July 29, 2010

The Dead Corridor

Can the maritime related industries in India’s eastern ‘Red Corridor’ thrive under the barrel of the gun? What happens to major port expansion plans when the underlying economy is in chaos? Will we see in the near future- like in tin pot dictatorships in Africa and banana republics in Latin America- ships loading and discharging in Orissa while heavily armed paramilitary forces guard gangways, ports, pipelines and conveyor belts?

I think that the possibility of major disruption in Indian maritime trade because of Maoist or Naxal events is a clear and present danger to the entire logistics sector on the east coast. In fact, it is so clear and present that some of it is already happening.

The reality today is that even as a gaggle of ports are being planned- and constructed- down the eastern Indian coastline, from the silted Hooghly in West Bengal down to Orissa and Andhra Pradesh, goods trains are being regularly derailed in parts of the Corridor. Or they are just not plying. Don’t believe me; believe Tata Steel Managing Director H.M. Nerurkar. "For nearly 50 days, train services between Kolkata and Jamshedpur have remained irregular, with night services totally suspended due to the Maoist problem... How long can this continue?" he asked recently. Nerurkar also says that Maoist activity is “impacting the business”. Guns have a tendency to do that.

A few days ago, State-owned National Mineral Development Corporation’s Finance Director said, in typically understated babutalk, that its Chhattisgarh unit could see ‘some production loss’ after a Naxal attack on its complex. This was a day after 50 armed Naxals attacked a NMDC setup that held large quantities of explosives, getting into a running gun battle with the CISF guarding the facility.

The Maoists are today routinely attacking mining outfits to disrupt operations and for the RDX and other explosives that those firms store for use. This includes organisations such as NALCO; the RDX is sold throughout South Asia (including, my not so wild guess, to terrorist outfits) in a trade that is worth millions.

Nine tonnes was stolen in one such Maoist raid earlier this month.

The Maoists also extort (300 crore annually in Jharkhand alone), threaten and collect taxes. The Indian State’s writ does not run in these areas. Worse, it is unable to find a solution – the armed one is not working. Ask the CRPF in Dantewada, where a second Maoist attack killing three dozen of their personnel passed off almost unnoticed (the Home Minister didn’t threaten to resign this time, like he did after a first attack that killed almost eighty. Wonder why).

Interestingly, “Maoists are engaged in illegal mining with the tacit support of the political dispensations in some areas,'' according to R S N Singh of the India Defence Review publication. Singh says that minerals like iron ore, illegally mined by the Maoists, are being transported to China via Haldia, allegedly after threatening bonafide mining companies who generate the required documentation. Ore laundering, one could call this. One can be sure another flock of babus and politicians are making a killing out of this, as did the erstwhile Jharkhand Chief Minister Koda (I wonder why there is no news of him and his 4000 crores. Sometimes I wonder too much).

Yet another worrying reality is that analysts are increasingly pointing at China as the devil behind the Maoists. ``For China, the Maoists are the most reliable tool in the proxy war that it is waging against India,'' Singh says. Others analysts agree off the record, saying that much of the illegally mined ore from India is sent to commodity hungry China.

Things have reached such a stage that the Maharashtra state home minister R R Patil recently demanded that the Directorate of Revenue Intelligence investigate links between Naxalites and the mining lobby. (Reports suggest than 700,000 tonnes of coal are mined illegally from Jharkhand alone every year, and the recent mining scandal in Karnataka has thrown up figures -circa 2007/08- of 5 million tonnes of iron ore that were illegally exported from Karnataka.

Since 2003, 3.04 crore tonnes of iron ore have been illegally shipped out of Karnataka alone. At today’s prices, the value of this ore is Rs 152 billion. .

So, as I understand it, (probably) Chinese backed armed Maoists are holding a massive chunk of Indian territory to ransom. They steal enough explosives regularly to manufacture a zillion landmines and IEDs. Additionally, they sell explosives to any wannabe terrorist in the neighbourhood. Meanwhile, goods trains are derailed or do not run in a part of the Corridor- and neither does road traffic run unhindered, by the way. The government cannot administer even a public toilet in some of these areas. And this is a region where a large chunk of Indian mineral deposits lie (which are 10% of the world's bauxite, 276 billion tonnes of coal and 23 billion tons of iron ore), much to the salivating delight of corporate looters and their political and bureaucratic henchmen.

Expecting shipping not to be hit in these circumstances is like expecting Charlize Theron to go out for a second date with me.

Meanwhile, this fracas is a milch cow for everybody. The politicians and the babus, the multinationals and domestic companies (all immoral, only some illegal, because they control our legislators) the Naxalites and their henchmen, the illegal mining industry and their shady logistics arms.... this conflict is making all of them rich or powerful, usually both.

Also meanwhile, quoting from Mineweb, the South African mining publication, “As a consequence of Naxal activism, several major projects have come to a virtual standstill. ArcelorMittal's $9 billion steel projects in Jharkhand and Orissa and South Korean company POSCO's $32 billion steel project at Jagatsinghpur district in Orissa are stalled due to Maoist violence. A similar situation was witnessed in Jindal Steel Works' $7 billion steel plant at Salboni in West Bengal”.

I believe that the shipping, ports and logistics industries cannot escape the commercial consequences of these killing fields. They will be hard hit down the line because they are, in a way, downstream industries and because a) I don’t expect this conflict to go away anytime soon – in fact, I expect the army to get in there sometime, which will make things messier b) I expect severe financial and other pressure on some eastern ports; some of these terminals were planned with ore exports in mind c) I expect the government will have to start cracking down on illegal mining, which will make the situation more explosive ( though I am a little sceptical that politicians or babus will have the guts to go up against their own). d) I expect the Maoists, especially if they are backed by China, to escalate violence if they can.

None of this will help the maritime industries. I don’t know how they will react- the list of firms involved in building infrastructure and ports down the eastern coast reads like a who’s who of corporate India- but I know this much; making money is not going to be easy in parts of the east. Some will be already looking at exit strategies, I bet, or at least slowing down their investments.

Even if the Maoists are somehow defeated, the underlying causes that give them widespread local support will not go away. The Indian State can hardly shoot the Adivasis and other locals to extinction; it will have to, sometime, assuage their rage.

The only good news that can I see, cynical as this may sound, is that I expect that things will finally get better, if only from a law and order point of view. There is, simply, too much money involved for the State to ignore the circumstances of near civil war that exists in the Corridor, whether one calls it Red or Dead.


July 22, 2010

Navel affair.

Many years ago, we had a main engine breakdown on a Ro-Ro ship in the middle of the Indian Ocean when the Technical Superintendent was on board on a routine inspection trip. As can be expected, his presence resulted in an extra flurry of activity down below. (Superintendents hate to be on the spot; this puts pressure on them to solve the problem quickly. They much prefer giving directions from the office; floating staff prefer that too, but for different reasons). In any event, the engineers were running ragged trying to find the problem. Eighteen hours passed without any progress.

In the evening, in the midst of all this, I found Johnny the chief engineer out for a walk on the flush main deck with a can of beer in his hand. “How is it going, Chief?” I asked him.

He shook his head in disgust. “I came up to try to figure things out,” he told me. “Everybody, including the Super, is running around in the engine room with their backsides on fire; nobody is doing the thinking.”

I see the same drawback in many a shipmanagement setup today; the entire organisation, including the head, is often so consumed with a focus on immediate operations and administration that there is nobody taking a step back and seeing the bigger picture or trying to find or fix generic problems. I think this critical need of any organisation remains largely unfulfilled- or insufficiently addressed- in many maritime operations businesses.

In an ideal world, this function- one I will call the ‘contemplating navel’ one, belongs to the head of the organisation. He is akin to the Captain who stands out on the bridge wing during ship handling; he knows and directs the movement of the ship, but he is distanced a bit from the practical details of taking positions, checking equipment or other logistics that lie with the officer of the watch. Importantly, he is away from the noise, both physical and mental, that normal operations generate. He can therefore focus and do a better, safer job.

So can, similarly, the head of any organisation. Generals must be remote to the battlefield, at least mentally, if a physical separation is not possible. The battlefield is for soldiers.

The head of a shipmanagement organisation should be spending much time just talking to people: employees in the office (not just senior managers), sailing staff (not just Masters and Chief Engineers) leaving to join ship or returning for debriefing, potential business partners and others. He should be giving himself the space to initiate improvements both ashore and afloat. He should be using his mental bandwidth to identify the strengths and weaknesses of the setup, examining opportunities and threats and finding practical ways of dealing with these. This is a full time job. The clutter of daily emails and telexes and the cacophony of routine operations should be as distant from his mind as possible, because the ‘contemplating navel’ function is one that only he can properly fill. Everything else can be delegated.

To be fair, many organisational structures start well on paper, with this function addressed- even if obliquely. However, they seem to quickly degenerate into what I call organisational chaos, with everybody sucked into routine operations. This is partly because of the helter-skelter nature of the shipping business and partly because of other factors, including the shortage of competent and committed people ashore and the inability (or hesitation) of the CEO to delegate responsibility down the line. A good Chief does all of these- he realises when an organisation is being consumed by routine, he delegates and then steps aside. He also hires appropriate people at the outset to give the setup more bandwidth to deal with the inevitable surprises; as we know, the shipping trade has more than its fair share of those.

I am convinced that it is partly because of this lack of available bandwidth that the chiefs in shipping are unable to find innovative ways of addressing decades old- and recurring- issues in the business. Besides the will, they simply do not have the time to put their feet up on the desk, introspect, contemplate or strategise. My lament is the same as Johnny the Chief Engineer’s: nobody is doing the thinking.

I think shipping organisations are also impacted by the fact that many of its seniormost managers ashore are ex-Captains or ex-Chief Engineers, and are used to being hands-on at sea. That may well be a requirement on a ship (though, as said, I would recommend a certain distance be maintained there as well), but a larger spread out organisation ashore surely requires a different mindset, and the sooner that is realised the better. (It is not my contention that all shipmanagers ashore carry this baggage ashore, but I believe a significant majority does.)

All I am recommending, with some experience of my own heading a decent sized setup in a different industry, is that on a typical Monday morning- when emails, phones and faxes from across the world throw up a million problems and minutiae threatens to consume the next twenty four hours of the office nonstop - is that the head of the organisation should be considering which potential business associate should be taken out to an extended lunch.


July 15, 2010

Economics 101 for crew managers

Judging by the statements that come out from many shipmanagement setups regularly, Indian seafarers had better be cautious. They are too demanding when it comes to wages, and, unless they change their avaricious ways, they will ‘price themselves out of the market’. These arguments are usually accompanied by the other old shibboleth of ship owners that have run out of better retention ideas: a plea –almost a demand- for mariner loyalty.

I have been hearing the same monotonic applesauce for more than twenty years. Indian seafarer salaries, in Indian rupee terms, have grown multifold during this time, a fact that should tell these good folk that their arguments have failed. However, old habits die hard. More importantly and against this argument, salaries in dollar terms have not grown as much as believed- as I will show later.

I don’t think what I have to say will surprise these gentlemen; I am sure that many of them don’t really believe their own rhetoric anyway. However, their grand HRD plan has just one arrow in the quiver: staff ships in the cheapest way possible, and the palaver is meant to pressurise the presumably dumb sailor to accept lower wages, and to stick to the same shipping company for twenty years while doing so. On a daily wage basis; what I call the Lloyd’s Open Form for wages- No work, no pay.

The folly of expecting a daily wage earner to happily accept either a long term commitment or a lower salary would be hilarious if it wasn’t pathetic. That this patronising attitude attempts to hide a paucity of ideas is well sensed by mariners, who, when they have the choice, stay or leave companies on factors often unrelated to wages. True, a big difference in money will tempt anybody, but small differences are often ignored, especially by senior officers. Seafarers seem to expect market wages. If a company offers anything more than this then they will obviously choose it, and the better seafarers will eventually be found there. Simple fact of economic life.

These forces, people, are called market forces and for good reason. These forces multiply when applied to casual labour in any industry anywhere in the world. You don’t give seafarers any job security or pension; why on earth should they give you a long term commitment or accept lower than market wages? Would you do that?

Today, India lives in an age where a ten percent annual increase in salary is considered very disappointing by employees across industry ashore. Figures of wage hikes of fifteen percent are common, and higher not unusual. Shipmanagers wishing to employ officers from India better get used to this fact; they will do well, additionally, to read up on simple economics to understand inflationary pressures and how they impact salaries. They are competing with other industries in India for talent; they are not living in a cocoon at sea.

Shipping has been spoilt, in the last few decades, by the falling value of the Indian Rupee. Simply put, the US dollar today is six times the Rupee value it was when I first started sailing (although the exchange rate hasn’t really gone anywhere in the last few years, a fact I use to underscore a later point). This fact, as much as anything else, has allowed shipowners using Indian mariners to keep salaries low in dollar terms. Shipowners and managers have used this fact to essentially kill annual increments unless the demand and supply paradigm forced them to. Seafarers did not complain too much since they were taking more Rupees home. They were also, just by keeping dollars in Indian banks, getting returns exceeding twenty percent often: just the annual FCNR rate (got by keeping dollars in the bank, and getting dollars on maturity) during much of my sailing was nine percent and above. Combine this with the rupee depreciation, and one got handsome returns at zero risk.

That advantage has disappeared in recent times, and the situation will reverse. The Dollar/Rupee exchange rate is quite likely to work against seafarers in future, given the growing Indian economy and the economic mess in much of the West. In any event, the days of double digit returns with dollar deposits are over. What this means is that there will be greater pressure now on managers to raise salaries annually in dollar terms. These pressures will be in addition to the forces of demand and supply, which by all accounts, are likely to worsen in the next few years.

To illustrate with an example, a Master’s median salary, in dollar terms, was about 3000 or so around 1990 in an average foreign setup- I can recall earning around that much then. If I were to apply a 10 percent annual increment to this (remember, the 90’s were the start of a time when salaries in India started to take off post liberalisation), the equivalent salary, in dollar terms today, would be USD 20182. Yep, more than twenty thousand dollars.

This should kill the canard that salaries have zoomed. I would guess that a Master’s median salary today is less than half this figure on a foreign ship. So, if the industry thinks that Indian Masters are going to be satisfied, in the year 2020, with earning 9000 dollars or so every month (today’s rough levels), then they better think again, especially if the USD is falling.

Just one additional comment before I wind up. Another crew management litany is that Indians seafarers will suffer if Indian jobs are lost for any reason, including high wages. I beg to differ. Sure, some seafarers will suffer; those already in the profession and not senior enough to have saved enough or invested enough. What is more likely to happen, however, is that new talent will shun the industry and go elsewhere; it already is. These are not seafarers yet; they will not suffer the consequences of any downturn. Actually, the people who will suffer most are Indian shipmanagement companies themselves, who will see their body shopping revenues slowly going down the tube. This cycle has played out in many Western countries; India will be no different.

The industry had better come up with some new ideas for recruitment and retention. Not only did the old ones not work, but those are now very likely not applicable in the changing scenario. It is not Indian seafarers pricing themselves out of the market that is a threat to our industry. It is more likely that Indian shipmanagement will be mortally wounded if it runs out of sufficiently good ideas to attract quality talent. The threat is more from poor management than greedy seafarers.

Alternatively, managers and owners will just have to get used to paying higher and higher salaries- or continue playing the supply and demand game- and therefore should stop whining or trying to scare Indians into accepting lower salaries. Indian sailors are not as dumb as the shipmanagers think, or even hope.


July 08, 2010

Kitty litter and the STCW amendments.

Never mind that the war is being lost: the good folk at the Manila STCW conference did what the Americans would love to do in Afghanistan and Iraq: declare victory and go home. Meanwhile, in the wake of the ‘Manila amendments’ (this nomenclature will long cause heartburn to many a presumptuous Indian) will be found the usual debris of the dashed hopes of seafarers.

Bluntly put, the Manila amendments read like a business plan and not a serious attempt to address issues related to training or fatigue of watchkeepers at sea. They results are the maritime education industry’s wet dream: the new requirements and “guidelines” will open up new revenue streams for these MET businesses that have proven to be largely substandard in all major seafarer supplying nations of the world.

Regardless, new training will be required in ECDIS, “marine environment awareness” (whatever the hell that is), dynamic positioning systems, navigation in polar waters, leadership and teamwork, security, liquefied gas tankers and OSVs, to begin with. Later on, we will be blessed with new training and certification for electro-technical staff. And, in a pathetically hilarious interlude, “New requirements for security training, as well as provisions to ensure that seafarers are properly trained to cope if their ship comes under attack by pirates.” (Cope? What is cope, please? Is it like a cop out?)

Fatigue, the second major issue, has been covered in the usual blinkered and cynical manner, and is, in a way, a testimony to impotence. At a time when present rules are universally ignored and ships are operated every day with fatigued watchkeepers, the IMO, in its infinite wisdom, ignores this blatant non-compliance. It admits, though not in as many words, that it cannot do anything about Safe Manning Certificates that are within the purview of Flag States (who, as we know, have no interest in making their flags less attractive to owners). Instead, the STCW amendments come up with new provisions for hours of rest for watchkeepers: ten hours minimum a day, 77 hours a week and with the usual claptrap of details and exceptions. Is this the best we can do, two decades after the issue of fatigue surfaced?

All that I foresee, because of all this ballyhoo, is a fudging of rest period records on an even bigger scale post the Manila amendments. I do not know anybody who seriously expects anything different. Ten hours a day? Seventy-seven hours a week? I hear the industry scoff: what do you people think this is, a luxury cruise?

The third major issue addressed was related to certification- measures to prevent fraudulent practices and other such subjects. Seafarers can move along: nothing much for them here either.

The problems I have with the Manila amendments are many, but the continued myopic system of regulation, guidelines and amendments has to be my biggest objection. Consider:

• Problem: many MET institutes in the major seafarer supplying nations- including India and the Philippines- are way below par. The IMO’s solution: none.
• Problem: seafarers are already hugely burdened with costs and time for training. The IMO’s solution: add more training.
• Problem: piracy and the failure of the ISPS code. The IMO solution: salt on mariner wounds. New training in anti-piracy and security.
• Problem: existing rest period requirements flagrantly ignored. The IMO solution: amend them upwards. That should do the trick.
• Problem: IMO sets minimum standards, member States interpret, but the interpretation is often egged on by businessmen. The IMO solution: none
• Problem: too much regulation, too little compliance. The IMO solution: more regulation.

Thank God, I don’t intend to sail anymore. Besides the obvious reasons, I cannot think of anything in the Manila amendments that will greatly promote safer seas or cleaner oceans, or indeed make the career any more attractive for a new seafarer- another IMO objective, at least on paper, in this “Year of the Seafarer”.

To end, a short story: We often leave a large plastic tray filled with kitty litter when we go out for the weekend. The cat does the dirty deed in it, and then covers the waste up by pawing around and covering up with clean litter. The kitty litter is then good to be reused again. And again, after some more pawing and covering up.

Thing is, once in a while the old faeces has to be cleaned up to keep the tray clean, else the cat will just not use it. Perhaps we should have done that first, this time with the Manila amendments, before we poured new litter into the same old bin. Maybe there is a lesson for all of us in there, somewhere in the kitty litter.


July 01, 2010

Red Herring

The disadvantages of reacting to partial sound bites from an authoritarian establishment pursuing single-minded geopolitical agendas couldn’t have been clearer: the world’s markets went into a tizzy when the Chinese central bank announced it would manage the Yuan more flexibly in future. Analysts around the world, no doubt fortified by advanced spreadsheets and financial models on their computers, told us, in great detail, the impact a presumably appreciating Yuan would have on currencies, commodities, global trade, stock markets and on the cost of my cat’s pet food. The Chinese economy will cool down, we were told, as their export led economy slowed on the back of a stronger Yuan. Commodity prices and trade would be hit as Chinese demand fell. Shipping would suffer; dry cargo rates plunged as a result.

A day later, when the same Chinese central bank announced that it would maintain a stable exchange rate, and did not anticipate any major change in the Yuan’s value, all those analysts were silent. Probably exhausted after a high adrenalin 24 hours of calculations, I think.

As always, what the Chinese have done is outsmarted most everybody else while pursuing a straight-line agenda. Some of us, in India and elsewhere, used to the cacophony and chaos of capitalist democracies, do not appreciate the fact that the Chinese ship may steer a few degrees this way and that, but its long-term course is as straight as an arrow. They always, without exception, have an eye on the big picture being painted and add a brushstroke or two with every announcement.

My read of the statements is this: One, the timing of the announcement, a week before the G-20 summit in Toronto, was meant to deflect criticism that the Chinese currency was artificially kept undervalued at everybody else’s expense. The statement did just that: it also allowed the US and President Obama, critical of Chinese policy, a rare face saving moment. Two, the Chinese have been trying, over the last many weeks, to cool down their overheated real estate markets, which some call the biggest real estate bubble in the world today. A perceived slowdown may help in this control. Three, I wouldn’t hold my breath anticipating a Yuan spike anytime soon, because an appreciation of their currency is bound to jeopardise China’s export-led economy. Given labour unrest, an open secret in the country today, the Chinese can ill afford to have people losing jobs; that may cause disgruntlement and threaten their very foundation; a totalitarian system so far in absolute control. Four, jingoistic American thinking may suggest- as it does with outsourcing to India- that an appreciating Yuan will mean manufacturing jobs coming back to the US. The fact is, however, that these jobs are more likely to go to other developing countries so far made uncompetitive by the Yuan’s artificial value, and will not be ‘coming home’ to the US anytime soon. And five, China owns more around 1.6 trillion dollars of US securities, and is buying more dollar denominated debt every week; it will not want to see its investments depreciating unless there is a political or military advantage that justifies the loss.

The Chinese Yuan affair is a red herring, in my view. The dragon’s economy may well cool down, but the reason for this will not be the Yuan’s presumed rising value; The reality is that Chinese exports are much more likely to be hit, simply, by a drop in demand from the US and Europe. This will obviously have a direct and negative impact on shipping.

The UK, after Greece and Spain, was forced to announce ‘austerity measures’ last week. The Euro zone is in a sovereign debt crisis. Consumption will come down; it has to. The levels of debt for the US and UK are staggering and at unprecedented levels; worse, the City of London and North Sea oil, two of the UK’s largest earners, are running out of time and gas. The US, on the other hand, is being bled by two wars it can no longer afford, and, while there may well be a spike in tanker demand after the Deep Water Horizon catastrophe (although a US judge has overturned Obama’s moratorium on drilling even as I write this), expecting large scale demand to pick up from that country very quickly may be futile. The US Federal Reserve indicated so when he announced last week that events in Europe may slow US recovery.

The Yuan’s assumed appreciation is, in any case, not going to solve Europe’s problems or the ones in the US; their economies are hardly going to start growing again just because the Chinese central bank made a statement or two on exchange rates- or even if the Yuan appreciated slightly. As for China, a rising Yuan is not the issue they face. Their issue is that two of China’s largest markets – the EU and the US- are struggling and therefore will buy less. One doesn’t need a spreadsheet to work out the impact on China of this slowdown.

Shipping, with its added tonnage supply overhang problems, needs to be cautious today- perhaps even more so. Governments pumping in trillions around the world may have averted catastrophe in recent times, but equally importantly, this artificiality has hidden the greater problem from obvious view. The price for the excesses committed during the boom years has still not been paid; in fact, it may have been deepened or postponed by the bailouts. The consequences of decades of countries living beyond their means are still being listed. Countries are being bailed out in the developed world.

Regional markets aside, to think that broad shipping demand will shoot through the roof in all this may be very, very wishful. One does not need a spreadsheet to know that either.