January 29, 2015

Double-edged sword



How quickly things change!

 

The oil bust last year has been a blessing to shipowners who have been struggling to survive ever since the global economy tanked six years ago. Bunker costs have halved, which means that, for example, even a medium sized container vessel’s fuel costs today are almost a million dollars lower than they were a year ago. Given that the industry has been struggling to control even nickel and dime costs, this is a life-saving number.

 

Another blessing has been bestowed upon owners of very large tankers, who have seen their ships back in demand as traders and speculators rush to store cheap fuel to be sold later at higher prices. China is stockpiling fuel; the contango market in oil- where forward prices are higher than existing ones- has meant a stampede towards large tankers. With things expected to stay copacetic for the next few months- or so experts would have us believe-this will continue.

 

But-and alas, there is always a but- there is a flip side to this. For one, the shale industry in the US is going from boom to bust in quick time. An industry that exploded in the last couple of years, generating hundreds of thousands of jobs in a country struggling to emerge from the ruins of the 2008 financial meltdown, is collapsing at the same speed. The steep oil price fall has oil companies preparing mass layoffs this year in the US, reminding people of the eighties when as many as two thirds of oil rigs in Texas shut down within two years.

 

Billionaire Ross Perot Jr says that the shale industry will contract by 30% and prices will go below the $40 mark. BHP Billiton has said that it was cutting US rig operations by 40% this year. Baker Hughes is cutting 7000 jobs and Schlumberger 9000. All these biggies in the business are slashing expenditure by a fifth or so.

Clearly, the oil bust is not good news for everybody. Any period of financial chaos has, in any case, much collateral or peripheral damage that is often realised later but is nonetheless threatening- sometimes even devastating. There will be many shale producing countries around the world that have invested heavily in recent years and now face uncertainty. Unlike the US, many poorer nations will be hobbled by the relatively sudden collapse.

Oil prices aside, things do not otherwise look too rosy for shipping, where issues like overcapacity and anticipated high environmental regulation costs continue to create massive headwinds. The industry has, however, a bigger and more immediate problem, which is slow global GDP growth. The International Monetary Fund has just released its January World Economic Outlook update lowering projected global economic growth figures. The decrease is less than half a percentage, but has already had a huge impact on sentiment. The IMP expects global GDP to grow to by 3.3% in 2015 and 3.7% in 2016, which is hardly better than the 3.3% figure for the last two years. The IMF figures indicate that higher than expected growth will come from the US. The biggest laggards will be Russia- hardly surprising, given the oil shock, China and Brazil.

 

This is, obviously, not great news for trade and shipping, which will have to take whatever comfort it can from low oil prices alone.

 

While preparing for the end of the oil bust, of course, if it believes, as I do, that market forces are only part of the reason of the oil price collapse. The other reason- a US-Saudi backroom deal to bring Russia to its knees, similar to what they did to the Soviet Union before it imploded- is one I have written about before. If I am right, then the situation can reverse quickly; a politically strategic decision, after all, can be easily reversed once objectives are seen to be met or if policy is changed for any other reason. For example, if the US feels that there is too much damage being done at home to the powerful oil industry by staying the course.

 

Like in much else in life, a double-edged sword awaits us here, too.

 

January 27, 2015

Ghosts of the future



The European refugee crisis is out of control. The rest of the world has shown limited interest in it, though, although the new year has brought with it sensational images of coast guard officers boarding ‘ghost’ crewless ships to disable autopilots and locked in engines and stop the vessels heading for disaster with hundreds of refugees aboard.

The world should take more notice, though. For one, this not just an ‘African problem’ any longer- these asylum seekers are coming through Turkey now. But, more importantly, we need to pay attention because this crisis is a beginning; is showing us a sketch of what is yet to come. Desperate refugees will not be a black swan event in future; just wait until environmental migration is forced upon us. The migration that we see today- conflicted, violence ridden and tragic as it is- is nothing.

Figures from the UNHCR and the International Organisation for migration are compelling.  Three hundred and fifty thousand people crossed risky seas in decrepit boats last year. War torn Syria and Eritrea produced half of all asylum seekers; Libya, the Ukraine and Iraq were other big contributors. Then, almost three and a half thousand people died or went missing in the Mediterranean in 2014- a figure greater than the combined number of deaths seen in the previous three years.

Middle class Syrians are fleeing the country through Turkey. Human smugglers are charging them three times what the poorer asylum seekers pay from North Africa to make the voyage to Italy. These high rates allow gangs to buy larger- even if dilapidated- vessels that they are happy to abandon near western coastlines- the so called ‘ghost’ ships- with refugees aboard. This new modus operandi has increased in the last few months; the recent media spotlight on the livestock carrier Ezadeen and the ‘Blue Sky M’- abandoned by their crew with hundreds of refugees each near Italy- does not alter the fact that other cases have gone relatively unreported. Ships are bought at around 100,000 USD a pop, but the smugglers are making around 5 million dollars a trip, so abandoning ships is well worth it.

The UNHCR describes the Mediterranean crossing from the Middle East and Africa to Europe as “the most lethal route in the world.” Desperate asylum seekers have threatened to kill their own children unless they are rescued.  Hundreds of migrants have been thrown in the water by people smugglers. Crews of merchant ships have been threatened by survivors they have picked up. Tales of horror and despair come in with each boat.

This is not just an Italian problem. Riots amongst or with migrants have become a regular feature in Calais, where asylum seekers live in squalor around an area called ‘the jungle’ – a tinderbox of mainly African, Middle Eastern and Afghan refugees desperate to cross the channel into the UK. Other countries are facing similar problems. Thousands of Germans in the city of Dresden are protesting what they call the ‘Islamisation of the West’- most of the asylum seekers are Muslim.

I have been saying for a long time that shipping needs to have in place a systemic response to piracy, so it can react quickly and effectively whenever piracy inevitably rears its head elsewhere in the world. Shipping may also need a similar rethink on asylum seekers that shipmasters are bound- by law, tradition and the demand of humanity- to rescue. Shipping needs to consider carefully the security and other implications of the possibility that crews can be very easily overwhelmed by these migrants.

No doubt, governments and organisations like the UN have a major role to play going forward; shipping cannot solve this problem alone, even though it is at the front line and is, often, the first responder to the crisis. All I am saying is that everybody needs to start thinking of systemic solutions to the migration of massive numbers of displaced people. So far, we are talking about annual numbers of about a third of a million. Imagine if the figure was ten million, or twenty- the kind of figure that, for example, rising sea levels will easily force upon us down the line.
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January 22, 2015

Money for nothing

Although I disagree with some of the specifics of the Modi government’s initiatives on shipping, I happily concede that the newfound focus on Indian ports, shipping, inland waterways and maritime legislation was something that was long overdue. It is early days yet and many of these plans will take years to bear fruit; nonetheless, a beginning has been made.

Having said that, I can only express my extreme dismay at a report that appeared in the middle of this month that said that the Indian Shipping ministry was planning to arrange bank loans and make each cadet going out to sea pay, to shipping companies, three hundred thousand rupees for on-board training. This will apply, we are told, to about 4000 cadets who graduated in the last three years and who did not secure on-board training slots. It is not clear to me whether this will also apply to all future graduates.

The report comes in a reputed newspaper, is written by a well-known shipping journalist and quotes government sources. Nonetheless, I hope the report is not true. And if it is, I wonder who in the government thought up this hare-brained scheme first.

A spokesman from the Ministry is quoted as saying, “The Rs. 3 lakh per cadet grant will be given to the ship owners who train cadets and will be disbursed at the rate of Rs. 1 lakh for each semester backed by a tripartite agreement between the Directorate General of Shipping and MASSA and FOSMA.”  (The acronyms are industry bodies of shipowners, managers, agents etc. I)

The intention is probably noble. Thousands of pre-sea trained cadets are without shipboard training slots in the country, critically needed to complete their sea time for their competency certificates. These numbers are increasing every day. No training slot is available today unless you pay people in shipping companies- through touts- or if the cadet knows somebody in shipping really well. The only exception to this is if the youngster undergoes pre-sea training from an institute run by a reputed management company; those usually absorb their trainees on their own ships.

Yes, the intention is probably good- but as they say, the road to hell is paved with those. This solution to the problem is ill advised and ill thought. If pursued, it will be a disaster.

 Forget the fact that this plan directly seeks to institutionalise corruption. The three lakhs each student will pay a company is suspiciously close to the corrupt ‘market rate’ paid for an on-board training slot today. Forget even the fact that this plan does nothing to address the real issues of poor calibre of intake, mis-selling of a career at sea, poor training and poor motivation from all involved in the exercise. Forget the fact that students are already taking loans to cover their training and the euphemistically named ‘placement fee.’ 

Ignoring all that, two big financial reasons why this plan will not work: One, nothing changes for a trainee. His costs remain the same; the only difference is that he is paying companies directly instead of through touts. In fact, should the government enforce this notion in future, those trainees at management company run institutes who were not paying any ‘placement’ fees may find that their costs have now gone up. And two, three hundred thousand rupees is not a sum large enough to entice a shipowner or manager to take in cadets. Some cannot anyway- their ships do not have accommodation or lifeboat capacities that allow this. Moreover, those that intend to survive on this measly sum are not shipowners I would want to sail with anyway- many are crooks.

Mr Modi and Shipping Minister Gadkari have said much about reviving the Indian maritime sector. As they start doing things to do this, they must realise that all their plans- port development, inland waterway development, the Gujarat maritime cluster et al- will come to naught unless Indian maritime expertise is strengthened and widened. The backbone of this expertise has usually been, around the world, managers with seagoing experience. Frankly, I do not see, in the present state of affairs, the possibility that we will have, ten years down the line, people of sufficient calibre and competence to make these dreams a reality. Not with ideas like this planned money-for-nothing plan, we will not.


This plan is no solution. The government needs to get real. And it needs to stop consulting people who have their own axes to grind when it looks for solutions.

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January 15, 2015

Annus horribilis



All the incidents I mention below have happened on or after the last Christmas. The last two and a half weeks have been horrible for shipping. Serious accidents, with often fatal consequences, seem to be occurring almost every day. And these are just the reported ones, or the ones that have hit the headlines.

It all seemed to start in the Mediterranean, where, three days after Christmas, the ferry Norman Atlantic caught fire that killed an unknown number of people- unknown simply because nobody seems to know how many were on board. The Italian transport minister said, “We cannot say how many people may be missing.”  That figure is believed to be over a hundred.

The only good news, in all the mayhem, came from the UK, where the ro-ro ship Hoegh Osaka was intentionally (and, if I may add, professionally) grounded by the Captain and the pilot in the Solent after she started listing on departure from port. She has- to the surprise of her salvors- been refloated since she was beached on January 3.

Sadly, in another incident north of Scotland, the trouble prone cement carrier Cemfjord was not so lucky. She was found capsized with all eight crewmembers now feared dead. Off Vietnam, the bulk carrier Bulk Jupiter went down with 18 crew dead; just one survived. Preliminary reports suggest that the liquefaction of her bauxite cargo did her in. 
In the South China Sea near Singapore, a tanker and a bulker carrier collided on January 2, with 4500 barrels of oil spilled. In Libya, amidst the civil war, anchored Greek-operated tanker Araevo was bombed by aircraft under the control of the internationally recognised government. Two crewmembers died; two more were injured. 

In lesser-reported incidents, three crewmembers died on Christmas when the Cambodia-registered Ming Guang sprang a leak and sank off Japan. The cement carrying Sea Merchant killed one of her crew when she sank off Batangas in the Philippines in rough seas on New Year’s Day. The next day, the Better Trans went down off the same country with one casualty.

Two days later, the tanker Run Guang 9 exploded off China; two crew missing- and the boxship Helene Rickmers ran aground in the Solomon Sea. Four days later, the Maersk LNG tanker Magellan Spirit ran aground off Bonny, Nigeria.

Finally (fingers crossed) the Gulf Rio ran aground in the Black Sea on Jan 8. There were, fortunately, no casualties. Not so lucky were the three souls on the catamaran Pura Vida Princess, who died when she capsized off Venezuela the same day.

This litany of ship casualties is as fantastic as it is grotesque; I cannot recall, in the last thirty years, a two-week period with such horrendous statistics. (I may be wrong, though; I was sailing much of that time, when information was more difficult to come by).

No doubt, there will be enquiries into at least the more high profile accidents, and we will –hopefully- learn from those. Meanwhile, 2015 has started on a terrible note, and brings to mind the British Queen’s 1992 ‘annus horribilis' (a horrible year) speech.

The disastrous start to the year should also serve as a reminder to all of us- especially those who believe that the issue of safety can be mastered by just legislation or checklists- that the sea remains a dangerously capricious mistress for those of us that sail, and that enhanced mariner competence is the only way we can hope to keep things safe.

Or safe enough, at least.

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