates operate out of the

fishing town of Eyl on the Indian Ocean coast.

Eyl is located in Puntland, an area of north east

Somalia on the very tip of the 'Horn of Africa'.

Reports from the town say pirates there have

built substantial houses and taken new brides

thanks to the proceeds of their work. When a

successful hijacking of a ship takes place, the

beaches around Eyl are said to come alive. Men

arrive in 4x4s carrying briefcases and Thuraya

satellite phones.

These are the brokers and middlemen who

offer to contact the ship owners and negotiate,

for a cut, of course, on behalf of the pirates.

Some of the pirate groups go by official-

sounding names like the 'Somali National Coast

Guard' (aka as 'Somali Marines') or the 'National

Volunteer Coast Guard'. The 'Marines' are

reported to operate a fleet of ships, to have a 'fi-

nance director', and to be controlled by a man

who calls himself 'Admiral'.

60 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

DISPATCHES PIRACY

Face of War. This Somali

woman has just learnt her

daughter has a potentially

fatal disease that she can't

afford to treat

Nick Fistes,

Intertanko President, on the

lack of government action

over piracy

“We are pushing for a permanent solution not just for Somalia but everywhere else. At the momentnaval forces don’t have the power to fight but only to chase and we arehoping they will get that power. Wehave to walk the talk because weshouldn’t say we will take care of ourcrews if we don’t take care of them.We have to knock on the doors of our governments to put their naviesout there and there is pressure building up regarding this.”

Mauro BalzariniChairman, SIBA Ships

“We have haven’t had a direct attackbut our vessels go through both theMalacca Straits and the Gulf ofJordan. Our cargo is peculiar in thatthey are live animals so apart frombeing very worrisome for the crew,what would happen to the stock if alivestock carrier was seized? It is avery worrying situation for us, especially Somalia.”

“Without the foodaid shipments thelong-suffering peopleof Somalia wouldface famine.According to the UNover 3 millionSomalis require aid”

Many of Somalia’s pirates operate outof the fishing town of Eyl on the IndianOcean coast. Eyl is located in Puntland,an area of north east Somalia on thevery tip of the ‘Horn of Africa’

“If pirates do getonboard your ship thebest advice – for thesake of safety – is tocooperate with them.Some of these menare desperadoes froma desperate country”A naval escort for UN World Food Programme ships

over seafarers? In this world of crew shortages and a desperate need

for seafarer loyalty, do the owners combine their training and recruit-

ment needs?

“No we don’t share them but if we have a surplus we are happy if

some of our colleagues use them for a while as long as they come

back to us,” said Mr Höglund.

“It is tradition that everybody helps each other when it comes to

technical issues in our day-to-day work,” said Tryggve Moller,

Managing Director of Tärntank Ship Management. “We are open if

we have problems with technical issues. If we

buy an engine part and it doesn’t work, we

phone the others and say it doesn’t work. We

are unable to cooperate on commercial aspects

because it is harder to break the commercial

side of the business,” he added.

“An example is onboard communications

and in particular VSat which we bought

together – between 40 and 50 units,” added

Lars Höglund. “But this cooperation can back-

fire because we all have the same products

on our ships and if one unit fails we all fail,”

he smiled.

“We also share information about shipyards

and our experiences about how they work and

also point out issues of concern to vetting

inspectors should they turn up. It’s good to

know areas of interest, he added. “We have

technical meetings four times a year, some-

times six, where we discuss issues affecting

owners on the island, said Mr Moller.

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Described in the travel guides as a ‘religious, peaceful place,

perfect for relaxation and natural beauty’, Donsö is tran-

quility in essence and in reality. As the late autumn sun

sinks below the roof beams of the myriad of colourful

wooden houses, the dozens and dozens of yachts and sailboats gently

clink together, tethered safely against the closing night swells. These

are the same yachts and boats that vie for space in the marina and har-

bour with the tankers that pop in now and then for supplies. The island

seems to exist in a tranquil age with locals that espouse the air of a

bygone time when stress was not invented and family life and quality

of life were the sole reasons they all worked.

According to Lars Höglund, Chairman of the Swedish Shipowners

Association and also Managing Director and Master Mariner with

Donsö-based Furetank Rederei, Donsö owners can trace their heritage

back to the 1930s when the only maritime activity on the island

was fishing. Donsö is now the only island in the Swedish southern

archipelago with a shipping fleet – 49 ships and five fishing vessels

to be precise with an insured value of over $1.1billion. The majority

of the ships are on long term contracts of affreightments or time char-

ters with the remainder on the spot markets. There are 12 shipping

companies on the island and the house where Sten A Olsson, founder

of the Stena Group was born, still stands and is still owned by the

Olsson family.

Furetank Rederei has its roots in an archipelago tradition going

back to the 18th century. It runs six modern product and chemical

tankers operating on main European trades. The 12,924dwt Furenäswas built in close cooperation between the Søviknes Verft and

Gothenburg-based designers FKAB Naval Architects while the

15,015dwt Fure Sun and 14,972dwt Fure Star were built at Siong

Huat Shipyard in Singapore and were bought on the second hand mar-

ket in 2001. The 15,999dwt Fure Nord and 11,374dwt Fure West were

further developments of earlier vessels constructed with FKAB as

architects. They were built at Shanghai’s Edward Shipbuilding, Kina

and delivered in autumn 2004 and in autumn 2006. The 37.082dwt

Furevik, built according to the same modern design as the other ves-

sels, was bought during Spring 2008 by pool partner Broström. The

vessels are chartered by Nordtank Shipping in Holbaek, Denmark, a

company within the Broström Group.

“We have 700 Swedish seafarers employed on the 49 vessels on the

island and 100 employees employed in the offices on the island,” Mr

Höglund said. Other interesting facts about the Donsö owners is that

collectively, they employ 300 Filipino seafarers and together turn over

SKR2.3bn of which 75% is in US dollars. And of the 49 ships, all are

tankers apart from one 21,100dwt bulker. Not all the vessels are reg-

istered on the island, or indeed under the Swedish flag – in fact three

of them are registered with the neighbouring Norwegian International

Ship Register (NIS).

Half of those people employed in the offices of the island’s ship-

ping companies travel in from Gothenburg every day – a serene 30

minute ferry ride or in the depths of the deepest winters, a quick drive

over the frozen sea between the islands – a transportation method rare

but not unheard of in years gone by, one source said.

According to Lars Höglund, while the Donsö owners are competi-

tors and always will be, that doesn’t stop them from cooperating with

each other, when needed.

“Yes, we cooperate on technical issues and we tend to have joint

agreements with suppliers to our vessels,” he told SMI. While some of

the companies operate in the same commercial pools – Donsotank and

Furetank being a case in point in the Brostrom system, they do

not cooperate on chartering operations. And what about cooperating

Taking neighbourhoodwatch to a new level

The Southern Gothenburg Archipelago has a number of claims to fame. It boasts 5,000permanent inhabitants living on two clearly defined but differently-named clusters ofislands, is completely car free and is the home to one of the world’s unique maritimeclusters – the Donsö owners.

Roger Nilsson, MD Donsotank, Jonas Backman, MD Sirius Rederi, Lars Hoglund, Tryggve Moller, MD Tarntank

Donsö owners can trace their heritage backto the 1930s when the only maritime activityon the island was fishing. Donsö is now theonly island in the Swedish southern archipelago with a shipping fleet – 49 shipsand five fishing vessels to be precise with aninsured value of over $1.1billion

So how is the current market situation affecting the owners on the

island? Because of the close cooperation, if one company sneezes, do

the others catch a cold? “We haven’t seen a financial crisis yet,” said

Roger Nilsson, Managing Director of Donsotank. “Today the value of

the dollar has increased and the bunker prices are also down and,

while we have seen better times, the chemical tanker market is not

that bad.

“Of course we are worried about the future and what will happen –

because if the value of our ships go down and the banks get nervous; you

never know what will happen when the banks get nervous,” he added.

Lars Höglund added to this comment: “We hope that the fact we have

been in the market for a long time and through the knowledge and rela-

tionship we have with the banks, we will be here in the future. All of us

are happy we do not have any newbuildings on order and we have kept

our recent ships sailing in the pooling systems which is a good thing.”

“We believe 2009 will be a bad year, but we have a newly elected

US President so that may help,” quipped Roger Nilsson. What is also

important, stressed Jonas Backman, Managing Director of Sirius

Rederi, one of the youngest tanker companies on the island at only 14

years old, “is the need to have a close relationship with your cus-

tomers. Sirius is the youngest company here and we have looked care-

fully at how other companies operate and we feel ourselves and our

competitors are all at the same level as others – regarding mainte-

nance of the ship, and so on. We are on the same playing field but we

need to have the relationship with the oil companies. This is impera-

tive,” he said.

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One area where they all cooperated for the benefit of the Donsö

community was the construction of a local sports hall for the island.

According to the four owners SMI interviewed, building a sports hall

was a small way that the ship owners could give something back to

the community, especially at times of largesse with the high freight

markets of recent years. On a more serious note, the move was viewd

as imperative in attracting young people to the island and keeping

them there – something not short of crucial for an island-based indus-

try growing short of skilled labour.

But in an environment where all the shipping companies know each

other and are all involved in very similar trades, why hasn’t one of the

companies taken the proactive role and tried to improve its own lot by

buying out its competitors? Surely having a fleet of 49 ships, plus five

fishing vessels, is better than operating six or eight units?

Tryggve Moller, from Tärntank Ship Management, answered the

question sweetly. “I have a story about that,” he told SMI. “A fisher-

man many years ago was looking to sell his fishing boat but he didn’t

think he would get a lot for it. So he put a price on it to try and sell it.

Immediately a number of non-fishermen wanting to buy his fishing

boat and he thought to himself ‘my goodness’, these untrained people

want my ship so I will keep it myself.

“This is the same with us because if anyone shows an interest in

buying our ships, our natural reaction is that we want to keep them

ourselves. It is all about timing and sometimes it may be the right

move to buy a seven or eight year old vessel as well as a new one,”

he said.

According to its website, Tärntank Rederi was established in 1904

and remains committed to the product tanker trades. When its first

vessel the Anna Maria

By virtue of our traditions the company was first established in

1904 was launched in 1929 “she was one of the first speciality bunker

boats built in Sweden.” In March of last year Tärntank announced the

purchase of a 10,000-dwt products tanker under construction in

Turkey. The Ice Class 1A ship, which was being built at Selah

Shipyard, was 50% complete and due for delivery in mid-June 2007.

While M&A activity may be out of the question for the Donsö own-

ers, there is limited sale and purchase activity still going on between

the owners. “That is one way we help each other,” said Lars Höglund.

When Tärntank renewed its fleet in the 1980s we bought one vessel

from them, so we do business within the group of owners,” he said.

As the late autumn sun sinks below the roofbeams of the myriad of colourful woodenhouses, the dozens and dozens of yachtsand sailboats gently clink together, tetheredsafely against the closing night swells

“If anyone shows an interest in buying our ships, our natural reaction is that we want to keepthem ourselves. It is all about timingand sometimes it may be the rightmove to buy a seven or eight yearold vessel as well as a new one”

Golf buggies are the main means of transport on the Islands

As a way of background history, Sirius purchased its first ship the

bunker vessel Koptra in 1994. It was renamed Tellus av Donso. In

1996 the Picasso was purchased and renamed the Sirius and two years

later an additional 10,l500 dwt vessel, the Tellus, was added. The

fleet was expanded in 2001 with the purchase of two product tankers

and three container/oil/bulk vessels but these were converted to dedi-

cated product tankers to fit in better with the fleet profile. In 2005,

Sirius contracted its first resale vessel the 11,250dwt Scorpius and

purchased the 8,490dwt Saturnus. Another three ships joined the

Sirius fleet in 2006 – two 9,200dwt units and one 7,100 dwt vessel

the Marinus.

Lars Höglund remains realistic about the financial situation moving

forward. “This is all totally new ground for us on the island, but as I

said we are lucky not to have any newbuildings on order. We have our

vessels already in service so now it is more a case of let’s wait and see

what happens. The market has not fallen that greatly and we are still

making money.”

But will it be the more traditional shipowners that will survive

rather than the newcomers or the asset players? “They have a better

chance of survival I would say. The established companies have

enjoyed long relationships with the banks for many years but there are

many newcomers now who may find it harder.” But with the current

market situation as it is, what concerns does he have going forward –

is it with the likely actions of the banks or the state of the market?

“The priority for us is to secure the market: to take long term con-

tracts of affreightment for our fleets. At Furetank, we have contracts for

little more than 50% of our ships so this is important. There may be

opportunities to mop up excess tonnage that may come on to the mar-

ket but it is a little too early to say what will happen,” he added. ■

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Sirius is the youngest company here andwe have looked carefully at how othercompanies operate and we feel ourselves and our competitors are all atthe same level as others – regardingmaintenance of the ship, and so on. We are on the same playing field but weneed to have the relationship with the oil companies

“We hope that the fact we have been in the market for a long time and through theknowledge and relationship we have with the banks, we will be here in the future. All of us are happy we do not have any newbuildings on order and we have kept our recent ships sailing in the pooling systems which is a good thing”

The shipping industry has found itself

in the centre of global interest as the

major maritime powers turn to the

task of assembling a legal regime for

the Arctic to administer peacefully

and profitably the opportunities created by

global warming.

Shipping companies stand to gain by all

aspects of the challenge – commercial, techno-

logical, environmental – as the world prepares

to exploit the newly shortened navigational

routes and suddenly accessible seabed natural

resources of the Arctic. But many fear that, in

the absence of globally approved new rules of

business, the Arctic could descend into war.

Lawmakers have been caught unprepared by

the sudden and rapid melting of polar ice. For

the first time in human history, the process last

summer created an unbroken, strategic ring of

navigable waters around the fringes of the

Arctic along the North-west Passage over

Canada and the Northern Sea Route over

Russia, opening the way for a regular flow of

commerce both ways across the roof of the

world. The retreat of the ice cap is expected to

be even bigger next year. And the process may

well accelerate.

This places governments under enormous

pressure from each other as well as their own

impatient shipping industries pressing for new

rules of operation in a comprehensive and safe

navigational regime serving the interest of all

major players to the ultimate benefit of

mankind. The outlines of a new shipping

regime are just beginning to emerge through a

series of authoritative current discussion

papers and recent industry as well as scientif-

ic and diplomatic conferences seeking a col-

lective approach.

A new era for the world shipping industry

was launched in September by a simple

announcement made by the eminent Ice Centre

of America’s National Oceanic and

Atmospheric Administration, confirming the

simultaneous opening of the two fabled naviga-

tional routes. The announcement, made after

passionate internal debate, fulfils the dreams of

the industry and the predictions of many polar

scientists.

“This is the first recorded occurrence of the

North-west Passage and Northern Sea Route

both being open at the same time,” said

Research Professor Mark Serreze. “Both with-

in and beyond the Arctic, the implications (of

this development) are enormous."

The Northern passages offer advantages by

improving shipping security and reducing the

length of global trade routes, argues Robert

Wade, professor of political economy at the

London School of Economics and author of the

landmark study Governing the Market

(Princeton, 2004). “Shanghai to Rotterdam via

the North-east sea route across the top of

Russia is almost 1,000 miles shorter than via

Suez,” he writes in a recent discussion paper.

“The Suez and Panama canals are already

operating at maximum capacity and, while

they are to be expanded, economic develop-

ment in South and South-east Asia alone will

take up the extra capacity,” he goes on.

“Additional freight will have either to go

round the Cape of Good Hope or take the

much shorter trip through the Arctic. China is

especially keen to open the Northern route

with giant container ships.”

The Polar thaw is likely to save billions of

dollars a year in time and fuel economies and

create access to massive undersea resources,

adds Scott G. Borgerson, a former lieutenant

commander in the United States Coast Guard,

in the authoritative Foreign Affairs magazine in

Washington. He predicts on the basis widely

confirmed new scientific evidence that, within

the foreseeable future, “the Arctic will resem-

ble the Baltic Sea, covered by only a thin layer

of seasonal ice in the winter and therefore fully

navigable year-round”.

He calculates that the Northern routes would

cut the sailing distance between Rotterdam and

Yokohama from 11,200 nautical miles to just

6,500 nautical miles, achieving savings in

excess of 40%. The North-west Passage would

trim the Seattle-Rotterdam voyage by 2,000

nautical miles, nearly 25% shorter than the cur-

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The Arctic thawPreparing for new rules of business

The biggest running dispute over the Arctic

seabed resources concerns the 460,000 square-

mile Lomonosov Ridge claimed by Russia that

argues that the ridge is geologically connected

to its landmass. But convincing counter-claims

have just been made by Canada and Denmark

that say that it also connects to the North

American and Greenland geological plates.

The stakes are very high. The counter-claim

was still in the diplomatic bag addressed to the

United Nations Seabed Commission in October

when the Russians unleashed a major provoca-

tive military exercise over the Arctic. The war-

games included nuclear-capable strategic

bomber aircraft armed with their maximum

combat payload and the launching of subma-

rine and land-based missiles over Barents Sea

and the Sea of Okhotsk North of Japan.

Various disputes over Arctic resources con-

fuse relations involving all the five countries

that ring the Pole, as well as their more distant

neighbours. In principle, they all uphold the

right to unhindered ocean passage, but in prac-

tise both Canada and Russia attempt to control

commercial navigation in the Artic.

Denmark and Canada are also locked in a

sovereignty dispute over Hans Island that is

surrounded by resource-rich waters. Norway

made yet untested seabed claims in 2006. The

US as well as the European Union as a whole

dispute Canada’s proclaimed sovereign right to

the Far North.

Canada has just launched a satellite surveil-

lance system to track foreign ships sailing

through the Arctic. Such vessels hitherto

requested to register with a Canadian coast

guard agency are now under compulsion to

do so. The government has also embarked

on an investment programme for the construc-

tion of a fleet of icebreakers and patrol vessels

backed by new land-based military facilities

to enforce its sovereignty claim. The US,

in turn, has set up coast guard bases in the

North.

The existing Law of the Sea Convention is

not suitable to resolve these disputes, let alone

guarantee the conditions essential for a com-

prehensive Arctic shipping regime, argued A.

H. Zakri, director of the UN University’s

Institute of Advanced Studies, at the Akureyri

conference in Iceland. The three-day confer-

ence was held in September to sketch out an

appropriate legal and scientific framework for

the fragile Arctic.

For example, explained Tullio Scovazzi,

professor of law at the University of Milano-

Bicocca, the UN convention permits the impo-

sition of navigational restrictions, such as the

compulsory employment of pilots on board

ships “under severe climatic conditions”.

But it fails to state how the Arctic thaw fits

that definition.

The increased shipping will result in an inva-

sion of alien species, predicted Tatiana Saksina

of the World Wildlife Fund. “We are going to

see an expansion of petroleum development as

well as over-fishing,“ she told the conference.

“Far stricter rules will be needed.”

Jeffrey E. Garten, professor of international

trade and finance at the Yale School of

Management, who served as commerce under-

secretary under the Clinton administration,

seeks a bold global approach to the transport-

related regulatory concerns raised by the

Arctic bonanza. He fears that the sheer num-

ber of international bodies that claim some

jurisdiction -- including the Arctic Council,

the Law of the Sea Convention, the UN’s

International Maritime Commission – is “a

recipe for institutional competition, polarisa-

tion and delay”.

So he proposes in an important, timely dis-

cussion paper the establishment of an interna-

tional organisation to which sovereignty is

ceded by the Arctic countries. Governments, he

argues, “would have an advisory role, as would

industry and other interests, but none would be

able to override the decisions of the new Arctic

authority. Its mission would be to ensure that

the maximum level of profitability is achieved

consistent with consideration for the environ-

ment and other global issues. It would be

responsible for creating order out of what

might otherwise become a national scramble

for resources that could even have military

implications.” ■

DISPATCHESARCTIC

rent route. Add the related economies achieved

in the cost of fuel, canal fees and other vari-

ables that go into freight rates and you can see

the cost savings.

These economies will be greater still in the

case of the megaships too big to squeeze through

the Panama and Suez Canals that must currently

round Cape Horn and the Cape of Good Hope.

And the Arctic routes will enable shipping to

avoid such politically unstable and pirate infest-

ed waters as those of the Middle East.

Both these commentators and many industry

specialists, academics and lawyers attending

recent conferences on the Arctic also warn

against an acute threat to the environment

posed by an increase of trade crossing the Pole.

Accidents by oil tankers pose the greatest dan-

ger because organic cargo breaks down slowly

in the icy waters, as demonstrated by the Exxon

Valdez disaster off Alaska.

“Oil is a huge issue,” said David Leary of the

Institute of Advanced Studies during a recent

conference held at the University of Akureyri

in Iceland. “It is incredibly difficult to clean up

an oil spill on ice.”

Fuel emission discharged by ships can also

colour the remaining Arctic ice, reduce its abil-

ity to reflect solar heat and thereby accelerate

further the relentless melting process. A scien-

tific conference of sea-ice experts organized by

the University of Alaska in Fairbanks recently

considered proposals that a “tipping-point” of

global warming has been crossed already, prob-

ably enabling ordinary vessels lacking ice-

breaker capacity to ply the Northern routes reg-

ularly within the next seven years.

Shipping trade in the uncharted Arctic

waters is already increasing fast. Mead

Treadwell, an Alaskan businessman and chair-

man of the US Arctic Research Commission,

told another specialist conference at Fairbanks

in August that the number of cruise vessels

calling on Greenland had increased from 27 in

2004 to 200 last year. The same conference

heard that more than 5,000 ships of at least 100

tons regularly operate in the area, with more

than 100 of them venturing into the North-west

Passage last year and at least five completing

the entire route.

The Beluga Group failed last summer to

receive clearance from Russia to send a vessel

through the North-east Passage from the

Siberian island of Novaya Zemlya through the

Bering Strait. The proposed voyage substan-

tially reducing the journey to Japan has now

been postponed to next year.

A fast shipping lane is already being devel-

oped between Murmansk in Arctic Russia and

the Canadian port of Churchill on the Hudson

Bay that is connected to the prosperous North

American markets by rail. Russia has also recent-

ly launched the world’s biggest icebreaker, the 50

Years of Victory, expanding its high-capacity

ocean-going icebreaker fleet to more than 14.

Transport director Alexey Tyukavin of

Russia’s Norilsky Nickel told a recent Arctic

shipping conference in St Petersburg that his

company had ordered four ice-class double-

action freighters from Aker Finland and Aker

MTW in Germany for the Murmansk-

Hamburg-Rotterdam export run to save the cost

of icebreakers.

This is part of a global trend, observes

Borgerson, a fellow of the Washington Council

on Foreign Relations. In order to navigate the

Arctic sea-lanes and transport the region’s oil

and natural gas, he writes, “the world’s ship-

yards are already building ice-capable ships.

The private sector is investing billions of dol-

lars in a fleet of Arctic tankers.

“In 2005, there were 262 ice-class ships in

service worldwide and 234 more on order. The

oil and gas markets are driving the develop-

ment of cutting-edge technology and the con-

struction of new types of ships, such as double-

acting tankers, which can steam bow first

through open water and then turn around and

proceed stern first to smash through ice. These

new ships can sail unhindered to the Arctic’s

burgeoning oil and gas fields without the aid of

icebreakers. Such breakthroughs are revolu-

tionizing Arctic shipping and turning what

were once commercially unviable projects into

booming businesses.”

These issues are complicated a new assess-

ment published by the US Geological Survey

after a four-year study, reliably estimating the

Arctic seabed hydrocarbon resources at 90bn

barrels of oil, 1,669 trillion cubic feet of natu-

ral gas and 44bn barrels of gas liquids. The sur-

vey describes this as “the largest unexplored

prospective area for petroleum on earth”. And

the Arctic is believed to hold huge quantities of

many rare and commercially attractive miner-

als as well as rich fish stocks.

Russia holds the largest Arctic hydrocarbon

deposits. Gazprom, the state-controlled energy

company, is already developing its Barents Sea

production fields holding some 113 trillion

cubic feet of gas. Moscow also reckons the

unproven oil deposits of its seabed resources at

586 billion barrels.

70 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

DISPATCHES ARCTIC

Concordia M

aritime

“A fast shipping laneis already beingdeveloped betweenMurmansk in ArcticRussia and theCanadian port ofChurchill on theHudson Bay that isconnected to theprosperous NorthAmerican markets by rail”

“The biggest running dispute over the Arcticseabed resources concerns the 460,000square-mile Lomonosov Ridge claimed byRussia which argues that the ridge is geologically connected to its landmass”

Specialist refrigerated cargo vessels are still very much in

demand due to the world’s seemingly insatiable appetite for

fruit consumption. Couple this with other frozen cargoes, such

as chicken and fish, and those involved in the reefer ship

trades are looking at a reasonably secure future, despite the economic

downturn.

Despite the increasing encroachment of containership operators offer-

ing refrigerated boxes on many routes, reefer ship operators are still bull-

ish about prospects, due to a shortage of quality tonnage, partly caused by

an increase in scrapping of elderly reefer vessels.

Reefer cargoes are roughly split into four segments – bananas, citrus

fruits, deciduous fruits and frozen, plus general cargoes. Many of the

trades are still seasonal, but by employing logistics methods when sched-

uling vessels, a near 12-month operation is possible.

An example of a modern day approach is provided by one of the

world’s largest reefer ship operators - NYKCool. This Stockholm-based

concern is involved with all types of reefer cargoes.

The company can trace its history back to a combination of three major

reefer vessel operators - NYK Reefers, Lauritzen Reefers and Cool

Carriers. Cool Carriers was the first to be amalgamated and at the start of

this millennium, it claimed to be the world’s largest reefer vessel opera-

tor. However, in January 2001, it was merged with Lauritzen to become

Lauritzen Cool following a buyout by the Danish company from Leif

Hoegh for $35.4 mill. At the time, the combined Lauritzen and Cool

Carriers’ fleet numbered around 90 vessels.

Further on, in 2006, Lauritzen announced that it intended to quit the

reefer business and in the middle of the following year, NYK Reefers

purchased 50% of the shares in NYKLauritzenCool, previously held by

Lauritzen, giving the Japanese conglomerate full control of the company.

On 1st January 2008, the operation, now known as

NYKCool, was consolidated into the Stockholm

headquarters and the branch offices in London and

Santiago, Chile were closed.

According to NYKCool, probably the most impor-

tant cargo shipped on a specialised reefer vessel is

bananas. For example, bananas are the largest com-

modity carried on its vessels. Many of the reefer ships

are continuously engaged in carrying bananas on 12

month contracts in almost all major trades worldwide.

The largest volumes are carried from South and

Central America to consumer areas in the US and

northern Europe, but also from West Africa to Europe

and from the Philippines to the Middle East.

Next in importance come citrus fruits. NYKCool

lifts citrus from Argentina and Uruguay – the River

Plate region - to Northern and Eastern Europe. In addi-

tion, citrus is also carried from South Africa and the

eastern Mediterranean region to the European conti-

nent and Japan.

As for deciduous cargoes, for many years, NYKCool has carried a sig-

nificant portion of the Chilean production of deciduous fruits to both

coasts of North America and to northern Europe, as well as to the Middle

East. In the autumn and winter seasons, avocados are shipped from Chile

to the US west coast. Deciduous fruits are also carried from southern

Africa to the European continent, as well as Kiwifruit from New Zealand

to Europe.

Although the South American fruit trades are very seasonal, the reefer

ships are present almost on a 12-month basis. For example, apart from the

major commodities, melons are carried from Brazil to Europe between

August and April.

Chicken and fish are the common frozen cargoes carried on board spe-

cialist reefer vessels. On backhaul legs, empty reefer boxes will be

returned to their fruit growing loading ports and cars are carried from

Japan to South America and New Zealand, as well as from Europe.

Vessel and trade scheduling are obviously vital in reducing the number

of ballast legs. NYKCool said that because of seasonality and fluctua-

tions in cargo volumes, a large fleet was needed in order to produce effi-

cient logistic patterns around the world.

By finding optimal solutions to different cargo combinations, ballast

passages are reduced and thanks to short transit, times and dedicated port

capacity without congestion, waiting times are minimised. In order to fur-

ther enhance the cost efficiency of the trades, as mentioned, NYKCool

also carries various dry cargoes and empty containers on return trips to

the fruit growing areas.

Talking to SMI about the world’s reefer fleet, NYKCool’s spokesman

Svante Hellberg said the result of increased scrapping of elderly tramp

reefers allied to a possible shortage of tonnage was currently impossible

to predict.

72 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

REEFERSTRADE ANALYSIS

This was due to the general uncertainty in

the global economy. “In the long term, there

will definitely be a shortage”, Mr Hellberg

said, saying that the shortage would be even-

ly spread over all size ranges. However, he

did not think that there would be any more

consolidation among the reefer vessel opera-

tors, or their charterers.

He explained that although there are both

smaller and larger reefer vessels, the normal

tramp reefer was between 450,000 cu ft and

550,000 cu ft in capacity with the ability to lift

a limited number of reefer boxes.

Mr Hellberg explained that down the years,

the container lines had increased their market

share in many of the traditional specialised

reefer ship trades, but again he said that it was

difficult to speculate what will happen next

year when the container lines are expected to

suffer heavily from significantly less demand. Many containerships are

fitted for the carriage of reefer boxes, depending on their intended trade.

These are 40ft units (FEU).

As for NYKCool, Hellberg said that the company’s reefer vessels have

a certain capacity for reefer boxes, which “……we are always trying to

make use of.”

Although many reefer vessels are long term chartered, there is also

an active spot market, mainly in the banana trades. This covers all size

ranges, Mr Hellberg said. He also confirmed that the reefer market

was highly seasonal with a peak period during the spring months of

February to May.

NYKCool currently runs a fleet of around 55 vessels of between

380,000 cu ft and 760,000 cu ft capacity. Many are geared and fitted with

high container intake capacity and advanced systems for Controlled

Atmosphere (CA). All the vessels are manned with specially trained crew.

In September, the company announced that it had purchased, bareboat

and timechartered eight reefer vessels.

Partner NYK Reefers purchased the 422,156 cu ft Global Harvest and

the 547,693 cu ft Crown Topaz. The two vessels continue to operate in the

NYKCool operation.

The two vessels bareboat chartered were the 644,331 cu ft sisters StLucia and Dominica, also operating for NYKCool. In addition, two

plus two Jumbo-type reefers were taken on medium term charters.

The 649,458 cu ft sisters Ice River and Ice Runner had their charters

extended from the beginning of next year, while the 673,748 cu ft

Chaitien and the 677,143 cu ft Swan Chacabuco will join the opera-

tion during mid-2009.

The company is a member of the Specialised Reefer Shipping

Association (SRSA), which was formed in 1999 by five companies as a

platform to discuss industry-related matters. The membership currently

includes two of the largest reefer ship operators – Seatrade and

NYKCool, plus Green Reefers, Maestro Reefers, Star Reefers and

Universal Reefers.

During an SRSA meeting in Antwerp in June 2005, the 360 Quality

Code initiative was born, which is a set of voluntary standards for spe-

cialised reefer shipping lines, their service providers and terminals. Its

aim is to promote the highest standard of quality and cargo care; on reefer

vessels, in port terminals and in liner trades.

The Code recognised that the specialised reefer shipping lines and

their service providers have to work jointly to achieve this goal. SRSA

said that the 360 Quality brings transparency in the supply chain of per-

ishables and the principle is that in a collaborative supply chain everyone

involved should assume responsibility for their activities and take correc-

tive action to eliminate defects.

The main features of the Code are: • Implementing practices and using equipment in terminals and ships

that will prevent damage to cargo

• Developing a uniform way of establishing damage and following an

agreed action plan when damaged cargo or cargo with exceptions is

presented to the terminal and ship

• Developing a uniform way of recording exceptions at reception,

loading, unloading and delivery of cargo

• Establishing local working procedures loading and unloading ports,

which are compatible with the requirements of the Code

• Establishing quality teams in ports who will analyse the damages, their

cause and introduce preventive measures

• Providing feedback upstream in the supply chain

Looking at events this year, another major player Star Reefers said dur-

ing the company’s first half 2008 presentation that the principal risks and

uncertainties for the second half of this year were – the demand for fresh

fruit worldwide, the global economy free trade, competition from con-

tainer carriers, currency exchange rates, bunker prices, adverse climatic

changes, diseases and crop harvests.

As for the economic downturn, at the end of September, Star said that

specialised reefer trades would not be immune from the general shipping

downturn, but that the longer term market outlook for operators with

modern, efficient and cost-effective fleets remained “reasonable.”

As for the market, during the first quarter of this year, rates for larger

vessels fell to 95 cents per cubic feet per month, compared with 115 cents

during the first half of 2007, a decrease of 17%. However, in March,

demand and prices for banana shipments to Europe increased, regular

cargoes of Falkland squids picked up, fruit exports from Argentina and

South Africa also grew as did the US poultry business. As a result, the

average spot rates for larger vessels went up to 107 cents during the sec-

ond quarter of this year, compared with 87 cents in 2Q07.

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coldblastDuring an SRSA meeting in Antwerp in June2005, the 360 Quality Code initiative was born, which is a set of voluntary standards for specialised reefer shipping lines, their serviceproviders and terminals. Its aim is to promotethe highest standard of quality and cargo care; on reefer vessels, in port terminals and in liner trades

Star Reefer’s Ecuador Star seen leaving Portsmouth

Reefer Flottefonds Emerald seen arriving Hamburg. The 40ft container intake can clearly be seen on deck.

Predicting the severity of the

75NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

TRADE ANALYSIS

This was not to last, however, as by the end of September this year,

rates had plummeted to an average of 27 cents, compared with 44 cents

during the same period the previous year. The spot market declined

sharply during July and stayed low during much of the third quarter, Star

said. One of the major reasons for this was that Ecuadorian banana pro-

duction fell from 4.5 million boxes per week to 4m. There was also sub-

dued trade in frozen chicken and beef cargoes and an early end to the

South African citrus season.

However, Star said that the general shortage of quality vessels would

ensure that period charter rates obtained for 2009 and beyond were firm,

despite the weakness seen in the spot market.

The escalating cost of fuel had an adverse affect on reefer ship opera-

tions and during the first nine months of this year, 19 vessels of over

400,000 cu ft were scrapped, averaging 29 years of age and accounting

for 6% of the fleet.

Star Reefers has set up an in-house shipmanagement subsidiary in

Poland and by the end of June of this year was managing 20 reefer ves-

sels from the Gdynia office, an increase of seven compared with the

beginning of the year. The rest of the fleet is managed by Limassol-based

Dobson Fleet Management (DFM).

The company has been progressively renewing its fleet by ordering

two groups of four newbuildings. All four in the first series have joined

the fleet, while two of the second series were delivered in 1Q08. The

remaining two in the second series will be delivered during the first half

of next year. The entire second series will be chartered to Dole Fresh Fruit

International for five years each.

Not stopping there, in April Star agreed to timecharter four more new-

building reefers from Japanese interests for 10 years each. This quartet

will be built at Shikoku and will be delivered between 2009-2010. They

will have a capacity of 615,000 cu ft and will also be able to lift nearly

200 FEU.

In another move to expand its fleet, Star exercised an option to pur-

chase two reefers, which had been on bareboat charter for several years.

The Cape Town Star and the Durban Star will come into Star’s ownership

portfolio in December of this year for $13.9 million in total.

Star also reacted to the Russian fruit import market, which calls for the

use of specialist reefer tonnage. For the Baltic trades, during the winter

months, ice strengthened vessels are needed. As a result, during the third

quarter, Star converted the hulls of five vessels to ice strengthened nota-

tion under DNV guidance. Some of these vessels have since secured long

term contracts to trade into the Baltic year round.

At the time of writing, Star controlled around 41 reefer vessels of

between 370,000 cu ft and 670,000 cu ft capacity.

Several reefer vessels are financed under the German ‘KG’ scheme. A

leading player is MPC Capital, which operates the MPC Reefer Fleet

investment portfolio.

Spokesman Michael Benninghoff, speaking about the global econom-

ic slowdown said; “The global financial crisis has had no immediate

effect on our reefer ship investments as yet. The financing of our current

funds is already fixed and the reefer market shows still a positive trend.”

MPC Capital has initiated two reefer funds of 28 vessels in total, all of

which operate in the Seatrade pool, the world’s largest, Benninghoff

explained.

As for the future he said: “We are constantly monitoring the markets

for special investment opportunities, that includes of course the reefer

markets. We strongly believe in this sector and that the reefer markets will

offer further investment opportunities in the future”. ■

REEFERS

By the end of September this year, rates hadplummeted to an average of 27 cents, compared with 44 cents during the same period the previous year. The spot marketdeclined sharply during July and stayed lowduring much of the third quarter

“We are constantly monitoring the markets forspecial investment opportunities, that includesof course the reefer markets. We stronglybelieve in this sector and that the reefer markets will offer further investment opportunities in the future”

maybe making us more cautious or conservative. Panama has always

been a vessel flag that has enjoyed the support of the financial sector

but if the banks slow their lending activities and the number of new

deliveries decreases, Panama will have to be ready to handle that situa-

tion and minimise the effects.”

Veronica Perez Cuervo from Patton, Moreno & Asvat believes that

even if Panama is a very sui generis country as regards its economic

components and activity, it is not alienated from the global problems of

the world. “It is expected that the economic slowdown will not affect

Panama as it has affected other countries, however, it will be felt in a

certain way. With regards to the shipping markets, Panama will proba-

bly see a decrease in newbuilding registrations or new financing (ship

mortgage registration). However, as the economic woes arrive, other

opportunities such as the registration of older ships, changes of owner-

ship and re-financing of present loans may be the order of the day. As

to the Canal, it is expected that the transit of ships will be maintained

without a major increase,” she said.

But what is the country’s strategy for the next few years as far as

meeting its commitments and also steering clear of the financial crisis?

Veronica Perez Cuervo again: “It will need to maintain its conserva-

tive approach to its banking and current commercial activities. It will

also need to reinforce direct foreign investment, incentivising new pos-

sible economic sectors such as tourism and cruise ship hubs, as well as

logistics areas in the information and transport industries and the enter-

tainment industry. This commitment must also arrive with the knowl-

edge that the social and education investment must not be neglected,”

she said.

“The drivers to economic growth may be considered to be its strate-

gic and safe geographical position, its liberal economy, the use of the

dollar as the official currency and its favourable legal structure for for-

eign investment. Constraining factors may be general corruption in the

country, too much bureaucracy, the need to educate the future labour

force in technical and technological careers and possible issues with

criminality and security,” she added.

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It’s very much a softly, softly approach to growth for the world’s

most significant isthmus and if it is lucky the financial meltdown

could, only could, pass Panama by with little more than a glancing

blow. Well that’s the optimistic view of the country’s maritime law

community but the world’s largest flag will almost certainly suffer from

the inevitable decline in new vessel registrations. With up to 50% of

newbuildings likely to be cancelled following the closure of the world’s

banks, less newly-built ships will end up looking for a home on the reg-

istry. And while canal transits are down slightly year-on-year, any long-

term damage to Canal revenues is thought unlikely as trade will need to

continue using the waterway.

“I don’t think the effect of the financial crisis has touched Panama

yet, I think it will but not yet,” said Adolfo Linares from the law firm

Tapia, Linares & Alfaro.

“How will it affect Panama? That is the big question. I don’t see the

effect being as heavy as in other places because we have a project like

the Panama Canal expansion which may give the economy a little bit of

support,” he added. As Vice President of the Panama Chamber of

Commerce, Mr Linares keeps his finger on the commercial pulse and

while growth forecasts for the country may be bearish, the figures still

stand up well against many developed countries.

“We recently forecast growth next year of around 6% compared with

11.2% last year and around 9% this year. It’s still a good number but

then again the government and the private sector will need to readjust

their strategies moving forward. They will have to navigate very cau-

tiously,” he told SMI.“The problem is that we don’t know what will happen. Also there

will be shrinkage in credit and that will affect the way we do business,

PANAMAREGIONAL FOCUS

GrowthIt’s

all the way, but very quietly

“The only thing we do that affects traffic isour levels of reliability and we have toensure we continue to provide a reliableservice for the ship owners. One thing wehave seen is that even though US cargodemand is dropping, most of this declinehas impacted on west coast ports”Rodolfo Sabonge, Vice President of Market Analysis and Research at the ACP

Joan David Molto

Joan

Dav

id M

olto

Expansion plans for the Canal seem to be pressing ahead as normal

following successful efforts in the early days of the financial crisis to

refinance the project. The Canal earned a credible $2bn in the 2008 fis-

cal year (October 2007-September 2008), and as ACP Board of

Directors Chairman and Minister for Canal Affairs Dani Kuzniecky

said, the focus can switch to more operational issues.

“The Canal Expansion Program is moving ahead as planned – on

time and on budget and we feel very confident in the strides we have

made in the past weeks to ensure its successful execution. With the

financing structure in place, we can now shift our attention to other crit-

ical areas of the project,” he said.

Indeed, according to recent press reports, the Panama Canal

Authority is confident of winning loans to fund a $5.2 billion expansion

to more than triple the waterway's cargo capacity, even as the global

credit crisis cuts access to funds and threatens growth. "We have a very

successful financing package put in place even in this unstable financial

market,'' Alberto Alemán Zubieta, the canal's administrator, said in a

recent interview in Tokyo. .

The authority is seeking $2.3bn in overseas loans to help fund the

work, including $800 million from the Japan Bank for International

Cooperation, $500m from the European Investment Bank, $400m from

the Inter-American Development Bank and $300m each from the

International Finance Corp. and Corporacion Andina de Fomento.

The expansion project, due to be completed by the end of 2014,

entails the construction of two new sets of locks. JBIC, as Japan's

state-owned overseas lender is known, will provide $400m as part of

a loan syndication. Mitsubishi UFJ Financial Group Inc. and

Sumitomo Mitsui Financial Group Inc. will also provide an addition-

al $400m.

Traffic through the canal probably won't increase this year for the

first time since 2002, Mr Alemán Zubieta told reporters recently, as the

slowing US economy damps demand for imports. “The financial crisis

will obviously have an impact on world trade and the canal, but this isn't

the first crisis,” he added. “In 2001 there was one, and looking further

back there were the oil-crisis in the 1970s and Asia's financial turmoil

in the late 1990's. The canal has gone through all these cycles.”

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PANAMAREGIONAL FOCUS

The Panama Canal Authority (ACP) recently extended the submis-

sion date for the proposals to build the new set of locks. The four con-

sortia vying for the contract will now have until March 3, 2009 to sub-

mit their bids for what will be the largest and most important project

under the $5.25 billion expansion program.

The additional time given to the consortia will result in more fully

developed bids on both the technical and price proposals, ultimately

benefitting the project.

The ACP also recently released a request for proposals soliciting bids

for the third of four dry excavation projects. This dry excavation proj-

ect will help to create expansion’s critical access channel that will link

the new Pacific locks with the Canal’s existing Gaillard Cut (the nar-

rowest stretch of the Panama Canal). The scope of work will include the

excavation, removal and disposal of eight million cubic meters of mate-

rial. Moreover, the proposal calls for demolishing the Cocoli Bridge and

clearing 190 hectares of unexploded ordnances, remnants from former

US training facilities in the Canal Zone.

“The release of the third dry excavation RFP is yet another example

that the Expansion Program is on track and proceeding with great

progress,” said Executive Vice President of Engineering and Program

Management Jorge Quijano. “We look forward to selecting the best

firm for the job, as we complete this crucial component of expansion.”

Similar to the first and second dry excavation projects, this contract

will be awarded to the firm or consortia with the lowest priced propos-

al that meets all of the contract’s requirements.

But what of Canal transits? Surely a slowdown in the world econo-

my will affect the numbers of ships trading and passing through the

waterway?

“I am not sure if the number of ships passing through the canal will

decline to a level that will affect the financial operation of the Panama

Canal,” said Adolfo Linares.

“Obviously the number of transits will decline, actually they are

declining already at a small percentage, but I don’t foresee a dramatic

reduction in those transits. Before the crisis, the Canal was running at

93% capacity, and will now probably be around 90%. The big question is

if this is a baseball game, what innings are we in? If we are in the third

PANAMA REGIONAL FOCUS

Joan

Dav

id M

olto “The Canal Expansion Program is moving

ahead as planned – on time and on budget and we feel very confident in thestrides we have made in the past weeks to ensure its successful execution. With thefinancing structure in place, we can nowshift our attention to other critical areas ofthe project”Dani Kuzniecky, ACP Board of Directors Chairman and Minister for Canal Affairs

“It is expected that the economic slowdown will notaffect Panama as it has affected other countries, however, it will be felt in a certain way. With regards tothe shipping markets, Panama will probably see adecrease in newbuilding registrations or new financing”Veronica Perez Cuervo from Patton, Moreno & Asvat

innings I would be worried. If we are in the seventh or eighth innings then

that is different, we probably have 12 to 15 more months of volatility

before we start to see the light at the end of the tunnel,” he added.

According to Rodolfo Sabonge, Vice President of Market Analysis

and Research at the ACP, the world can expect little change despite the

downturn. “We analysed the figures a month ago and this year we

expect transits to be the same or maybe 2% less than last year,” he said.

“The way we measure transits is through a process called Canal

Tonnage which is a volumetric measure of the vessel and is not neces-

sarily related to actual cargo shifted. When you compare 2008 with

2007, in essence we had an increase in cargo but there was

a slight decrease in tonnage. In others words we increased

cargo movements through the Canal by 1% but decreased

volumetric measurements by maybe 1%. Basically it

was flat. This year we are looking at a similar situation,” he

told SMI.So what can the Canal Authority do to ensure cargo lev-

els don’t drop in the months ahead? “We don’t have a strat-

egy per se,” said Mr Sabonge. “The only thing we do that

affects traffic is our levels of reliability and we have to

ensure we continue to provide a reliable service for the ship

owners. One thing we have seen is that even though US

cargo demand is dropping, most of this decline has impact-

ed on west coast ports. Most of the drop in US imports is

through west coast ports so the east coast ports are either flat

or showing a slight rise.

“There is very little we can do to attract more traffic. The

basic requirement from ship owners is the need for reliabil-

ity, ie to be able to transit the same day.”

Vessel congestion at the Canal is also being tackled as a priority, he

added. “We were worried about not being able to cope with capacity as

demand was growing too fast but this slowdown has given us a window

of opportunity to give us a breather regarding capacity levels.”

Panama’s reliance on the US east coast is significant especially if you

consider the fact that the Canal was built to service trade flows to and

from the US east coast, This relationship was recently highlighted

through the extension of cooperation between the ACP and the port

authority in the US state of Georgia.

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80 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

PANAMAREGIONAL FOCUS

Panama’s aspirations to become a major ship

supply hub for Central America is realistic but

it can mean shipping supplies in from other

parts of the world to ensure provisions and

spare parts requests are met.

“We are creating healthy competition inter-

nally so Panama will not be seen as a third

world country but as a main supply area,” said

Vikash Deepak, President of the Panamanian

Association of Ship Suppliers. “Bettering our

image, bettering the service we provide and

bettering the quality of our merchandise, is

important,” he added.

“Panama is becoming a huge transhipment

area and is serving its purpose as a new

Singapore for the area. We have to see what

happens with the global economy but you

have to be optimistic but realistic at the same

time and the effect it will have on the sector.

But Panama is not taking its position for

granted. “We still have to get out there and

sell Panama. Panama doesn’t have factories

like China but we want Panama to be the main

supply point for Latin America, he said.

According to Mr Deepak, business has been

growing with more owners sourcing supplies

in Panama. “Our concerns are that the market

gets overpopulated and that it drives the busi-

ness down. If there is a pie we don’t want to

fight for the same pie but grow that pie.

As Joan David Molto, Director with Ermis

Ship & Food Supplies, said: “There is compe-

tition but Canal traffic is huge. “There’s an

opportunity for reliable companies to succeed

if you have the contacts and you know the

market and how it works,” he said.

Supplying a growing need

Vikash Deepak Presdent of the Panamanian Association of

Ship Suppliers

Joan David Molto, Marketing Director, Ermis Ship & Food

Supplies

To stimulate increased collaboration and promote trade, the ACP

extended its partnership with the Georgia Ports Authority (GPA) for

three more years. The ACP first signed a Memorandum of

Understanding with the GPA in June 2003, establishing strong ties

between the two entities and providing economic benefits to both

regions.

Areas of cooperation between the ACP and the GPA include, among

others, joint marketing efforts, exchange of data, market studies, expan-

sion plans, training and technology.

In 2007, the Port of Savannah imported and exported more than

13.9m tons of cargo via the Panama Canal, underscoring the signifi-

cance of this partnership and the role both entities play in global trade

and commerce.

“The Canal’s renewed alliance with the GPA is a strong indicator of

our commitment to the maritime industry and our customers,” said ACP

Administrator and CEO Alberto Alemán Zubieta. “Through informa-

tion sharing and collaboration, we will continue to maximise our

resources to remain on the pulse of maritime innovation and enhance

our services. This partnership is an important link for future growth,

opening doors for new business opportunities and providing sustainable

economic solutions for Panama and Georgia.”

As the fourth largest and fastest growing port in the US, Savannah

has emerged as a premier east coast transportation center. In fact, the

Port of Savannah reported double-digit growth last year, with 42% of

the net increase attributed to cargo transiting the Panama Canal.

“This renewed strategic alliance will allow GPA and the Panama

Canal Authority to continue to improve services for our customers

and generate new and exciting economic opportunities for Georgia

and the Southeastern United States,” said GPA’s Executive Director

Doug Marchand. ■

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“Through information sharing and collaboration, we will continue to maximiseour resources to remain on the pulse ofmaritime innovation and enhance our services. This partnership is an importantlink for future growth”Alberto Alemán Zubieta, Administrator and CEO, ACP

Joan

Dav

id M

olto

DebateResolving shipping’s image crisis

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SHIPMANAGEMENT

Sean MoloneyThank you and good afternoon everybody. The theme of the debate today

is ‘Resolving Shipping’s Image Crisis’, but more importantly it poses the

other question: does Asia have a leadership role here? Before I ask the

panellists, I want to get the views of the audience and I have spotted Olav

Eek Thorstensen, President of Thome, in the audience. Olav, what are

your thoughts on Asia’s role in helping shipping out of this image crisis

at the moment?

Olav Eek Thorstensen(Thome Ship Management)

You can see that the shipping business is moving from West to East,

there’s no question about that. All the centres of shipping will proba-

bly move to the Far East. With the pro-

motion by the MPA over the last ten

years, we are getting a stronger shipping

cluster in Singapore. As far as Asia is

concerned, we see the P&I Clubs and

brokers moving in. We have the seafar-

ers: the Philippines is still the biggest

suppliers of seafarers as well as India and

of course China. You will see more and

more shipping activities moving here.

Sean MoloneyYou mentioned the cluster Olav and cer-

tainly Singapore is building itself up to

be one of the world’s major maritime

clusters. What are your thoughts Arthur,

coming from Hong Kong? Do you share

the views that Singapore is a major mar-

itime power powerhouse?

Arthur BowringWe’re not in competition, certainly not from Hong Kong’s side. There’s

room in Asia for more than one shipping centre and Singapore and

Hong Kong are very different, the same as Shanghai is very different.

In the US you have more than one financial sector, certainly within Asia

there’s room for more than one shipping centre. So Singapore has its

strengths, Hong Kong has its strengths; we’re operated very differently.

Singapore has a lot of government support; we have no government

support, so great differences between the two places. Singapore has

achieved a lot in the last ten years thanks to the Singaporean

government. They’ve really put a lot of investment into this in order

to attract business to be here. Well done Singapore, they’ve done

extremely well.

Shipping has long complained of a poor image. But how much of an issue is image andwhat role can the Far East play in defining shipping’s raison d’etre and help to boost itsattraction as a recruitment opportunity for the future? We listen to panellists and delegateswho attended the recent 3rd International Ship Management Summit held in Singapore whodebated the issue in depth.

Chaired by SMI Editorial Director Sean Moloney, the debating panellists included Arthur Bowring, Managing Director

of the Hong Kong Shipowners Association; Capt Bjorn Hojgaard, Managing Director, Thome Ship Management;

Deepak Sen, Managing Director, Swan Shipping Corp; Steffen Tunge, Managing Director, B+H Equimar Singapore

Pte; Abdul Hameed Hajah, President of the Singapore Association of Ship Suppliers; Shaj Thayil, Vice President,

EMS Shipmanagement Singapore; members of the audience

Sean MoloneyDoes that proactive attitude by the government portray a positive image

for the shipping industry here, the fact that they want to support it and

they’re willing to go public about it?

Arthur BowringI think it’s up to someone from Singapore to answer as to whether the

government's intervention has created a positive image in Singapore –

I’m sure it has. Yes, internationally, I’m sure there’s a lot that we can

use from Singapore, the effect on the image of shipping in Singapore

really I think you need to ask a Singaporean or somebody here as to

whether the government's intervention has raised the level of con-

sciousness amongst the Singapore people – the man in the street, Joe

six pack, as they say in the States, as to whether shipping is more

understood.

Sean MoloneyLet me bring Shaj in. What are your thoughts on the image of ship-

ping through the maritime cluster idea, and do you think it’s maybe a

worthwhile way of actually promoting an industry?

ShajThayilThe organisation of the cluster speaks for itself; where you have P&I

clubs and insurance companies opening offices in Singapore speaks a

lot for the image of Singapore, the support for a once deregulated

industry to have government intervention is critical. At some point

you need regulation but that needs to be carefully done and managed.

We can see that happening today with the banking industry. So on

that point, yes Hong Kong is great, I’ve been to Hong Kong and I love

the place, there’s no doubt about that. But here we are not in compe-

tition, there’s more for everybody from the park and I see Singapore

moving from strength to greater strength.

Sean MoloneyLet me go to the audience bringing in maybe Svein Sorlie (Wilh

Wilhelmsen) because you were based over here in the Far East certain-

ly Malaysia when you were with Barber, and the Norwegian shipping

industry has had its own share of issues with regards to the tonnage tax.

Can you give me your sort of views on the role that government can

play in actually improving and enhancing the image of shipping?

Svein Sorlie (Wilh. Wilhelmsen)

It’s a very complicated question. I will not try to explain Norwegian

government policies when it comes to shipping because that’s a con-

ference in itself. But it’s a fact that the deepwater part of Norwegian

shipping is on its way out of Norway. There could be a few exceptions

but I think all the major ones at least are moving more and more of

their ownership and activities offshore. Some of them are going to the

UK, some are going to Asia. But when it comes to image, I have one

question regarding the image and that’s related to ship scrapping and

how do we dispose of our old vessels. We have heard that we will

maybe see a lot more scrapping in the years to come. We all know

how it is done today on the beaches of Bangladesh etc. and we have

all seen the horror pictures. But the question is, is it really possible

for us to talk about image when some ship owners, opting to save

maybe $200 or $300 per ton, scrap their ships this way? How will the

public react when they see all the child labour, the pollution and the

effect on the environment.

Arthur BowringCan I just come in here? This is a European problem; it’s not so much

an Asian problem. It’s the European companies which are under pres-

sure from the European NGOs and the European Community organisa-

tions, and really you’re speaking as a Norwegian from Norway, and of

course you’re under pressure from the European NGOs who are putting

you under pressure on this so it’s a developed country issue rather than

quite so much an Asian issue. That being said, yes it is something that

could harm our industry because of the reaction that we get in Europe.

On the flip side of course, the reaction in Europe could result in quite a

large move out to Asia which will only increase the move of the ship-

ping industry to Asia. I think we do need to realise that it’s Europe

that’s under pressure on this one far more than Asia.

Steffen TungeI just want to mention that I agree with you and I think if we’re going

to do something about image, we cannot fragment it even more and

say, OK this is a European problem. I think if you want to do some-

thing about image obviously shipping is a global industry and if we

have a bad image in Europe and we do something bad in Asia, it’s

going to come out in Europe so this ties together. And again it comes

back to this argument about how fragmented our industry is, and some

owners would definitely want to save $200 per long tonnes to go to

Alang instead of going to one of the new scrapping facilities in China

where they do it differently. But hopefully India can get it right and

do it so it complies with the new regulation that’s coming in now on

disposal of ships, lets hope this happens.

Douglas Inch (Cullen Metcalfe)

I'd like to correct or comment on one or two of the comments that have

been coming through about the support provided in Singapore for the

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industry. The Singapore government is generous and has supported and

encouraged the industry very well, but it’s not a free for all or money

being dumped on the industry. We have to fight very hard just now for

some degree of support in the ship supply components of the industry

which obviously is part of the overall total package. Yes there are subsi-

dies in certain part of the industry but not overall and I would not want

visitors to go back with the impression that money is being dumped

willy-nilly into Singapore to create effectively an uneven playing field.

That certainly in all parts of the industry is definitely not the case.

Sean MoloneyBjorn are you getting a lot of money from the government?

Bjorn HojgaardNo I don’t think so. But I do think that Singapore has very cleverly

and very consciously positioned itself to take advantage of the grow-

ing maritime industry. I believe Singapore recognises the maritime

industry to be something like 12% of its economy these days and the

MPA has played a very active role and made it an attractive place for

the business and I fully agree that the centre of gravity is shifting from

west to east in this industry. It is a global industry. And I also think

that we cannot escape the public image of Europe in Asia. I think

what goes on in Europe will have an effect in Asia as well. At the

end of the day, I believe we need to improve the product to improve

the image. And I come back to the need for transparency because

if you can’t distinguish between the rotten apples and the good

apples, how are you going to do anything but say they’re all the same?

So you have to be able to show who are the good guys and who are

bad guys.

Arthur BowringI’m not saying we shouldn’t be doing any ship scrapping, what I’m say-

ing is that the level of awareness in Asia is not as great as in Europe. We

do need to work on this, it is an issue. The new ship recycling convention

when it’s adopted in Hong Kong next May, has the most glaring loop hole

in it, massive loop hole that you can drive a truck or a ship through it and

it doesn’t actually fit the mechanics of the industry. But of course, the

people in Europe feel more sensitive about this issue because of the NGO

work in Europe than perhaps the people in Asia do, but of course as a

global industry we do need to all work on the issue. It is very very impor-

tant. With Singapore yes, you say you’re fighting to get some degree of

support. We know in Hong Kong we get no support. There is no sectoral

support in Hong Kong so you can’t even fight for it in Hong Kong

because it just doesn’t exist.

Douglas InchCan I just clarify: we’re not actually looking for fiscal support but it’s

more a thing for example about the right to employ non-Singaporeans.

The rules across Singapore are not consistent between shipyards and

ship suppliers. So our staff operating costs are significantly higher

than we really feel they should be.

Sean MoloneyLet me bring in Abdul on the conversation here. Abdul do you feel

that ship suppliers get a fare crack of the whip and are you projecting

your image as effectively and as accurately as you feel you should to

the owners and managers who you rely on?

Abdul Hameed Hajah Let me talk about my industry which is a marine supply industry. It all

depends on which country we are based in: if we take a ship owner or

a ship manager or ship operator, he has different views of the chan-

dlers or the suppliers in different countries. We may be quite lucky to

be based in Singapore which most of the ship suppliers here have I

think, not so bad an image. But the images which a ship supplier may

have in cities in remote places in Indonesia or in India, or in Egypt for

instance or Vietnam or South America is completely different. The

vision they have of the supplier is that all ship chandlers are rich men.

I am also involved in the work in ISSA and we have 1,800 members

who are suppliers and every time we get claims from many ship opera-

tors or even chandlers all over the world we have a system where we

choose our members. We have a quality system which is maybe 10

pages of questions which the supplier answers before we choose them.

Sean Moloney- I want to broaden this issue on image because I think it’s really the

way that the sectors are actually viewed, and the way their image is

viewed by their client base. So I would like to hear the comments

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We cannot escape the public image of Europe in Asia. I think whatgoes on in Europe will have an effect in Asia as well. At the end of theday, I believe we need to improve the product to improve the image“

”

Olaf Eek Thorstensen, President, Thome Ship Management Arthur Bowring, Managing Director of the Hong Kong Shipowners Association Abdul Hameed Hajah, President of the Singapore Association of Ship Suppliers Deepak Sen, Managing Director, Swan Shipping Corp

this part of the industry, it is important that the shipping industry and

the IMO in particular, regulates scrapping so that the entire mecha-

nism of ship scrapping is carried out with honour.

Steffen TungeI agree with Olav there because I realise you have a problem with reg-

ulations in India but the last owner who sells it to Alang should be

responsible and not about coming back to the owner. We have dis-

posed of the ship to legitimate brokers somewhere who has bought the

ship to scrap and is taking it away. I agree there should be regulation

but it shouldn’t be a problem for the owner.

Shaj Thayil As long as it is regulated I don’t see an issue. Rather than just left to

a country’s own regulation..

Svein SorlieI certainly agree with Olav. It’s a completely wrong concept that the

owner is made responsible for the quality of a ship breaking opera-

tion. But on the other hand we are not talking about the legal part of

it but about the perception of the NGOs. They hold the ship owners

responsible. If a car manufacturer is going to sell a car in any place

in Europe, he has to contribute to a recycling system in Europe or in

a specific country otherwise he doesn’t get the type approval for the

car. And here again, I think ship owners are responding a little too late

because the obvious thing here would be that in order to make it a

level playing field and in order for newbuilding shipyards to really

sell a ship and be able to register it in one flag or another, there should

have been a kind of a recycling responsibility put on the manufactur-

er as in all other industries.

Sean MoloneyOK, moving back to image. I just want to get some sort of views from

the round table here and also from the audience as to how we can

actually tackle this issue of image. There was an idea and it has actu-

ally been put in motion to set up a shipping industry forum that can

actually start to educate and advertise and get the message across.

What are peoples’ thoughts on how to improve this whole issue?

Arthur BowringIt’s interesting there is another industry initiative. We have the Maritime

Industries Forum which is now being run by Capt Peter Swift and we

have the ICS website on this issue too. So we’ve had a number of differ-

ent initiatives and the Maritime Industries Forum was wonderful, it was

going to do this, do that, everything was going to happen. DNV I think

pledged a whole bunch of money towards it and now we have the other

industry which is being run by Guy Morel. So it’s very much sort of one

initiative after another. But it tends to be fragmented, it tends to be based

very much on different ideas almost like one organisation after another

wants to prove their leadership on the issue and therefore doesn’t support

anybody else’s stuff except the one that it’s doing. We do need to some-

how find the right direction, industry coherence, get people working

together without thought of getting leadership on it, without thought of

getting the publicity on it. Just very quickly on this, I spoke earlier about

the IMO Secretary General's remarks yesterday. We have a problem at the

moment with image with governments and we’ve got to persuade the

governments before July next year, that we are capable as an industry of

reducing our green house gas emissions. And we’ve got to do this before

Denmark in October next year. If we can’t do it, we’re going to come

under the Kyoto II Revision which comes into force in 2012. We need to

show them that we can do it, so therefore they should leave us alone and

Europe should leave us alone and not try and put us under the EU regu-

lation. We can talk about image for recruiting people, talk about image for

the general public, this is our most pressing image issue at the moment

and I think that it's something that we need to work on very very hard.

Sean MoloneyDeepak, you are from Manila: what needs to happen to encourage

Filipinos to go to sea?

Deepak SenThey are surrounded by water so they see boats of one kind or the other,

including the bigger ships arrive in ports. We don’t need to have brilliant

minds to become sailors, ordinary people with enough intelligence can be

good sailor material. Our approach has been to go to high schools just

graduating classes, talk to the principals or senior teachers, and find out

which boys are doing at least better in their academies. We ask their par-

ents, mostly mums come, fathers don’t come and we talk to them about

what we intend to do with the child if the child passes a certain examina-

tion. In the Philippines they see that as an employment opportunity. They

know the biggest homes in the small towns belong to masters or chief

engineers. So the reflection is already there, the image already exists and

it’s all financial so to speak. I found sisters in law or mothers to be more

productive for us to be able to talk to the younger boys to convince them

to go to a maritime school. Image building is a slow affair but it will

always be a good result when there is a need and financial need is a very

big attraction when it comes to attracting people into the industry

Sean MoloneyLadies and gentlemen, thank you very much. ■

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from Sikha Singh from Executive Shipmanagement because man-

agers at the moment are struggling with low management fees.What

are your thoughts Sikha as far as the image that managers have with

your clients the owners.

Sikha Singh (Executive Ship Management)

The industry’s growing, cost is increasing obviously anyone can see that.

What is a cost of a ship manager, and if you’re trying to cut cost because

there is a lot of competition then obviously it is a question of what you

pay, you get. And that’s like any other industry. The ship manager is a

weird sandwich between the owners and the crew and the people who run

the ships so as a ship manager, we have tried to balance between owners

giving the best service, at the same time, everyone wants lower cost. But

I think anybody can calculate and see, that if you’re looking for quality it

has to be at a price. When you order a ship everybody knows how many

are going to come. It’s not a hidden fact but no one predicted the level of

the shortage of crew. And that’s where we have ended up where we are

today, as a ship manager we have always depended on the crewing in the

open market But I can say as a third party manager we have invested

heavily in crew training. As a manager we have to manage the ships but

we had no alternative but to develop our own school. But it’s sad that the

companies coming into the market and picking up crew from India, are

investing in training schools.

Sean MoloneyLet me bring in Steffen. You’re a ship owner, would you pay more

money for a ship management service that’s providing good cadets

and good crew?

Steffen TungeWe are actually a traditional ship owner and we don’t do third party

but absolutely I think it’s very worthwhile what you guys are doing

and I think its going to be very good for your business also that you

are one of the few that actually saw this coming and spent the money.

We have maybe been a little bit behind the curve but we have also

taken quite serious actions to try to raise our number of officers and

crew. Coming back to your question, yes I think some of these rates

are ludicrous that some owners expect to pay for ship management

and I think in order to get professional ship management you have to

pay for it either one way or the other. If you want to be transparent and

open and work with your ship manager who actually tells you what he

is spending the money on is he going to steal from the lub oil or your

dry docking bill? Somehow these shipmanagement companies will

have to pay for their wages and their overheads and that has to be

billed to the owner one way or the other. So I think it should be trans-

parent and on their management fee. We have an internal management

fee ourselves of course. I can assure you it’s a little bit more than most

of you but our overall operating cost is not any higher.

Sean MoloneyWith the pressure now on freight rates and operating costs what affect

is that going to have on the industry’s ability to pay higher manage-

ment fees?

Olav Eek ThorstensenWhat has just happened with the financial crisis makes it difficult and

if you had asked me a month ago then yes it’s time to increase the

management fee and I’m quite sure that a lot of owners will agree to

that also. But with the turbulence now and the prices going down,

what will happen is difficult to say. But to see any increase in man-

agement fees from 2008 to 2009 will perhaps be difficult to see. If I

can make a comment about image and scrapping. Who is responsible

for scrapping? Scrapping is a big business and why should the owner

be responsible, what about the people who buy the ship for scrap, they

should have the operations that are up to international starndards.

People always blame the owner who is selling the ship.

Sean MoloneyHas anybody got any other comments on that?

Shaj Thayil Having been to two shipbreaking yards in India, one in Alang and one

in Mumbai, I would like to say that it is scary, honestly it is scary. It

is scary to be there for a country which has not been able to regulate

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IMAGE DEBATESHIPMANAGEMENT

We have a problem at the moment with image with governments andwe’ve got to persuade the governments before July next year, that we arecapable as an industry of reducing our green house gas emissions. Andwe’ve got to do this before Denmark in October next year

“”

Sikha Singh, Executive Ship ManagementSteffen Tunge, Managing Director, B+H Equimar Singapore Pte Shaj Thayil, Vice President, EMS Shipmanagement Singapore Svein Sorlie, Wilh Wilhelmsen

Why is this important, apart from the obvious need for Asians and

Asia to have a greater say in maritime industry decision-making which

reflects the current commercial reality?

It is important because of the way in which shipping is regulated

globally today. The IMO and its system of globally enforced rules have

so far contributed directly to the economic efficiency of the industry,

and to the prosperity of Asia and the world as a whole.

Asian maritime nations are starting to play an influential role in bod-

ies such as the IMO. But the principle of global regulation for a global

industry is increasingly under threat where countries or regions pursue

national or regional regulations which are contrary to the ones devel-

oped internationally. Asian owners believe this could pose a major

long-term challenge to the efficient regulation and operation of both the

global and Asian industries.

This attitude, evidence of which is more prevalent each day, can only

be successfully countered if the Asian industry takes its leadership role

seriously and actively works to make its voice heard.

While many Asian governments play an increasingly important part

at the IMO and the International Labour Organisation (ILO), the Asian

maritime industry as a whole does not articulate its position clearly

enough in many global maritime regulatory discussions.

A current example of an issue which is vital to all international

shipowners are the discussions at the IMO about the marine environment.

In this debate, it is vital that Asian shipowners' associations – espe-

cially via the ASF – give their views to bodies such as the

International Chamber of Shipping and the International Shipping

Federation which, in turn, can put forward a coherent position on

behalf of the global industry.

Other issues currently being debated include regulations for air emis-

sions, ballast water management and ship recycling.

The regulations introduced as a result of these debates can and will

have a profound effect on the operation of international shipping.

This is an example of just one of many crucial international topics on

which it will be vital for the Asian industry to be engaged if there is to

be a balance between the maintenance of the maritime industry's pros-

perity with society's demands.

There are other global issues for which it is vital that Asian owners

and the industry in the region have a powerful and clear voice - for

example, on recycling, manning, and the criminalisation of seafarers.

These are issues of great relevance to the region and to the industry as

a whole.

Recycling is an issue because the industry depends on a reliable

home for ships at the end of their life. But the industry faces increasing

pressure from environmental and human rights groups to consider the

way in which it is done.

The criminalisation of seafarers is another area in which Asian

owners must make their views heard. Recent high-profile cases in

which seafarers have been jailed or held against their will are worry-

ing and the maritime community must be united in giving the message

to all governments which have signed IMO and International Labour

Organisation Guidelines on the Fair Treatment of Seafarers in the

Event of a Maritime Accident that these guidelines should be adhered

to and respected.

The manning issue is closely linked to this as Asia's seafarers face

challenges in freedom of movement and the growing risk of criminali-

sation for incidents. If this trend of criminalising seafarers continues, it

will make the job of attracting the next generation of seafarers to our

industry even more difficult and the good work of promoting the indus-

try to young people will be undone.

The shortage of trained seafarers for the industry is worrying, and

jailing them could have a hugely damaging impact on the efforts to

recruit fresh talent.

It is essential the Asian industry has an opinion on these subjects and

also takes part in the debate, and following that, is able to speak with

one coherent and strong voice.

That is why events such as the Sea Asia conference, which takes the

whole issue of the Asian voice of world shipping as its cornerstone dis-

cussion, are so important.

Sea Asia 2009 takes place in Singapore next April and its theme is:

'Asian Voice of World Shipping: Clearer and Stronger'. It must be hoped

that for the sake of the global shipping industry, this voice will become

both clearer and stronger in the years to come. ■

Recent events in the maritime sector show that real progress

is being made in efforts to encourage a stronger, more uni-

fied voice for shipping and maritime companies from the

Asian region.

The debate on how Asian shipping can achieve a clearer and stronger

voice on the world stage has been steadily growing as the region comes

to lead the industry in terms of expanding fleets, shipbuilding capacity

and the ever-growing volume of Asian cargoes.

It is important that Asian owners and those connected to the maritime

sector in the region have a stronger voice.

Because so much of the global business is located in Asia, it is up to

the Asian voice to collectively ensure policymakers are more aware of

the critical role that shipping plays in international trade between

nations and the global economy.

More than ever, it is the responsibility of Asians who now lead the

sector commercially to let those policymakers know that shipping is a

responsible, safe, clean and most economical but comprehensively reg-

ulated industry.

For too long the Asian maritime industry has not acted with one

voice, but this is changing and two developments in the past 12 months

are tangible signs that we are now reaching a stage where the Asian

voice in world shipping is becoming clear and coherent.

The first development has been the setting up of a permanent secre-

tariat for the Asian Shipowners Forum (ASF), an association represent-

ing Asian ship owners' interests, in Singapore.

The work of the ASF is important for Asian ship owners because it

is a vibrant forum in which the owners' views can be heard. Via its five

standing committees, which deal with shipping economics, insurance

and liability, recycling, seafarers, safe navigation and the environment,

Asian owners have formulated common viewpoints on these pressing

issues which affect the global industry.

Now, the permanent secretariat (which has a full-time secretary-gen-

eral and support staff) can carry this work one step further and assist in

shaping policy issues which reflect the Asian position that law and pol-

icymakers in the West can hear and understand.

The second major development came more recently when it was

announced that Japan is aiming to form a non-governmental organisa-

tion to represent the interests of Asian shipbuilders at the International

Maritime Organization (IMO).

In an initiative spearheaded by the Japan Ship Technology Research

Association, the Asian Shipbuilders Experts Forum (ASEF) aims to

establish an NGO to put forward the interests of shipbuilders in the

region at the IMO by 2011.

At present, only European shipbuilders are represented at the IMO

via the Community of European Shipyards Associations. An NGO for

Asian shipbuilders is necessary to put forward the views of the world's

largest shipbuilding nations on issues such as goal-based standards,

ship recycling, air pollution and ballast water treatment systems. The

decisions made by the IMO in all these areas have an impact on Asian

shipbuilders.

It is early days for both initiatives, especially the attempt to forge an

Asian voice for shipbuilders. But once these efforts succeed and are

recognised in the global forums such as the IMO, then Asia will be able

to show its leadership qualities with one united voice.

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IMAGE AND ASIA’S LEADERSHIP

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The Asian voice in international shipping is finally becoming stronger and clearer in global maritime forums, says S.S. Teo, Chairman of the Singapore Maritime Foundation and President of the Singapore Shipping Association and Managing Director of Pacific International Lines.

Asia callingloud and clear

For too long the Asian maritime industry hasnot acted with one voice, but this is changingand two developments in the past 12 monthsare tangible signs that we are now reaching astage where the Asian voice in world shippingis becoming clear and coherent

Asian maritime nations are starting to play an influential role in bodies such as the IMO. But the principle of global regulation for a global industry is increasingly under threat where countries or regions pursue national or regional regulations which are contrary to the ones developed internationally

sweeping across the shipping industry, piracy in Bollywood is rife.

Although it might not be of the swashbuckling Somalian variety,

piracy is draining money out of the Bollywood film industry and into

the black market. Strongly paralleling the shipping industry, the crew

are relied upon for the hard graft while rampant piracy undermines their

authority, commitment and hard work.

Factories in India and Pakistan relentlessly spawn out pirated DVDs

by the thousand, shipped all across the world and gradually sapping

revenue out of the veins of the Indian film industry. Finding easy

patrons is no hard feat in the midst of a global financial downturn, how-

ever, allowing the black market to thrive with next to no governmental

intervention or authority.

With estimates standing at $400m for loss of revenue in India’s enter-

tainment industry, the thriving bootleg market is swarming worldwide,

particularly in Britain and the US, and also Pakistan, whose government

has banned the import of Indian films leaving piracy as the only distri-

bution method. Breach of copyright laws is supplemented by consumer

copying, now particularly rife with widespread introduction of internet-

based file sharing.

The ubiquitous nature of pirated DVDs also forms the shape of stolen

ideas, plots and storylines, usually a remake or a copy of a Hollywood

blockbuster hit, and while it not only causes a huge financial sink hole

in the Indian entertainment industry, it is estimated that 800,000 jobs

each year are also lost as a result of piracy.

With broadband now an omnipresent fixture in many Indian homes,

access to websites hosting 6,000 hours of premium video content, all

licensed from India’s leading content owners allows, subscribers to

stream pirated Bollywood films, in private and undetected by the

authorities and all at the mere cost of a few dollars. Generating almost

800% profit margins, copyright piracy certainly isn’t laying aside its

weapons just yet.

Undermining the system may be all very well for the thrifty con-

sumers, but the emasculation of one of the world’s largest industries is

no fair game, especially when in direct competition with the glossiest

empire on the planet: Hollywood. Despite the US being the largest mar-

ket for Bollywood films and home to more than 200,000 Indian million-

aires, the situation back home is flawed.

Insufficient action against piracy is causing the black market to

spiral out of control, facilitated by a sharp increase in the number of

user-generated video-sharing websites, allowing pre-released films or

video clips to be obtained incredibly cheap or completely free

of charge, with the added bonus of being utterly unregulated or

law-enforced.

Despite India’s box office revenues expected to top up to $7.4bn by

2010, the Mumbai-based movie zone is losing out on big bucks from

lucrative copyright infringement, suffering rampant abuse from under-

hand crooks while siphoning off much-needed Indian capital.

Behind the prismatic and effervescent displays of raw dramatic tal-

ent, this illicit enterprise sabotages the profit-making of one of the most

prolific industries on the planet. In an economic climate forecasting

heavy financial drought, action needs to be taken by authorities to fight

the problem of piracy running riot throughout the world; a problem

clearly not just limited to the shipping industry. ■

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On the edge of a vibrant city that lays claim to some of the

richest and poorest people in the world is one of the biggest

entertainment industries on the planet. A plethora of colour,

energetic dance and dynamic music forms the basis of the

largest global film production in existence: Bollywood. A veritable

feast of a visual spectacle, the Mumbai-based film factory fashions the

most colourful and invigorating artistic performances you can set eyes

on; an aesthetic ecstasy in its own right.

But what exactly lies underneath the insatiable appetite of an indus-

try that boasts the production of an average of two films per day? The

blood, sweat and toil behind such creative splendour is evident in the

rolling out of over 850 films a year, and with the Western world now

tucked neatly under its belt with 50% of its total audience; it is a fast-

blossoming global enterprise with universal influence and appeal.

While the Hindi-language movie base may be in overdrive in terms

of production and release, where does it lie in the stakes of glamour and

elite prosperity among the notorious riches of Hollywood? Gleaming

high upon the Los Angeles hillside is the trademark label of the movie

world, and swanning amid the exclusive and clandestine film studios

below are the shining stars of such high brow and privileged vocations,

fully tanned, groomed and polished to perfection.

As the Hollywood film industry swallows up extortionate sums of

money on an international scale, it forms one of the most glittering and

prestigious industries known to mankind, and in its fiercely competitive

hunger for blockbuster excellence, will stop at nothing to achieve epic

success on the silver screen.

The portmanteau of Bombay (the former name for Mumbai) and

Hollywood to form the term ‘Bollywood’, is India’s attempt to create a

whole cinematic league of its own, a world away from the Hollywood

sect. But situated on the dusty periphery of the bustling hub of Mumbai

street markets, it forms whole different pages in the storybook history

of filmmaking.

With far lower budgets than Hollywood film funding, Bollywood

struggles to up the ante in the sphere of world class cinematography.

Given that production generally takes much longer than Western film-

ing due to less sophisticated equipment and special effects technology,

it can be a laborious effort for both cast and crew, often costing more in

production than it obtains in revenue – a distinctly unrewarding ven-

ture, it has to be said.

As Hollywood revels in the sweet golden taste of money, revenue

beaming like the LA sunset on its diamond-adorned clan below, the

Bollywood film industry paints a very different picture. Lurking

beneath the multi-coloured vivacity of song, dance and general ocular

spectacular, is a dark murkiness for Indian capital, as while Hollywood

rakes in total revenues of over $51 billion, Bollywood scrapes by with

a meagre $1.3bn in comparison.

Until recently, Indian banks were forbidden to lend money to film

productions, relying on funding from a few private distributors and

large studios, but despite a lift on the ban, the funding for film produc-

tion is unregulated, allowing some funds to be seeped in through illegit-

imate sources.

But it’s not the only dark side to the eminently colourful and vibrant

façade that Bollywood projects. Mumbai gangsters and mafia hitmen

have been known to intervene the already-volatile system, flexing their

back-street muscles to cinch cinematic deals and film production rights

and exerting gangland criminalities to slash their way into the lucrative

film industry.

An average cinema trip in Mumbai equates to around $3, but strut-

ting the streets of Sunset Boulevard or Leicester Square seems a finan-

cial blow in comparison, costing up to $15 for the sheer luxury of an

LA cinema viewing; a clear chasm between the exorbitant lavishness of

the Western film industry and the meagre mammon of Indian cinema.

So why the Indian film industry might be scraping together the fund-

ing to make ends meet in the production to release stages, Hollywood

sucks in the sweet nectar of success, pouring money into the American

economy like liquid gold. Yet the irony stands in the 3.6 billion ticket

sales the Bollywood film industry boasts – soaring well above

Hollywood’s 2.6bn ticket sales.

Successful it may be, but behind the congenially domestic storylines

based on family dynamics and social interrelations, a hybrid of crimi-

nality and plagiarism undermines India’s sincere effort to make a stand-

ing in the world of cinematic creation. A major predicament currently

92 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

BOLLYWOODLIFESTYLE LIFESTYLE

Piracystillrife in the Mumbai filmworld

With broadband now an omnipresent fixture inmany Indian homes, access to websites hosting 6,000 hours of premium video content,all licensed from India’s leading content owners allows, subscribers to stream piratedBollywood films, in private and undetected bythe authorities

Despite India’s box office revenues expected totop up to $7.4bn by 2010, the Mumbai-basedmovie zone is losing out on big bucks fromlucrative copyright infringement, suffering rampant abuse from underhand crooks whilesiphoning off much-needed Indian capital

The ubiquitous nature of pirated DVDs alsoforms the shape of stolen ideas, plots and storylines, usually a remake or a copy of aHollywood blockbuster hit, and while it not onlycauses a huge financial sink hole in the Indianentertainment industry, it is estimated that800,000 jobs each year are also lost as a resultof piracy

by Amy Kilpin

communication for the crews competing in one of the world’s most

extreme sports. The first leg of the race battled out between PUMA and

Ericsson 4 as they raced to Cape Town, was won, according to many

armchair pundits, on the interpretation of the weather data.

With the upgrade to FleetBroadband, the race organisers put an extra

person on the boat whose sole job is to capture all the scenes, shots and

stories that have previously gone untold and transmit them back to race

headquarters. This person, known as the media crew member (MCM),

is banned from sailing the boat. Like a war correspondent they are

‘embedded’ on the front line reporting the drama as it unfolds.

Inmarsat has put up a prize purse of €20,000.00 for the MCM which

produces the best material in recognition of the tough job they have

meeting the demand for content that is exciting, accessible and imme-

diate. The Volvo Ocean Race is the world's toughest sailing event and

provides Inmarsat with an unrivalled opportunity to showcase its tech-

nology leadership and innovation.

According to James Collett, Director of Commercial Solutions for

Inmarsat, FleetBroadband technology has made this race “the most con-

nected in its history and the MCMs will be using the most reliable com-

munications equipment for the world’s toughest race. The €10,000

award will recognise the person who has had the commitment and stam-

ina to capture the most exciting footage. Our customers know that if

Fleet Broadband can perform well onboard the Volvo Open 70s, in sub

zero temperatures, racing in 40 knots, taking 100 foot waves over the

bow, it will be race proven for their own maritime needs.”

The content-rich pictures captured by each boat’s seven onboard

Sony HD and HDV cameras are arriving four times faster than in the

2005-06 races. Collett added: “Sending back cinematic HD material

from inaccessible places in extreme conditions has never been done

before. The clarity of HDTV is about as close as any of us will get to

the race action without being on a competing yacht. Communication

has come a long way since the race began when ship to shore radio cov-

erage was sporadic and messages often had to be relayed to passing

fishing boats.

“With the media technology onboard no action will go unseen. If it

happens on the boat, it will be on the TVs and PCs of many millions of

spectators around the world,” he said.

The offshore sailors competing in what is considered to be the ulti-

mate race around the world; are tough. It’s not a nine to five job: this

challenge will test every ounce of physical, mental and emotional

strength they have. It takes more than able seamanship to win.

Perseverance, teamwork, determination and an unwavering sense of

humour are essential traits when you are being pushed to the limit phys-

ically and mentally for days on end, navigating some of the world’s

most inhospitable environments.

The crews face extreme conditions during the race, from the wind-

less sauna of the Doldrums to the three-story high swells and 70 miles-

per-hour icy winds that characterise the iceberg-strewn seas of the

Southern Ocean.

It’s an immense physical challenge. Most of us would struggle to

stand upright on a boat hurdling waves at speeds of 30 knots, let alone

hoist and trim sails, and operate the yacht’s complex systems and equip-

ment. Yet crew members perform these activities while being tossed

about and soaked for up to 40 days at a time.

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This year’s race started in October 2008 from Alicante in Spain,

and finishes in the historic city of St Petersburg in July 2009.

In between, the eight Volvo Open 70s will cover the globe and

try to be the first to reach Cape Town, Kochi, Singapore,

Qingdao, Rio de Janeiro, Boston, Galway, Göteborg and Stockholm. The

Ericsson and Telefonica teams have two boats each, the other brand spon-

sors are PUMA and Delta Lloyd. A Russian billionaire is funding Team

Russian and a Irish/Chino syndicate is behind ‘Green Dragon’.

The boats left Cape Town on November 15th racing for Kochi in

India on the second leg of what many says is the most exciting, dramat-

ic and all-encompassing 37,000 nautical mile lap of the planet. From

Kochi these multi million dollar boats with their 12 crew will race to

Singapore in time for Christmas.

The Volvo Open 70s are thrilling to sail, especially when let off their

leash. At 20-22 knots they are only at half throttle but the wake stream-

ing out from the transom is like a powerboat’s at full bore. The new

code zero sails which are allowed in the race for the first time have driv-

en the need for further boat stability which, in turn, has led to some

amazing innovations; for example, the Ericsson boats radiused foredeck

shaped like a ‘heavily cambered road’ to create a more rigid structure

or Team Russia with its ‘powerboat speeds mean powerboat thinking’

development of ‘Kosatka’s’ hull.

There are eight boats in this race. Ericsson has two boats. Ericsson

3 or the Nordic Novices as they are known are out to prove a point

under Skipper Anders Lewander. With veteran Magnus Olsson on

board, laughs and hard labour are assured. Torben Grael’s men on

Ericsson 4 are most people’s idea of favourites for overall honours.

Well-drilled, experienced and driven they won the first leg. The Puma

Racing team hired skipper Ken Read and his crew are the thorough-

breds of the fleet. Quietly confident and full of conviction, they pose a

threat to all comers. Telefonica also has two boats in this race;

Telefonica Blue is skippered by Bouwe Bekking who is desperate to

consign the disappointment of 2005-06 to history. This is not a team to

underestimate. Telefonica Black has a largely-Spanish crew spearhead-

ed by 2008 Tornado gold medallist Fernando Echavarri, and they have

hunger on their side. The Russians' radically-designed ‘Kosatka’ mean-

ing killer whale, can count on the home support of the finish port of St

Petersburg. Its skipper is Andreas Hanakamp. Coming late to the party

was Green Dragon, sponsored by a Chino-Celtic syndicate, with com-

mitted British Olympian Ian Walker at the helm. Walker, despite boat

failures, won a podium place on the first leg coming in third. The

eleventh-hour entry, Delta Lloyd, is led by Irish skipper Ger O’Rourke.

Flying under the Dutch flag, the team is racing, the much-modified

ABN AMRO ONE, winner of the 2005-06 race.

Technology plays a dominate role in this race. Not just in the design

of these truly astonishing boats but in the way that the boats are able to

deliver the thrill of the race to global spectators.

With the boats being able to track each other’s movements using the

highly specific satellite technology, the race organisers introduced

‘StealthPlay’ just to make things more interesting. ‘StealthPlay’ is an

option that allows the boats to fall ‘under the radar’ for 12 hours giving

the team a chance to make a strategic move without the other teams

knowing. A boat is only allowed one ‘StealthPlay’ per leg.

The race is a marketing campaign for many global multi billion dol-

lar brands and Organisers of the Volvo Ocean Race 2008-2009 chose

Inmarsat FleetBroadband because it could deliver high definition tele-

vision and rich multimedia content. Its advanced capabilities have

enabled a global audience of more than 1.8 billion people to follow the

world’s premier yacht race on HDTV, radio and the internet.

FleetBroadband is being used to deliver online navigational and weath-

er updates, report vessel position and course heading for teams and race

organisers, and Inmarsat C will of course provide the essential safety

94 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

ROUND THE WORLDLIFESTYLE LIFESTYLE

It’s good to talk even in 30 foot waves

In its 35 year old history the Volvo Ocean Race has never been moreconnected thanks to Inmarsat choosing to showcase its FleetBroadbandtechnology on the world’s most famous yacht race

Combined with a diet consisting of lightweight, freeze-dried ration

packs, the enormous physical demands placed on the sailors are reflect-

ed by the amount of weight lost during each leg of the race, with loss-

es as high as 11 kilos being reported.

The cramped living conditions also contribute to the mental chal-

lenge of the race. Each sailor is sharing the 21 metre boat with 11 other

crew members so possessing a flexible nature and good sense of

humour is vital.

The crew have to cope with little sleep. Once offshore, the crew is split

into two ‘watches’, which rotate every three to four hours. The off-duty

watch cook and clean before snatching whatever sleep they can in their

pipe cots as the boat smashes through the waves and tacks its course.

Below desk the navigator will

spend several hours a day in cramped

sweaty conditions downloading the

seven day weather forecast, which is

updated every six hours. The MCM

will spend at least two to three hours a

day wedged against the media desk

editing film footage, emailing daily

reports and blogs.

“Communication is vital for the

race organisation and the sponsors, but

its role in crew morale cannot be

underestimated. SMS, email and video

conferencing are all ways to keep in

touch. Routine family life goes on

when these sailors are away, weddings

are planned, family pets get ill and the

children celebrate birthdays,” Mr

Collett stressed.

In the last race Mike Sanderson, the

winning skipper, hummed down the

Inmarsat satphone, in front of ten wet

and tired crew members, the hymn he

wanted at his wedding. One of the first serious casualties of this race,

was Tony Mutter onboard Ericsson 4 who left the boat after the race

doctor decided in a long conversation with the medic onboard that

Mutter’s knee injury was too serious to continue racing. Millions

watched the footage of him swimming to the fishing boat that had come

to take him to hospital while the crew onboard Ericsson 4 got back into

the race, a man down.

On the final leg of this race from Stockholm to St Petersburg the

fleet will be sailing across the Baltic, and then east down the Gulf of

Finland to St Petersburg arriving in June next year. The teams are enti-

tled to hope for clear skies and warm sunshine for the finale. Those with

experience of this part of the world at this time of the year predict that

the sunshine will bring light air, and it will be a slow final leg.

Despite its perilous nature, the extreme conditions and the physical

grind, the world’s top sailors dream of competing in the race. Perhaps

it’s the prestige of joining the ranks of sailing’s elite or the allure of

extreme adventure that draws them, but doing so remains the pinnacle

of achievement for every sailor who does. ■

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LIFESTYLE ROUND THE WORLD