‘Tonnage overhang’ blues

The mood seems to have turned bearish in the last few weeks. The possibility that countries in Europe are actually in bigger trouble than we previously thought may have spooked everybody initially, but that does not fully explain the funk that the maritime industry seems to be going through today. To add to the grey, reports in the last month or so- particularly one from BIMCO and another one from Bloomberg- paint a pretty gloomy picture for shipping in 2011. Bloomberg seems to be quite pessimistic, in fact, suggesting that the dry bulk sector may be headed for the lowest freight rates since 2002. Hire for capesize bulkers will average just $22,000 a day in 2011, it says, quoting an analysts’ survey it conducted.

The lowest freight rate part may turn out to be hyperbole, I feel, although these things have an uncanny habit of appearing to be self evident after the event, so please ask me again next year. Things appear to be not so bad at first glance- the US recovery seems to be hobbling along in fits and starts, the Eurozone crisis seems to be shakily contained somewhat- with emphasis on the shakily, China seems to be chugging along albeit with the usual concerns about currency valuations, overheated real estate and internal stresses, India seems to be doing kind of okay- record inflation and the recent stock market mini crash notwithstanding, Brazil seems to be doing well thanks to the commodity boom- although whispers about its mining industry growing at the expense of many other businesses and jobs (as China takes the country’s raw materials but floods it with cheaper Chinese products- including, tantalisingly, bikinis) are getting louder.

More seriously, there appears to be no prima facie evidence of an impending collapse of the global economy; 2011 is certainly not looking like 2008. Hence the question: is the 2011 gloom and doom scenario for the industry justified?

The short answer is probably. For the longer answer, read on.

Everyone agrees that the tonnage supply overhang is the Sword of Damocles hanging over our heads. An article at BIMCO calls this ‘a wall of new ships,’ with the dry cargo fleet expected to grow 14 to 18 percent this year. Containers and tankers will grow at eight percent. Worrisome as those numbers are, the fact that this supply will come on the back of a bumper year-2010- for new deliveries will severely test the industry’s capacity to absorb new tonnage in the present economic climate. That a larger percentage of these ships are bigger than their last year’s siblings – 8000TEU containerships and capesizes, for example- skews the supply paradigm even further. Listen to this from Bloomberg: “About 200 capesizes, spanning some 35 miles end-to-end, will leave shipyards this year, expanding the fleet by 18 percent.”

That, if Bloomberg is right, translates to more than one delivered ship every two days, by the way. For the full year. Staggering.

“The market was able to take a punch in the face in the form of 200 capesizes and loads of smaller vessels last year but I doubt it will manage another punch without having to hit the deck,” says Erik Nikolai Stavseth from Arctic Securities ASA in Oslo.

(Aside: That makes me wonder about the ambitious expansion drives of many Indian ship owning companies- including SCI and the Tatas, not to speak of all those new ports that will mushroom along the coastline like toadstools. The ‘Vibrant Gujarat’ summit has just announced astonishing commitments to investment in the State’s port sector by the cream of Indian companies, all of whom would have undoubtedly done their due diligence twice over before any commitment.)

Asides aside, analysts seem to be indicating, quite clearly at the moment, that the tonnage supply demand mismatch may be a bigger threat this year than a sluggish global economic recovery. Looking at those alarming delivery numbers, I would have to agree- even though, who knows, some deliveries may well be cancelled or delayed and many more ships scrapped than last year. Even if that happens, I tend to think that we may see pressure on freight rates even if freight volumes actually increase- especially in the dry bulk segment- thanks to new ships being churned out like beef mince.

My beef, if any, is that most analysts seem to take the global recovery- or, more accurately, the momentum of global recovery- as a given in this paradigm. I am not so sanguine about this: I feel that there is, economically and otherwise, a tectonic shift underway as countries in the East and West both realign to new realities- the gradual decline of the West and the emergence of China as the economic superpower, for one. Massive shifts in currency valuations, trading patterns- even consumption matrices-are inevitable. As an example, I cannot, for the life of me, expect that the US will go back to its old debt- fuelled consumption habits. I cannot imagine that China- which has just declared record foreign exchange reserves and is now selectively buying European debt in addition to American- can avoid a quicker strengthening the Yuan indefinitely. I cannot believe that the Indian growth story- somewhat hyped, I am afraid, though I will not call it a storm in a teacup as some analysts have- will not be hit with food inflation out of control, the price of oil threatening to hit a hundred dollars again and weak IIP numbers this month. And, finally, I do not believe the contraction in European economies- or even in the US- is well and truly over.

The other thing, of course, is oil. The think is that it will become cheaper after winter as demand falls in the Northern hemisphere, struggling with one of the coldest winters in years. Perhaps. But China has now become a huge consumer of oil- and every other raw material, of course. Will demand for oil- and price- really fall that much? I don’t know the answer to that one. Time will tell, and the uncertainty- which freight markets hate- will remain until it does.


Then, the recent collapse of the Baltic Dry Index has skewed some objectivity, I fear. Many say that this is temporary fallout of the Australian flood crisis. This may well be true, but I suspect that the BDI will not spiral upwards steeply once the Australian raw material pipeline resumes normally. I think that there was a little too much optimism going around in the second half of last year, especially with the boxship market doing comparatively well. I also think that the QE2 effect (not the ship, but the US Fed’s Quantitative Easing, a flowery way of saying ‘we will wriggle out of the mess by printing more money again’) will hit us harder later on this year. I fear that commodity and agricultural prices will go up even further.

Paraphrasing Connery from the movies, much of the world is between a rock and a hard case today; surviving, as it is, on the QE2s and such stimulus packages. The optimists will say these measures were absolutely essential to avoid economic catastrophe. The pessimists will say that these do nothing but postpone the inevitable. The reality- and the near term future of shipping - probably lies somewhere in between.

I don’t think I will rush out to buy shipping stocks just yet; I suspect there will be more pain before we are granted some pleasure. And so I believe that the industry would do well to be cautious- even overly so. However, I do think that while caution is justified, pessimism is not. Many analysts seem to be looking at the last few tough years in the rear view mirror and getting spooked, but objects in that mirror sometimes appear closer than they actually are.
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Ozymandias at Match Point

`My name is Ozymandias, King of Kings:

Look on my works, ye mighty, and despair!'
Nothing beside remains. Round the decay
Of that colossal wreck, boundless and bare,
The lone and level sands stretch far away'.
                                               - Shelley


On the 13th of January, the Indian Shipping Minister unveiled the “Maritime Agenda 2010-2020”. The sweeping maritime plan for the decade sets goals that-on paper- promise to transform the ports, waterways, shipbuilding, cargo handling and shipbuilding industries in the country with an estimated investment of $110 billion. Amongst the stated goals- and I am quoting from the press release here, are ‘Collaboration of IMU (Indian Maritime University) with top global academic institutions in the maritime sector’, and to ‘Increase India’s share of seafarers to 9% of the global strength by 2015.’



I don’t know if the Shipping Minister will appreciate the irony, but on the same January 13- and perhaps even as he was launching his grandiose Agenda- his own Government’s Central Bureau of Investigation was raiding the same said IMU in Chennai- and its Vice Chancellor Dr. P Vijayan’s residence- on suspicion of corruption and malpractice. The CBI claims that Vijayan has taken money from maritime institutes for approvals and affiliations for running MET courses and has bought ‘several immovable properties in and around Chennai city,’ according to press reports. It also claims to have recovered incriminating property documents from Vijayan’s office and home that indicate- in a phrase that is alas, very well known to us Indians, that Vijayan has ‘assets in his possession beyond known sources of income’.

A CBI raid, instigated or not, is not a small thing, but at least I have no intention of presuming Mr. Vijayan’s guilt here- or indeed proclaiming his innocence. That story will play itself out one way or another; the truth will, hopefully, set us free.

My point is separate, and part of it is that, even ignoring the IMU raid, corruption in the MET business- and, indeed, in all spheres of maritime life, as Capt. Rath so eloquently points out often in this same publication- is so commonplace that it is routine. For example, there is little in the training and education business that is clean, particularly when bureaucracy is involved. This rot is a pan Indian phenomenon; it is hardly confined to one city or institution. The corruption is universal and, after decades, unsurprising. In the words of Ghalib, ‘hota hai shab-o-roz tamaasha mere aage’- the spectacle plays out every day before me. Before us.

My point is not even that our maritime institutions- including, it must be said, many international ones, are firmly entrenched in promotion of this bloc or that or beholden to this group or another, and so are ill equipped to do too much overall good. It is not even that our domestic maritime institutions- from regulators to industry bodies to professional and trade associations to the unions to the educational institutions- have often been bought or sold or otherwise compromised in one form or another.

My point is not to descend into our usual mourning and self-flagellation that we seem to reserve to times such as this, although I do feel that generations of Indians post 1947- including Indians in shipping like me- have failed their children: they have either tolerated breathtaking corruption or sometimes actively participated in it.

My point is not even that we should feel ashamed, although I wonder what the young Cadet or Rating training anywhere in the country will think of our industry when he reads in the news that the head of the IMU is being investigated for corruption. Will he or she- already exposed to the touts, shady training institutes, corrupt babus and middlemen in the business-be disillusioned further? Forever?

My point is simply this: There is no point in making pretentious and extravagant plans or decade long agendas unless we root out corruption in the Indian maritime space. There is no point in trying to erect an edifice until the pillars of the foundation, hollowed out by termites, have been treated and strengthened. There is no point in hoping that things will get cleaner along the way any longer. There is no point in just ‘waiting and seeing’ anymore: all we will see is a percentage of that $110 billion siphoned away and a much larger percentage of it being diverted to iffy projects of little merit but that are politically or otherwise expedient. The money will, in all probability, go to fatten the oligarchy and not to infuse lifeblood into the industry.

I will be the first to admit that our industry’s corruption is part of the wider corruption that has hollowed every institution in the country, and that it cannot be tackled- leave alone eliminated- in isolation. I would love to be convinced that cleaning up the rot will be easy. I would be thrilled to be told that the Shipping Ministry, in concert with the industry, has decided, as part of the grand Maritime Agenda 2010-2020, that no bribes will be paid or received from today in any maritime related business, and that business will be conducted for business reasons alone. I will be happy even if many individuals amongst us made that decision independently and implemented it in our day to day lives.

Unless all that begins to happen, I think we should stop wasting time and resources spewing out those decade long agendas or the 9 percent or 110 billion or whatever numbers. We should stop the tamaasha, please.
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With respect

We within the industry should learn to respect the sailor first before we demand that the world outside give him his due.


Frankly, the repeated derogatory comparisons the fuddy-duddies within shipping make against mariners in comparison to the workforce in other industries- and, indeed, with other disciplines of study- have become unamusing, even tiresome. I have been privileged, in the last few weeks, in having to listen to quite a few of the same old litanies, usually expressed in sonorous – almost sepulchral- voices that sound like Moses heralding the Ten Commandments. The premise seems to be that a) seamen should not, given their academic credentials, expect too much in life; b) that they should disregard how other industries treat their workforces and more or less put up with the archaic conditions in this industry; c) that gentlemen ashore, many of them former sailors, know best, and d) that the academic and arcane views of these geriatric gentlemen- many of whom have not seen the business end of a ship from a position of responsibility for a decade or more- should nonetheless be given inappropriate weightage and special sanction. No contrary debate, however well-reasoned, is entertained by them. Mommy knows best- even an out of date mommy.

This attitude is bad enough. But there seems to be a tendency- perhaps borne out of a feeling of inadequacy, because the geriatrics know quite well that they would be incapable of handling a Chief Engineer’s or Master’s job at sea today- these gentlemen persist, nonetheless, in taking an unholy delight in generally denigrating all those still working at sea. Surely, some of this reaction is due to insecurity. Many senior officers at sea today are very capable of shifting to jobs ashore; many ashore are, by and large, incapable of sailing again. Maybe that is why the geriatrics exhibit a syndrome usually associated with insecure crabs in a bucket- pull down whoever else you can. Thankfully, quite a few Technical Superintendents, in my experience, are more appreciative of conditions on the ground, and more respectful of those who sail. As for the rest, the disconnect –even divide- between shore and sea workers is to their advantage; so they will not change easily. They will remain disconnected from reality. Ignorance, even if feigned, is bliss.

For these folk, the IMO is hallowed ground- without question and regardless of the history or effectiveness of that organisation, especially with regard to major mariner issues. These folk throw questionable statistics out at the slightest provocation to buttress their shaky theories. They refuse to even consider that corruption in national maritime administrations and in shipmanning could be a major cause of the continued rot in shipping today. They have one-dimensional and generalised views: Cadets today have no initiative. Training is terrible. The young have an abysmal attitude at sea. It is all their own entire fault. Seafarers should do this or that, or they will suffer. Battling piracy is just a matter of following ‘best management practices’- this last, from a group of people who have probably been chased by a couple of skirts- never a couple of skiffs firing RPGs - in their entire seafaring lives, is a hilarious argument.

I agree that attitudes, commitment and everything else amongst the younger generation needs much improvement. I agree that training needs to transform and become much cleaner than it is today: I have said so often enough. But my views are not one-dimensional, and my suggestions include other reasons that I consider important. My argument is also this: those seniors in the industry who continue to besmirch seafarers to the point of slander make poor managers, because anybody with a generalised, preconceived and disrespectful set of notions cannot but make a poor manager. Anybody who refuses to even consider that young sailors on the threshold of their careers need support from the industry in line with what their contemporaries are given, everywhere else in the commercial world today, is on the verge of extinction. Anybody who says that improvement in quality of officers will come only from changed seafarer attitudes or improved training or whatever- and that the rest of the industry need not really do anything to set its rotting house in order- is talking through his hat.

For the record, to those who have scoffed whenever I bring up premier engineering, management or other educational institutes of excellence as something worthy of emulation- and, indeed, comparison- let me say this once and for all. I believe that many a Master or Chief Engineer displays a higher level of responsibility, commercial savvy, operational knowledge and attitude today than many of the graduates of those institutions do in their chosen fields. It is because I believe that a senior ship-officer needs to do this in order to survive- not thrive- is why I hold the man at sea in high respect. My respect has nothing to do with the money he makes, or his educational background. My respect has nothing to do with my own insecurities clouding my judgement; my opinion has not changed whenever I have worked ashore. My respect has nothing to do, even, with the kind of work a seafarer does, though his is a tough job. Certainly tougher than what the geriatrics had to deal with long ago, whenever they last sailed.

Of course, people- geriatrics included- are free to hold whatever views they like, and for whatever reasons. Obviously, nobody can- or should- force anybody to respect those at sea. Nonetheless, I find it sad that that these folk look down on today’s sailor, not least because they, with their experience, have much to offer him. I find it doubly sad that they cannot respect fellow professionals, and I wonder how they do this, because they obliquely downgrade themselves.

I find all this sad, but I can’t do anything about it. Because respect- like abdominal gas, great music and empathy- must always come from within.
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Nickel-and-diming and expendable seafarers

Shipping loves to tom-tom its commitment to safety, or perhaps it just loves the endless process of amendments to the STCW conventions that hint at it. For those in the lucrative business of consultancy or regulation in the formulating, mandating and selling of new training, the road is often the destination, and resolutions at the IMO or elsewhere often a substitute for results. That the process is a gravy train cannot be helped: it is a dirty job but somebody has to do it.


Meanwhile, urgent warnings on clear and present dangers to ships remain ignored. As an example and despite Intercargo’s repeated warnings on the loading of ore fines and wet ore- the latest warning was in the middle of last month- little is being done to address the issue. No doubt, we will have some safety committee meetings and some strong resolutions down the road when we are relatively free after the holiday season.

Meanwhile, fourty-four seafarers died as three ships capsized in a thirty-nine day period ending early December, says Intercargo, the dry-cargo trade group with a NGO status at the IMO. In a strongly worded report on hazardous cargoes titled “The Unanswered Questions and why seafarers should not be considered expendable”, it says it informed the IMO recently about the dangers of transportation of ore fines and wet ores- particularly iron and nickel. It says that all the three most recent sinkings - the Jian Fu Star (October 27th, 13 fatalities); the Nasco Diamond (November 10th, 21 fatalities) and the Hong Wei (3rd December. 10 fatalities) reportedly all carried nickel ore, all loaded in Indonesia bound for China, all loaded in Chinese operated, Panamanian flagged and Chinese manned ships- and all ships sank in broadly the same location.

Even Inspector Clouseau can connect the dots here, but he does not really need to, because the dangers of transporting bulk cargo that may liquefy- and thereafter pose a sometimes-fatal threat to the ship’s stability- have been well known for a few generations. There should have been no need for Intercargo to bring it to the mandarins’ attention. Closer home and well over a year ago, the capsizing of the Asian Forest off Mangalore and the Black Rose off the Orissa coast had created a little storm in a littler teacup, resulting in the DGS issuing a circular indirectly blaming unscrupulous shippers and callous (or corrupt?) port authority personnel. "Shippers and port authorities are not extending the support to the Masters of ships calling Indian ports for loading Iron ore fines", the notice had said, before directing agents to advise ships calling their ports about the risks of loading iron ore fines. Ports were additionally directed to "do everything possible to ensure safe carriage & transportation of solid bulk cargo including Iron ore fines."

Today, about fifteen months after that notice, India is renamed and re-shamed by Intercargo as one of the three countries (the other two are Indonesia and the Philippines) ship owners must be wary of when it comes to loading ore fines.


I can tell you from experience that some Masters and ship owners, inexperienced in dealing with bulk cargoes that may be wet before shipment, do not fully appreciate the importance of Transportation Moisture Limits or the criticality of knowing the moisture content of iffy cargoes. Add the fact that the dishonest and the corrupt sometimes collude- in certain countries including in India- in producing fake test certificates that indicate a lower moisture content and you have the makings of imminent catastrophe, especially in tropical countries where it can rain anytime. Monsoons in India are an added threat, because much of the ore is stowed in the open. Independent surveyors may be discouraged by some systems and Masters pressurised by both owners and charterers to load and sail, especially when the TML readings are borderline. We know that game. Unfortunately, the end game may be slurry moving around in your holds, the ship listing and, if you are unlucky, capsizing and drowning you and your crew.

I fear that, given Chinese- and to a lesser extent Indian- hunger for raw material including ores, the threat to seafarers carrying commodities in bulk will increase exponentially as these countries, amongst others, grow and consume more. Bulk cargo joint venture collaborations by the Shipping Corporation of India and the Steel Authority of India, and another by the TATA-NYK groups, should tell us that this is just a matter of time.


I actually do not see this threat as one that will be erased by IMO intervention. IMO pressure may help, but that will come, as usual, too late for those sailors who have died and those that are at risk right now. We need better solutions than resolutions.

The industry needs to do two things- the first one immediately, in my opinion. This is that ship owners planning to carry bulk ores should educate themselves and their crews, if required, on the dangers of cargo liquefaction, and they should encourage- even demand- that Masters seek independent verification of ore moisture content in suspicious ports. Ship owners should then back Masters to shut out cargoes that are dangerous or where the certification is suspected to be doctored.

Two, commercial and other pressure (the IMO can help here) should be put on shippers and countries that have a history of putting crews and ships at risk when it comes to wet ores or fines. Living in India, I admit that this may not be easy; therefore, the first option- exercise of the Master’s authority to shut out cargo- becomes even more important.


Of course, there may well be ignorant or corrupt Masters or substandard (and well-insured) ship owners out there that will ignore TML limits. I have nothing to say to them, except that I hope they do not get what they deserve.
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