Insanity in the Arctic

Despite strident protests from environmentalists and dire warnings from Lloyd ’s of London, the largest insurance market in the world, Royal Dutch Shell is hell bent on resuming oil exploration in the Arctic this month. This is after the firm won approval to do so from the US Department of Interior in April under a ‘revised’ Chukchi Sea Exploration Plan that lives on the hope, and a lot of hot air, that no Deepwater Horizon like disaster will occur in the pristine environment of the frigid north. 

This approval also ignore Shell’s antics in the Arctic three years ago, defies logic, ignores the almost complete absence of emergency infrastructural support in a region that is both climatically hostile and ecologically fragile.  President Obama’s reversal of a de-facto ban on Arctic drilling is testimony to two things: the power that the oil industry wields over governments, and mankind’s blinded greed.

Meanwhile, British energy company BP said this month that it had agreed to settle US Federal and State claims of $18.7bn over the 2010 Deepwater Horizon disaster that decimated the waters of the US Gulf. A US Judge has ruled that BP was, besides being reckless, guilty of gross negligence and wilful misconduct. The cost to BP of pumping hundreds of millions of gallons of crude oil into the Gulf totals to almost fifty four billion dollars so far. It can afford this quite easily, which is a big part of the whole problem.

Back to Shell, which had stopped Arctic exploration three years ago after its rig had snapped a tow cable while rushing to get out of Alaskan waters to escape State taxes. That rig ran aground in the Gulf of Alaska and was later scrapped. To add to this mess, oil response equipment reportedly failed basic testing. 

The Deepwater Horizon spill response involved some eighty US Coast Guard vessels and aircraft. Coast Guard officials have reportedly said that they lack, in the Arctic, even the most basic information on how to respond to or to contain an oil spill under the ice. To add to the alarming scenario, their nearest base is about 500 miles away, and the Artic hosts, quite regularly, hurricane force winds, drifting icebergs and ten-metre swells. 

As to the cost of a potential catastrophe, Lloyd’s has said that cleaning up any oil spill in the Arctic, particularly in ice-covered areas, would present "multiple obstacles, which together constitute a unique and hard-to-manage risk." Could the truth be plainer?

The reality is as simple as it is frightening, and it is this: Oil companies are incapable of safely exploring for oil in the Arctic. In the event of an inevitable incident, responders will be clueless and will be severely hamstrung by the geography, climate and by logistical difficulties. The risk may not be financially mitigable. In addition, the destruction of even a small part of this pristine region will have consequences we cannot- or will not- even begin to imagine. 

And the likelihood of this happening? I am no expert, but an article in Newsweek says that petroleum engineers and environmental experts at the Bureau of Ocean Energy Management- a government agency-  have concluded that there would be a 75 per cent chance of a “major oil spill” if the Chukchi Sea oil development were to proceed. 

Think about it. A three in four chance of a disaster.


The risk is too high. Way too high. There should be a complete ban on polar oil exploration and drilling. Starting with the current Shell plans- those that former US Vice President Al Gore calls, quite correctly, insane.
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Death of the shipowner

For shipping, the biggest impact of the financial crisis that began in 2008 has to be the demise of the traditional shipowner.  The biggest tragedy is that the whales the industry welcomed at the time- private equity that shipping thought would be its saviour, would fund it and refinance its loans after the banking system kind of collapsed and cheap loans were no longer available- were, in reality, sharks. That they would suck the lifeblood out of the traditional shipowners, leaving them emaciated and bringing them to their knees.

Tens of billions of dollars have been invested by private equity in global shipping since 2009.  This money – and more will come- controls shipping today. It is in command even where it collaborates with brick and mortar ship owners. In any event, it is speculative; private equity is an asset gambler and not a ship owner. It orders ships recklessly, regardless, and will sell them as soon as it makes a profit. Do not make the mistake of assuming it is a new kind of ship owner- we do not call a speculator on the stock exchange an industrialist, do we?

This shark is the reason why, even after seven years of one of the worst recessions on record, the industry still struggles- and no end is in sight- with overtonnaging issues. It is the reason why this capital-intensive industry has no clarity, amidst the volatile and wild ordering of ships that continues still, on what might lie ahead. It is the reason why this cyclical industry is struggling today to figure out what its future is. The main reason why the industry’s confidence levels, as per a Moore Stephens survey that came out this month, have fallen to the lowest rating recorded in the life of the survey that was launched in- guess what?- 2008. 

I am afraid that private equity funding is here to stay. Even though some of these speculators have lost their shirts in the last few years, there is- thanks to our penchant for printing more and more money in response to a financial crisis- still a huge amount of cash sloshing around out there.  Unallocated billions looking to be parked somewhere. Some of the private equity that is struggling today thanks to its own miscalculations about shipping- a gamble gone wrong- will go public and list on stock exchanges to distribute their losses- there are enough patsies out there. Others, part of the too-big-to-fail old boy’s club that controls governments, will either absorb these small (to them) losses or seek bailouts, if it comes to that. After all, there is good precedent for this. 

A secondary reason that private equity will remain in shipping is that few alternatives offer the chance to these funds to get in and out of an industry easily. Doing that will usually involve exit strategies, and handling plant, machinery and labour. That requires managing labour laws if you close down and exit.  These folk do not have the bandwidth, experience or expertise to do all this.

In comparison, shipping is easy.  Put in a smallish (for these funds) amount to buy a ship or ten; no questions will be asked about the provenance of the money. Hand the ship over to a third-party manager. Let that entity operate the vessel for as long as you decide it should. Sell whenever you want, relatively quickly with low hassles. No laws seem to apply for either starting or shutting down ships in this industry.  

What about the labour when we shut down, you ask?  What about labour laws- that are complicated anywhere in the world, and make exit strategies a nightmare? What about the crews on these ships? 

Don’t make me laugh. Those crews are not valued assets, despite what everybody mouths these days. They are contractual labour. Besides, those same shipmanagers will tell us how to shaft the crews. They have the required creativity and domain expertise to do so.

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The Day of the Jackal

We should stop this Day of the Seafarer nonsense once and for all. It patronises seamen, pays them lip service without conviction and does not even attempt to do anything to improve their lives. It is cynical and schizophrenic: what the Day of the Seafarer really promotes, every year, is a day where we hope that the rest of the world will appreciate commercial shipping.  And a day when we propagate half-truths and show only one side of the coin in the hope that more youngsters will be lured into the profession. 

It is an event about seamen but with seamen at the sidelines. It is not a commitment but a litany of platitudes; it needs to be stopped.

Even when it seeks input from seamen, the IMO- as the main organiser- wants to tell them what they should talk about. Speaking about their work and their daily lives are approved topics; no comment is sought, encouraged – and will not be published, I am sure- that even obliquely mentions the major issues that seamen face: fatigue, the cavalier treatment meted out to them by the industry, the corruption in the job market and such. Only clean linen must be washed, whether in public or in private. The ‘celebration’ of the Day of the Seafarer must stop before we do more damage by alienating more of our workforce, much of which sees through it all.

If shipping could think beyond the next quarter’s profit and loss statement, it would realise why its long-term health is critically dependent on the well-being of its seamen, and not just on their competence. If the industry were concerned about its crews, it would engage active seamen in dialogue and try to improve the widespread sorry state of affairs that marks their profession. But that it will not do; it is used to talking down to seamen, and the Day of the Seafarer does, once more, exactly that. It is yet another cop-out. We need to end this.

In any case, the IMO is primarily a regulatory body; it has no business addressing seamen- they are not its constituents. I will argue that the IMO should not even be involved in the promotion of commercial shipping. It is too stilted and too unimaginative to do so effectively. Its hashtag campaigns come across as unnatural and contrived, like an anorexic woman with silicone implants.

The appreciation of what seamen do is not a one-day awakening. That shipping would starve without them is so obvious that this does not have to be stated anyway; everybody knows this already. However, we have to think differently if we want more youngsters of calibre to come out to sea. We cannot hope to fool all of them into joining the profession (although we seem to be doing a pretty good job of that so far).  The best- and the ethically correct- way of doing this is to treat existing seamen correctly, professionally and with dignity. To give them what is their due. To not short-change or diminish them every chance we get.  To do what is right.

However, that requires more lateral thinking, commitment and integrity than we seem to be capable of. The ‘Day of the Seafarer’ is the easy way out. 

Stop this farce.

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