Experts from shipowning, legal, insurance and finance sectors gather in Naples to debate shipping’s future direction
Naples, October 10, 2013. Speakers and panellists at the fourth Shipping and Law conference underlined the need for shipping to secure a sustainable recovery as the industry emerges from five years of downturn.
Addressing the question ‘Where is Shipping Going?’ delegates heard that recent earnings improvements in some sectors are spurring investor interest in shipping at a time when the industry is grappling with challenges in technology, funding, the cost of claims and increasing regulation.
Four sessions, considering technology for energy efficiency, finance, risk management and legal aspects heard speakers call for a collaborative approach to problem solving, with attention given long term, industry-led projects over short term speculation.
In his opening address, Grimaldi Naples President and CONFITARMA President Emanuele Grimaldi told the conference that for recovery to sustained, the industry had to demonstrate that it had collectively learned from the past.
“As owners, we must be entrepreneurial but we must do this as a key link in the logistic chain rather than as solo traders and speculators in the market or in assets. Banks and financial institutions should support this by backing only the projects which represent sensible investment. And we must together insist that all vessels have a maximum trading life which should not be extended for commercial reasons or at the expense of safety.”
The opening session, sponsored by Wartsila, considered the impact of Ecoships and energy-saving technologies. Could the benefits be quantified and could the potential improvements be written into contracts in a way that protected owners from under-performance? Session co-chairman, RINA CEO Ugo Salerno, estimated that 16, 000 vessels, equivalent to 400m gt were delivered pre-2011, designed for maximum cargo capacity rather than energy efficiency.
“Fuel is still the fundamental item. The annual fuel bill for a bulk carrier can be three times the cost of the interest payments, ” Salerno said. “Improvements of 20% in terms of ship efficiency are possible but for sophisticated tonnage, improvements in efficiency per tonne mile could go as high as 50%.”
In describing Ecoships as effectively prototypes, Perserveranza CEO Umberto d’Amato noted that ‘eco’ was a term open to interpretation. He suggested that the testing of Ecodesigns could be extended to verified model basin tests and performance during the first laden voyage in addition to normal sea trials.
Conference Organiser Francesco Lauro discussed options to support owners ordering Ecoships by contractualising efficiency levels and adjusting penalties in case of non-performance.
“This could include potentially include an increase in liquidated damages, reduction in the contractual free tolerance, collateral performance guarantees and rescission which could provide for a lump sum payment, ” he said. “But this will have an impact on the yards as they may not be in a position to verify the claimed performance.”
Pacific Basin CEO Mats Berglund warned delegates of the dangers of generalising about energy efficiency. Improvements in fuel consumption will vary across vessel type, size and speed. Slowing down was a low cost, highly effective solution.
“Before you embark in Ecoship ordering you must thoroughly do your homework. The consumption difference between a good second hand ship in slow steaming and a new Ecoship could be as little a 1 tonne of fuel. Ecoships are a high speed strategy but we assume that bunkers will stay high which means slow steaming makes sense.”
Fincantieri President Vincenzo Petrone held a contrary view, suggesting that environmental regulation was ‘an essential point of change in the image of shipping’ and “an opportunity for growth and to develop a competitive edge. Regulation will help quality operators because it will make it hard for low cost companies to compete.”
There was similar caution during the finance session, during which speakers noted that alternative sources of finance, including new instruments, export credit and private equity were yet to be fully adopted by the industry, despite constraints on access to capital from traditional lenders.
The first afternoon session, co-chaired by CR Marine and Aviation Managing Director Maruo Iguera and PL Ferrari Managing Director Federico Deodato, debated the structure of the International Group pool system, the challenges of profitability in the hull market, risk of rising claims from large containerships and bulk carriers, in addition to recent developments in regulation and potential liability of class societies.
SMIT Salvage’s Roger Evans discussed the potential for increased claims arising from the new generation of very large containerships and the need for better understanding of how to manage fire risk. Standard Club CEO Alistair Groom pointed out that despite a trend towards increasingly large claims, the cost of reinsuring claims between $70m and $3bn was only $400m. Most owners agreed he said, that the IG structure represented good value for money and that to buy cover independently would be less cost effective.
Swiss Re’s Andrea Cupido echoed recent comments about the sustainability of the hull market given 17 years of losses. But he insisted that profits were being made in some niches by the most able players.
“To manage a cycle you need a cycle. If marine is going to be less elastic then it will be flatter for longer. This is the new normal. Is hull a loss leader for some insurers or challenging market? It’s probably a little of both. The solution is that we learn to say no to brokers and write on exposure.”
The mixed fortunes of the industry are also impacting maritime law, with increased sale and purchase activity and charter disputes both triggering new judgements.
Ince & Co Partner David McInnes discussed recent changes to Lloyd’s Open Form, notably moves to increase transparency through the publication of awards under LOF. The intentions behind this, of reducing legal costs and enabling quicker resolution of disputes were to be welcomed, he said and six awards had been published so far.
Hill Dickinson Partner David Pitlarge drew attention to recent decisions that underscore the risks inherent in second hand sales, while Bentley Stokes and Lowless Partner Jamie Wallace discussed recent judgements that set new precedents for charter disputes.
In the most recent decision, a single missed charter hire payment was judged to be a repudiatory breach and thus cause for damages, overturning previous precedent. From an owner’s point of view the ability to withdraw tonnage in such situations appears to be good news in either a rising or falling market but Wallace added two caveats.
“There is little comfort if the charterer is going out of business, as has widely been the case. In addition there is no clear view as to whether this judgement will be followed. Therefore the decision to withdraw tonnage after one missed payment maintains some risk upon the owner.”
Pitlarge noted that the S&P Market was ‘coming back to life’ prompting new case law relating to condition on delivery and sellers’ rights to claim full deposit in cases of lost revenue. Session chair and LMAA member Clive Aston noted that the buyer of a ship was still asked to rely on a cursory survey process and in case of dispute had to persuade an arbitrator of his position, while having no real evidence with which to do so.
Closing the conference, Mats Berglund summed up the views and opinions of many delegates and speakers concerned that after five years of downturn, the recovery could be put at risk by reckless investment decisions.
“Before coming to Naples I was in New York and it is boiling over with money; perhaps $4bn in tanker an bulker equity has been raised so far in 2013. But many of these investors are speculators not operators. If I have one piece of advice it is this: pick a good counterpart.”