November 13, 2008

Systemic failures

It is precisely because the collapse of the world financial markets has been so vicious that it has astounded everybody. As under regulated financial institutions and systems have fallen as dominoes, countries and industries have had to firefight with their backs to the wall. Nobody has had the time to look beyond the immediate. The maritime industry has been no exception; plummeting demand for cargo space at a time of a meltdown in oil and commodity prices could have been well forecast, but I doubt that there were many who forecast the ferocity of the catastrophe or the speed of the elevator on the way down.

For future consumption, this is one predominant factor we would do well to digest well; that the seductive twins of globalisation and the revolution in communications have an unintended fallout which is this: markets, including freight and charter markets, will now usually move faster than you and I can react to them. Add to this the fact that the international nature of shipping makes it immediately vulnerable to events half a world away and it becomes obvious that foreknowledge, foresight and nimbleness will be the key to growth, or even survival, going forward. The alternative, that is placidly reacting to events, is becoming an increasingly expensive exercise; not only that, shortcomings of this course of action now become fatal flaws as far as any commercial firm is concerned.

The cyclical nature of our industry gives us another morsel for thought: projecting demand for ships and freight assuming unending booming markets is a no brainer. However, projecting demand when the world can go from boom to bust in a few months is, as they say across the Atlantic, the big enchilada. Those who can do this exercise well, and have an exit strategy if things go downhill suddenly, are those who will thrive. Owners and other commercial interests would do well to set up their businesses keeping this new critical requirement of “informed nimbleness” foremost in mind.

The fact that we have a reported 300 billion US dollars required for committed shipbuilding over the next three or four years at a time when we are facing a recession is proof of a failed system. Payment defaults, distress sales and mothballing of ships will surely be on the cards somewhere down the line.

While I hope that things will not get as bad as they did in the eighties, I fear that they just might. The last few years have seen all of us in shipping, whether countries or corporations or individuals, greedy participants in what many thought was a one way boom in everything. The simultaneous rise in stock markets, real estate, commodities and precious metals was abnormal, and made the simultaneous collapse of all the bubbles in all these markets inevitable. Derivate market greed and the leveraging of junk paper was just the icing on the cake that decimated liquidity and credit and precipitated the inevitable, albeit with steeper falls. (The falls are still underway as we speak; I am sure I can think of a risqué joke the next time somebody asks me, ‘where is the bottom of this market?’)

More importantly, I think that the worldwide slowdown led by the US now will be severe. The financial numbers coming out of all the countries do not look good. The West is looking to China and India to lead by consumption; India, at least, is looking for money it does not have for infrastructure spending which it hopes will spur growth. The money is not going to come easily in present market conditions; a classic Catch 22 scenario. Shipping remains at the centre of the storm by the very nature of its operations.

Besides, if we are calling it the biggest mess since the Great Depression, then by definition, it has to be worse than the eighties as far as the maritime world is concerned. Fortunately, I am not an economist; I only know that it does not look good, and hope that we recover soon.

I also hope to hell that I am being unduly apprehensive.


The aftermath of the ‘Hebei Spirit’ and ‘Stolt Valor’ incidents has left me with mixed feelings so far. One reason is that both these dramas have not yet played out their last acts. There is another reason, and that is partly borne out of my ignorance; I do not know how much of the industry support, anemic that it has been, is cheap talk or filibuster.

Take the piracy issue. On one hand, the United Nations has done its usual resolution act and can now claim, as usual, that it reflects the collective will of member states and cannot act on its own. It has therefore passed the buck to mainly Western countries, who, represented by the coalition naval task force in the Gulf of Aden, have passed the buck to the owners by asking them to employ private security measures after expressing inability to guarantee safe passage for ships in that area. Owners cannot pass the buck anywhere except to insurance, so I suspect the status will remain quo there.

On the other hand, NATO and the Indian Navy are now a presence in the area and the French have, for the first time, captured suspected pirates off a boat before an attack actually took place. Maybe at least the French are serious. Their previous actions in that area make me optimistic. Maybe France will show us the way.

In India, at least one seafarer’s union has upped the ante by boarding a few Indian ships and persuading (or instigating, depending on your point of view) the crew to threaten refusal to sail. This has met with the usual alarm from owners’ and managers’ organisations, citing mainly economic reasons. Interestingly, these same organisations also claim to represent seafarer interests, which dichotomy I have always found ridiculous. Running with the hare and hunting with the hounds must be leaving them breathless!

The reality is that these organisations represent owners and managers and nobody else, and they should stop claiming otherwise. Besides and unless I am mistaken, they do not have a single sailing seafarer involved anywhere in all these organisations put together.

However, as I said, my jury is still out on the Somali hijackings issue. I am not too hopeful that seafarer interests will be protected, though. Owners really ransom ships and expensive cargoes, with seafarers being collateral damage either way. I have a feeling that sailors are dependent on the actions of the coalition navies more than anything else on this one.

Meanwhile, what the Somali hijackings issue has shown, with crystal clarity, is that the ISPS code, conceived in haste and delivered in panic after a short term pregnancy, is not worth the paper is return on. It is time to abort that mentally challenged baby; it is time to close that ignominious chapter in our history and throw that code away, at least in its present form. No need to send it to the Recycle Bin either.

The Hebei Spirit case seems to have even less traction than the Stolt Valor issue, maybe because it hasn’t really got the same response from the idiot box in India. Surprisingly, there has been very little coverage anywhere on the legal outcomes of the appeals process well underway in Korea. Industry support for the two officers seems to have stopped with appeals to the governments of India and South Korea. One hopes that, like in cricket, there is no penalty for excessive appealing, particularly when nothing else is being done. Even more disheartening is the fact that there seems to be no real move (besides a slow moving/stonewalling IMO convention) to address the systemic issue of wanton criminalisation of seafarers worldwide; one would have thought that the ‘Spirit’ detentions would force that debate.

For an industry which loves the term ‘root causes’ when it investigates casualties, maybe it is time to look at the root causes of the abysmally weak responses to the twin issues of criminalisation of seafarers and hijackings at sea.

Actually, strike that. There is no need to waste time and money on investigations when the answer is well known. Incidentally, the root cause is the same, whether in the case of the global financial meltdown or the Hebei Spirit/Stolt Valor issues with their wider implications.

The contributory causes may be greed and lack of concern for seafarers, but the root cause is systemic failure.


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