The World Economy’s and Shipping’s missing ingredient is Transparency! (Part 1) By John Faraclas
Transparency to all markets; transparency to all exchanges, transparency, regulation, and crash tests to all intents and purposes!
Transparency includes regulation! We have numerous times referred to this on-going crisis, lack of proper transparency and unbiased regulation, as well as on the collusion of identities within the industry and in particular across the entire shipping spectrum.
The financial crisis of 2008 has triggered a discussion in the finance community about the need to move to more transparent market structures. Policy makers in US and Europe have already taken steps into this direction, but nothing as yet, in my humble view is happening in a pace to ensure and assure us of better days ahead. The IMF is biased, so is the European Union leaders; when I say leaders I mean those having the upper hand assisted by their nations and super rich wealth – for the time being only…
In our industry, that is Shipping, the biggest and most powerful from all others put together, the collapse of the Baltic Dry Index from the highs of 11, 000 plus before Posidonia 2008, down to 662 in November 2008 and then down to 647 in February 2012 must be addressed and defined as a big scam, a big market manipulation if you like – to say and name things as they really stand. Who was responsible for this? Which Institution or company was responsible for this, as knowingly, many elements in the market knew what was going to happen? Add the latest LIBOR scam and see what you make; needless to say the “collapse” in the Eurozone and beyond…and what is else to come!!!
The continuation today under the collaboration and co-operation of shipbrokers with mostly ailing shipyards in building more and more tonnage, will certainly floor down even the best houses. There is collusion, as a great number of shipbrokers besides their designated shipbroking activities, that of ships sales and purchase and chartering, represent on a direct or exclusive basis shipyards and they need to promote their designs/projects and defend their position by concluding more and more deals, otherwise somebody else will be appointed. I know the feeling as it happens to have been an S and P broker. This situation upsets the markets and creates greater economic havoc. Given that ships prices dictate the acquisition of shipfinance and its level and guarantees, even on a low market the amounts are substantial and conversely, consequent failures will bring in colossal losses to the detriment of all – wonder who will shoulder all these losses, the taxpayer? Eh! And what about the freight rates and futures; did I hear you say FFA’s! Shipbrokers, Bankers and shipyards = the Bermuda triangle to be shorted out.
There should be a shipping ombudsman and controls; otherwise from the one hand we praise the brokers – big or small on the “excellent” deals they conclude and the hefty commissions they earn – plus the bonuses, and on the other we blame them as they make money by destroying the very market et al they work in! Remember also that brokers facilitate trading on behalf of the principals in almost all markets and a large fraction of information is aggregated at a broker’s level! Given all the above, the academia shipping studies curriculum should change… What do we lecture the new comers on?
We are living in interesting times; we are living in a multi Cyber War too, the trillion dollar war, and the war of Globalisation. The growth of cyber-crime has caught the attention of many of the world’s leading organisations, governments though, except few exemptions, do nothing to protect us, as well as our businesses! Despite the trade “pact agreements” between the US and China, both nations are already engaged in a cyber-conflict; any objections? According to info available nearly US$ 115 billion is the direct annual cost of cyber-crime, US$ 275 billion the annual coast of time spent dealing with cybercrime; every second there are 20 victims or about 75 million on an annual basis and its costs, only the American Economy – losses – of US$ 32 billion. If you save these amounts, the Greek “debt” could have been offset! Add the damage from Piracy and terrorism and see what you make… Now imagine the findings of shipping cyber-crime if it lands tomorrow morning in a form of an analyst’s report on your desk and include names; how about that? How about shipping markets manipulation? How about the acts and sins of speculators when these too surface? Did I hear you Big Brother is listening…even at the material time of the negotiation when you try to fix your vessel? Who else is listening? What happens at these special moments? Who gets the fixtures? Who learns on your SWOTs and what they do to you in due course? Or better say, what happens to you in due course? Its like plane spotters; remember the case of some Britons in Greece during the nineties
Some years ago I witnessed a few demonstrations on hacking and I can assure you we are all been hacked. Back in 2000 I have written views on this issue and during these thirteen years, nothing much has happened. But wait and see…
Transparency in the financial and shipbroking markets and companies is like pollution; everybody screams and shouts on the environment, yet does the word Kyoto rings the bell to you? Have you seen the state of your neighbourhood? Have you seen the area in the business sector of the city or town you work in? The findings of irregularities one day, I bet you whatever you wish, will be uncovered and then, to my favourite expression, the shit will hit the fan! Transparency is the best form of proper accountability to all intents and purposes.
Our industry is the one which introduced the best methods of accounts (like the MGA’s) and accountability, thanks to the international trade when it really started with the colonisation of the Black Sea and the Med by the Greeks and at more recent times with the medieval Italian traders, such as the Genoese, who also ruled the island of Chios where I come from and been brought up with the inherited mixed Chiot-Genoese trade pattern-concept! All in all it was shipping, the shipping venture meaning to find investors, outfitting a ship, fix her by purchasing a product and bring her back to Italy from India or China through the then Persia, Arabia and Ottoman Empire, exchanging currencies, paying duties, marketing and selling the goods and dividing the profits. Investors faced piracy (like some of its today’s forms), thievery, pests, the plague, counterfeiting, bad weather and hostile foreign powers and the problems of banking – as it happens still today! One important issue was that in Genoa they were keeping the accounts in the office of two Accountants, so that they could better control the accounts of the Genova Commune! That was under the Government and the State’s auspices and control! The government and the citizens could verify investments, taxes paid, and profitability of ventures. Transparency and balanced books provided the confidence which fed credit and investment in Genoese trade. Try now to interpret this in our today’s shipping and shipbroking business activities.
Moreover, remember that because of lack of transparency, accounting, audits and rating firms failed to protect investors from the Wall Street Crash of 1929 which led to the decade long Great Depression; now we are in the first 20 years of a new world-wide Super Depression with the shipping industry astonishingly going through its worst ever period, and it’s only the beginning. Only the most capable and well organised shipowners and their respective groups will go through, not just survive. On top of anything else over the last twenty years we have more shipping companies listed in the stock exchanges with “preferential” treatment versus the traditional shipping company – big or small, it doesn’t matter. The State and Public Companies concepts will create a very big problem; everybody knows, but no one dares ink his reports! Add the liner trade; add the G8’s group trade patterns and see what do you make up! I guess that we need better ship valuations and market practices, needless to say freight rates projections, reformed rating agencies to remove all hint of collusion and conflict of interest. There is collusion and one day, very soon, these findings will be in written reports. I am pretty sure, as society lately, and in particular all the failed politicians and their respective fraternity are doing their best to survive by going all the way down the road to find irregularities, tax evaders, scams, and the lot and do two things: bring those who did the sins to justice and confiscate everything they can find. They wil also expose their cronies- they don’t need them any more. I am sure there will be raids not only in shipping offices and raids in connection with the collusion of some shipowners and their diverse business activities, but raids in Stock Exchanges and other Exchanges world-wide. I am pretty sure and expecting same to happen any moment! The name and shame is ante portas! This is how politicians and the new establishment of business hooligans will save their skin…
Ending this note, and given some points on the above, I want to ask some questions and will except your thoughts with ethical business discipline and dignity to come up with open written replies in our Comments Box at the end of this write-up:
1)Under which business shipping projectable proviso the banks where lending money to buy a common conventional car with the money of a luxury one? I mean ships of course.
2)On which basis and projections the valuations of ships where based?
3)What provisions were made in the valuation assumptions with respect the cost of bunkers – fuel, diesel and lubs? What about standard design ships versus more advanced ones?
3)What geopolitical assumptions and volatile, as well as hostile elements where taken into consideration?
4)Panamax you said? Well, how about the new Panama Canal: can we please see the mentioning of this aspect in the 2000 -2005 newbuildings…projects? Nicaragua is there for another canal; Chinese also eye Colombia! Kanal Istanbul?
5)On the costs on Piracy and Terrorism vis-à-vis the design of ships – I can assure you some Class Societies they have foreseen this but none really listened! So how the costs are being offset? How this reflects on the freight rates and add the extra insurance costs to see what happens?
6)On the costs to build ships, was there any proviso to protect everybody for the cost of the hull, given the iron ore sky-rocking prices? Remind you that the BMEC study in 1996 was saying that the 11 centum of a bulker was the cost of the hull, what happened from 2004 onwards? Don’t tell me no one knew…?
7)The Eco-friendly saga… ships… So where do we really stand on this issue?
8)The LNG case?
9)Fracking you said? Shale gas? These are very important issues. And what about the NSR?
10)Industrial -Trade violations leaving millions unemployed with the shift of the shipbuilding industry to the Far East? This is because of the costs of ships being built there. And
11) What Women, I mean WISTA’s, the International Chamber of Shipping, ITF, The Baltic Exchange, The Academia, The IMO and other major Organisations and Associations think?
There will be more questions in part 2 in due course; enjoy the rest of the summer…