January 29, 2013

With the French, the British, the Americans and everybody's mother in law in action connected with the mayhem in and around Mali and the massacre in Algeria, and from the 'I told you so' department, and with much regret, because we are condemned to repeat history..

Written one and a half years ago, give or take

The Moor's Next Sigh



January 24, 2013

Shipping- A different recession?

In a sentence, this is what I think will happen in shipping- or happen to shipping- this year. It will get bloodier out there. 

This recession, when compared to 1958–60, 1975–78 and 1981–84, will be markedly different, I think. For one, because operational, labour and regulatory costs- especially those connected to the environment- are much, much higher this time around. Also, although I cynically believe that the costs of MLC implementation will be diluted by circumvention and subterfuge, this will not be so easy with the costs associated with the upcoming Ballast Water Convention, or with the much stricter emission norms that are being implemented today, particularly in the US and Europe. 

It is also different this time because the existing global economic system is under severe existentialist pressure, and no recovery is in sight. The economic outlook for the United States and Europe continues to be negative, and all the BRICS countries have considerable problems of their own- high inflation, shrinking export markets, fiscal deficits and socio-economic compulsions are just some of the troubles at the tip of the iceberg there. In any case, these countries cannot take up more than very little of the slack of a collapsing EU and an in-hock USA. Times are a changing, and old economic models may not apply, or another collapse may be seen in the near future. Shipping seems to think that the resumption of business as usual is a matter of time; it may be a matter of a new world economy instead, so don’t hold your breath waiting for freight rates to revive anytime soon.

I don’t know when the net expansion of tonnage in shipping will top out. I know, however, thanks to the UNCTAD review of maritime transport last year, that, even with record demolition activity, no end is in sight there either. Fortunes in shipping have often been made by asset plays- buying ships at low prices and selling them high. I believe cash rich investors- and new kids on the block- are still trying to catch a falling knife here, ordering ships now or buying second hand ones at what they think are rock bottom prices, hoping for a spike in asset prices soon. This can prove to be either brilliant or dangerously stupid; while nobody can time any market absolutely, one can lose one’s already threadbare shirt getting into the act way too soon. 

For operators of ships, another sobering thought: even if net tonnage expansion stops today, there is still a hell of a lot of excess tonnage to be absorbed before the supply-demand graph flatlines.    

So, this is what I think will happen this year:

·     More ship owners will go bankrupt. More banks will control vessels directly as a result.
·     There will be consolidation in the industry. Bigger players will announce cooperative arrangements, formal and informal. Some ashore will scream cartelisation.
·     Many, many more vessels will be laid up. Cold laid up, that is, not hot and ready to roll in a week or two. Containers and bulk carriers will be particularly hard hit. Lay ups will be more complicated and expensive than ever before because environmental protection of coastlines where ships are laid up will become an item on the agenda. It never was, before.
·     China will, at some stage, stop supporting its State run shipyards. This will set the cat amongst the pigeons in a part of the industry.
·     Some mini markets, particularly the liquefied gas segment, will do better than others. There is a threat here, of course, if too much excess tonnage is ordered, but my sense is that- since LNG carriers are big ticket items- this won’t happen easily. I hope.
·     The so called shipmanagement companies may actually do okay, although margins will be squeezed. Banks may acquire ships by default or otherwise, but they are not qualified to run ships and will have little choice except to place them with these firms. And smaller shipowners will be forced, thanks to the increasingly complex regulatory regime, to hand over their ships to outside management. Not that those companies do it better, but they do enjoy economies of scale.
·     Seafarers will find jobs drying up. Maybe not immediately, since so much tonnage is around and not laid up, but surely later, once cold lay ups increase, as demolition already has.
·     We will see many more owners defaulting on wages. We will see many more stranded, starving and destitute crews on arrested or detained ships around the world.
·     We will see more unseaworthy and poorly maintained ships threatening our coastlines and harbours than ever before.
·     Crew costs will not fall by too much too quickly, although there will be pressure to reduce wages. This is because, unlike the eighties, shipping is not a preferred profession in many parts of the world, so sourcing quality seafarers will remain a long term headache. This is also because the requirement of quality seafarers- given the complexities in operations and insurance today- will be higher than ever before. Crew costs may actually rise in some segments of the industry that are making a little money and require special skills.
·     Shipowners will not be able to save too much any longer by cutting way back on maintenance to save money, as they did in the eighties, because a)they are already doing this,  b)State and Flag controls are more stringent today and c) break-down maintenance does not really save money.
·     If some of the biggest heads under costs- insurance, crew, bunkers, maintenance, for example- cannot be cut back upon or controlled ( as in oil) substantially, and if freight and hire rates continue hitting the floor, cash strapped shipowners will have no place to hide.

Everybody knows that there is no impending shake up of the global economic order, such as it is. Countries will continue to print money to get out of the self-created mess. Besides sloshing around creating havoc, this money will distort markets even further, and cause mini economic collapses around the world from time to time. It will be extremely difficult to predict these collapses, or, indeed, recognise false flag mini-recoveries for what they are. 

Shipping, with its high asset costs, will be particularly vulnerable; long term players even more so, sadly. Unfortunately, big money will be made, in this increasingly chaotic industry, by big ticket speculators who will buy and sell ships like they are trading stock. Big money, in the next year or so, will not be made by the traditional shipowner pursuing traditional shipowning ways. 

That is not just sad. That, given the repercussions of such speculation on the maritime industry and its people, is actually the scariest thought of all.


January 17, 2013

The shale revolution cometh

Map of 48 major shale gas basins in 32 countries (EIA).

Synchronicity of events often leads to revolutions in business. The recent startling importance of shale gas as an energy source, coming at a time when the Arctic melt has opened up new sea routes between the Pacific and Atlantic- and when global LNG demand is rising- promises to change everything. Geopolitically, environmentally, economically- and for shipping. 

Shale is sedimentary rock within which natural gas can be trapped, and piped or shipped anywhere. Large shale gas deposits exist in the US, China, Poland, Australia, Canada, Russia, France and elsewhere. (Indian estimates of shale gas deposits seem suspiciously high, at anything between 600 and 2000 trillion cubic metres, but decent reserves apparently do exist.) And, although shale gas extraction has been going on for some time, political and environmental developments have pushed the hunt for shale gas right up to the front of the queue. Energy guzzling US, for example, can well become- thanks to its vast reserves- a net exporter of energy in the not too distant future. Even if that does not happen, the US sits on huge reserves that equal 20 years’ worth of consumption- and Obama wants to make the country energy independent. Shale gas made up 23 % of total U.S. natural gas production in 2010 and could constitute 49 % of U.S. total natural gas production in 2035, says the country’s Energy Information Administration (EIA). Shipping may well find in the future that US energy imports simply do not exist, and that gas exports from the US are being discouraged for geopolitical reasons to do with self-sufficiency; shipping’s tankers may have to look for other markets.

Arctic melt- new sea routes (BBC)
Synchronous with the shale gas story is the tale of the melting of the Arctic and the rise, post Fukushima, of LNG demand from Japan. The ‘Ob River’, a 150,000 cubic meter LNG tanker, became the first ship of its type to use the Arctic Sea Route between Europe and Japan last month. Escorted by Russian icebreakers, it made the voyage across the Barents Sea and north of Russia in just under a month. It saved 20 days on the trip- 40 per cent of the distance. Ditto for fuel, obviously. Given these numbers, the number of ships, including LNG ships, sailing across the Northern Routes is set to explode, especially since the Arctic is getting more navigable every year. 

Sure, there are problems with shale. For a start, some studies say that the quantum of reserves are grossly overstated, and that significant amounts of what is actually there is not recoverable, given technological issues and cost. Other concerns are environmental; although natural gas is cleaner than conventional fossil fuels, shale gas extraction often means huge amounts of freshwater use, greenhouse gas emissions, groundwater contamination, hydraulic fracturing and induced seismicity.

But this is what I strongly predict will happen- shale gas exploration will accelerate- even explode- provided deposits are economically exploitable. That is the way all such stories go, so why should it be different now? Maybe technology can mute some concerns, but the world will not have environmental sustainability on top of its agenda this time, either; it never has. Sad but true. Look at the Arctic melt and the environmental time bomb we are sitting on there, energy exploration, mineral reserves, new sea routes and all.  Look at the reasons for the melt in the first place; even those warning signs foreshadowing disaster are ignored today.

That aside, the impact on shipping of this revolution will be huge as energy markets undergo a metamorphosis and as routes through melting ice become commonplace. Within shipping, the pendulum will swing towards the West, which will not only provide newer technologies for gas extraction because of its head-start and expertise, but also produce much of the product. 

And carry it too, probably, if frigid waters are involved. Asian shipowners and crews have traditionally little experience in navigating in ice. Their disarrayed training and employment systems will have to undergo a metamorphosis if they want to cater to new professional demands that will undoubtedly be made of them. 


January 10, 2013

The rape of seamen- maritime immunity?

That Pratibha Shipping is near bankruptcy should come as no surprise. It should have shut shop months ago, in my opinion; at least the abuse of about a hundred and fifty seafarers under its employ would have stopped.  

It has been known for months that Pratibha was in dire financial distress. Owing dues, sometimes arrested and often without statutory or mandatory certificates, their nine tankers had been stranded- mainly in and off the Indian coast, but also in Chinese shipyards and in Bahrain. Crews on most of these ships went without proper food, water, fuel, medicines or salaries for months. 

The beaching of the Pratibha Cauvery in Chennai late last year probably smelled too much and woke everybody up. Anyhow, the Directorate General of Shipping now says, in early January, that an emergency meeting was held between the DGS, NUSI, Mr Sunil Pawar- MD of Pratibha, the Mumbai Police (at least two of Pratibha’s ships are anchored miles off the city) and the Indian Coast Guard after which the regulators are supposed to have directed the company to take immediate action to provide relief to stranded crew members who are suffering “immense hardship.. and demanding that they be rescued.” 

Rescued from the abusive shipowner, that means, for people like me who are dense. 

Shipping likes to pretend that unpaid wages are the worst-case scenario for crews working for financially strapped firms. This is a lie. Crews usually suffer crippling physical and mental severities in addition to this. Near starvation or unhygienic, sometimes putrefying food, given that there is no power because there is no fuel. Minimal water or no water if they are unlucky. No medical treatment; sometimes not even a pain killer for a headache, leave alone anything that may require a doctor’s attention. No shore leave, either because the ship is arrested or because she is anchored far away from land, away from prying eyes. No repatriation and often little communication with their families, who are themselves in financial distress at home since the seaman breadwinner’s wages have not been paid for months or more. And sometimes, crew have to put up with veiled and unveiled threats from shipowners and managers. With no respite, and no end in sight. Wanting to go home but afraid to go home without the money that is rightfully due to them. Afraid that if they go home, the chances of any wages being settled will disappear.

In the Pratibha Cauvery scandal, the ship was refloated, repaired somewhat but remained stuck in Chennai with her new crew, who suffered the same inhuman treatment that their predecessors did- no wages, no food or water and all the rest of it. They were begging for food and medical supplies in port, reliable sources tell me, and were not permitted to go ashore. In fact, it appears that paramilitary personnel were posted for a while at the foot of the gangway to ensure this. (Wonder who authorised this and why). Crew had no communication facilities aboard. Everybody wanted to go home but- and this is what I cannot understand, and where I blame the Master and crew, whose spinelessness indicates, amongst other things, that they will make poor seamen- were scared for their careers, of not finding another job, or of being blacklisted.

Another Pratibha ship anchored off Chennai has seen the DGS direct the company to relieve the Master on ‘compassionate grounds.’ Wonder what that story is. 

Two ships anchored off Mumbai have been without food or water for three months. (Why are they there? Because, if one can believe it, Pratibha could not pay port immigration fees. One of the ships has the Captain’s family aboard). These ships saw DGS and Coast Guard intervention because several of the crew were suffering from food poisoning, fever and other sicknesses. Wonder what happened there- probably the result of eating unhygienic food or drinking contaminated water. Or maybe the crew are eating whatever they can lay their hands on.  

Another Pratibha ship had a second engineer being ‘rescued’ off Goa. 

The DGS says, now, that the company is planning to sell or scrap a half dozen ships and reactivate the remaining two or three. The majority of sailors will be sent home, the DGS says, and the company will pay their wages after it disposes off the ships. A seafarers’ union-NUSI- will ‘provide’ people to man the ships that are not being sold or scrapped, and will be reimbursed similarly, post the sale of the rest.

Reports say that Pawar has assured the DG that the crew on stranded ships would be ‘rescued’ within 7 to 10 days. Meanwhile, families of the crewmembers are running around, as usual, from pillar to post. Other reports say the DG has said that ‘rescue’ operations would commence soon off Mumbai to bring back many ailing sailors, in need of urgent medical attention.

Note the repeated use of the word ‘rescue’. In an industry that uses the word in connection with dire emergency, distress and abandonment, its usage here says it all. Abandoned sailors now have to be rescued from shipowners, it appears. 

I will not ask why the Pratibha crew on so many ships had to spend months in appalling conditions before action could be taken, or why they agreed to join a company with a reputation like that. I will not ask how the Cauvery was allowed to sail from an Indian port apparently unseaworthy and uncertified. I will not ask why it is assumed that paying earned salaries months after they are due- if, indeed, they are paid at all, there being many a slip between shipping’s cup and lip- is deemed to be fair compensation for abuse. I will not ask why the crew are not to be compensated for months of misery, near starvation, and other conditions that the shipowner is bound, by law, to guarantee are kosher. I will not even ask why the Pratibha story is not unusual, in India and elsewhere.

I will only make one comment. At a time when so many in the country are clamouring for the death penalty for rape, the rape of seamen should be punishable by a decent jail term, at least. No maritime immunity should apply.