ISSUE FOUR 2019
BY
Paul Over’s shipping masterclass
Maritime CEO Forums special
MANIFEST
3 At The Prow
Economy 4 US 5 EU 6 China 8 India 9 Brazil
Markets 11 Dry Bulk 13 Tankers 15 Containers 17 Finance
Executive Debate 18 Carbon levies
Maritime CEO Forums 22 Cover Story Paul Over 24 The ship order drought 27 Finance 30 Dry Bulk 32 Tankers 35 Human Resources
Recreation 38 Wine 39 Gadgets 40 Books 41 Travel
Opinion 42 Julie Lithgow 43 James Wilkes 44 MarPoll
41
AT THE PROW
An ASM publication Editorial Director: Sam Chambers sam@asiashippingmedia.com Associate Editor: Jason Jiang jason@asiashippingmedia.com Correspondents: Athens: Ionnis Nikolaou Bogota: Richard McColl Cairo: Camelia Ewiss Cape Town: Joe Cunliffe Dubai: Yousra Shaikh Genoa: Nicola Capuzzo Hong Kong: Alfred Romann London: Paul Collins Mumbai: Shirish Nadkarni New York: Suzanne Smith Oslo: Hans Thaulow San Francisco: Donal Scully Shanghai: Colin Quek Singapore: Grant Rowles Sydney: Ross White-Chinnery Taipei: David Green Tokyo: Masanori Kikuchi Contributors: Nick Berriff, Andrew CraigBennett, Paul French, Chris Garman, Lars Jensen, Jeffrey Landsberg, Dagfinn Lunde, Mike Meade, Peter Sand, Neville Smith, Eytan Uliel Editorial material should be sent to sam@asiashippingmedia.com or mailed to 24 Route de Fuilla, Sahorre, 66360, France Commercial Director: Grant Rowles grant@asiashippingmedia.com Maritime ceo advertising agents are also based in Japan, Korea, Scandinavia and Greece — to contact a local agent email grant@asiashippingmedia.com for details MEDIA KITS ARE AVAILABLE TO DOWNLOAD AT: www.asiashippingmedia.com All commercial material should be sent to grant@asiashippingmedia.com or mailed to 30 Cecil Street, #19-08 Prudential Tower Singapore 049712
Change of scene J
ust for this issue we’ve made some editorial changes to accommodate the views of the 120+ shipowners we have hosted at two recent Maritime CEO Forums in Europe and Asia. Instead of the normal In Profile pages at the centre of the magazine we’ve compiled the highlights from our two Maritime CEO Forums at the Monaco Yacht Club and the Foreign Correspondents’ Club in Hong Kong. We’ve been hosting these halfday forums for close to five years now and the format genuinely works. The ingredients? First, select a lovely location - ideally not yet another identikit five-star hotel ballroom. Ensure there are no set speeches, no dreaded powerpoints, and no sales pitches whatsoever. Engage with moderators and panellists well ahead of time to make for lively discussion and debate. Keep it exclusive - invite-only - and make sure that 80% of those in the room are shipowners (a unique ratio I am proud to say that is deliberately matched by the readership of this magazine). Importantly, get the audience at these forums to have the mike
“
Lubricate well with good drinks
”
as much as those on stage. Lubricate well with good drinks. The results? Open, frank, insightful and entertaining discussion, the likes of which I have rarely witnessed in trudging around the overly busy and dull maritime event scene over the last 20 years. Coverage starts on page 20. Normal service resumes in the next issue of the magazine where we will have exclusive profile interviews with shipowners from around the world, printed just in time for the Singapore Maritime CEO Forum on March 17. ●
Design: Mixa Liu Printers: Allion Printing, Hong Kong Subscriptions: A $120 subscription is charged for 2020’s four issues of Maritime ceo magazine. Email sales@asiashippingmedia.com for subscription enquiries. Copyright © Asia Shipping Media (ASM) 2019 www.asiashippingmedia.com Although every effort has been made to ensure that the information contained in this review is correct, the publishers accept no liability for any inaccuracies or omissions that may occur. All rights reserved. No part of the publication may be reproduced, stored in retrieval systems or transmitted in any form or by any means without prior written permission of the copyright owner. For reprints of specific articles contact grant@ asiashippingmedia.com Twitter: @Splash_247 LinkedIn: Maritime CEO Forum Facebook: Splash Maritime & Offshore News
ISSUE FOUR 2019
3
ECONOMY US
Signs of trouble ahead America is creaking. The trade war has taken its toll
S
o far the Trump administration has had a pretty easy ride economically. The arguments over whether the president simply inherited a strong economy from his predecessor, Barack Obama, or whether his enthusiasm and tax cuts have stimulated success will rage for some time yet. However, nothing lasts forever. According to the US Commerce Department, retail sales fell for the first time in 2019 in September, suggesting that manufacturing-led weakness could be spreading to the broader American economy. This is not a good sign running into the prolonged American holiday season (Black Friday, Thanksgiving and Christmas). There is little doubt that, ethical and political rights or wrongs aside, the economy is being hamstrung by a 15-month trade war between the US and China. It has not been good for business sentiment, leading to a decline in capital expenditure, investment growth and a recession in manufacturing. The Chinese state, via its influence over its manufacturers and consumers, will continue to ‘punish’American firms in multiple industries (just witness the issues currently facing the NBA sports league in China). In detail, US retail sales dropped 0.3% in September (a back to school, Major US agricultural exports, 2018
Product $bn exports
Soybeans
21.6
Corn
9.1
Beef
7.3
Pork
6.5
Wheat
6.1
Source: US Department of Agriculture (USDA)
4
“
From one war to another might not be a good idea at a time of a slowing economy and failing consumer sentiment
”
post-vacation month that is usually strong) that as households cut back spending on cars, building materials and (crucially and perhaps the single largest portent for a poor holiday season) online purchases. China trade war aside, some American export sectors are doing well. Both crude oil production and exports are hitting all time highs right now, according to the Energy Information Administration (EIA). By contrast to oil, American potatoes (not a big export to China) are more popular than ever internationally. Mexico, Malaysia, Singapore, Taiwan and the Philippines are now the top five export markets for Idaho potatoes, according to the US Department of Agriculture (USDA). There’s no doubt an end to the US-China trade war would be welcomed by most American exporters. Primary among these are American soybean farmers who have lost
Chinese market share to Brazil and other countries, says the US Soybean Export Council. Soybean exports (a massively import sector – see chart below) from the US to China are down nearly 60% in 2018-2019 over the previous marketing year. Of course it is possible that America will get out of a trade war with China only to go into a new one with the European Union. The EU is considering imposing tariffs on more than $4bn of US exports. This comes after President Trump threatened to impose tariffs on as much as $7bn of EU imports due to allegedly illegal EU aid for European plane maker Airbus. From one war to another might not be a good idea at a time of a slowing economy and failing consumer sentiment as we plough through the fourth and final quarter of 2019. And then of course it’s the long, long American electoral cycle again. ● maritime ceo
ECONOMY EUROPE
The Brexit slowdown spreads Even mighty Germany is teetering as the continent faces up to severe realities
A
s usual you’d be forgiven there was anything else happening in Europe apart from the prolonged agony of Brexit. Halloween it was to be but prime minister Johnson was forced by parliament to request yet another extension – now till the end of January 2020. And Britain goes to the polls on December 12. This is still not great news for the UK economy. Johnson’s Brexit deal will leave the UK £70bn worse off a year than if it had remained in the EU, according to a study by the National Institute of Economic and Social Research (NIESR). This is a very conservative number as it cannot possibly account for deals and agreements that might have benefitted the UK but have now been moved territorially. And, of course, Brexit is not great news for either the institution of the EU, the Eurozone or the individual economies that comprise Europe. Many of these have their own economic woes that both reduced (or at least more complicated and costly) trade with the UK will only exacerbate. For the greater European economy the situation in Germany is being closely watched. This October the Bundesbank said the German economy contracted
Packaging waste generated by type – EU, 2018 Type
% of total
Paper and Card
41
Plastic
19
Glass
19
Wooden
16
Metallic
5
Total Source: Eurostat
ISSUE FOUR 2019
100
again in the third quarter of 2019. That followed a decline in output of 0.1% in the second quarter, leaving the single currency bloc’s largest economy in recession. Most of Germany’s economic woes are related to the continued downturn in the export-oriented industries. By way of contrast, the British economy also contracted in the second quarter, by 0.2%. However, while uncertainty about the UK has hurt Germany, the Bundesbank believes the country’s economy is being adversely affected by weakness across much of Europe, including notably Italy, which is teetering on the edge of recession. France seems to be bucking the downward trend to an extent. France’s economy grew by 0.3% in the third quarter year-over-year, the country’s official statistics office said in October. And so here is the difference between Germany and France. Germany is suffering from the US-China trade war disproportionately. This is because it sends components to both the US and
China for assembly into other goods – goods that are not now being bought and sold or made. This has seriously hurt German component manufacturers. By contrast growth in jobs and profits in the French economy right now is coming from a stronger service sector. And finally there’s the issue of the wider EU’s overall economic policy post-Brexit. This will take on more aspects of environmentalism (see chart below) and look at issues like bloc-wide plans for waste, etc. According to the EU’s economics commissioner, Paolo Gentiloni, the bloc needs looser budgetary policies and an overhaul of its fiscal rulebook. These may appear slightly contradictory demands – especially given that lax fiscal control of the EU budget was always a major UK complaint. Gentiloni’s proposed budget plan raises next year’s structural deficit. It will be interesting, with the UK most likely gone from Brussels by then, to see who opposes and supports this sort of economic approach in Europe. ●
5
The world demanded change. Discover the ground-breaking technologies enabling a sustainable maritime future.
Find out more at www.sea20.org Join the discussion @SEA20forum #SEA20 #AnOceanicAwakening
ECONOMY CHINA
Continued slowdown Is 6% growth the new normal in the People’s Republic?
C
hina’s third quarter growth rate for 2019 was just 6% – the slowest in 30 years, that’s to say since Deng Xiaoping’s Reform and Opening Up initiatives really got going. And it looks like China will continue to slow across the remainder of 2019 and into 2020. The IMF’s respected World Economic Outlook sees a low 5.8% GDP growth rate for 2020. Long gone are the days of 10+% annual growth, and even the expected slowdown to the magic (and supposedly lucky) 8% per annum. We are now at under six. The IMF is linking this slowdown now to external factors China: Major coking coal import destination countries, 2018 Destination Country
Total Amount of PRC import (tonnes mn)
Australia
27.3
Mongolia
25.1
Russia
4.2
Canada
2.1
USA
2.0
Others
0.3
Source: Chinese Customs Data
ISSUE FOUR 2019
– overseas orders and the trade war with the US. Quite simply the vast domestic market cannot make up for the slack created by global slowdown and a tariff war with America. It has largely developed; there simply isn’t room for the phenomenal internal growth rates of the last few years. It may well be that ‘rebalancing’, ‘recalibrating’, ‘cooling’ – call it what you will – is over. It’s still too early to quite work out the full ramifications of how the trade war might ease up following Trump and Xi’s very recent meet-up. As it stands, we have a two-sided argument. On the one hand things will improve with a good deal and an end to the tariffs escalation and, even if negotiations fail, 6% is probably still just about enough to mitigate any adverse impacts of a broader dispute and maintain China as still the world’s best consumer story. The other side of the story is that China is still, despite moves to rebalance, reliant on trade for much of its growth. US tariffs have hurt some industries; investment is down. Retail and services have remained strong – retails sales growth is still 8+% this year. However, the less
reported news that China’s infrastructure investment accelerated to 4.5% in the first nine months of 2019, up from 4.2% in the first eight months indicates that the Beijing government, in the form of the National Development and Reform Commission (NDRC), is pump-priming the economy to keep employment and investment levels up despite the slowdown and adverse effects of the US-China trade war. Most of this is new airports and railways that some might suggest are not absolutely required, but others will welcome. Projects include a new aiport in Sichuan, a high-speed rail line between Chongqing and Kunming, and an urban rail system for Zhengzhou in Henan. Of greater concern might be pump-priming that will have long term negative effects. The state planning commission has also accelerated the approval of new coal mines, with 17 approved in Inner Mongolia, Xinjiang, Shanxi and Shaanxi between January and October, despite China’s pledge to curb reliance on coal-fired plants to reduce greenhouse gas emissions and pollution. ●
7
ECONOMY INDIA
Grand ambitions A $5trn economy in the next five years? New Delhi is nothing if not optimistic
T
here’s no doubt the New Delhi government remains bullish on the Indian economy’s upward trajectory. The government expects the economy to grow by 6.5% this year – a half a percentage point over China’s subdued growth rate in 2019. Prime minister Modi has recently come out with a number of measures, including cutting corporate tax rates from 30% to 22% and from 25% to 15% for new manufacturing companies, in an attempt to boost growth. But, so far, it doesn’t appear to be enough. GDP growth slowed to a six-year low of 5% in the April-June quarter, blamed largely on persistently high logistics and high energy costs. Still, no one could accuse New Delhi of lacking ambition. The government has set a goal of making India a $5trn economy by 2024-2025, and that Uttar Pradesh alone will be a $1trn economy. This is interesting as it raises a crucial point we rarely talk about in these sots of snapshots that look at national economies as totalities – regional differences. It is true that the Indian economy
8
is growing, but the gulf between incomes of individual states remains glaringly wide. The latest data on tax collection released by the Central Board of Direct Taxes shows that Maharashtra, Delhi and Karnataka alone contribute 61% to the country’s total revenue from direct taxes. Include Tamil Nadu and Gujarat and it’s 72% of the total take. All of this ambition is at some variance to the world economic situation. More likely, and the IMF would argue, India’s growth will be a reduced 6.1% in 2020 due to the global cyclical slowdown. This could pick up in 2021 (see chart below). However, certain industries and service sectors are particularly weak at the moment – including the automobile and real estate as well as the non-banking India vs China: GDP growth, 2018-2020 (% GDP GROWTH) Year
India
PRC
2018
6.8
6.6
2019
6.1
6.1
2020
8.0
5.8
Source: IMF
financial sectors. The IMF argues that a combination of monetary policy easing, reductions in corporate income tax rates, the recent measures to address corporate and environmental regulatory uncertainty and government programmes to support rural consumption should ensure steady growth. Despite the slowdown in China – still a crucial market for India – exports appear to be holding up reasonably well. India’s exports of finished steel products overtook imports in recent months as local mills lowered their offers to cut inventories, while, even more encouragingly, overall Indian exports for April to September, which represents first half of the India’s financial year, were 22% year-on-year. However, the autos sector remains stuck in a seemingly long lasting slump. India’s first half 2019 vehicle production amounted to 14.43m units, down a significant 13.3% from 16.65m units in the previous financial year. Passenger vehicle sales fell a large 23.6% on the year, according to the Society of Indian Automobile Manufacturers. ● maritime ceo
ECONOMY BRAZIL
Different focus Jair Bolsonaro is trying to make much needed changes
S
o far 2019 has been bad, but no as bad as it could be for Brazil. Take the economic litmus test for Brazil of the country’s services economy. Services account for over 70% of Brazil’s economy, the largest in Latin America. The services sector shrank 0.2% in the first quarter of this year, but rebounded 0.4% in the second. Not great – but in 2018 the second quarter decline was, year-onyear, 1.4%. Now the government in Brasilia is hoping that services can rebound in the last few months of the year and pull off a positive growth number. Still, even if positive, it won’t be anything startling. Brazil remains sluggish. The country’s economy is expected to grow by less than 1% this year, according to estimates from the government, central bank and most private sector economists. Low growth and weak inflation are likely to prompt further cuts in official interest rates to new lows this year. No wonder controversial president, Jair Bolsonaro, is promising a sweeping programme of economic reforms to kickstart things. Key to that is luring private investment – particularly into the traditionally restricted and closed finance sector. This, Bolsonaro’s World iron ore oOutput by major producing country, 2018 Country
% share of global output
Australia
34
Brazil
19
China
16
India
5
Russia
4
Other
22
Source: IMF
ISSUE FOUR 2019
economics team believe, is the key to kickstarting weak industrial production, attracting new investment, raising technological standards and getting to work on the country’s seriously sagging infrastructure. An infrastructure and manufacturing boost would be helpful to a country where unemployment remains stubbornly high at nearly 12%. The Bolsonaro administration is active. In September the government slashed import tariffs on more than 2,300 products, exposing local industries, long accustomed to protectionism, to the challenges of free trade. Tariffs dropped to zero on a range of items from heavy plant machinery to niche cancer pharmaceuticals. Perhaps this won’t do much to stimulate local production but, as the Wall Street Journal noted, it is an important signal in a country, where duties were twice as high as in Mexico, China and the European Union last year. It perhaps signals a retreat from long standing traditions of protectionism. And some export categories are looking positive this year. Brazilian
“
Unemployment remains stubbornly high at nearly 12%
”
corn exports in the first two weeks of October 2019 totalled 2.8m tonnes. Compare that to the entire 3.1m tonnes exported in the whole of October last year, according to data from the country’s trade department. Meanwhile, soybean exports held steady despite the continued weakness of the important Chinese market. Iron ore, another important sector in Brazil, didn’t preform so well, declining in both August and September over the same time last year. Actually Chinese imports of Brazilian ion ore held pretty steady and remained by far the main export market. However, exports to both South Korea and Japan – two other key destinations – both fell. Malaysia, now Brazil’s second largest iron ore market, took up some of this slack with surprisingly increased demand. ●
9
Leading with integrity
Ship Management Crew Management Technical Services Offshore Education Training
www.angloeastern.com
MARKETS DRY BULK
Global steel production deteriorates further Jeffrey Landsberg from Commodore Research outlines how steel mills across the world are slashing output
T
he most recently released data shows that global crude steel production outside of China totalled 70m tons in October. While this is 1.3m tons (2%) more than was produced in September, it is 4m tons (-5%) less than was reported last year for October 2018’s production. The month-on-month increase is normal and has occurred every October this decade. The year-on-year contraction, though, has marked the largest year-on-year contraction seen since November 2015. Global crude steel production outside of China has now contracted on a year-on-year basis for four consecutive months. Also of note is that other than in India, crude steel production in October contracted on a year-on-year basis in every major steel producing nation (including China). This is a rare development that is very disturbing in regards to the global economy and is also of course a headwind for global iron ore demand. Overall, there have been only two months so far this year where there has been any growth in global crude steel output outside of China. This remains concerning and continues to reflect weakness in the global
ISSUE FOUR 2019
economy outside of China (problems persist in the Chinese economy as well). In total, the first 10 months of this year have seen global crude steel production outside of China contract on a year-on-year basis by a total of 11.5m tons (-2%). And again, the production has been deteriorating in recent months, with October’s contraction the largest seen in four years. Among the poorest performing major steel producers recently has continued to be the European Union. The European Union produced 13.3m tons of crude steel in October. This is 1.5m tons (-10%) less than was reported last year for October 2018’s production and now marks the 11th consecutive month where EU steel production has contracted on a year-on-year basis. Also continuing to perform poorly lately has been Japan, which produced 8.2m tons of crude steel in October. This is 200,000 tons (-5%) less than was reported last year for October 2018’s production and marks the third consecutive month where Japan’s steel production has contracted. South Korea produced 6m tons of crude steel in October. This is 200,000 tons (-3%) less than was reported last year for October 2018’s production and marks the fifth consecutive month where South Korean steel production has contracted. The United States produced 7.4m tons of crude steel in October. This is 200,000 tons (-3%) less than was reported last year for October 2018’s production and marks the second consecutive month where US steel
production has contracted. Russia produced 6m tons of crude steel in October. This is 100,000 tons (-2%) less than was reported last year for October 2018’s production and marks the third consecutive month where Russian steel production has contracted. Brazil produced 2.6m tons of crude steel in October. This is 500,000 tons (-16%) less than was reported last year for October 2018’s production and marks the fourth consecutive month where Brazilian steel production has contracted. Overall, the global contraction in steel production remains concerning, as does the ongoing contraction continuing to be seen in industrial production in many major economies. We are very concerned that the global economy (both in and outside of China) will continue to deteriorate and eventually will present significant challenges to the overall dry bulk market. For now, though, the market is still able to enjoy relatively smooth sailing. ●
11
AT THE HELM OF EXCELLENCE
Stamford Seoul Houston
Mumbai Pune Cochin
Delhi Manila Chennai Iloilo Singapore
Shipmanager of the Year Lloyd’s List Asia Pacific Awards 2018 Synergy Marine Pte Ltd. 1 Kim Seng Promenade, #10-11/12 Great World City West Tower, Singapore 237994, +65-6278-8233 www.synergymarinegroup.com
Technical Management, Crew Management, Commercial Management, Training, New Ship Building & Special Projects, Insurance, Accounting and Information Technology
MARKETS TANKERS
Demand boost from the sulphur cap BIMCO’s chief shipping analyst Peter Sand remains cautious despite the recent sensational highs
S
takeholders have long been talking about a demand boost from the new IMO 2020 sulphur cap as refineries increase their crude oil demand and their exports of the new compliant fuels, benefitting both crude oil tankers, but in particular oil product tankers. We are, however, still waiting to see to what extent this may benefit the tanker shipping industry. Data from the EIA shows that although US refineries’ crude oil throughput has risen from its low point in mid-October, it remains below levels in the corresponding weeks of 2017 and 2018. This same trend can be seen in weekly US oil product exports. Both these numbers will need to rise if the US is to deliver part of the 2020 boost, the exact timing and extent of which remains uncertain. Added to this uncertainty is the high fleet growth experienced in both the tanker markets: 4.8% growth in the oil product tanker fleet and 6.3% in the crude oil tanker fleet. The high growth rates are the result of increased ordering ahead of the
ISSUE FOUR 2019
much talked about 2020 boost, but have caused market fundamentals to deteriorate. These ships will still be sailing when any boost from the sulphur cap has become just a memory, and except for the recent peak in freight rates, the market has shown no need for this extra capacity in recent years. The new ships include 65 VLCCs delivered in the first 11 months, already the highest deliveries on record since 1974, bringing the year to date VLCC fleet growth to 8% as only four have been demolished. This fleet growth has not been matched by similar demand growth, leading to further pressure on freight rates when the seasonal boost fades away and any short term game from the sulphur cap passes. Rates spiked in mid-October as the strong Q4 seasonality mixed with a variety of geopolitical factors including sanctions on Iran, Venezuela and certain shipping entities as well as tensions in the Middle East. Freight rates have since fallen as fundamentals have
begun to catch up with the market, but remain elevated. Freight rates will remain at these elevated levels for the remainder of the year and into the start of 2020. Traditionally the strong seasonality then ebbs away over the course of Q1, but the IMO 2020 sulphur cap, will bring a boost to tanker shipping, and may therefore keep freight rates elevated for longer than in a usual year. There is good news to be found in BIMCO’s projected growth for 2020, with the crude oil fleet expected to grow by 1.6% and the oil product fleet by 1.8%. While it is good news that the fleet growth is slowing, the effects of high fleet growth this year will be felt in the market in years to come. ●
13
MARKETS CONTAINERS
High stakes pricing games Lars Jensen fears too many liners may rock the boat heading into 2020
T
o say that container lines face cases even increasing. The result were across-the-board improvements challenging times in terms in profitability, although Yang Ming of pricing right now would and HMM still fail to get out of familbe a cliché for the simple fact that iar loss-making territory. such a statement would hold true no As a straight average across the matter when this particular column carriers who provided details on was written. However, the devil is their freight rate developments, the in the detail and the underlying carriers have seen a 0.7% improvechallenges right now are a mix of old well-known issues mixed in with new ment in unit revenues. During the same period, the contract indices unfolding dynamics. CCFI and XSI from the Shanghai There has not been any shortage Shipping Exchange and Xeneta have of coverage of spot price develseen an average reduction of 0.2%. It opments by the shipping press in should be noted, though, that the XSI 2019, and by and large the focus has increased 1% and has a wider market been on the apparent weakness in coverage than the CCFI. the pricing levels. This was either Conversely, the spot indidue to a failure of raising the rates ces SCFI, WCI and FBX from the during peak season as was the case Shanghai Shipping Exchange, for the transpacific, or due to an Drewry and Freightos respectively, outright decline as was the case for show an average rate decline of 13%. Asia-Europe. This clearly indicates that But such gloomy headlines were spot rate developments cannot be counter-acted by the carriers’ Q3 taken as an indicator of the carriers’ results, which showed that the averfinancial exposure and development. age revenue per teu obtained by the main carriers during the peak season Instead, it points to two aspects that are important. One is that were actually holding firm at the the importance of the spot rate same levels as last year, and in some Carrier revenue per TEU 0.7% Contract rate indices -0.2% Spot rate indicies -13.4%
Change in rate levels Q3 2019 versus Q3 2018
2% 0% -2% -4% -6% -8% -10% -12% -14% -16%
Carrier revenue per TEU
ISSUE FOUR 2019
Contract rate indices
Spot rate indicies
market in general for the carriers is relatively minor versus their contract exposure. The other aspect being that carriers appear to be successful in increasing their revenue per teu beyond what the ocean rates can warrant – through additional services and/or penalty fees such as detention and demurrage. Without further details released by the carriers it is not possible to quantify the split between the two. Hence despite the negative developments in the spot markets, carriers’ unit revenues were resilient in Q3. The question is whether this momentum can be maintained going into Q4 and 2020. For Q4, the carriers are struggling with weak demand and challenges in relation to passing on the low-sulphur fees w. This is made even more challenging by a sharp drop in the price of standard heavy fuel. As an example, the benchmark price in Rotterdam has dropped from $421 per ton in September to $245 per ton now at the end of November. At the same time, the new low-sulphur fuel price initially spiked at around $580 per ton and has now stabilised at around $500 per ton. This creates a very unstable pricing environment wherein some carriers are focused on the drop in heavy fuel, which still accounts for almost all of their consumption, whereas others are focused on the transition towards pricing in the added cost of low-sulphur fuel. In an environment where demand is also under pressure, the tendency in the market right now appears to lean towards the more tactical/opportunistic pricing by some carriers which may well jeopardise the rate levels for contracts for 2020.●
15
BETTER MANAGED VESSELS FOR LESS COST!
CALL US NOW!....
WE CAN REALLY HELP!
ANDREW J. AIREY - MANAGING DIRECTOR TEL: +66-81-845-6269 E-MAIL: ANDREW@HIGHLAND-MARITIME.COM
INTERNATIONAL THAI SHIPMANAGEMENT Est.2009
MODERN THAILAND PEOPLE
EXPERIENCE
EDUCATION
TECHNOLOGY
ENVIRONMENT
BULKER CONTAINER RORO OFFSHORE
WEBSITE: WWW.HIGHLAND-MARITIME.COM
FACEBOOK: HIGHLAND MARITIME - ALL SEASONS
MARKETS FINANCE
China’s rise to the top You have voted this the Chinese decade for shipping. Who am I to disagree with such a clever readership
W
ell, well, despite the hectares of column inches expounded in this title and others on environmental and digital matters of late, you, dear reader, have voted for the rise of China as the most important shipping story of the decade (see back page). Were this magazine to be older than its youthful six years of age, then I’d be pretty sure that China’s ascent would have been voted as the most important trend of the first decade of this century too. The China maritime story this decade has been all about expansion, influence and hammering home the foundations laid down earlier. Where others have exited the scene, China has cleaned up. According to the latest annual survey from Greece’s Petrofin Bank Research, ship financing may well be at its lowest level since the global financial crisis of 2008, but the global merchant fleet continues to expand (+30%), in no small part thanks to canny Chinese financial institutions. The top 40 banks’ lending to shipping now stands at $300.7bn, the lowest level since Petrofin started monitoring the global portfolio in 2008. $44.3bn has been knocked off the portfolios of the top 40 banks just over the last year. “The growth of the global fleet continues to be funded from non-banking sources,” Petrofin noted in a release, citing the continued rise of Chinese leasing companies. “The decline of Western bank ship finance has assumed dramatic proportions. In just 11 years and despite the rise in the global fleet, about $160bn has been shed via natural repayments, provisions or loan portfolio sales,” Petrofin stated. Ship leasing - pre-global financial
ISSUE FOUR 2019
crisis - was a rarity. Back in my DVB days, we financed a few ship leases, always questioning why shipping was so extremely different from aviation where 50% of the equipment is leased. Shipping never took leasing to heart back then because bank finance was too lowly priced. This changed in the years following the collapse of Lehman Brothers. Not a lot of people will remember that actually in the three years after the start of the global financial crisis, bank lending actually rose, peaking in 2011, thanks to ill-timed private equity entries as both lenders and investors. From 2011 to 2018, however, bank lending slumped from $450bn to $300bn a year and this trend has continued this year. The biggest reduction came from the German banks, followed by UK and Scandinavian banks. When these European entities faded from view it was the export credit agencies and Chinese lessors who stepped in, ensuring overcapacity had no time to settle and making for this most miserable of decades in shipowning history. Where European banks have disappeared, their counterparts in Asia, like water over rocks, have rushed in to keep the capital flow moving. Asian banks, at the last time of checking, account for some 35% of the ship finance market today. Their focus however on newbuilds makes it increasingly difficult to refinance older ships these days. What has not aided the situation during this ‘Chinese decade’ has been how negative the capital markets have been for shipping, even the bond markets, and as for IPOs, they have sunk without trace for the second half of the decade. Credit where it is due, the Chinese saw a fantastic opportunity
to become a shipping and shipbuilding powerhouse around 11 years ago. As the old maxim goes, whenever everybody leaves it tends to be time to enter the market. The other trend to appreciate is the self-confidence and sophistication of the Chinese banks in recent years. Back in 2011 or 2012, the average Western shipowner railed against the slow, timid and overly bureaucratic Chinese ship finance process. No longer! The flip side of the coin, however, is that as every facet of Chinese maritime has grown in size and maturity so the opportunity for us Westerners to make a buck or two in the People’s Republic has actually diminished. I’d argue that today it’s harder for Westerners to make money out of the growth of Chinese shipping than 10 years ago - essentially it has become more of a closed market as the local industry has become more adept at handling its own business, with a locked in pricing advantage to boot. Nevertheless, that gripe is not to argue with you, dear reader, and your selection of shipping’s most important trend of the past few years - something that I imagine will be borne out across the busy halls of Marintec China in Shanghai. ●
17
EXECUTIVE IN PROFILE DEBATE
Carbon pricing makes a comeback
Some kind of carbon levy looks increasingly inevitable for shipping. Bunker prices could well be in permanent four-digit territory
C
arbon taxes for shipping are firmly back in the headlines with much debate about how to implement them. The French finance minister, Bruno Le Maire, discussed with reporters in October his government’s plans to lobby the European Union to implement taxes for airline and shipping fuel. “It’s incomprehensible that carbon emissions targets were set for cars and not for airplanes and ships. We propose that work is done on a European tax on airplane and ship fuel,” Le Maire said. One of the world’s largest shippers also recently warned shipping it ought to prepare for a carbon levy. Mining giant BHP is preparing for greater shipping environmental clampdowns once the global sulphur cap is out the way next year. In a recent interview with The Australian newspaper, BHP’s maritime vice president Rashpal Bhatti said, “There may well be a carbon levy associated with bunkers from
18
the IMO. If that is the case it will be a significant driver to bring down emissions from any fuel that’s used. And our competitors will obviously have to think about that too.” In a working paper issued by the International Monetary Fund (IMF) in September last year, the organisation also came out in favour of a bunker levy. The report stated that a carbon tax deserves serious scrutiny as a key element of mitigation strategy as it can cost effectively exploit the full range of behavioural responses to reduce emissions within shipping given available technologies as well as raising revenues and being “straightforward” to implement from a technical perspective through the establishment of an International Maritime Organization (IMO) supervised fund.
“
Speaking at the Global Maritime Forum’s annual summit in Singapore this October, Andreas Sohmen-Pao, chairman of BW Group, said shipping must urgently draft its own carbon levy, before regulators step in. “To meet international shipping’s decarbonisation challenge, the maritime industry needs a carbon levy, it is coming, and we should shape it,” Sohmen-Pao said, adding: “We have an opportunity to shape a new maritime future, create a new business opportunity and drive innovation. A maritime green fund could accelerate decarbonisation in shipping, support scaling and infrastructure to deliver new fuels, while taking into consideration the impact on trade and developing states.” Taxing emissions—raising the cost of carbon-intensive energy for electricity, travel, manufacturing,
It would be necessary to raise the price of bunker fuel to $1,200 per tonne
”
maritime ceo
EXECUTIVE IN PROFILE DEBATE
shipping and food—is the most efficient way to prevent global average temperatures from rising more than 2 degrees Celsius above pre-industrial levels, the goal set in the Paris accord, according to new IMF research published recently. Shipping needs policy to make the business case for its move away from fossil fuels. One of the two basic options are inevitable: some sort of carbon price which closes the spread between ammonia, say, and low sulphur heavy fuel oil (LSHFO) by adding a premium to the basic LSHFO price, or alternatively regulators could just put a phased-in ban of fossil fuel in place. The latter has some advantages in providing very high certainty of the timing of a transition, but means there is less flexibility in the transition path taken by different ships. Introducing such a policy ought not to be too difficult as there are lots of examples now of successfully implemented carbon pricing systems globally and IMO as a regulator of a global industry has an excellent starting position to impose a fair and cost-effective policy. The IMO discussions on this subject were difficult in the past at the start of this decade, but that was a very different time politically, before the Paris agreement, before IMO’s initials strategy, and it will be very hard given the IMO member states adopted the initial strategy and made an unambiguous commitment to transition the sector away from fossil fuels, for them not to support carbon pricing if it is clear it is the most cost-effective policy to achieve that outcome. Naturally, a carbon tax will hit shippers and end consumers hard. Adair Turner, chair of the UK’s Energy Transitions Commission, told a conference organised by the International Chamber of Shipping in September that shippers ought to prepare for freight costs to double. As to the specific costs, famed maritime economist, Martin Stopford, has posited that a carbon levy will likely see bunker fuel jump in price to above $1,000 a tonne. If
ISSUE FOUR 2019
an equivalent price to fuel used by road transport was to be achieved it would be necessary to raise the price of bunker fuel to $1,200 per tonne, the Clarksons researcher suggested at a conference in London earlier this year. Dr Tristan Smith from UCL Energy Institute in London tells Maritime CEO that carbon pricing has great potential because shipping’s transition will need to move at different speeds depending on ship types, geography of operation and business model. “Carbon pricing, especially where the revenue is recycled back into the sector, can be very useful at stimulating the early adopters of zero emission shipping who in turn can help bring down the costs - with support from the policy - so that the mass market transition is as low cost as possible,” Smith argues, adding: “A
“
Carbon pricing, especially where the revenue is recycled back into the sector, can be very useful at stimulating the early adopters of zero emission shipping
”
very important added advantage is that the revenue can also be deployed in helping to manage impacts on the poorest countries who may need assistance to prevent economic damage as a result of the transition. So if designed properly the policy could be fair and politically acceptable to a broad number of governments.” What’s clear is that the issue of carbon pricing - dismissed by many in shipping earlier this decade - is now very much back on the agenda.●
Decarbonisation fund emerges FIVE SHIPPING ASSOCIATIONS are pitching a carbon levy of sorts. The shipping organisations, which include Bimco and the International Chamber of Shipping (ICS), are pushing for a bunker fuel levy to go to a decarbonisation research and development fund. Maritime CEO understands the idea is to push through a $2 per tonne of bunker fuel levy.
“We have been working on this for quite some time with the aim of developing some really innovative ideas in cooperation with fellow industry associations,” ICS chairman Esben Poulsson told Maritime CEO, stressing that the concept was still a work in progress. Further details of this new R&D fund are expected to emerge later this month. ●
19
MARITIME CEO IN PROFILE FORUM
Top deck debate In the space of five weeks we held high-level gatherings at two great maritime hubs with more than 120 shipowners invited. Highlights from the events are carried over the next 15 pages
20
maritime ceo
MARITIME CEO IN PROFILE FORUM
ISSUE FOUR 2019
21
MARITIME CEO FORUM
Paul Over’s shipping masterclass In Hong Kong delegates were given a unique insight into how to build shipping empires by one of the greatest shipping investors of the past 40 years
T
he traditional start to any Maritime CEO Forum around the world is to get an analyst in the hot seat for a quick fire 30-minute Q&A to set the markets scene for later panels. In Hong Kong last month, organisers kicked proceedings up a notch by inviting the legendary shipping investor, Paul Over, on stage to give delegates attending the exclusive shipowner gathering a masterclass in shipping over the last 40 years. Over co-founded Hong Kong dry bulk concern Pacific Basin with Chris Buttery and has since taken directorships at Taylor Maritime and Asia Pacific Maritime.
22
Over used the Maritime CEO platform to discuss how shipping has changed since the 1980s as well as making a public call to shipyards to up their game when it comes to ship design optimisation. “I think we are suffering now from the hangover of the private equity period. The way you make money in shipping will be different to what it was before,” Over said in
“
There is a lack of intellectual vigour put into design of ships
”
opening comments before going on to discuss the decline of the smaller shipowner. “Smaller shipowners have dropped away completely and dramatically throughout the world and that is because of all the challenges they face when trying to run it as a mom and pop type operation. It’s a hell of a struggle to raise debt, to operate and complete against the big players,” Over said. The UK national then went on to a pet topic of his, namely the growth of so-called zombie shipping companies, cluttering up the world’s oceans. “After the big boom in shipping,” maritime ceo
COVER IN PROFILE STORY
Over recounted, “there came the global financial crisis and then there were lots of empty shipyards and our friends in private equity came in to try and build 1,000s of ships and those ships have never, nor will ever, make any money and also they were not a terribly refined product themselves in terms of ship design and all the rest of it. So inevitably you had the people who ended up owning and trying to operate and make a profit from those ships, they had to hold on to them for much, much, much longer than they expected and that is the sort of zombie situation I am talking about. “Because interest rates are incredibly low, because banks do not wish to take the write-offs that they would otherwise have to do these things have persisted for years and years and there has been no clearout. My message to the shareholders and the banks is to get on with clearing out those ships because you will have to do that or else it will come to a position where the ships will have to be scrapped. “I don’t like it because it is not efficient in any respect - big teams running small amounts of ships clog up the system.” Over and his old friend Buttery came up with a new business model for the handy and supra sector when they founded Pacific Basin in the 1990s, something that others have since copied.
“
We are suffering now from the hangover of the private equity period
”
“People like MUR, Norden and Oldendorff have adopted relatively similar business models to find and have access to cargo, do contracts of affreightment and then have various ways of financing those ships, not only owning them, but hiring them in for seven-year charters or whatever from Japan,” Over told the exclusive gathering. Getting back to the decline of the smaller owner debate, Over
ISSUE FOUR 2019
looked at how Pacific Basin has invested massively in IT, something others cannot afford. “Pacific Basin has spent considerable amounts of time now developing IT to find cargo which is all new and that is the way of the future and anybody who stands relatively speaking - in the way of that will come out second best. You cannot be a smaller owner with a number of small ships and hope that you do a quick in and out on the capital gain of a deal. What you certainly can’t do is tramp your ships around because your access to information is so completely narrow - it is much smaller than the big operators. It is amazing for me how little that is understood. I’ve met many small owners around the world who say they have their friends, the brokers, who will give them deals and they know their way around but if you look at the information flow the chartering manager of one of these bigger operations has got a ton of stuff to make a decision against which the smaller owners do not,” Over said. Over dismissed talk that he and Buttery made many of their decisions on gut feeling, saying that ever since he had worked at Jardines in the early 1980s, any business decision had to be backed up by significant market research and analysis. What was also vital for the success of any shipping company, he argued, was to have a sound business set of goals, which, importantly, are flexible. “We had a set of rail tracks that we were going to follow but importantly as things change you have to change,” Over said of Pacific Basin’s first few years. When Pacific Basin was originally set up in 1999 after the Asian financial crisis it bought a fleet of handysize bulk carriers at depressed prices. Secondhand prices very quickly came back up and then top management found themselves going back to its investment base and persuading them that actually newbuildings were the way to go. Then 9/11 came along in the US, and investors were worried what the company would do with all its brand
new vessels. “We decided to launch a pool, change our chartering completely, go for COAs. You have to have a flexible business model, you have to have research and so I don’t believe - I get irked when people say it is gut feel,” Over said. From the floor, Clarkson Research Services president Dr Martin Stopford quizzed Over on the rationale for pushing Pacific Basin into a Hong Kong listing. “We wanted to become bigger and better with more liquidity and the argument came out for lots of reasons that if you treat public companies as just a useful vehicle for expanding capital and growing the business they are a very good direction to go in so when we listed Pacific Basin in Hong Kong we spent a number of years growing capital, getting our finance cheaper, expanding the business scope and growing our fleet so there were not that many sellers at the time of the IPO so when the shipping market boom came about we were vastly more profitable for the benefit of everybody than we would have been,” Over said. The discussion at the Foreign Correspondents’ Club in the heart of Central, Hong Kong then turned to another pet topic of this particular shipping veteran, namely ship design optimisation - or the lack thereof. “All shipyards talk about optimised designs, how adaptable and how wonderful they are, but there is a lack of intellectual vigour put into design of ships,” Over maintained, adding: “It always seems to be amazing how shipyards will develop new designs and they will try to little bits and pieces but they do not seem to be too compelled to do too much, they will only do just enough. Shipowners order these ships without taking too much notice because the ships will generally do the job.” Over said there was so much more that the yards could be doing to make ships safer, more efficient in port, using tugs less. The next Maritime CEO Forum takes place at the Fullerton Hotel in Singapore on March 17 next year. ●
23
MARITIME CEO IN PROFILE FORUM
Why no one is ordering ships In both Hong Kong and Monaco we heard plenty of exasperated owners hitting out at regulatory intransigence
I
n the space of one month we have put two Maritime CEO Forums on at locations far apart. With more than 120 shipowners flocking to the Monaco Yacht Club and the Foreign Correspondents’ Club in Hong Kong for shipping’s most exclusive markets chat, what has emerged from these high-level discussions is a severe disconnect between the industry and its regulators. At no time this century have shipowners felt so handicapped by regulatory intransigence in making their day-to-day business decisions. This has been reflected in hard data with the latest statistics from Clarkson Research Services clearly
24
showing the huge hesitancy among owners to place orders this year. Clarkson data from last month shows that 708 new vessels have been reported in 2019 to date, a year-onyear decline of 40% on an annualised basis. In tankers, the orderbook versus the extant fleet stands at its lowest point this century, according to new research from UK broker Gibson.
“
Dual fuel because you don’t know is not a reason to order new ships
”
In percentage terms, the tanker orderbook is at its lowest level in two decades, at 7.6% of the existing global tanker fleet over 25,000 dwt. In the container sphere, the few orders coming in tend to be LNGfuelled these days, and as a real sign of the times, mighty Maersk has not one single ship on order for the first time in the 21st century. Commenting on the ordering plunge, Dr Martin Stopford, president of Clarkson Research Services, told Maritime CEO that the potential avalanche of regulations coming shipping’s way was holding the industry back from committing to new vessels. maritime ceo
THE INBIG PROFILE DEBATE
“
Regulators are making it so difficult for us to understand what the technology of the future will be
“We are in a unique position. Shipyards are gagging for orders and yet owners are gagged as they do not know if ships will be able to trade through their entire economic life,” Stopford said. In a recently concluded survey carried by Maritime CEO, regulatory concern was cited as a distant second to the unstable nature of the markets for the current ordering impasse. Not having a framework in place to work out how shipping can get to its 2050 decarbonisation goals is holding owners back from contracting with yards for genuine fear their multi-million dollar new investments
ISSUE FOUR 2019
could rapidly become stranded assets. John Michael Radziwill, CEO of GoodBulk, speaking in Monaco in October, laid the blame for the current uncertainty squarely on the shoulders of the International Maritime Organization (IMO) “It seems that common sense is in short supply in this industry especially among the regulatory bodies,” Radziwill said. Speaking on the same panel, Danilo Fumarola, CEO of Gestion Maritime, told invited guests: “We need more defined rules and timetables.” Fumarola cited the decision to postpone ballast water regulations as an example of regulatory intransigence. “There should be clearness, correct timetables but also lobbying to make sure that the regulations go the right way,” he said. A big hit in Monaco was Emanuele Lauro, the CEO of Scorpio Group, who was on fiery form, saying, “The regulators have done a particularly bad job in imposing regulations on our industry. When regulators are imposing rules that they don’t have the full picture about, you then get into the situation like the scrubber shenanigans.” “Technological compliance adds a who new degree of uncertainty,” argued Modi Mano, CEO of M Sea Capital, saying that this is putting a cap on the orderbook. “Regulators are making it so difficult for us to understand what the technology of the future will be,” Mano said. Yes, the regulators could be doing a better job, but the blame game needs to be spread more widely, suggested the CEO of V.Group, Graham Westgarth. “The last two big pieces of
”
legislation – sulphur cap and ballast water – have been poorly regulated and poorly implemented, but you can’t just blame regulators, blame also lies with class, manufacturers, yards. The industry needs to think and act with one body,” said the former Intertanko boss. Over in Hong Kong, meanwhile, Clarkson’s Stopford told delegates: “There is no way to know whether diesel ships will be around in 2030 or 2040. Shipyards are desperate for orders and are ready to offer attractive deals but no deal is attractive enough.” Stopford went on to urge regulators to issue clear guidelines promptly, including possible phaseout plans like single hull tankers at the start of the century. William Fairclough, the new boss at Hong Kong shipping line Wah Kwong, said the next phase of tanker ordering would be dual-fuelled, a costly endeavour. “There is a realisation that shipowners will not order ships unless with long term charters,” the Wah Kwong boss said. Dual-fuelled investments, however, were criticised back in Monaco, with M Sea Capital’s Mano memorably quipping: “Dual fuel to me is like saying, ‘I don’t know’. Dual fuel because you don’t know is not a reason to order new ships.” Back in Asia, in a final damning rebuke to today’s crop of regulators, just four delegates out of the 70 in the room in Hong Kong said the IMO was fit for purpose. What’s clear is that next year’s Marine Environmental Protection Committee (MEPC) meeting at IMO headquarters in London will be vital to map out shipping’s realistic decarbonisation plans - or else many of the world’s shipyards - already starved will face extinction. ●
25
IN FINANCE PROFILE
Banks will distance themselves from shipping even further A heavyweight finance session in Monaco triggered plenty of audience discussion
B
anks offering ship finance might be at their lowest levels this century, but shipowners have been warned they will likely decline further. Speaking during the ship finance session at the Maritime CEO Forum at the Monaco Yacht Club, Dagfinn Lunde, a columnist for this magazine and founder of eshipfinance.com, noted how globally the volumes of ship finance from banks have shrunk by 35% since the onset of the global financial crisis in 2008, and yet the world’s merchant fleet has grown by 60% in this timeframe. “Don’t get your hopes up that the shrinking of the banks market will end anytime soon,” warned Greg Belonogoff, a partner at CarVal Investors. Banks will continue to sell off their shipping portfolios, Belonogoff predicted with the
ISSUE FOUR 2019
implications from Basel 4 already on the horizon where regulators are driving more capital onto balance sheets. Two thirds of Splash readers polled in a recent survey believe ship finance is not becoming more readily available despite increasing rates across many shipping sectors. Alan Hatton, CEO of Singapore tanker owner Foreguard Shipping, told the Mediterranean shipowner gathering hat he had been investigating all kinds of new alternative financing solutions for his fleet. He noted how the bond market was picking up, especially in Oslo. The finance discussion then turned to green matters with a focus on the Poseidon Principles, the recently introduced commitment by 11 banks to promote lending to more environmentally aware
shipping projects. Socrates Leptos-Bourgi, global shipping and ports leader and PwC and the moderator for the hour-long session, told delegates: “The Poseidon Principles bring some transparency. It brings pressure to reduce carbon footprint.” Leptos-Bourgi went on to urge for the creation of a common language or understanding between banks and owners to define what green actually is. ●
27
MARITIME CEO IN PROFILE FORUM
28
maritime ceo
IN PICTORIAL PROFILE
ISSUE FOUR 2019
29
MARITIME CEO IN PROFILE FORUM
‘There are only two types of shipowner – cautiously optimistic or optimistic’ We bring you the choicest comments from two lively panels moderated by the ever present Tim Huxley
I
n Tim Huxley, the broker turned shipowner, our forums have the one delegate who has remarkably attended every single event we have put on around the world since the series started close to five years ago. The head of Hong Kong’s Mandarin Shipping takes the final slot at the forums, a risky endeavour as that can be the graveyard shift, yet his lively, wry, intelligent probing of panellists for our dry bulk sessions
30
always makes for an entertaining 60-minute take on the markets. In Hong Kong, delegates heard that the the days of asset play in dry bulk shipping were increasingly over. The session covered a huge range
“
We’re all shooting ourselves in the foot if we order a new ship
”
of topics from IMO 2020, shipyard prices, the state of the IMO to slow steaming. However, it was on asset play where debate centred most. “You can’t just be a shipowner today. Asset play is much harder today. You need to be an owner that operates your own assets,” said Olivia Lennox-King, managing director of local dry bulk concern, Asia Maritime Pacific. Christopher Cheng, managing maritime ceo
IN DRY PROFILE BULK
director of LD Bulk, part of the Louis Dreyfus empire, chipped in on the topic, saying: “As long as there is volatility there still exists possibilities for asset plays, but it has definitely got harder.” “The shipowner model is still valid provide you have the pockets to take a very long term approach,” suggested Vikrant Bhatia, CEO of KC Maritime, who went on to argue that private owners are better placed than public ones. Thomas Söderberg, founder of Tribini Capital, said it would be very hard to replicate the asset plays of earlier decades. “Finance is so hard to come by unless you have a very strong balance sheet and that has become an increasing problem for someone who would like to speculate,” Söderberg said, adding: “We think the world going forward will be more dull because there will be less speculation, less finance and less shipyards.” LD Bulk’s Cheng also had a
ISSUE FOUR 2019
memorable quip, telling the invited shipping bosses in the room, “There are only two types of shipowner – cautiously optimistic or optimistic.” And it was cautious optimism about prospects for next year tinged with regulatory anxiety that dominated dry bulk proceedings over in Monaco a few weeks earlier. The high-level panel in Europe featured Cesare d’A mico, CEO of d’A mico Società di Navigazione, Danilo Fumarola, CEO of Gestion Maritime, John Michael Radziwill, CEO of GoodBulk and Edward Buttery, CEO of Taylor Maritime, all of whom admitting that 2019 had not worked out as they might have hoped with dry bulk rates facing extraordinary volatility once again. “The year was not as good as we expected,” Radziwill conceded, something that everyone on the stage agreed with. Where views went divergent were on prospects for next year with ever bullish Radziwill and handy specialist Buttery hopeful,
“
Asset play is much harder today
”
and the two Italians. d’A mico and Fumarola, more cautious. “I will be very cautious for next year. Economic prospects are not the best,” d’A mico warned. While circumspect, Fumarola did say that protectionism and tariffs could actually help the sector, as could plenty of scrubber retrofits. “Tariffs add an extra layer of inefficiency, which means more freight time,” Fumarola said. The debate then turned heavily towards the environment and regulators before Huxley neatly brought it back to the markets once again with Radziwill having the final, urgent call to his peers in the room. “We don’t need new ships for a long long time,” the Monaco resident said, adding: “We’re all shooting ourselves in the foot if we order a new ship.”●
31
MARITIME CEO IN PROFILE FORUM
‘Shipowners are cycle destroyers’ The tanker panels were feisty to put it mildly
T
he ebbs and flows - both logical and less so - of the tanker trades were discussed at length in both Monaco and Hong Kong. Svein Moxnes Harfield, co-CEO of VLCC giant DHT Holdings, used the Maritime CEO platform in Monaco to hit out at the “illogical” nature of shipowners. Harfield relayed how back in 2002, VLCCs cost no more than $67m, but just 13 VLCCs were ordered that year. Fast forward to the great crash of 2008, and owners were splashing up to $150m per unit on 130 newbuild VLCCs. “It is illogical. Shipowners always order ships when they have cash. They are cycle destroyers,”
32
Harfield said. Quite so, said Modi Mano, CEO of M Sea Capital, nodding his head. “It is an illogical industry,” he concurred. Marco Fiori, CEO of Premuda, said at the same event that likely further consolidation within the shipbuilding sector could help to make the tanker space less volatile. “There will be less supply of ships, less boom and bust,” he predicted. Maybe, but the flip side of this yard consolidation could well be more expensive newbuilds, warned William Fairclough, the new
“
managing director of Wah Kwong Maritime Transport Holdings, over in Hong Kong. He said that the mergers of Asia’s top shipbuilders – CSSC and CSIC in China and Hyundai and Daewoo in South Korea – could see more “belligerent pricing”. Fairclough had a prominent role in discussions at Hong Kong’s Foreign Correspondents’ Club (FCC). Importantly, he relayed to delegates how a huge swathe of the first generation of double-hulled tanker fleet are coming up to their scrapping age in the next couple of years,
It’s dangerous to focus on micro-events. You need to see the big picture
”
maritime ceo
TANKERS
and yet owners are reluctant to order, concerned about the uncertain regulatory climate. “Ships that will turn 21 or 22 in the next couple of years are a huge portion of the fleet – but demand is there, so you will get extreme volatility on the lack of fleet replacement. That is where we find it very interesting from an asset point of view,” Fairclough said. In bullish form back in Monaco was Emanuele Lauro, the chairman of Scorpio Group, who was adamant that while geopolitics were helping tanker fortunes, the fact was, he said, that fleet fundamentals pointed to a favourable outlook. “The reason why the markets are improving are only for fundamental reasons,” Lauro argued in the late
ISSUE FOUR 2019
October event. “VLCCs are not at $100,000 a day just because of Cosco sanctions or from a tweet from President Trump. On the product tanker side there has been a cascade effect - LR2s at $70,000 a day, these are rates not seen for a very long time.” This point of view was backed up by DHT’s Harfield who told the assembled owners at the yacht club, “It’s dangerous to focus on microevents. You need to see the big picture - stable demand growth, zero fleet growth, new refineries in the Atlantic for customers in Asia creating longer ton mile and reducing the productivity of the fleet.” Geopolitics have played into tanker fortunes greatly this year, but that is just something owners
have to factor in when planning for the future, argued Wah Kwong’s Fairclough back in Hong Kong. “Political things we can’t control and are inherently unpredictable,” Fairclough said, adding: “You have to build them in when planning for the market.” Sitting immediately to his left, the world’s most famous shipping analyst, Dr Martin Stopford from Clarksons, agreed wholeheartedly, reminding the audience at the FCC, “Spikes come and go, but fast.” ●
“
Ships that will turn 21 or 22 in the next couple of years are a huge portion of the fleet
”
33
HR
Delegates split on millennials Human resources straw polls among guests in Hong Kong drew mixed reaction
C
ontrary to many recent reports, shipping is not struggling to attract the next generation into the industry, but more needs to be done to retain talent, asserted the HR panel at the Maritime CEO Forum in Hong Kong. “For me, I don’t think there is a big problem. There’s a lot of people who are dying to go to sea,” said Bjørn Højgaard, CEO of Anglo-Eastern, relating how his ship management company takes 500 cadets a year and last year it had 2,200 applicants for those slots. “From a shore-based perspective it depends on how you promote yourr brand and market how people can
“
Some of challenges shipping has in terms of digitalisation and new fuels could actually attract youngsters
”
ISSUE FOUR 2019
work for you. Get that right and it is not a problem. We don’t experience a shortage or a lack of enthusiasm,” said PB Subbiah, HR director at Pacific Basin Shipping. “I can’t see shipping struggling. It is a global industry. We should look ahead and see what the practical skill sets will be with digitalisation. Shipping is in a good position,” argued Morten Lind-Olsen, the CEO of tech firm Dualog. The audience at the exclusive shipowner gathering was not so positive. A straw poll was evenly split on shipping struggling to attract the next generation. Part of the problem said the session’s moderator Heidi Heseltine, CEO of Halcyon Recruitment, was that shipping, especially in Europe, can be seen as a dirty industry. That perception is there, agreed Højgaard, but he was able to spin this into a postive. “Some of challenges shipping has in terms of digitalisation and new fuels could actually attract
youngsters. It can be seen as sunset industry but these challenges can be worked on – to change cultures, to be more inclusive,” the Anglo-Eastern boss argued. Quite so, agreed Rajesh Unni, founder and CEO of Synergy Marine Group. “You need to build an immersive world culture and a culture where people can learn from failure. I have learnt it is important to inspire people.” Moderator Heseltine also asked the audience how many of their employers operated proactive diversity and inclusion programmes. Roughly half the audience of about 70 people raised their hand. However, when asked for examples of what initiatives were in place that were making a real difference an awkward silence ensued in one of the rare moments where the audience was not proving as vocal as those on the stage. The next Maritime CEO Forum takes place at the Fullerton Hotel in Singapore on March 17. ●
35
Singapore / April
Hong Kong / November
Monaco / October
Thanks to our 2019 sponsors
For further information contact grant@asiashippingmedia.com or visit www.splash247.com.
WINE
It’s the most wonderful time of the year There’s plenty of time to make your plans for 2020 while tucking into some Christmas treats, says Neville Smith
I
t’s that time of year again when we think about the really important things: friends, family and where we might go on holiday next year. With a universe of choice available, that the thinking traveller will want to blend sustainable eco-tourism, cultured cuisine and of course, wine. To start with, how about South America? In its favour, breath-taking scenery, centuries of culture and lots and lots of wine. In truth, some parts of South America have too much wine, or at least too many grapes, certainly ones growing in sites too low to make high quality wine. Your wine and steak-based tour should definitely take in some mountains since elevation and aspect will usually elevate the wine’s quality too, plus you’ll get some view. For us Brits, despite our slightly
Two (more) to try I SPENT SO much time trying to work out what Vidiano 2018 (£12.95 Berry Bros. & Rudd) reminded me of; Picpoul? Pecorino? Unoaked Chardonnay? And then I realised it has the best of all of these in a package that will keep your guests guessing too.
38
uneven view of Europe, there’s nothing like a bit of Mediterranean sun and sea to get our pallid blood rising. These days of course, we’ve moved past the full English and Daily Mail (I hope) version of the Med and are discovering the region’s food and wines anew. Crete for example, is an island with eons of history and beautiful beaches, ancient vines and olive groves by the mile. You can achieve altitude here too and there’s plenty of maritime influence of course. There’s nothing much to beat ‘La France Profonde’ but this time we’re going to take a swerve to the southeast to my favourite holiday location, Italy. A sort of hybrid of France and Spain, Italy has Mediterranean style to burn and enough landscape and culture to satisfy the loafer and the most enquiring of minds.
Ring the changes this Christmas with Valpolicella Superiore Ripasso Cecilia Beretta 2017 (£16.25, Corney and Barrow); rich and full-bodied it’s a perfect match with hearty seasonal food and leftovers. ●
It’s the land of the vine too, which means that as much as France, it has bibulous treats from one end to the other. It also has an enviable number of indigenous grape varieties alongside the plantings of international grape varieties. The dizzying range of climates and styles makes Italy a vinous jungle, but one that is a pleasure to explore. Campania is a personal favourite, home to the Amalfi coast and some of the country’s most individual reds and whites. At the top of the boot, the Veneto is principally known for its great cities, some of which are probably visited sooner rather than later. It’s also home to some the country’s most storied wines (and some not so much). The trick here is not to overpay for a glass or two while enjoying the vibe on the piazza. Winter is no time for wimpy wines; you need something like Pulenta La Flor Malbec, Mendoza 2018 (£14.50, Berry Bros & Rudd) a high altitude, smart attitude wines that balances full on fruit with admirable structure and restraint. You can treat Incantesimo Falanghina Sannio DOC 2017 (£10.95, Corney and Barrow) as a Chardonnay-buster, it has minerality, stone fruit and tangy, nutty undertones. Highly enjoyable ‘da solo’ or with good food and company. ● maritime ceo
GADGETS
Pen to e-paper
T
ablets such as the iPad have always promised and never quite delivered a sketchbook/notebook experience. There are pencils, there are notebook apps, but it’s clunky at best. The reMarkable seeks to change this. For a start the 10.3” tablet uses an e-ink display, the same as many of the Amazon Kindle models, which already makes it a lot closer to paper than the glass screens on most tablets. It also has a precise, low lag pen that is tilt and pressure sensitive, and doesn’t need power. It connects to other devices via a wifi connection to its own cloud service and can convert handwriting into typed text in 33 languages. Battery power will last you a day of hard sketching, or over a week of standby. reMarkable paper tablet $500 remarkable.com
The nerd’s nerd guidebook
B
efore you start: yes, it is a book, not a gadget. But How To is a book by the nerds’ nerd, Randall Munroe, maker of the splendid xkcd webcomic, so shush. It will thrill and delight science nerds and gadget freaks as much as his previous books, What if? and Thing Explainer. So, we in the gadget cupboard have made it an honorary gadget. Munroe pitches it as a book of “bad ideas” where each chapter takes a fairly simple question such as “how to jump really high” or “how to cross a river” and applies a ridiculous and absurd level of technology and science to the answer. It is, in essence, a practical guide to impractical solutions to practical questions. You may well accidentally learn stuff while you’re laughing, too. How To: Absurd Scientific Advice for Common Real-World Problems by Randall Munroe $17 https://www.amazon.com/
More frickin’ lasers
Y
ou know we have a thing for lasers. The Beamo from Flux is billed as the world’s smallest CO2 laser cutter and engraver. It’s currently in kickstarter status, but we want it. The laser is narrower than a human hair and can cut to a depth of 5mm, and engrave to a depth of 0.05mm, and has a resolution of 1,000 dpi. It will cut or engrave cardboard, wood, leather, fabric, rubber, concrete, acrylic, glass, stone and metal, and is compatible with JPG, PNG, SVG and DXF files, so you can create to your heart’s content. It has water cooling, and an air pump and exhaust to vent fumes outdoors. And a laser tube lasts from six months to a year, as do the lenses and mirrors, all of which you will be able to buy from Flux. Beamo CO2 laser cutter $800 flux3dp.com/beamo/
ISSUE FOUR 2019
39
REGULAR BOOKS
How intelligent will AI get? Paul French on how China is leading the world when it comes to artificial intelligence
T
his issue we’re focusing on one book that, arguably, is incredibly important and has attracted much attention from business people trying to work out just far artificial intelligence (AI) can go. Kai-Fu Lee is a Taiwanese-born American computer scientist, businessman, and writer now based in Beijing. In the past he worked in China at Apple, SGI, Microsoft and, latterly, as president of Google China. Now Lee oversees the influential venture capital fund Sinovation Ventures. In his recently published book AI Superpowers: China, Silicon Valley, and the New World Order Lee describes how China is rapidly moving forward to become the global leader in AI, and is poised to surpass the United States largely because of China’s vast demographics and system of topdown control, allowing it to amass huge data sets. Lee has been dubbed the oracle of AI. Here’s some of Lee’s key takeaways on AI. The US may have has better researchers, but ‘deep research’ capability isn’t necessarily translating into commercial value in AI. China has new business models ideally suited to AI that are less developed in the West. Think of shared bicycle services, ordering relatively small food items or packages online. In these cases AI combines with
40
super low delivery costs by western levels. And China is taking AI overseas successfully. Chinese companies are more willing to customise their AI apps to local needs. For instance, when Alibaba sold Alibaba Cloud in the Middle East they made changes and didn’t expect the customer to adapt, which is more common with Western developed systems. Amazon Cloud Dive is far more reluctant to make these changes than Alibaba. Additionally, China’s AI startups have phenomenal access to data sets. Tencent and Alibaba have some of the most powerful datasets anywhere. Consider mobile payments. These two companies alone have over 100 times more data than PayPal does, and probably 10 times more data than Mastercard or Visa. Which brings us to data privacy. Lee believes that there will eventually be a General Data Protection Regulation (GDPR), similar to that in the EU, introduced in China. It will be weaker but will still work towards protecting consumers from bad behaviour
“
by companies. While the UK, Germany and France still have strong research track records, Europe has none of the success factors of the US or China in AI. Europe has no VC-entrepreneur ecosystem. British and European entrepreneurs are not as innovative as America or as tenacious as China. Europe is strong on hardware and telecoms, but far less strong than either the US or China on developing consumer internet companies, social media companies, or huge mobile application companies. In the US AI Superpowers: China, Silicon Valley, and the New World Order has been seen as a wake up call to the Valley. Their dominance is not assured. At the moment China is concentrating on AI apps and systems for domestic use but, tied into China’s Belt and Road strategy, exporting AI globally is a key aim. What’s going on in AI in China is fundamental to companies around the world in multiple sectors. We would all do well not to stick our heads in the sand when it comes to the complexities of AI. ●
European entrepreneurs are not as innovative as America or as tenacious as China
”
maritime ceo
TRAVEL
Côte d’Azur hideaway Sam Chambers falls in love with a little town next door to Nice
N
estled next to Nice and the squillionaire’s hideaway of St Jean Cap-Ferrat, Villefranchesur-Mer is a glamorous throwback on the Côte d’Azur that manages to retain its fishing port heritage while also catering to the jet set. The town sits on a huge bay in the Mediterranean with colourful villas climbing high up into the mountain backdrop. The town is just a few minutes by train from Nice airport. Better still, rent a car and drive the spectacular ‘corniches’, the winding roads that hug the coastline through to the Italian border. Villefranche serves as a great base to explore the south of France. Places not to miss include Nice, which has had a brilliant urban makeover in the
ISSUE FOUR 2019
“
Villefranche is less chic, less pretentious, but more charming and authentic than most of the other neighbouring resort towns
”
last 10 years. The stunning gardens at the Rothschild’s villa, a 30-minute walk away, are worth exploring. Higher up, check out the mountain village of Eze for breathtaking views out to sea while further east brings you to arguably Europe’s fastest growing shipowning base, the principality of Monaco (look out for a full travel page on this dynamic hub next year), and at the border of a Friday morning is the great Italian market town of Ventimiglia. Top-end hotel options are a little
limited in Villefranche, but that is part of the charm of the place - it is less chic, less pretentious, but more charming and authentic than most of the other neighbouring resort towns on this millionaire’s row. We recommend the Welcome Hotel and in terms of where to have classic seafood you’d be hard-pressed to beat La Trinquette by the old port, which to get to will take you around the wonderful 16th century citadel that lies in the heart of the town. ●
41
OPINION
Talking up technology The industry’s obsession with digitalisation risks undervaluing the human factor, writes Julie Lithgow from the Institute of Chartered Shipbrokers
T
aking a moderate view about technological change in shipping isn’t really popular. It’s much more exciting to declare that we’re in an age of unprecedented advances or decry the coming onslaught of destructive new ideas, than to conclude that the future will basically be like today with marginal improvements and slight differences. Of course, ever increasing automation seems incredibly appealing to owners in shipping. The idea of autonomous ships passing cargo off to similarly autonomous cranes and onto autonomous trucks feels, on the surface at least, far less complex and messy than systems dependent on interactions between humans. But even in that scenario, people will still need to be involved in the process, and how meaningful and fulfilling they find their work still matters. One reason why technology is such a seductive solution to so many owners and operators is that it requires so little intellectual effort, only more capex and opex. It allows the patch to be applied without addressing the industry’s deeper needs. Right now, increasing amounts of data flowing between ship and shore have not reduced the work done by crews but shifted existing effort. Captains report that they’ve actually seen an increase in paperwork as the demand from email has grown. There’s an often-quoted statistic that 80% of accidents in shipping are down to human error, but the truth may be a little more complicated
42
than that. A 2017 study by Croatian academics at the Faculty of Maritime Studies Rijeka, suggests that increasing levels of automation coupled with a reduction in crew levels can lead to more stress and a greater chance of accidents. Simply adding new technology doesn’t instantly make things easier or safer. A future where human employees spend their time tending to the demands of robots is foreseeable, but it needn’t be inevitable. The Global Maritime Technology Trends 2030 report predicted the rise of three new types of robot in commercial shipping — learning (for undertaking complex tasks), practical (for handling assets) and mini (for inspections in harsh environments). While they could reduce the size of human crews, people will still be required to manage, monitor and maintain the robots. Shipping has always been at the leading edge of introducing new technology — containerisation is a good example — but it can also be very reactive. When thinking about how to apply innovations in the industry, we should start from the principle that we would like our societies to be better every single day. Yes, the blockchain can improve security and transparency in supply lines. Yes, drones and robots are going to play an increasing role in moving cargo. Yes, wearable technology may mean crews feel more like cyborgs. But all of these innovations are choices and can come with unintended consequences; moving to interactions between autonomous vessels and port infrastructure
increases the need for data security and the risks of interference from malicious actors. This is not an argument for conservatism in shipping or for fear about the future technology could bring. Instead, it’s about developing smart ways of managing technology that continue to see the value of human interactions and experience in the process. It’s about using technology to improve human-centred work, not turning into simple biological components within an automated system. When something unexpected happens onboard a ship, there will still be a need for human creativity and the ingenuity that comes from experience. We are still a long way from autonomous systems that are capable of truly non-schematic thinking. It’s likely that changes in shipping technology will simply see a shift in where humans sit in the process. Crews that were once on the bridge of a vessel may be relocated to the shore. In that case, technology would allow workers a more conventional home life, without long stretches at sea. For many that will seem like a benefit but for others it will mean losing what attracted them to the job in the first place. We need to adopt new technologies with an eye to a long term vision and not simply to solving short term problems. Industries like finance can turn to systems that remove humans entirely because they are dealing in the virtual. For shipping, so rooted in the physical world, the future will still be human. ● maritime ceo
REGULAR OPINION
Shipping needs right brain thinkers too Where is there room in shipping to be creative? James Wilkes writes on how to make our industry a more attractive career option
T
he other day I ran a straw poll on Twitter asking the following: Given the opportunity, would a young you join the shipping industry today? I wasn’t expecting this Tweet to go viral. It wasn’t a video of a small fury animal doing something physically extraordinary, like squeaking the first five bars of God Save the Queen while chewing a brazil nut. And per my expectations, it didn’t. However, thanks to a little more exposure from a few Twitter friends, the poll managed to attract 77 votes. The result was that 58% said Yes, while 42% said No. 77 votes in not a big sample. It’s not a sample that a statistician would define as representative. The editors at this title then asked a far larger audience the same question with very similar results (see overleaf). At a time when shipping is ostensibly worried about employment diversity, competency, attracting talent and retaining it, I find it interesting that 42% said that a young them would not join the shipping industry today. I find it interesting because if shipping really wants to address these issues it wouldn’t hurt to explore why apparently there are so many people disenchanted with the industry. I haven’t interviewed the 32 people who voted No, so I don’t know what their personal gripes are. Taking a guess, I imagine some of them will be unhappy because
ISSUE FOUR 2019
they have been passed over for promotion, their salaries and benefits are not what they think they should be, their companies/ships are awful places to work, or they were just having a bad day when they responded to the poll and were venting. But the context of the question was that it was a ‘young you’ I was asking about.I was looking for answers taking into account the arc of a career. And if that is how most of those voting reflected on that question, then for a notable minority there must be a profound disconnect between the industry they believed they joined and the one they are working in now. It’s an issue that should exercise us. What has happened to our industry over the last two decades, say, that should have people turning their faces – and talent – away? I don’t have the answer to this but if I was to hazard a guess based on observation and conversation over the last few years, my starting point would be that shipping has, for a lot of people, become a boring industry
in which to work. Not everywhere, in every way, for everyone: there are exceptions to all rules. But in general, the things that shipping seems obsessed with are pretty dull. Cost-saving strategies, debt restructuring, leveraged finance, big data, capacity generation/shrinkage, blockchain, digitalisation, optimisation and anything ending in ‘tech’, are, I’m sure, all important things. And if since you were five-years old you wanted to be an accountant, banker, financial analyst or the CEO of a major stock-listed company, I can see why you might get excited by them. But what about people who are not left-brain dominant? Where is their room in shipping to be creative? To experiment and do a bit of day-dreaming? Who is encouraging success through trial and error, rather than prescription? What about making room for ideas that don’t make logical sense initially, but have the scope to surprise us? What about trying something different, because how everyone is doing it now isn’t working? As marketers are fond of saying: what about zigging, when everyone else is zagging? If we’re willing to think about that, we might then be able to do something about employment diversity, competency, and attracting talent and retaining it, rather than just talking about it. ●
43
MARPOLL REGULAR
Your verdict
The topics posed this quarter clearly sparked plenty of interest with more than 1,000 votes cast. Results and key comments below Given the opportunity, would a young you join the shipping industry today?
Has shipping overtaken aviation in its decarbonisation efforts?
“
“
Shipping has become a shark tank. Fair partnership and respect between owners, charterers and competitors has completely gone
Yes
64%
No
36%
”
How long will it take for a blockchain-based workflow system to become an industry standard?
“
Unlike the aviation industry, the public are barely aware of the steps the maritime industry is taking
Yes
55%
No
45%
What is the bigger challenge for regulators and the affected stakeholders – compliance or enforcement?
“
Blockchain is slogan, but not solution. Other trends may come quicker
”
”
This industry will always include cheats
”
Two years 6%
A decade 34%
Compliance 40%
Five years 38%
Never 22%
Enforcement 60%
With significant regulatory risk will the independent shipowner base contract and national shipping lines see a re-emergence?
What will be the best performing sector in 2020?
“
Thank you President Trump for your idiotic sanctions - best thing for the tanker market
“
”
Dry bulk 14%
LNG 33%
Tankers 43%
LPG 3%
Containers 7%
Yes 34%
Nations have proven unable to run any business without subsidising it. Taxpayers are not wealthy enough to take shipping in charge
”
No 66%
What has been the most important story in shipping this decade?
“
Are we at the end of the ‘gut feel’ freight market and the start of the data-driven one?
IMO 2020 is the biggest change in shipping in the last 100 years
”
“
Classic Greek asset players will still exist and thrive, but the shipping markets will become more digital, closer to stock markets over the next decade
Liner consolidation 21%
Digitalisation 11%
Green developments 21%
Rise of China 24%
Yes 56%
Hanjin’s collapse 9%
Growth of non-shipping capital into the sector 14%
No 44%
44
”
maritime ceo
SAFER VESSELS CLEANER SEAS STEERING A PATH TOWARDS A SAFER AND CLEANER MARITIME ENVIRONMENT RIGHTSHIP.COM