Michael Gray, eminent and long time stalwart maritime journalist with Lloyds List recently wrote an article (http://www.lloydslist.com/ll/sector/ship-operations/article379560.ece) lamenting the lack of public awareness of pirate attacks on ships and their crews.

Laying the blame fair and squarely at the feet of the owners (for hushing it up) the media also got their fair share of the blame for staying silent, thus helping to create a general apathetic view of piracy.

So why isn’t more being done on the public front to make this ongoing tragedy for thousands of seafarers a real social issue! An issue that will be taken up by the media and in turn by the communities at large that will create an outrage sufficient to make politicians fear for their votes – thus creating a climate for the real Government action that’s essential for grass root action needed to solve the piracy issue once and for all.

Is the reason partly because the majority of victims are Asian seafarers? Think of the brief bursts of media attention when the Maersk Alabama with its American Captain and crew was hijacked, or on the release of the Chandlers last year, after their yacht had been hijacked, an event which made the front pages of British tabloids.

These isolated cases show that it is possible to create interest if the desire – but for the media, such desire must come from the actual owners. Why would owners not do it? The commercial reasons hinted at by Michael Gray are certainly valid. Fear of retribution from the Pirates  -  not the illiterate pirates who board ships, but Piracy’s financial backers and investors who provide much of the intelligence on the type and whereabouts of potential target ships – is a major concern.

Whatever the reason, it’s time for owners of commercial ships – the same people that pay the ransoms nobody admits to or is willing to discuss, perhaps for fear of their own legislators who, in their wisdom (?) at times take actions that seem to favour the pirates, as opposed to the victims  -  to stand up and be counted?

Let’s hear some of the views of ex and current seafarers and hopefully owners willing to take a stand?

Though there were no complaints when a Chinese shipyard got the contract to build 7 of the massive 400,000 dwt ore carriers! Seems objections were on basis of Vale cornering the market for bulkers from Brazil to China? Even more worrying seems to be that Vale may be trying to tie up the whole supply chain, from producing to delivery to the Chinese steel mills.

This would then allow them to manipulate the price of both iron ore and transportation as a combined price – and be more competitive with the likes of BHP etc, who are already doing the same by charging higher freight rates for a much shorter trip?

Sounds like good sound business principles, if you can overcome the financial obstacles!

A bit like Chinese Government’s self-professed desire to have the majority of its crude oil requirements carried by China flagged vessels?

Competition is good for any market and stimulates innovation. At Shipping Hong Kong , in February, 2012 – the discussion will be on Business in Shipping. Looking, not only at monopolies, Government subsidies and protectionist policies – but more on the basic principles of “Business”, marketing, strategies as opposed to brokers and Guanxi.

What are your thoughts?

Wednesday 13 July 2011, 16:56 by David Osler

LARGE shipping companies continue to pay bills promptly, despite an increasingly gloomy outlook for the industry and a number of recent high-profile bankruptcies and restructurings, according to research from Lloyd’s List Intelligence.

Almost all of the top 10 concerns in tankers, containerships and bulk carriers were rated average risk or better by credit reports issued by the Lloyd’s List sister company. The sole exception was Cardiff Marine, which was deemed moderate risk.

However, there was some variation in recommended credit exposure, which ranged from the maximum of AAA ($10m and above) for most leading outfits to B ($1.3m) for Dynacom and two companies linked to Ofer family interests, and C ($750,000) for Cardiff Marine.

Cardiff Marine is controlled by Economou family interests, and its fortunes are seen as tied to those of New York-listed Dryships, for which it acts as a manager. The Dryships fleet is heavily committed to long-term time charters, and the fear is that some contracts may prove unsustainable. However, LLI emphasises that Cardiff Marine is believed to be operating profitably.

Other scales used include a payment performance rating, which runs from 1 for first rate to 6 for poor. All companies in each of the three top tens for which data is available were assessed as at least 3, which is the score for satisfactory.

Word that those at the top of the three league tables do not seem to be seeing liquidity issues will come as some relief to many in the industry, given the number of shipping concerns that have sought Chapter 11 or the local equivalent so far this year.

Victims include dry bulk operator Korea Line, Germany’s heavylift specialist Beluga Shipping, The Containership Co and Omega, which operated product tankers. Containership owner Danaos last March unveiled a $2.5bn restructuring, masterminded by London law firm Norton Rose.

LLI has built up a database of 17,000 company credit reports, compiled on the basis of publicly available filings, interviews with key suppliers such as bunker providers and interviews with the subject companies themselves.

LLI senior shipping analyst Christopher Thorby argued: “It’s no surprise that there is buoyancy in the container market, which has improved this year. Certainly companies like CMA CGM and AP Moller-Maersk have no major cash flow problems at the moment.

“The tanker and bulk sectors have not been performing well. The bigger companies have got critical mass, with a large number of vessels, and are paying their bills on time. But we are receiving reports of some companies experiencing cash flow problems in these sectors and we are expecting to see some casualties in those sectors in the near future.”

Meanwhile, a report by Moody’s Investors Services issued on Tuesday rated much big-name shipping debt as junk. Only MISC, MOL, NYK, Kirby and Sovcomflot were awarded an investment grade Baa3 or better.

Those whose debt is regarded as Ba1 to Ba3, which indicates “questionable credit quality”, included such big names as BW, Stena, CMA CGM, Hapag-Lloyd, Navios, OSG, Teekay and Excel.

In addition, American Petroleum Tanker, Horizon Lines and Trailer Bridge are put at Caa1-Caa3, which on the Moody’s scale points to “poor standing and subject to very high credit risk”.

Moody’s reiterated its bearish stance on shipping as a whole over the coming 12-18 months, predominantly on the back of continuing oversupply of vessels.

A partial exception was made for Japanese shipping conglomerates, which are singled out as less likely to feel the heat than peer companies elsewhere. “This is because their scale, diversification and strong relationships with customers act as mitigating factors,” the ratings agency said. While the earthquake and tsunami earlier this year did disrupt cargo flows, especially for car carriers, volumes are likely to return to pre-earthquake levels by the fourth quarter.

CONTAINER TOP FIVE CREDIT RATINGS

Source: Lloyd's List Intelligence

TANKER TOP FIVE CREDIT RATINGS

Source: Lloyd's List Intelligence

BULKER TOP FIVE CREDIT RATINGS (Source: Lloyd's List Intelligence)

Shipping is underfunded, but opinion is split as to whether bankruptcies will rise.

PENURY in shipping is a popular topic over which to beat your chest (or your drum, depending on taste). So it is fair to ask: is this so-called truism over-egged?

Everyone appears agreed that shipping has “money issues”. However, opinion is divided on whether this will lead to more pain in the shape of company failures, or whether cries about a paucity of cash are a popular “lecture-circuit” theme, even a lucrative business for some pundits, but have little practical relevance.

Speaking from the advertorial pulpit of last month’s standing-room-only Marine Money Week in New York, big-hitters from all corners of the shipping industry proved conclusively that the industry is underfunded and that ship finance has undergone a fundamental change.

However, they did little to answer two big questions: which of the scores of distressed individual shipowners will survive? How long will it take for freight rates to improve, especially since more ships continue to be ordered regularly?

To set the stage, we review the basics of ship finance.

Outside old family wealth, which few will talk about let alone reveal, there have traditionally been two avenues down which to bankroll shipping operations: bank loans, and “public” markets — typically, shares and high-yield or secured bonds.

Since 2008, both fountainheads have dried up.

The starting point is bank lending. Traditionally, the business of ships has worked on the basis of 70%-80% bank debt and 20%-30% equity. Owners repay principal gradually and pay mortgage interest, and hope to have enough profit left to earn decent returns on the 20%-30% equity.

The 2008 meltdown turned this concept on its head. Bank lending at one point in 2009 was rumoured to have disappeared completely.

Statistics since then have proved that the bank market “has opened up”. Decent amounts of loans are available again.

This is not enough. Nordea Bank global head of shipping Hans Kjelsrud said most available cash is reserved for “household names”. This means a vast majority of owners remain out in the cold when it comes to buying assets, or often, paying daily expenses.

Seward & Kissel partner Gary Wolfe, who is not a financier but who as a lawyer has seen scores of financial documents, agreed that bank financing today is “lower than the good old days”. Mr Wolfe identified two other factors that pose a challenge to borrowers seeking cash.

The traditional model of 70%-80% debt is no longer viable. Lenders nowadays appear willing to advance only 65% of the asset value even to reliable clients.

“Those days have gone; today, mortgage, if available at all, is usually 50% for the rest of the borrowers,” said Compass Maritime Services managing director Basil Karatzas, a senior financier.

The second challenge, said Mr Wolfe, is that it costs more to take out a shipping loan today, despite low interest rates around the world. This is because typical spreads over the London Interbank Offered Rate have nearly trebled since 2008 — from 100 points before the Lehman Brothers collapse to 300 points.

Seaspan director Graham Porter listed some other emerging challenges. Tougher regulatory requirements and the looming threat of a Euro zone contagion catalysed by Greece would affect all major European banks, and all of them are “shipping” banks, Mr Porter said.

Even without these additional burdens, he estimated that bank lending capacity currently is only 20% of what is required by the industry. In Mr Porter’s view, this represents an opportunity for “new sources” of cash, including secured or convertible bonds.

This is where the “public” markets come in. The fact, however, is that only already well-heeled players such as Seaspan can tap this source of cash.

The market for initial public offerings in shipping is almost closed. Save for “special circumstances” IPOs such as in the case of Box Ships in the container sector in November 2010 and Golar LNG in liquefied natural gas this year, there have been no new issues at all since the first quarter of 2010, which saw a mere three IPOs.

Here again, statistics tell only half the story. Holland & Knight partners Francois Janson and Frode Jensen said there were 28 US equity offerings by 20 shipping issuers in 2010, realising $3bn — a 13% increase over 2009, which saw 21 offerings by 14 issuers.

However, 24 of the 28 issues in 2010, and all of the 2009 ones, were follow-on offerings by listed companies

“While 2009 was really an awful year for IPOs, it was perhaps one of the best years for follow-ons,” said Mr Wolfe.

This has changed. Although a few deals have closed in 2011, the year so far has been tough even for follow-ons.

For several listed companies, whether they care to issue follow-on shares or not, anaemic share prices pose another challenge. Some experts link this with abysmal freight rates, which in turn, at least in part, are caused by too many ships.

On this backdrop, the penury of shipping today would appear to be an established fact. However, Mr Wolfe said the issue is not so simple.

Specifically, he pointed to the number of newbuildings still being ordered in every sector. Separately, despite talk of “slippage”, more ships continue to be delivered than the world needs. This happens only because these ships found the cash somehow and from somewhere, never mind underfunding.

“So where is this money coming from? One seriously wonders if all this talk of under-funding is, in fact, merely theoretical,” said Mr Wolfe.

Frontline vice-chairman Tor Olav Trøim believes he knows the root cause of the trouble. From the Marine Money podium, he blamed China for having “destroyed the market” by building and financing too many new ships.

Mr Karatzas agreed with the motifs presented by Mr Wolfe as well as Mr Trøim. However, he belongs to the camp that believes something must give.

“It was fashionable to walk around at Marine Money, telling one another that we all felt ‘cautiously pessimistic’, but this is a major understatement. We all need to be much more negative,” Mr Karatzas said.

“We have not seen the worst of it yet — we are not even close to having seen the worst of it. How much money is any typical shipping company making at today’s rates? How much money does it have to pay for operations alone? Then we have loans and instalments. How many times will banks grant waivers?”

This scenario, aired several times before, would see a spate of shipping company collapses on the backdrop of slightly firmer ship values since the lows of 2008-2009, as lending banks finally lose patience and become bold enough to pull the plug on their outstanding loans.

Last week’s bankruptcy filing by Omega Navigation lends credence to this theory, and underlines Mr Karatzas’ fear that a raft of bankruptcies could yet happen.

However, the same thing was said after the Eastwind Maritime bankruptcy in 2009, the AHL Shipping and Trico bankruptcies in 2010, and the Korea Line bankruptcy this year.

From where we sit, the fatal surge in shipping company bankruptcies still appears nowhere in sight.

So who is right?

Overall, we believe that the Fund for the shipping industry now stands at the equivalent of USD 10 billion – although questions hang over the currency issue, i.e. the split of lending between Renminbi and USD denominated loans.

Our information suggests that any reduction in lending is for the USD loans, with local shipping loans, in Renminbi , seemingly not affected to any great degree. The reported decline in lending from the Chinese banks could well be more to do with the over heated property sector than the shipping industry.

In terms of the availability of funds from the Chinese banks for the Greek market specifically, the preference from the Chinese banks is obviously for Renminbi denominated loans – and it is now up to the Greek operators (and indeed any other foreign shipowner) to be creative in their quest for funding from the Chinese banks.

One entrepreneurial Greek owner, chatting to us last year, came up with a novel way of overcoming the currency issue. He was adding a general trading element to his overall operations. He is finding goods to export to China, which he buys in USD and sells to the Chinese in Renminbi, keeping the Renminbi in China to fund his Renminbi loans from the Chinese banks, for his newbuilding activities.

As European markets look for paths to a steady recovery, China’s banks are showing the way but only – if you play by their rules. Already China has surpassed Korea as the leading shipbuilding nation and Shanghai, Shenzhen and Hong Kong rank among the top four busiest ports in the world. 

So with Chinese banks opening up and increasing their lending capacities, local and international ship-owners need to find ways to take full advantage of the Banks’ desire to exert their influence on global markets.

Shipping Hong Kong week– with an array of conferences covering all major issues – offers the perfect opportunity for shipping professionals to keep up to speed with the changes and developments in Greater China and the rest of Asia.  Join the global shipping community gathering in Hong Kong for 5 full days oriented to learning, networking and creating your own deal flow – 27^th February to 2^nd March 2012.

To find out more and share your thoughts relating to Shipping Hong Kong follow us on facebook, twitter and linkedin groups. 

A second deadline of January 1^st, 2012 has been put forward and owners/operators are being advised to sign pollution clean-up agreements with local Chinese pollution control providers in advance of the date.

From the 1^st January next year the People’s Republic of China’s Maritime Safety Administration (MSA) plans to implement new rules on the prevention and control of marine pollution from ships – which will be enforced in all Chinese ports. However, with slow progress in finalising the regulation there are a number of issues that still need to be resolved, of which both shipowners and charterers ought to be aware of.

The International Group (IG) of P&I is currently preparing guidance on the regulation including review of a pro-forma contract which requires that owners or operators of all ships carrying polluting and hazardous cargoes in bulk along with all other vessels of above 10,000 gt need to enter pollution clean-up contracts, with an MSA approved pollution response company before the vessel enters a Chinese port.  Therein lies the first problem.

P&I clubs are urging members not to enter into any contracts before the IG guidance is issued, but until then it is worth thinking about the following points.

The first problem lies with the MSA approval of appropriate pollution control providers which are classified as level 1, 2, 3 or 4 status – each level relating to vessel size with level 4 at below 600 gt scaling up to level 1 at above 10,000 gt (see the full rating table here). The 31^st August 2011 is the date given for announcement of approved pollution control providers at levels 2, 3 and 4 only, with level 1 approvals to be released later in the year.  Even if the August date is met, the core of the merchant fleet calling at Chinese ports will be looking to seek a level 1 contractor. 

So how can owners with vessels of 10,000 gt begin to engage in contracts for level 1 responders, without an approved level 1 list? Welcome to China!

A second contentious issue is the term “operator” which although defined by the China MSA as the owner, manager or actual operator of a ship, does not discount the possibility of the charterer becoming the mandatory signatory of the pollution control agreement. 

In Chinese ports such as Ningbo and Shanghai, we already heard of the Charterer as being the only acceptable signatory on agreements relating to regulations on disposal of oily waste.  The Authorities may well look to the party with the “deepest pockets” as being the signatory?

As a result of this issue over the definition of “operator” – it is often a fact that the oilsludge collector remains the de facto pollution control provider.

Even in this technological day and age, it can be hard put to stay on top of the complex and administrative changes in China’s Mainland.

Hong Kong’s advantage – as the Gateway to Greater China – lies in its understanding of China (in English as well as Chinese), while maintaining its English Rule of Law, its specialised shipping professional support services and specialised international ship banking facilities. All of which means there is no better place for unfiltered news from Greater China, Korea and Japan – and all in English.

The global shipping community will have the opportunity to stay in the loop of all that is going on in China and the rest of Asia during the many events of Shipping Hong Kong week. 

Why not share your thoughts on this subject or any relating to Shipping HongKong on our blog, our facebook, twitter and Linkedin groups.

In a report by the Bloomberg Economic Momentum Index for Developing Asia, China was ranked first among 22 emerging economies to maintain steady and rapid growth over the next 5 years, with a score of 76.2 percent compared to second ranked India with 64.1 percent and surprisingly, Vietnam was 3rd with 61.9 percent.

The statistics suggest that China and India will continue to drive the world’s economies and the shipping industries of both countries and indeed that of Korea with its massive shipbuilding industry – all seem destined to play a major part.

“Shipping Hong Kong” with its week of shipping and other maritime related conferences plus a 3 day maritime exhibition at end February 2012, will be a focus for this part of the world to the global maritime industry.

Why? To make a big noise about being the Gateway to the shipping powerhouses of Asia (Greater China, Korea and Japan) – with the inaugural Shipping Hong Kong week.

A week long series of events (Exhibition, Forums, Meetings) to attract shipowners, shipmanagers, shipbuilders, professional services and other shipping sectors to Hong Kong.  The event will attract shipping executives from within Hong Kong, from China, Korea and Japan as well as industry leaders from Europe and the US looking to make personal contacts and learn about the intricacies of doing businesses in China, Korea and Japan. The week showcases Hong Kong as a primary shipping hub for Asia and the Gateway to Greater China, Korea and Japan.

From Asia and Europe – to Hong Kong, where East meets West. Watch for updates on our maritimemarketing website and our social media- and watch the future unfold, right here, where the entrepreneurial and free enterprise spirit still reigns supreme.        

Already featuring within the week is ChinaMaritime 2012 which will host a 3 day shipping exhibition from Tuesday-Thursday at the HK Convention & Exhibition Centre, plus we are looking at Forums to be arranged on the following topics:

China's Shipping Industry

Shipbuilding Design/Technology

Shipmanagement

Alternate Financing

Professional Services

Crew Education and Training

Risk Management/Piracy

These topics will be added and refined to reflect areas of shipping where Hong Kong has shown strong leadership qualities, as well as areas of interest to the local shipping executives in Greater China, Korea and Japan.

Comments and enquiries from organisations and maritime conference organizers, welcome.  Do contact us if you would like to further your presence during what promises to be an eventful and stimulating week for shipping.

email: info@maritimemarketing.com.hk.

However, the conglomerates are few in numbers compared to the thousands of owners with between 2 to 20-30 ships, that comprise the global shipping industry. Do these owners really care? The actual decision makers who ultimately sign the cheques may not be as interested as the technical guys on a salary.

Are the owners, the people who sign the cheques, just paying lip service to ideas that sound good to special interest groups, to legislators and politicians seeking to win another election – ideas that are not practical at this stage? Until the legislators create policies that are enforceable and owners have no choice, how can you get their genuine support?   

A story I just heard today illustrates the priorities (and not necessarily incorrectly) of the average owner.  An owner was meeting with his technical staff and discussing ways to ensure that future vetting inspections would be successful. One of the management people stated that they had it all under control, to such an extent that they should start marketing the company and telling people what a good job they were doing.

Unfortunately, this did not go down well with the owner who, quite forcefully, remarked that they needed to focus on passing vetting inspections, not marketing, to ensure that their ships could pass future vetting from charterers.

Is this the same as owners saying new technologies are great but they will also bring us new headaches and more possibilities for errors that will end up creating financial problems?

There is no doubt that technologies in the maritime and energy sector will greatly shape how we trade, work and ultimately live in the future. Demand for technological advancements in the maritime sector will not and cannot stop, and rightly so. But the success and speed of the implementation of new technologies still rest with the owners.

Herein lies the problem, getting the majority of owners to take technology innovations seriously.

This lack of interest by owners en mass can be seen by the lack of interest in forums and conferences around the world, where delegates are often the same few dozen ‘experts on the subject’, occasional finance people who talk about the available funding for new technology and of course the legislators and administrators who understand and see the academic and perhaps even the theoretical side – but who have no say in the commercialisation of new technologies.

We need owners to show their support by using their financial clout and their assets (ships) to help find ways to commercialise innovative new technologies, to provide a platform for trialling new technologies and to spend their own time to bring a higher level of interest to innovative technology as a means to improve the bottom line – not just as another expense forced upon them by ‘do-gooders’.

What are some examples of innovative technology for shipping? Classification societies as are primary sources of trying to bring new technologies to market. For example, DNV have recently released a report:  Technology Outlook 2020 – which reviews shipping, energy and power systems. For a broad view of what’s around please follow this link:  

http://www.dnv.com/moreondnv/research_innovation/foresight/outlook/index.asp

We would love to hear your views on the above subject, as it is a topic that’s emotional as it is subjective.

maritimemarketing team

The worlds leading independent shipmanager has not been shy in declaring its intentions to make an acquisition in Asia’s shipmanagement sector by the end of this year.

Group chief executive Clive Richardson made clear the ambition to stay well ahead of the game by finding a partner that is “well installed in an emerging market where tonnage is going to be growing for the next decade”.

Mr Richardson identified the “huge shift” that is taking place in shipping towards Asia as more and more global trade takes place in the region. In light of this the Asian region needs partners that understand the challenges on the horizon – increasing operating expenses, increased regulation, crew shortages and the growing difficulties of large-scale procurement. Chinese shipowners, and to a lesser extent those from South Korea, could benefit from such partnerships with international shipmanagers, he said.

Nonetheless, doing business in China could be challenging and Mr Richardson notes “it is not easy to get the licenses needed to operate in China”.  Partnership with a well installed Asian company would help alleviate such regional challenges.

Mr Richardson said Hong Kong offered some advantages to shipmanagers wishing to operate in mainland China because it allowed them to avoid some of the “esoteric” registration requirements on the mainland.

Univan Ship Management is an example of a company that grew its China-focused business despite the presence of other large shipmanagers in Hong Kong.

Who could be the possible candidates for an acquisition by V.Ships is anybody’s guess.

But identifying attractive markets and potential partners is only part of process of a successful merger. The difficult bit, Mr Richardson said, is whether there are operators out there that are willing to engage with V.Ships – for their own interests and the wider interests of the sector.

These are the kind of deals that will be made in the many meetings during Shipping Hong Kong.