BIMCO General Meeting in Athens: Shipping in Transition
At an unusual time for the shipping industry, suddenly plunged into recession by the banking crisis and struggling to find credit as world trade declines, ?Shipping in Transition? was an appropriate title for the series of seminars arranged for the Athens General Meeting. These were well attended and enjoyed a high level of interaction with members, who enjoyed high quality presentations by expert speakers. A full report of the meeting will follow at a later date. This preliminary report seeks merely to capture something of the flavour of the events, which covered the state of the industry vis-à-vis world trade, the condition of the respective markets, security problems focusing on piracy, the challenges on the manpower front, and environmental issues. BIMCO members are drawn from every conceivable sector of shipping, and there was plenty in this programme for all.
Shipping does not need to be defensive about its record, and the BIMCO General Meeting was a further chance to emphasise that it is the most efficient transporter of goods, its international credentials and the importance of global standards and regulations. With the Copenhagen Climate Change Conference imminent, it was important that there is a fair and proportionate representation of the industry at this important meeting.
And it was impossible to escape the background noise of an unprecedented financial crisis affecting all nations to a greater or lesser extent, and which was hugely affecting the fortunes of shipping. Were there any signs of recovery? Patron of the General Meeting Mr, Anastasis P. Papaligouras, Minister of Mercantile Marine, the Aegean and Island Policy, was modestly optimistic, pointing out that the economy was no longer in ?free fall?, with some indications being observed that the world economy might have stopped contracting. There were opportunities emerging from the global crisis in addition to challenges, a message which was happily repeated elsewhere. It was, for instance, a chance to develop new international policies for shipping and viewed from a Greek perspective, a chance to improve entrepreneurship, modernise ships and ports and take advantages of the changes taking place. But crisis brought fresh challenges that required energetic action, such as the possibility of unfair protectionism and problems with failure to respect treaties and conventions.
Shipping, concluded the minister, remained the backbone of the nation"s economy, it would remain of vital importance and there was a need to acknowledge these facts in difficult times. It was a positive message that got the General Meeting off to a positive start.
State of the Industry
A conversation on the state of the industry, chaired by the BBC"s Jeremy Hayes, and involving NOL"s Ron Widdows, Clarkson"s Dr. Martin Stopford and Harsha Vardhana Singh from the World Trade Organisation, offered a fascinating insight into the economic climate the industry was facing at a time when world trade had contracted for the first time since 1930. And it is a complex and fascinating picture they were trying to decipher, in a volatile period following an unprecedented boom fuelled by easily available credit, which saw demand for goods, raw material and energy soaring. And in an industry which in the past had seen great variety in the duration of previous recessions, it was almost impossible to judge either how deep or how long would be the present slump in demand, exacerbated by the astonishing surge in the supply of ships from a swollen orderbook. There were further complexities arising from changing trade patterns, concern about the continued long-term viability of some banks, and growing worries about protectionist measures. This emphasised the need for legal frameworks for multilateral trade, and measures that would encourage the free flow of credit.
The lack of precedents made any form of forecasting of the pace of any recovery almost impossible. There was some optimism that recovery might be encouraged by the fact that governments have intervened on an unprecedented scale, along with a certain buoyancy and strength in the emerging economies, such as China, where a focus upon domestic growth, environmental improvement and education would see this vast country becoming closer linked to the world economy. This more positive message about the emerging economies, notably when viewed from Asia would be a counterweight to the pessimism of the west during the meeting. There was a need to look more closely at the developing world, too, observing the increasing spending power of even the rural poor.
At the same time it was impossible to deny the trouble the industry was facing from the sudden decline in demand for ships. Even though the industry is accustomed to recession (spending some 60% of its time in such a condition over the years), the speed of the swing caught the industry ill-prepared. The huge overhang of tonnage still to be delivered, changing trade patterns, demographics, and consumers changing their spending habits, all would appear to aggregate to a lengthy period of famine for the shipping industry. Is this unrelieved bad news? While this particular audience was unlikely to cheer the observation to the rafters, it was pointed out that five years of cheap freight rates might be an excellent stimulus for world trade!
The Market Session
The balance between crisis and opportunity formed the basis of a fascinating tour through the shipping sectors, viewed from both the owners" eyes and the standpoint of those who used their ships, along with comments from the shipbuilding world and that relating to finance. Moderated with aplomb by Philippe Louis-Dreyfus, shifting trade patterns and market drivers were examined in respect of the three sectors by Angeliki Frangou of Navios, Tom Beney of Cargill speaking for dry bulk, Varun"s Yudhishthir D. Khatau, and Total"s Philippe Evrard commenting on the tanker sector. The situation in the liner sector was covered by BIMCO President Designate (now President) Robert Lorenz-Meyer of Ernst Russ, with Otto Schacht of Kuehne+Nagel. Turbulence in the shipbuilding world was described by Dr. Rheinhard Lueken of CESA, while an economic and financial perspective was provided by the distinguished London Evening Standard commentator Anthony Hilton.
There was a need to restore scepticism and prudence into decision making in the dry bulk market, it was suggested, after a period where the industry had forgotten its cyclicality. At a time when the industry was facing the most challenging period since the 1930s, with its violent corrections, there was a need to look at the long term, as it comes to terms with a lot of decisions which have been overtaken by events. Were there any positive signs? Adversity tends to provide new leadership and new organisations, the urbanisation of populations and fiscal stimuli could provide positive impacts. Nevertheless, the reality of the freight market collapse could not be ignored, there was a need for better financial risk management, new tools to assess risk, and a less rigid and more flexible approach to contracts. China and India might have ?paused?, but there was some evidence that confidence might be returning. Was this a false dawn?
The only way to look is ahead and in this direction is to be found the assurance that eventually, no matter how serious is a recession, the recession does end. And in the east at least, it was possible to see the seeds of recovery emerging. In India, one of the world"s biggest refining industries was emerging, consumption levels were increasing, and there was some confidence in a sustained demand for oil, gas and bulk.
But there was a need to make a bridge to the other side of the recession, a need ?to endure?. Survival required a continuous access to capital, thus much was dependent upon the restoration of confidence in the financial markets.
If the world had ?avoided Armageddon?, there was still a great divergence between reality and expectation, and a need for OPEC to bring back stocks to a normal level. There were 400 million bbls of oil ?waiting for a market?, some 70 million of which could already be afloat. Additionally, there was an untenable surplus of more than 30% surplus tankers, which cannot be controlled merely by slowing down steaming speeds. A ?purge? of the orderbook, possibly of 50-60% of what was on order, would be necessary to promote tanker market health. It was not an optimistic picture.
And a still worse scenario obtained in the liner trades, which were handicapped by the fact that they did not have surpluses from several years of healthy trading behind them as they entered the recession. Tramp owners in particular are being hit from all sides, with charter rates sinking and an inability to finance the newbuilding orderbook, of the large ships which they needed to build. There was a backlog of 50% of the existing fleet still to be delivered, and the utmost difficulty in cancelling or postponing deliveries. Moreover, the fleet was young in relative terms, while recycling would only remove a small proportion of the available container slots. Speed reduction was an obvious strategy, although layup was only ?a band-aid?, and there was a need to reach some accommodation with the shipyards.
From a shipper"s point of view, there was a belief that cargo would be 10% down this year, next year perhaps recording a small increase. Importantly, the perception was that at today"s rates, no shipping company will survive. And while rates unarguably need to increase, the question must be as to how much they can. And despite the unpromising picture, there are opportunities for forwarders, who seem certain to increase their influence, growing the amount of cargo they are responsible for, well beyond the present 33% of sea freight, as carriers cut costs by closing their offices. More professionalism with better IT solutions will help to upgrade the efficiency of the logistics chain.
As for shipbuilders, these are going through ?turbulent times, heading for serious overcapacity as the huge expectations and massive orders experience a violent correction.? Greenfield yards will see the bulk of the cancellations, while it is suggested that for the next three years production will remain static. Niche markets, perhaps, will be less affected. But the situation remains dire as yards do not have reserves, not having made huge profits during the recent busy times, and the newcomers, the environment, the west will all suffer, while the shift in market share to the east is likely to continue. The industry meanwhile would have to cope with globalisation, climate change issues, new rules, and a demand for more quality.
There was a clear need for a greater consensus, with the WTO not involved in shipbuilding and the OECD unable to influence events so far. If there was any room for optimism in shipbuilding it might be in technical improvement and better quality. There was, it was suggested, a need to ?re-invent shipping?.
But looked at from an economic standpoint, the future of the industry does not seem secure, as the world comes to terms with the dual shocks of a collapse in credit and oil price volatility, all exacerbated by the banking crisis. Banking recovery will not be speedy, perhaps another three years before there some stability, with more contraction in the interim. And while there has been massive government intervention, this itself tends to defer the adjustment, even though it stops immediate pain. We are dealing with problems that are bigger than governments, and on an unprecedented scale.
What does the future hold? Growth in the west of about half of what we are accustomed to, and a ?different form of globalism? with the west unable to buy the products of Asia in anything like the same quantities. The need for intra-Asian growth was self-evident. Reasons for optimism, it seemed, were in short supply.
Piracy- the lessons learned
Hitting the headlines in the shipping press each day and more often reaching the mainstream media, piracy has been translated into a major matter of global concern. So Horizon Lines" Michael T. Bohlman, chairman of the BIMCO Maritime Security Committee chaired a session on this important subject. Claus Thornburg of Clipper, whose ship had been a piracy victim, R. Admiral Brian Salerno of the US Coast Guard and Commander David Lintern of EUNAVFOR, Brussels based co-ordinator for the EU"s naval force in the Gulf of Aden were available to give an up to date assessment of this menace.
Practical advice on an unfamiliar situation is essential if a ship is seized, and while there is no alternative in sight to the payment of ransom, the negotiation of this requires expertise if trust is to be established. Priorities, which include the victims" relatives, the media, negotiations and redelivery all require careful consideration, while it is clear that the pirate negotiators are themselves unscrupulous in their efforts to raise the ransom level. There is a need for a political process, if the problem is ever to be properly dealt with, a need for training, and some resolution on the issue of armed guards. Private armed guards are not seen as acceptable, although soldiers put aboard, under the command of an escorting warship are an acceptable option.
The despatch of warships to the Gulf of Aden and Somali basin had been generally effective, having reduced the number of successful attacks. Naval vessels tasked to protect ships carrying World Food Programme cargoes to Somalia were hampered by the age and poor quality of the cargo ships chartered. The task of protecting merchant ships in general is hampered by the shortage of warships and the limited military assets available, notably in the open ocean in the Somali Basin. Pressing needs included an ability to successfully prosecute captured pirates, with human rights issues to consider. Uncertainties included the duration of the mission, with the EU only authorising it initially for a single year. There was a need for the industry to keep lobbying governments to maintain support, and to press for long-term solutions.
There was however some satisfaction at the fact that forces had been tasked from 28 different nations, with a high level of albeit unofficial co-operation between commanders. Systems for communication were well-established, and information being promulgated through an effective means. BIMCO"s contribution was acknowledged. And there was evidence of emerging ?best practice?, with three quarters of unsuccessful pirate attacks being on merchant ships who used their training successfully without external assistance. But the ?low and slow? vessels remained vulnerable.
The sudden change in the fortunes of shipping might have encouraged some people to think that the anticipated manpower shortages would be reduced. Peter Cremers of Anglo-Eastern, Shanghai Maritime University"s Professor Yu Shicheng and Inmarsat"s Piers Cunningham provided a perspective on manpower in these volatile times.
Manpower shortages will not go away, was the consensus, with shortages of experienced people likely to remain for the foreseeable future. Experience is a major issue, quality and accident-free operations an expectation, with newer ships being more complex and requiring better trained officers to man them. There was a problem in that shortages had already accelerated the pace of movement through the ranks with officers reaching senior ranks 33% faster than they had done in the past. This clearly brings its own problems.
In the colleges, there was a shortage of good lecturers, and a need to upgrade the pay and conditions to attract better teachers. Afloat, there was a need to improve both recruitment and retention, to persuade people to train rather than poach and to provide more training places aboard ship. There was also a great need to address the fact that real expertise was spread too thinly, that more maritime interests were fishing in the same pool of talent, and a need to make seafaring more tolerable an occupation, with good conditions afloat, and good career prospects.
There was some evidence that the crisis was discouraging people from moving jobs, or coming ashore, while it might well make it more or a ?buyers? market? for sea skills. Nevertheless, the specialisation of these was becoming an issue, with manpower planning more complicated as the STCW revision looked certain to make seafarers rather less flexible, even if they were better trained. There are issues about the amount of sea time available during training, the demands of the maritime infrastructure and the need to make training more ?customised? to the specific ship, or company. This implies that the shipping companies will become more involved with training establishments.
Can life at sea be improved by better facilities? Communications is a major issue, with modern seafarers, particularly the young, being unwilling to accept the isolation of the past. Social communication is a massive market ashore, and gradually, this is being made available for seafarers. People who are used to ready access to phones and internet ashore want this afloat, at a price they can afford. Owners who wish to hire and retain the best crews must address the issue of crew connectivity ? a buzzword of our times.
With the shipping industry bound to increase its efforts to mitigate harm done to the environment, and the Copenhagen Climate Change Conference imminent, this important session, moderated by Singapore"s Mary Seet-Cheng, aimed to provide a balance of different views. The economist Kirsten Halsnaes of the National Laboratory, Copenhagen, The European Commission"s DG Environment policy officer Mark Major, Byron Bunker of the US EPA, Henrik Madsen of DNV and the IMO"s MEPC Chairman Andreas Chrysostomou formed the panel of speakers. It was suggested that the industry could not ignore perception and that solutions are required to be practical and inclusive. Could shipping initiate improvement, rather than await regulations?
There seemed little argument about the need to reduce global emissions, the political imperatives demanding that the developed countries pay more to ease the burden on the developing economies. There was still no consensus about whether market-based solutions, rather than taxes were more appropriate, still some hope that efficiencies and benefits might flow from technical improvements.
Doing nothing was not an option for the shipping industry, with the EU watching closely to see that the work at IMO was productive, with the ultimate threat of regional laws if the result was not to the liking of Brussels. Global action was clearly preferable ? regional action was ?sub-optimal?. At least, it seems that the risks of modal shift as a result of burdening short sea shipping with new costs has been recognised. But there was still a risk that shipping might be perceived as dragging its feet.
Meanwhile, the very real prospect of an emission control area up to 200 miles off the North American coast is being developed across the Atlantic, as the US tries hard to improve air quality, which has been shown to have serious health problems. MARPOL Annex VI has been seized upon as an effective weapon, offering major improvements from its implementation. Thus a public policy case, proved by cost benefit analysis has been made for strict emission control. Implications for shipping are considerable.
But shipping can do a great deal to increase its sustainability and reduce its emission footprint, through a range of operational and technical developments. Many are older ideas, initially developed to counter high fuel prices in the 80s, being revisited for their environmental benefits. Design, operational changes, fuel improvements, infrastructural efficiencies ? even better charter parties, could be beneficial. Hull shapes, propeller and rudder design, new coatings, electronic engine controls, everything from waste heat recovery to wind assistance could produce benefits. By 2030 a 50% reduction in emissions was a distinct possibility, with such improvements in the existing fleet. ?Breakthrough? technology could produce something even more startling.
It makes good sense for shipping to reduce its emissions, as that way efficiency ? squeezing out all the energy from every ounce of fuel ? would be improved. Worth noting what the industry, under the IMO has already done, in the reduction of SOx and strategies for the development of fuel efficiency management plans.
But with Copenhagen looming, there are still unresolved issues for the industry to determine as it goes into this vital meeting, which will shape the way ahead. Best that it is all driven globally, by the IMO.
What is the ?big picture? that the shipping industry needs to grasp as management attempts to determine long-term strategies? What is really going on? The final session of the Athens meeting was a presentation by Professor Peter Paludan of the Copenhagen Institute for Future Studies on the ?megatrends?, which will shape our future.
It was an appeal to look less myopically, recognising that crisis begets short sight. Recognising that the happy days are for now, over, and that the so-called ?new economy? was unsustainable, it was suggested that we should look long term at the positives, such as the room for growth in the emerging economies of ?Chindia?, and concern at the lure of isolation in the heavily indebted US. A number of scenarios were presented in a descending scale of likelihood, the most likely being one in which the emerging technologies form a major positive, while the need to fight incipient protectionism is a balancing problem. All indeed require an element of balance in strategic thinking. Thus the east may have the appetite to lead the recovery, but is handicapped by a lack of the west"s economic weight. It was a fascinating presentation, designed to make people think rather differently.