We bring you Spyros Polemis’ opening speech in its entirety and look forward your comments:
Distinguished guests, Ladies and gentleman,
When I last chaired a major shipping conference in Athens organised by the Financial Times, it was just a day or two after the collapse of Lehman Brothers in the autumn of 2008.
Many of you distinguished representatives of the Greek shipping industry who are here today were also probably present then. It was the moment when the penny had finallydropped; when we realised with unpleasant clarity that the incredible boom time in shipping had come to an end, and that we were about to descend into one of the deepest economic recessions in living memory.
Little did we anticipate that nearly four years later shipping would be bracing itself for things to get even worse. It is certainly a challenging time in which to be chairing this important event, and in my home country, which, more than most, has been so acutely affected by the current global financial crisis.
However, I am delighted to be speaking to you in my capacity as Chairman of the International Chamber of Shipping*. For those of you who may be unfamiliar with ICS we are the principal international trade association for shipowners, because our members are national shipowners’ associations from 36 nations, including most of the largest traditional maritime nations including the Union of Greek Shipowners and the Hellenic Chamber of Shipping, and we represent more than 80% of the world merchant fleet.
The agenda for this ambitious event touches on a wide range of themes, developments in world trade and shipping markets, shipbuilding, insurance matters and the intolerable problem of piracy. While it is not my wish to steal the thunder of the experts that will speak later, I would like to highlight the most critical issues on which I think the industry should focus.
I believe everyone recognised that 2012 was going to be a very difficult year for shipping financially, and that we should always be prepared for the unexpected.
What we had not foreseen however was that the year would begin with the tragedy of the “Costa Concordia” and that the safety record of the industry would be put under the spotlight in the most dramatic way imaginable.
It is still far too early to know what the detailed outcome of the accident investigation will be, and it is therefore not appropriate for me to provide any definitive comment on the incident. However, this disaster seems likely to have implications for all types of ships, and not just the cruise sector, and will almost certainly have a major influence on the immediate regulatory agenda of the International Maritime Organization.
While the focus of this conference is trade and finance, this is the first major event at which I have spoken on behalf of ICS since the incident. It is therefore important to underline that safety of life at sea must always be our highest priority ‐ indeed it is our highest priority ‐ and the way in which we address any issues raised by the loss of the Costa Concordia – a state of the art vessel – will reflect on the reputation of all of us.
But to, return to my main theme. In recent years the shipping industry has been confronted with unprecedented economic turmoil. Much of the industry is still struggling with the serious consequences of a truly massive contraction in economic activity, with global trade estimated to have declined by nearly 10%.
The latest World Trade Organization projections for 2012 are not very positive – and global trade is probably not much improved on the levels that existed before 2008. Shipping, of course, is the servant of world trade and, just as it benefited from the boom years of the mid 2000s, its fortunes are now also inextricably linked to the recent fall in the demand for its services.
It would of course be wrong to suggest that the industry’s current problems are entirely of our own making. The behaviour of the bankers, and the inability of our politicians to get to grips with sovereign debt, is all very well known.
My personal view is that the emphasis given by Western governments to austerity programmes without an accompanying aggresive strategy to promote economic growth will simply be self ‐defeating. What is needed is an injection of serious optimism. The worse thing we need is fear about the future.
We also need to be realistic. To a large extent, many shipowners have been shielded from the full severity of the current economic crisis by the seemingly inexorable growth of China, with its apparently insatiable demand for raw materials and relentless expansion of its manufacturing capability. But even this beacon of light cannot be guaranteed.
If, as seems likely, the Eurozone goes into a full recession – or, even worse, implodes ‐ the implications will almost certainly be global, and may well reduce demand for shipping services from China, and the other BRIC nations too. Leaving aside the impact of what may or may not happen in Europe, the continuation of China’s policy of massive infrastructure expansion cannot be taken for granted should it decide to place more emphasis on meeting the demand from its people for more domestic consumption.
What we also have to acknowledge is that many of the problems confronting shipping have undoubtedly been exacerbated by shipowners placing orders for far too many ships, with far too few cargoes to carry.
Hindsight of course is a wonderful thing. As I was preparing this speech, I was struck by a front‐page headline in Lloyds’ List which ran ‘Stupid shipowners must stop ordering stupid ships’! I would not put it so bluntly perhaps, but until the crisis is over we do need a moratorium on new orders for ships that have no economic purpose.
Current markets would appear to be demonstrating just how seriously damaging the oversupply of ships has been to shipowners’ revenues, with many now struggling to meet operating costs.
In the current climate of massive uncertainly, rates are as volatile as ever. Rates for all bulk carriers, for example, are a fraction of what they were a few months ago.
However, whatever the insatiable appetite of individual owners, the biggest danger perhaps is the overcapacity that exists in the shipyards, with an almost obsessive commitment to market share being displayed by the three major shipbuilding nations:
China, Korea and Japan, where 90% of world tonnage is built. Even if some shipyards go bankrupt, it is almost certain that their governments will step in to support them so that they can continue to produce ships which few people want ‐ other than speculators who may be tempted by knock down prices; or, – with China having a widely recognised goal of wanting to carry a much larger proportion of its cargoes – perhaps 50% ‐ on board its own ships.
Although this is of little immediate comfort to those individual companies that may be struggling to survive, one consolation, at least for the moment, is that governments, so far at least, appear to have made a determined effort to avoid the excessive use of protectionist measures.
Moreover, although the global financial system has been seriously threatened by thecrisis, with government support it has so far managed to survive and it is still intact.
This is not, by any means, an insignificant achievement, and it should not be forgotten just how close to the precipice the world economy came.
But the banking crisis has now turned into a sovereign debt crisis, and the new religion of austerity may yet be the undoing of us all. When governments pumped in vast amounts of money to rescue the banks, and propped up their coffers with quantitative easing, they should also have done far more to make this conditional on maintaining lending.
Fortunately, although bankers are hardly beyond reproach amongst society as a whole, it appears to be in the banks’ own interests to support many of those shipping companies that may have had recent difficulties, although it is by no means clear how long this situation will continue, and even shipping banks may increasingly start to lose their patience with any companies in breach of their existing covenants.
The debt crisis means that banks are expected to tighten lending to the shipping industry as they are required to improve their balance sheets and reduce their debt to capital ratios. The majority of shipping banks are still European and are already being affected by the Euro crisis.
But all shipping banks will have to comply with the stricter capital requirements of the Basil III banking rules which are due to be phased ‐in over the next few years. As banks are forced to strengthen their balance sheets, this may further reduce the finance available to shipowners.
I would now like to say a few words about some of the other issues which are being covered during this Conference.
Firstly with respect to shipbuilding standards: leaving aside issues of oversupply, society and our regulators are now demanding ever more fuel efficient and environmentally friendly vessels, and shipyards need to take account of the impact that this will have on customer relationships.
In recent years, I believe there has been a much better understanding between the two parties as to what is needed, but shipyards must be much more open to co ‐operating fully with shipowners in the design and construction of vessels of the future. The shipyards’ drive for efficiency and cost‐cutting is a good thing, but at the same time there has to be a realisation that it is to the shipyards’ advantage to work ever more closely with shipowners.
Secondly I would like to make a few remarks about piracy.
Recent press reports might give the impression that the level of piracy off Somalia is decreasing. However, most ship operators will be aware that this is not an accurate representation of the current situation.
As this slide** makes clear, pirate capability is higher than it has ever been before, but counter ‐piracy work in terms of compliance with Best Management Practices by shipping, sustained military intervention with a more aggressive stance and the expanding use of armed guards has reduced the pirates’ rate of success. Thankfully the number of crew and ships held in Somalia is also at a lower level than has been the case for some time (with some 200 seafarers currently in captivity)‐ although I stress that this is still totally unacceptable.
I would suggest that the challenge for us all is to ensure that the problem of piracy retains sufficient political and public attention, so that the crisis might be properly and decisively addressed during 2012.
Within ICS we have recently identified four specific immediate objectives:
First ‐ we need to persuade governments to permit the military to take the attack to the pirates, whilst at the same time continuing to defend merchant ships in the best way possible.
Second ‐ every apprehended pirate should be arrested, taken to a court of law and, if found guilty, imprisoned, and
Third, we must break the financial chain, through legal action against criminal financiers and investors in piracy wherever in the world they are identified.
Fourth. Governments must take action to free all hostages now held in Somalia.
I have tried to cover a lot of ground in this opening scene ‐setting exercise. I would like to conclude by stressing the importance of politicians and regulators maintaining a constant dialogue with industry and listening carefully to our views and recommendations.
Shipping does not object to regulation, provided that it is good regulation, and that it delivers the intended results. Politics should have no place in discussions about improving safety or our environmental performance. Without a viable international shipping industry, efficiently transporting 90% of world trade in a cost effective way, the maintenance of modern living standards would simply not be possible.
In a more rational world, given our economic importance, and in view of our unique international system of governance, the industry should really be treated with the same respect that is due to a sovereign nation. However, in order to achieve the influence we deserve, it is very important that we in the shipping industry remain completely united, and endeavour as far as possible to speak with one voice. I hope that our discussions today will help towards this vital purpose.
* The International Chamber of Shipping (ICS) is the principal international trade association for shipowners, with member national associations from 36 countries representing all sectors and trades and over 80% of the world merchant fleet.
** We will obtain the slide and include in this paper asap.