April 10, 2014

Statistics and risks

A graph put out by Clarkson’s says global trade has more than tripled since the time I first went out to sea. (Actually, it has tripled since 1984- I went out to sea in the late seventies- and has doubled since 1995). The research firm adds two other interesting statistics; that seaborne trade will touch the 10 billion tonne mark this year. And that ships today carry, every year, 1.4 tonnes of cargo for each person on earth.  “At 4% growth (a number we don’t feel is unreasonable for scenario planning on the basis of continued globalisation) we reach 15 billion tonnes by 2024 and 20 billion tonnes by 2031,” Clarkson’s says.

Those are remarkable figures, indeed, and worth remembering.  However, it will be premature and ill-advised for long term industry players to sit back after a self-congratulatory pat on the back and assume that the next thirty years will be a repeat of the last three decades. Or that shipping’s long term profitability is a given, or that the return on investment figures will justify the risk maritime enterprises are exposed to, over the next three decades.

Beyond the present preoccupations of the maritime industry lie particular long term risks. The assumptions today include the widespread opinion that China will continue to drive trade despite current problems. That freight rates will improve dramatically soon because global economic recovery is underway. That the overtonnaging and reckless ordering of newbuilds will sort itself out in a few years, and that profits- handsome profits- lie around the corner of this recovery.

All of these assumptions may well be true; shipping is cyclical after all and has weathered many ups and downs in the past. We have the experience. We can forecast decently how trade will behave and what kind or size of ships we will need. We can see changing trade patterns- in energy for example, as the US in particular exploits shale, or as the Chinese start consuming more of everything.

We can control costs and source cheaper crews and all that. We can even predict and factor in new environmental regulatory costs. We have done it before. We can do it again. We don’t have to make a thirty year plan now, after all; we can change with the times.

I do not disagree with any of the above. I only wish to point out a couple of unique risks here that we in the industry do not normally factor in. Understanding these are critical because, as we are finding out today once again, getting stuck with the wrong kind, size or speed of a ship can kill your profitability pretty quickly. 

The biggest risk, to my mind, is the possibility that global consumer consumption will stagnate even if the global economy improves dramatically. What if Americans (in particular, but others too) act on the realisation that their personal consumption levels are unsustainable? The dominoes will start falling immediately if US consumers do something stupid, like refusing to buy what they don’t need or curtailing discretionary spending drastically.

I am a believer in the theory that it is consumers who are job creators, not businessmen, as is commonly thought. I think consumers create investors who start or expand businesses that employ more people who, in turn, consume and complete the cycle. Trade is, therefore, dependent largely on consumption.  The big consumers of the future, it is hoped, will be the Chinese and (to a lesser extent) the Indians. What if they, too, see the light?

Then there is, for want of a better term, energy risk. What if shale gas or LNG is not the next big thing by 2020? What will it do our fleets  if trade, trading patterns and our propulsion costs- not to speak of ability to compete- if our new ships today become uncompetitive within  a decade?

Next, structure and quality of manpower. I am afraid that the degradation in the quality of crews, if left unaddressed, will spread ashore; it is inevitable. The impact on safety and the environment will be considerable, not to speak of impact on financial liability. Besides, shipping is not structured right; it doesn’t have enough numbers of the right people ashore. What tomorrow’s industry needs is a multidisciplined approach, when most of shipping’s luminaries and organisations are one-dimensional today. Where are the scientists and the lateral thinkers? Where is the R&D investment required?

Finally, the Chinese risk. China drives global trade today. Chinese companies will control the largest tonnage in the world within the next decade or so. It is a significant player in shipbuilding; it will become a significant player in other maritime disciplines as well- crewing, maybe hull and machinery insurance and shipmanagement, for a start.

I am not saying that the Chinese government will collapse tomorrow or that the Chinese State is under some kind of existentialist threat today, but there are more than a few pressures- even fissures- within the Chinese system.  For the most part they remain hidden from the outside world, much like the schisms in the Arabic world were hidden- or ignored- before the end of 2010, just three years or so ago, and which have caused upheavals in many more than a dozen countries, resulting in crippling economic disruptions in countries like Egypt, Tunisia, Libya and Syria. Like the quick collapse of the Soviet bloc all those years ago, nobody saw this coming either.

Therefore, one question for shipping pundits: What will be the impact on shipping if, in the next ten years, we see a ‘Chinese Spring’?


April 03, 2014

Out of touch.

The KnowMe project is a three year European Union project examining ways to improve shipping’s image, its training and R&D, and to make seafaring more attractive. Their budget is 1.5 million Euros. Part of the money has just been blown up in discovering what many would have told them for free- that poor communication with family, social isolation, poor living conditions and insufficient rest hours are the most likely reasons that seamen stop sailing. And that availability of affordable communication was a critical factor for seamen in deciding which company or ship to join.

The project has produced some statistics after a sailor poll of 500 seamen over 20 odd nationalities. I reproduce these briefly for the academically inclined:

Almost half the respondents said they felt discriminated against- when it came to communication home- because they were seamen. More than 97% of seamen said communication facilities were crucial for their well-being. Half of those polled said they communicate with their families at least once a day. Only a third had access to the internet, only about half had access to email and only two-thirds had access to expensive sat phones.  More than a quarter of seamen polled had no email access at all.

And, finally, one-third of seamen spend between 10 and 20 per cent of their salaries on communication; a tenth of them burn more than 20%.

I will, however, downplay these statistics (500 seamen polled in presumably European ports is not a good enough sample) and make some bald statements of my own:

  • ·         Considerably more than half of all merchant ship crews suffer from poor communication facilities, counteracting which (because- fancy that- we seamen want to talk to our families) end up costing them a significant portion of their salaries. Using the ship’s satellite phone in the absence of email, for example.
  • ·         One barometer of the importance of communication to crew: Approaching the coast, the news of the availability of a ‘phone signal’ (when a cell phone coverage area is reached) spreads faster than fire on a ship.
  •        On many ships on regular runs, areas where this signal is good is marked on charts by officers for future use.
  • ·         Like many Masters, I have plotted the passage and modified courses to get this ‘phone signal.’ Yeah, yeah, I know about the safety implications.
  • ·         Unlike many Masters, I have often hung around after dropping pilot, sometimes for an hour or more, before a long open sea passage to give the crew adequate time to call home using their cell phones- something many could not do because they were being run ragged in port. I did this because a happier crew works better; also because I consider us seamen to be human, something that shipping seems to have forgotten.

 I will not dwell on shipping’s hardened disregard for the welfare of its sailors here, but only point out what is obvious. One, that the generation younger than me is not satisfied with just an email or a phone call home. They want social media- the facebooks and twitters- and want to be in touch with their friends and acquaintances as well. This is a good thing, because it reduces the social isolation all sailors tend to suffer from.

Two, it is in shipping’s paramount interest- not just the crews’-that it provides internet and VOIP- free or dirt cheap, as is ashore- as a tool to attract and retain talent, even if it means subsidising personal internet use somewhat. This is because good officers and crews do not grow on trees.

Before I end, a comment on the Maritime Labour Convention that is in force. The nth pillar of whatever and all that is remarkably sanguine about the importance of communication to seamen, only saying- as a guideline- that "consideration" should be given to include "reasonable access to ship to shore telephone communications, and email and internet facilities, where available, with any charges for the use of these services being reasonable in amount".  Keep in mind that the MLC is a 2006 thing; social media has exploded since then, and so have the expectation from young sailors.

Like I said, that is a guideline. Which means it isn’t going to be enforced, much less followed, by an industry that believes in selective implementation of guidelines. (If it suits the owner, follow it; if it costs more than a penny, dump it.)

Anyway, is being forced to spend 10 to 20 per cent of your basic salary calling home a ‘reasonable amount’? There would be flash strikes and general mayhem if shore employees in ship operating companies were asked to pay a similar percentage for personal calls made from work, I bet.  


March 27, 2014

Deathbed abuse

Prelude: In April this year, representatives of seafarers, shipowners and governments will meet in Geneva at an ILO organised event to vote on an amendment to the MLC 2006, which, if agreed, would make it  mandatory to safeguard the financial interests of abandoned seafarers. I am not holding my breath; remind me to publicly apologise if anything substantive comes out of that junket.

It is perhaps natural that when shipping companies- as others- go bust they should die. Whether they are fit for resurrection, however, should depend on how long and how badly seagoing employees were abused by these firms as they lay on their deathbeds.

In a first instance of its kind, the Directorate General of Shipping withdrew the operating licence of Varun Shipping this month, apparently since mandatory vessel certificates were overdue ‘for several months’ and also- we are told, although I don’t believe this- because of non-payment of arrears of crew wages.  In a suspicious turn of events that smack of cynical orchestration, the company sought a fresh licence immediately after its old one was withdrawn, seeking to operate its ships under Varun Global Ltd, a Group Shipmanagement company. This was confirmed by Yudhishthir Khatau, Varun’s Chairman and Managing Director. Varun will go the ‘normal’ other route, it appears, where ships are owned individually by separate paper companies so that liabilities of one company doesn’t hobble the entire fleet.

I could ignore all that too, if this de-facto Varun bankruptcy had not been accompanied by the seafarer abuse that is all too common in most such cases. This is not simply to do with non-payment of wages or wage arrears. On March 10, the Captain of the ‘Maharshi Vamadeva’ asked for help from the Indian Coast Guard after the health of three officers who had been on a long hunger strike deteriorated.  The ship had been anchored since January 7 off Mumbai with zero support from the company, the Captain said; the 25 crew had not been paid since September last year. We know the rest of the story- little or no food, water, medical help or fuel, seamen going crazy- because we have all seen and heard it before. To add to the crew’s misery, they were not even allowed to escape, unpaid or not- the change of crew scheduled in January did not materialise.

Varun - named after the Hindu god of the oceans- had been in financial difficulty for many months with the usual stories of abandoned ships and suffering seafarers doing the rounds. The DGS had, in October last, asked Varun to produce a financial package to cover crew wage arrears and drydocking expenses. Varun- with a debt of almost 180 million USD in September ‘13- was forced to sell a couple of its VLGCs at the behest of lenders, but that wasn’t enough. Or maybe it just wanted to start afresh.

The Maritime Labour Convention has done little on the ground to address the abuse of seafarers that is almost a given if an owner is in financial difficulty. We saw it with Pratibha Shipping earlier, when powerful interests combined to shaft the crew, some of whom died in the drama off Chennai at the time. In this case, too, the CMD of Varun is not an ordinary shipowner. A graduate from Wharton, he is or has been a President of BIMCO, Director at the Indian Register of Shipping (which presumably registered Varun’s Indian fleet) and President of the Indian National Shipowners’ Association. He has won many awards at events hosted by organisations such as Lloyd’s, Seatrade and at the India Shipping Summit. So has Varun.

The behaviour of such a company towards its crew, therefore, underlines the fact that the pedigree of the shipowning company is immaterial. Generally speaking, shipping sees no comebacks to treating its crews abysmally; shipping, as an industry, is deliberately structured to make seafarer abuse almost the first instinct of a shipowner or shipmanager whenever the chips are down.

The blinkered will say that this is the way the world turns. That employees face delayed or unpaid wages when their companies go bankrupt in other businesses too. There too, the management sometimes seems to get away scott-free while workers suffer. Why should shipping be any different?

That is a facile response, because shipping is different. Seamen are not ordinary employees (Hell, most of them are contractual workers, not employees anyway, but let us ignore that). An ordinary employee still goes home if you don’t pay him. Unless he is dead broke, he still eats, sleeps and gets medical attention if he needs it. The payment of his arrears is a higher priority for a company compared to a seaman’s, because the worker ashore has visibility. Maybe a union or a politician will support unpaid employees. Maybe they can go to court or to the company’s lenders. Maybe a hundred other things.

A seaman has nothing when he is stuck on a ship like the Vamadeva, effectively abandoned by its owners. Usually no food, no water, no electricity and no medicines. Sometimes not even- for months- the wherewithal to call his family on the phone. If in port, he survives on the kindness of charities; if at anchor, he survives by catching fish. He cannot go home, either because he can kiss his wage arrears goodbye if he does or because no such possibility exists- if the ship is outside port limits, for example. This is a guy who may be earning thousands of dollars per month on paper, by the way, not some labourer on a subsistence wage. Those ashore cannot even begin to imagine a seaman’s trauma in such a circumstance; those who compare this scenario with a bankruptcy ashore do not have a clue.

But those in shipping can and do. That they do not choose to pay their crews- that they feel they can treat, with impunity, seamen like they are animals on a dung heap- is why shipping is where it is today. And this is why smart seamen do not trust an average shipowner or shipmanager further than they can throw him.


March 20, 2014

The Indian Navy- is poor training an issue?

Navies have always held a special place within the armed forces. They have forever been an extension of military power, their dominance usually- as during the British colonial heydays-acting as a force multiplier presaging economic and political ascendance. Navies take the war to the enemy. They have also been seen as crucial to a nation’s ability to defend itself against more powerful forces. Witness India’s thrust in the last decade to try to counter China by allocating more to its navy out of its defence budget. Witness Iran sending its navy to US shores to try to make a point.

That said, the last few weeks have been a nightmare for the Indian Navy; it seemed, for a time, that it was reporting almost an accident a day even after the resignation of the Chief of Naval Staff Admiral Joshi, who quit owning ‘moral responsibility’ after the Sindhuratna incident. The media was quick to highlight the navy’s poor safety record over the last year, with a spate of accidents- at sea, in harbour, while manoeuvring and at its shipbuilding centre at Visakhapatnam that is home to the country’s ambitious nuclear submarine programme.

The Indian armed forces in general, and the Indian Navy in particular, have been reported often enough to be suffering from poor procurement policies and decisions, a lack of strategic vision by the country’s politicians and myriad issues that have hit them ever since the collapse of the Soviet Union. We are led to believe that the country’s defence preparedness is in a mess and that the navy suffers from an ageing fleet that is falling apart.

I will be the first to admit that it would be unusual if the paralysis in governance we have seen in India over the last few years had not hit the armed forces. In fact, it would have hit them first and harder than it has hit governance in general and the economy in particular. Indeed, the comatose behaviour of the Defence Ministry has come under fire after the recent naval accidents, with senior journalists calling Defence Minister AK Antony inert, in a stupor, and worse. So, yes, indecision in governance is a factor here, as is the fact of widespread corruption and kickbacks connected with defence deals in the world’s largest international procurer of weaponry, a position India has held for the last few years.

However, many of the accidents that have happened in the last year in the naval fleet have not been on old ships but on relatively new ones- the Talwar, Tarkash and Airawat incidents, for example. Moreover, few of these incidents were due to machinery breakdowns or some such, but appeared to be navigational errors- the Sindhughosh grounding in a harbour channel, for example. Age or poor refurbishment was not a factor in the Sindhuratna fire either, which started due to a short circuit elsewhere and had nothing to do with old batteries not replaced, as first reported.

To add to the list of human error probables are other incidents to do with safety- a CO2 valve blowout on a destroyer at the Mazgaon docks, for example, that killed a naval Commander and injured another worker. The naval officer suffocated when CO2 was inadvertently released after the valve blowout, which begs the question as to what kind of procedures were in place on the largest Class of destroyer in the Indian Navy. Also worrying is the possibility that Indian naval yards are not much better than the government owned commercial shipyards of yesteryears when it comes to safety. Or their quality of construction- something that would be really alarming given that we are talking, here, about fighting ships that need to be built absolutely reliably.

A question begs to be asked, therefore: does the Indian Navy- like its merchant naval counterpart- suffer from poor training? 

Because, all in all, the impression I get is of a critical defence arm- the Indian Navy- suffering from low morale, high human error, poor training and political and bureaucratic paralysis. I do not get the impression that ageing ships or poor procurement are the causes of the accidents that seem to be happening with embarrassing regularity.