criminalisation is salvage next?shipmanagementinternational.com/wp-content/uploads/2012/... ·...

First Person - Axel Eitzenexplains what makes him tick

CRIMINALISATIONIs Salvage Next?

Gibraltar - A gem stoneof opportunity

How I Work - Frontline'sJens Martin Jensen on

the markets

Round Table Debate - Greekowners debate their fears

over the downturn

COVER STORY FIRST PERSON

SHIPMANAGEMENT FEATURES

T H E M A G A Z I N E O F T H E W O R L D ’ S S H I P M A N A G E M E N T C O M M U N I T Y ISSUE 17 JAN/FEB 2009

NOTEBOOK

6 STRAIGHT TALK - For whom the bell tolls

7 Giorgi calls for regulatory conformityover seafarersThe Hebei Spirit case has thrown up issues over thenon-uniformity of regulations relating to seafarersand raises the question whether there should be aninternational regulation covering all local jurisdic-tions, the President of V.Ships has claimed

9 V.Ships sharpens it’s focus onofficer trainingV.Ships has stepped up the benchmark for globalofficer training with full swing adoption ofIntertanko’s Tanker Officer Training Standards(TOTS) initiative, in a bid to underline the impor-tance of crew competency and set new industry stan-dards for the tanker sector

Pac Basin ‘back on the third party trail’Hong Kong-based shipowner and manager Pacific

Basin appears to have mounted something of a volteface when it comes to chasing third party shipman-

agement business following press claims that it is tar-

geting banks and financial institutions faced with

taking over the fleets of struggling or bankrupt

ship owners

Thome appoints new Offshore MDThome Offshore Management, the offshoreservices arm of Singapore-based Thome ShipManagement, has appointed a new managingdirector ahead of an anticipated increase inactivity in 2009

10 Owners are better ‘managing theirown ships’ in these tough timesGenerating third party management business inthe current economic climate may not be aseasy as many managers believe following anassertion by two of Greece’s ship owners thatthe pressure of the current situation is exactlywhy owners should manage their own ships

SMI picks up top marine journalismawardShip Management International was rewardedby the shipping industry for its continued dedi-

cation to quality journalism when it picked upthe Seahorse Club Feature Journalist of the Yearaward for the second year running

11 Credit crunch, piracy and fallingcrew numbers make it onto Brussels’strategic radarThe financial crisis and its impact on shipping

together with boosting European seafarers num-

bers, combating piracy and reducing the envi-

ronmental impact of shipping have been singled

out by the European Commission as areas in

need of decisive action

Moore Stephens puts a brave face onshipping’s prospectsLeading shipping accountant Moore Stephens

says that, despite the current economic down-

turn, shipping is still a good business to be in

and that resourceful investors will find oppor-

tunities to expand, or to get back into ship-

ping, over the next 12 months

16 How I Work - SMI talks to an industry

achiever and asks the question: How do you keepup with the rigours of the shipping industry?

20 Round Table Discussion - Greece's top

owners debate the credit crunch and speculate how

the banks will react

56 Opinion - Asia’s Time and Opportunity -

Carlos Salinas, Chairman and President of the Filipino

Shipowners Association and Chairman and CEO of

Philippine Transmarine Carriers, Inc

76 On My Mind - Vijay Sheth - Vice Chairman

and Managing Director, Great Offshore

79 Insider - Captain S.C. Sood - Managing

Director IMS Ship Management and Captain Kairoze

Motishah - Chief Operational Officer of IMS Ship

Management

12 Axel EitzenChairman of Camillo Eitzen & Co

Annette Malm JustadEMS Chief Executive

3JANUARY/FEBRUARY 2009 ISSUE 17 SHIP MANAGEMENT INTERNATIONAL

DISPATCHESDISPATCHESS H I P P I N G B U S I N E S S R E P O R T S F R O M A R O U N D T H E W O R L D

68 Don't criminalise the salvor

LIFESTYLE

90 Shooting - Brace yourself for that perfect flightThere was something quintessentially English about the Blue Lion Inn in

East Wilton, North Yorkshire. After all Prince Charles eats here when he

comes shooting on the local estates, so it must be good

94 Slowdown - Finding your inner tortoiseAt the turn of the 20th Century, the American inventor, Frank Gilbreth,

pioneer of time and motion studies, turned his home into a time-man-

agement laboratory

BUSINESS VIEWPOINT

REGIONAL FOCUS

83 SecurityOn November 15 last year, the Sirius Star, a Saudi Aramco-owned

supertanker en route to the US, carrying two million barrels of

crude oil worth an estimated $100m, with a 25-man crew, was

hijacked by Somali pirates 450 miles off the coast of Kenya

88 What I’m readingWith William Gibbons, Director of the Passenger Shipping

Association, The Widows of Eastwick, The White Tiger,Sacred Games

BOOK REVIEW

DISPATCHES

62 Unfreezing Iceland’s future could just be amatter of pure determinationThe single most noticeable thing about a bankrupt Iceland, so the

locals say, is how cheap everything has become to the foreign visitor

66 Salvaging a workable set of rulesOne of the biggest shake ups in the US salvage industry could soon

be on the cards

73 Targeting opportunity amid the turmoil

NEWBUILDING

SHIP REPAIR

75 Antwerp looks to Portugal

TRADE ANALYSIS

MARKET SECTOR

47 Crew TravelShrinking margins seem to be the fashion of the times as costs go

under the knife for virtually every operation in the shipping industry.

In the downward trend towards economic anaesthesia, companies are

looking for major financial surgery to repair the wounds incurred by

the harsh bite of the credit crunch

58 RegistriesAs freight rates drop and ship owners struggle, is vessel maintenance the

one area to suffer? And if so, how are flags responding to the challenge?

28 Gibraltar - Rocking the boatA symbol of geophysical strength and stature, an iconic jewel

forming the southern-most tip of Europe and the stepping stone to

the neighbouring continent of Africa, Gibraltar is as petite as it is

prominent in the grand scale of world shipping

50 UAE - The financial clock is now tickingTime is a great healer as they say so it must come as little surprise

to note that the power brokers behind Dubai and the UAE’s mar-

itime aspirations may have chosen this accelerated economic down-

turn as an opportunity to take stock to ensure that when the market

recovers they are in a strong-enough position to benefit

BUSINESS OF SHIPPING

80 Ad Hoc - 125 years and still going strongEMS senior officers gather in Mumbai for ‘inspirational’ debate

SPOTLIGHT

87 Wärtsilä CorporationHow attractive is LNG propulsion?

4 SHIP MANAGEMENT INTERNATIONAL ISSUE 17 JANUARY/FEBRUARY 2009

70 Chemical and products tradesChemical and product tankers are heading for murky times as the glob-

al recession enters full swing

It seems somewhat surreal to think that the glob-

al shipping industry is waiting on the decisions of

a number of the world’s banks to find out whether

it has a future or not.

If the fiscal thumb goes up, then most sectors

of the shipping industry can turn to licking their

wounds and try to plan for a profitable future. If

the financial emperor’s thumb is turned down

then make sure you have a mop and bucket handy

because the bloodbath will be messy.

By all accounts a lot depends on the priority

the banks place on shipping as a share of their

overall portfolios. If shipping is important to a

bank then its chances are good; if shipping’s

share is small then its goodbye Capes and hello

Hawaii – because that’s where most of the ship

owners will be hiding from their creditors.

But have a good word to say for the poor ship

owners who are finding it difficult juggling the

best charter deals for their ships while praying

that their charterers will not default. Let alone

hoping that that special relationship they have

with their banks will be enough to ensure they get

the thumbs up. We don’t need to be reminded that

shipping is a serious business with hard and risky

investments. You need to be in it to benefit from

it but you also need support and an element of

consistency and future planning as well as a little

bit of Lady Luck.

The problem that shipping suffers from as an

industry, is that it doesn’t generate votes so the

bailing out of the world’s banks will happen but

could possibly leave shipping behind. After all,

preventing the collapse of the global car industry

or protecting national real estate values are seen

as more important than ensuring a number of 15

year old bulk carriers continue to trade.

But remember the golden rule that shipping is

always cyclical and while it may benefit from a

scything back of the giant world orderbook,

which is happening, that optimum balance

between tonnage demand and tonnage supply is

essential because world trade needs to be serv-

iced. No one likes a boom and bust economic pol-

icy but the signs are on the wall for a rocky roller

coaster ride ahead.

A good barometer are the oil markets which

have moved up and down erratically since last

summer. When the world crude price was at $150

a barrel, oil demand was constrained: it seemed

that the market was only buying what it needed.

But the situation is not much different now.

This global financial crisis has hit industry and

hit personal incomes to the extent that there has

continued to be a huge drop in world demand,

which in turn has forced oil prices down. Some

brokers and market traders fervently believe they

are as likely to see $50 a barrel as they are $100 a

barrel over coming weeks as hefty price volatility

sets in. At a world price of $35 a barrel those

fields that are profitable at $40 to $50 a barrel are

unlikely to close because of the vast sums

involved in restarting production should the world

price recover. They will leave it to the less effi-

cient fields to slow down or shut down complete-

ly which in turn will reduce supply and start to

reignite the rise in the world oil price. Only when

the price goes over the $100 or $120 per barrel

mark will these fields think about turning the taps

back on. It is then that you will see supply start in

earnest and the oil price start falling again.

It is a well known fact that Opec will supply oil

when the price is $70 to $80 a barrel but will

squeeze production when it drops to $40. The gen-

eral consensus is that these rapid price movements

are here to stay for at least the next 36 months.

So this all smacks of the need for longevity and

belief in the markets. The bulk and general cargo

markets have dried up because banks aren’t issu-

ing letters of credit. But the time has come for

them to start realising their responsibilities.

Come the end of the first quarter if the thumbs

have been turned downwards, it will be more than

a few shipping companies struggling to survive,

you may start to see the start of a slow but grad-

ual damaging of shipping’s very existence, and

that isn’t good news for anyone – voters, con-

sumers or even newly elected Presidents.

Happy reading

Sean Moloney

The Shipping Business Magazinetoday’s owners and managershave been waiting for

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STRAIGHT TALK


January/February 2009 Issue No. 17

www.shipmanagementinternational.com

For whomthe bell tolls

Editorial Director: Sean Moloney

Reporters: Amy KilpinDebbie Munford

Australia: Wendy LaursenIreland: Hugh OramRegular Contributor: Margie Collins

Technical Editor: David Tinsley

Advertisement Director: Jean Winfield

Advertising Support: Clare Atkin

Advertising Sales: Ines Padin-Rodriguez

Research Manager: Roger Morley

Accounts: Lorna Gould

Design & Layout: David Marsh

Editorial contributors: The best and most informed writers currently servingthe global shipmanagement and shipowning industry.

JANUARY/FEBRUARY 2009 ISSUE 17 SHIP MANAGEMENT INTERNATIONAL 7

NOTEBOOKSHIPMANAGEMENT NEWS AND REPORTS FROM AROUND THE WORLD

ADD:1405 YiXian Rd.BaoShan District,Shanghai,200439 China Tel:86-21-65318899, 65843468 Fax:86-21-65842994

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Your most reliable shipping serviceprovider in all ports of China

Giorgi calls for regulatory conformityover seafarersThe Hebei Spirit case has thrown up issues

over the non-uniformity of regulations relating

to seafarers and raises the question whether

there should be an international regulation cov-

ering all local jurisdictions, the President of

V.Ships has claimed.

Speaking to SMI in the immediate aftermath

of the release on bail of Capt Jasprit Chawla and

First Officer Syam Chetan from the tanker

Hebei Spirit, Roberto Giorgi said the issue was

bigger than just the Hebei Spirit, “because

every time you have a problem you have local

justice that comes into place and you can see the

deviation between how these regulations are

applied from one country to another,” he said.

“There is a common trend that the majority

of these judicial regimes do not understand

international maritime law – they don’t give

enough consideration to issues related to sea-

farers who are treated as foreigners running a

ship that belongs to a foreigner and which is

flying a different flag.

“Following 9/11 in the US, it was difficult for

seafarers to enter the US and get a Visa to be

able to spend some time off ship. Only after

consultation with the US Coast Guard to ensure

they could understand how important the

responsibility of the Captain was onboard ship,

did the US start to take more care in educating

the guy in the front line of border security, a fac-

tor welcomed by the industry. So educating the

coastguard or the prosecutor is the issue. There

should be a common law which analyses the sit-

uation surrounding the seafarers,” he added.

Meanwhile, Jasprit Chawla and chief officer

Syam Chetan, telephoned Roberto Giorgi, and

Bob Bishop, CEO of V.Ships

Shipmanagement, with a “special request that

heartfelt thanks should be extended to all those

in the international maritime community who

had stood united in their request for the release

of the Hebei officers”.

The officers said that after more than 400

days in Korea, and the prison sentence handed

down by the appeal court in December, it was

of “great comfort for them to know how much

work was being done in the maritime world to

secure their release and seek justice”. They said

that they were greatly relieved to be able to be

with their families once more and were looking

forward to going home.

The Korean Supreme Court, which granted

the bail conditions on a surety of $10,000 for

each seafarer, is expected to pass a final verdict

on the two men, shortly. ■

9

NOTEBOOK

JANUARY/FEBRUARY 2009 ISSUE 17 SHIP MANAGEMENT INTERNATIONAL

Hong Kong-based shipowner and managerPacific Basin appears to have mounted some-thing of a volte face when it comes to chasingthird party shipmanagement business follow-ing press claims that it is targeting banks andfinancial institutions faced with taking over thefleets of struggling or bankrupt ship owners.

It comes amid confirmation that talks areunderway with UK-based Epic Shipping for itto take back the tanker and newbuilding thirdparty management operation in Singaporeknown as PB Maritime Services which PacificBasin originally bought from Epic in June oflast year. Pac Basin's decision to move awayfrom tanker management in favour of drybecause of the credit crunch is behind the move.

CEO Nigel Cleave resigned as CEO of thecompany’s third party management arm PBMaritime Services in December, claiming thatthe “priority for the Pacific Basin Group at thismoment in time rests with its core dry cargobusiness, resulting in their concentration beingpresently focused in this sector. This leavesless or limited time to develop the ship man-agement business at the pace I had desired.”

It has since emerged that followingCleave’s resignation, PB Maritime Services’Cyprus office has also closed with the loss ofat least one other position.

However, a source within the company

Pacific Basin recently told the press that Pacific

Basin Shipping, which operates around 80

handysize and handymax bulkers, together

with more than 10 tugs, could offer a more

comprehensive service than conventional ship

management companies.

He said the company would use its own in-

house chartering department to ensure the

ships kept trading. Reports circulating the

market suggested that it was more likely that

Pacific Basin would manage the third party

vessels under its owning arm rather than use

its third party vehicle PB Maritime Services.

Ex-Dobson and PB Maritime Services boss

Nigel Cleave, has since been appointed CEO of

Cyprus-based marine consultant Elias Marine

Consultants, responsible for strategic develop-

ment of the company’s worldwide marine serv-

ices and consultancy management activities. ■

Thome Offshore Management, the offshore

services arm of Singapore-based Thome Ship

Management, has appointed a new managing

director ahead of an anticipated increase in

activity in 2009.

Tore Nedregaard comes to the company

with an extensive background in the interna-

tional offshore oil and gas industries. He has

previously worked for major international

companies in the offshore services and con-

struction sectors and has also lived and worked

in the South East Asia region.

In a related move, Claes Eek Thorstensen

(pictured), who has until now been the manag-

ing director of Thome Offshore, has been

appointed President of the Thome Group. He

will continue to focus on the development of

Thome Offshore as part of his new role.

Thome Group CEO Olav Eek Thorstensen,

said: “Since we launched Thome Offshore as a

separate business entity, but wholly owned part

of the group, it has grown strongly and has

already completed several major newbuilding

supervision and management contracts.”

He added that despite the current economic

downturn, the prospects for offshore work and

oil and gas field development in the region

remained positive in the long term and Thome

Offshore had several exciting projects and ini-

tiatives due for completion in 2009. ■

Pac Basin ‘back on the third party trail’but EPIC is lurking

V.Ships sharpens its focus onofficer training

Thome appointsnew Offshore MD

V.Ships has stepped up the benchmark for

global officer training with full swing adoption

of Intertanko’s Tanker Officer Training

Standards (TOTS) initiative, in a bid to under-

line the importance of crew competency and

set new industry standards for the tanker sector.

The world’s largest shipmanagement com-

pany initiated the scheme a number of months

ago, and now at full throttle with its seafarer

training development, has implemented hard

copies of the training record books on its ships.

With the aim to “fill a gap in the onboard

education of tanker officers”, Martin Burley,

V.Ships Group Training Director, is confident

of its successful and rewarding performance in

the training and professional development of

officers onboard its tankers.

“The concept of TOTS is fundamental to

ensuring that seafarers gain valuable experi-

ence, enabling and encouraging professional

ability and career development. Up until now

in the industry it has been more or less a case

of ‘learning by chance’ and by experiences

which are thrust upon them, but this new initia-

tive is far more structured and is a way of

ensuring that any experiences or learning gaps

are sufficiently filled,” he said.

With the intention to “embed a learning cul-

ture within the industry,” the scheme began

with informing seafarers about TOTS along-

side crew seminars and workshops, but now it

is fully implemented onboard V.Ships vessels

and, the practical and competent application of

tanker handling will be pushed forward. ■

NOTEBOOK


Ship Management International was rewarded

by the shipping industry for its continued dedi-

cation to quality journalism when it picked up

the Seahorse Club Feature Journalist of the

Year award for the second year running.

Amy Kilpin, reporter on the magazine, beat

over 30 other global shipping journalists to be

named top feature journalist of the year for her

article: ‘Dealing the Bunker Crisis a fair hand -

Are biofuels on the cards?’This is the second year that SMI has won the

award. Last year its writer Thomas Land

picked up the £550 Seahorse Club top feature

journalist prize for 2007.

Amy said of her success: “This means so

much to me especially as I am competing

against journalists who have been covering

their sectors for many years. To win such a

prestigious award is so motivating and it will

definitely spur me on to write even more in

depth and revealing articles in the future.”

Sean Moloney, SMI Editorial Director, said:“Ship Management International has quicklystamped its mark in the field of marine publish-ing and has made its competitors sit up andtake note. It embraces nothing but the finestlevels of quality journalism and is dedicated toensuring the work it produces is accurate, pre-cise and of the highest relevance. I would liketo congratulate Amy and Thomas for theirachievements and wish them, and all otherwriters, similar successes in 2009.” ■

SMI picks up top marine journalism award for thesecond year running

Generating third party management business

in the current economic climate may not be as

easy as many managers believe following an

assertion by two of Greece’s ship owners that

the pressure of the current situation is exactly

why owners should manage their own ships.

In an exclusive interview with SMI, Harry

Vafias, CEO of StealthGas and Ion Varouxakis

of FreeSeas disagreed with the view that third

party managers will win more business as

owners look to cut costs.

“That is not true. We inherit their costs.

They want to charge us their running costs,

then they charge us a management fee and

then they want to charge something on top

because they want to make a profit. When you

manage your own ships in-house and you are

dedicated to it, running costs are definitely

lower than if you have your ships managed

outside,” said Harry Vafias.

Ion Varouxakis agreed: “The current envi-

ronment is the best example of why ship own-

ers should manage their own ships, because

they can react very quickly to a changing busi-

ness environment. We have all undertaken a

rigorous cost cutting exercise and it is much

easier to do that when you manage your own

ships. As far as we are concerned, we have

also taken a very proactive approach; we have

implemented a series of strategies to reduce

crew wages which we will start in January and

we are taking this very seriously. It is a com-

plex strategy but each case is different.”

Mr Varouxakis added: “It is not just about

lowering costs: owners can adapt to a changing

business environment. When you manage your

ships you can immediately implement a new

strategy and that is a big advantage. So when the

markets improve you can invest in your ships

and when the market drops you can stop.” ■

Owners are better ‘managing their own ships’ in thesetough times

11

NOTEBOOK


Moore Stephens puts a brave face on shipping’s prospects

The financial crisis and its impact on shippingtogether with boosting European seafarersnumbers, combating piracy and reducing theenvironmental impact of shipping have beensingled out by the European Commission asareas in need of decisive action.

Speaking at the launch of the Commission’s10-year strategy plan to promote safe, secure,clean and efficient shipping, European TransportCommissioner Antonio Tajani said: “The finan-cial crisis and its impact on the maritime trans-port sector demands decisive action. We need tolook ahead and provide answers to the manychallenges we face today, from keeping EU sea-manship capacities, combating piracy andreducing the environmental impact of shipping.”

The Commission said its proposed strategicoptions were built on an all-inclusive approach,which are at the basis of the new EuropeanIntegrated Maritime Policy, ‘and reflect the coreprinciples of sustainable development, econom-ic growth and open markets in fair competitionand high environmental and social standards’.

Commissioner Joe Borg, responsible forMaritime Affairs and Fisheries, said he welcomedthis maritime transport strategy “as a cornerstoneof the Action Plan of the Integrated MaritimePolicy which aims at strengthening competitive-ness, sustainable growth and employment in theEuropean maritime industries as a whole”.

Over recent years, ever more globalised tradeconnections and the developments in terms ofworld trade, energy markets, climate change con-cerns or security threats have stressed the impor-tance of seaborne transport for the prosperity ofEurope and its citizens, the Commission said in astatement. “With over 80% of world trade beingcarried by sea, maritime transport remains thebackbone of international trade. For the EU, theworld’s most important exporter and the secondbiggest importer, shipping and related services

are essential in helping European companies tocompete globally.

“The European shipping industry is also oneof Europe’s largest export industries. It pro-vides transport services between Europe andthe rest of the world and between third coun-tries in all regions of the globe. In Europe,short-sea shipping is an essential part of thetransport chain, carrying 40% of intra-European freight in ton-kilometres. With morethan 400 million passengers passing throughEuropean ports each year, maritime transporthas also a direct impact on the quality of life ofEuropean citizens (both as tourists and asinhabitants of islands and peripheral regions).”

It said it expected a substantial increase ofboth international and intra-EU seaborne tradeover the next 10 years. This implies a consider-able growth in shipping operations in all themaritime façades of the Union and significant

challenges to the sustainable development ofthe overall transport chain.

Meanwhile, the move received the broadsupport of Europe’s ship owners who wel-comed the strategy paper as a sound basis forEuropean shipping policy. The EuropeanCommunity Shipowners’ Associations said in astatement: “The Commission has acknowl-edged in the future strategy the de facto globalcharter of European shipping and takes thisinto account on all fronts particularly in respectof the global competitive position of Europeanshipping, safety and environment and the needfor high quality maritime know how.

“ECSA commends Vice President Tajaniand the Commission services for this soundand balanced strategy paper and offers thecooperation of the European Shipping sector inthe process of applying these principles inpractice,” it said. ■

Credit crunch, piracy and falling crew numbers make itonto Brussels' strategic radar

Leading shipping accountant Moore Stephens

says that, despite the current economic down-

turn, shipping is still a good business to be in

and that resourceful investors will find

opportunities to expand, or to get back into

shipping, over the next 12 months.

According to Julian Wilkinson, head of

the Moore Stephens shipping team, shipping

enters 2009 with at least one certainty, that

“the good times are over for now. The easy

money has dried up, the old ships have been

scrapped or are laid up and there are no

prospects of markets going up any time

soon. But, in a cyclical industry, sensible

players make money whichever way the

market moves. For many people in shipping,

a sharp downturn in freight rates and ship

values is the sound of opportunity knocking,

rather than the prospect of a knockout.”

He said that newbuilding order cancella-

tions were growing quickly, so it is certain

that some shipyards will never be built, and

others will take a hit. “Even the major yards

are struggling with finance, and smaller

yards trying to get into the market cannot

secure guarantee finance. So although steel

prices are falling, energy prices are falling,

wage expectations are falling and interest

rates are falling, it looks like a tough time

for shipbuilders in general. The exception

will be the major groups and yards in niche

areas such as cruise ships, LNG and more

complex vessels, which will emerge from

the trough having seen lower cost competi-

tion die before it could grow.

“Shipping banks are short of cash to lend

and that doesn’t seem likely to change.

Although shipping is still a solid big-ticket

business, many banks that came into ship-

ping in rosier times will not relish the work-

outs they will face in 2009, and will walk

away. So we can expect to see fewer banks

in shipping, lending more carefully, at high-

er margins and for shorter tenors. Ship own-

ers who have been around for a while will

recognise this as a good thing, especially as

higher margins will be offset by lower inter-

est rates as interbank rates come more into

line with central bank rates.

“Every sector will find cash flow a prob-

lem. Every sector will struggle with ship

valuations and loan covenants. And,

inevitably, there will be casualties. But look

again and you can see why there is still con-

siderable optimism amongst owners. The

lower markets should rein in spiralling crew

costs. Scrapping of old tonnage is increasing

and will increase faster as the year progress-

es. And owners have made a lot of money in

the last few years, so they are sitting on a lot

of equity. Interest rates everywhere have

plummeted. Put companies and newbuilding

orders in trouble together in the same room

as an owner with equity and access to low-

rate finance and you see assets moving from

an over-exposed and perhaps inefficient

owner to a more prudent, solid operator.

“Yes, 2009 will be a rough ride for everyone.

But those who watch their cashflow and who

have not over-extended themselves in the

boom, or who sold out before the peak (and

there were a lot who did) will see this as a

chance to expand, or to buy back into shipping.

Whatever is happening in the world, shipping

is still a good business to be in,” he said. ■

It takes some nerve to allow yourself to be questioned in public about

what makes you tick and indeed even what turns you on when it comes

to aspects of the opposite sex, but Camillo Eitzen’s ‘hands-on’

Chairman (as he likes to be known) did it and did it in style during a

recent senior officers and management company retreat in Mumbai,

writes Sean Moloney.

Whether it was the occasion – Camillo was also celebrating its 125th

anniversary and the camaraderie at the 125th birthday Gala Dinner was

warm and effective – or the fact that he had been invited onto the stage

to talk about himself and the company he is so proud of and found him-

self facing some ‘interesting’ questions, was difficult to say. But the

human side of Axel Eitzen came across very strongly and you could feel

the levels of seafarer loyalty in the room growing as a result.

It was also the eve of what would later be described as Mumbai’s

worst terrorist attack when gunmen stormed the Taj Mahal and the

Trident Oberoi hotels causing so much death and destruction. We were

all safe, housed in a different hotel on the other side of the city, but this

journalist together with the 250 senior Eitzen Maritime Services’ offi-

cers and very senior EMS management found their movements around

the city severely hampered by the terrorist activity but total respect and

admiration must go out to the EMS team for taking control and ensur-

ing everyone returned home safe and well. A job very well done.

Having triumphed at the previous evening’s Gala Dinner, Axel

together with his colleague Annette Malm Justad, President of the bur-

geoning Eitzen Maritime Services, met up with SMI to discuss the mar-

kets, the banks and the future. I first asked what it meant to be part of

an organisation that was 125 years old?

“I think it creates a kind of platform, which gives us a little bit of

pride and a foundation to move forward. It is the future that is impor-

tant and we are a very good and able organisation that is capable of

moving forward. It is nice to have a little bit of heritage and I have a lot

of respect for all the work that has been done over that very long peri-

od of time, but I think we have to focus on the future,” he told SMI.An important point especially when you consider the problems own-

ers are now facing as far as the banks are concerned and as far as it takes

dealing with rising operating costs but falling freight revenues.

“The market has moved up and down many times during the 125 years

Camillo Eitzen has been around and that gives us a little bit of encourage-

ment that we will survive this one as well. The Japanese place a lot of

focus on tradition and heritage and the way you have behaved over the

years as well as the way you have developed your brands. Your ethical

platforms constitute a way forward so I hope the future will be positive

for getting the long-term charters and getting the business done.”

Discussions with other owners also throws up, from time to time, that

word ‘hope’ – hope that the markets will improve and hope that the

banks will stand by their investments because it is not just the financ-

ing of newbuildings that is important but the supply of working capi-

tal, especially when the savings are as low as the market rates.

“We did expect the market to come down a little bit and we have been

consolidating our financial position so we were happy with that. We feel

we have a very strong balance sheet and we should be able to cope with

that change. But it’s much more drastic than I thought. I believed the

shipping market was ready to come down a little but I didn’t expect a

total financial meltdown and it is a totally new situation. The banks are

so incapable of doing what they are supposed to do at this point in time;

there is just not enough money for all the newbuildings,” he stressed.

So do the banks have a responsibility to ensure shipping survives? I

know it may be a little naïve to say, but they are the ones stopping trade hap-

pening at the moment and they are the ones not trusting each other, I asked.

“Yes I think so, definitely,” he replied, “not necessarily the shipping

banks but it is the financial community that is to blame for this devel-

opment. I think that is correct to say, especially the merchant bankers in

the US who have been seeing their daily, monthly and yearly profits

become so dependant on them giving high level loans to people who

cannot afford to take them on and so the spiral goes on,” he said.

But what does he mean by the spiral? Well, he explained: “Let’s say

I am buying from you on a 100% loan basis but you want to buy my

product back. So I sell it to you and you also get 100% finance but at a

higher level. Then you sell it to someone else who also gets 100%

finance and everybody is happy because they are selling at a profit

every time but all the time they are getting 100% finance and they don’t

need to substantiate value in relation to that finance, so every one is

earning and the market is going up. The banks are earning at every cor-

ner and are grouping these loans together and selling them out at very

high profits, so it is just a spiral going up. There is no price checking

going on because everybody wants the prices to go up and as you get ➩


Axel Eitzen Chairman of Camillo Eitzen & Co

Annette Malm Justad, EMS Chief Executive

“The market has moved up and down manytimes during the 125 years Camillo Eitzenhas been around and that gives us a little bitof encouragement that we will survive thisone as well. The Japanese place a lot offocus on tradition and heritage and the wayyou have behaved over the years as well asthe way you have developed your brands”

Axel Eitzen is a direct descendant of Captain Camillo Eitzen, the

founder of Camillo Eitzen & Co. He was CEO of the company since

1980 until he took over as Chairman on November 1st, 2008. He is

Chairman of the Executive Committee of the Gard Marine insurance

group, is a member of the board of Det Norske Veritas, and is

Chairman of the boards of both Eitzen Maritime Services ASA and

Eitzen Chemical ASA. He holds an economics degree from Oslo and

a degree in engineering from ETH, Zürich. He is a Norwegian citizen

and lives in Oslo, Norway.

Factfile

FIRST PERSON


your 100% loan there is no problem. But prices keep going up because

there are ample buyers and the buyers are there because everybody

earns every time they buy and sell. That is a bubble but it’s irresponsi-

ble but it is the negative effect of capitalism,” he told SMI.A major problem facing the banks and the financial and business com-

munities is the poor equity stakes the banks have. “The banks have a

much lower equity base than any other commercial entity with 7% to 8%

equity and I think that is too little. The merchant banks didn’t have any

equity at all. I think Lehman Brothers had 3% equity before they broke

down, they were something like 35 times leveraged with a balance sheet

that was huge with inflated values. Then, of course, you go bankrupt.“

So as far as Eitzen is concerned, what is the corporate strategy mov-

ing forward and does it involve scrapping?

”Scrapping will increase because the running costs are so high and

when the market is coming down then scrapping has to increase which

is a good thing.” So will you be scrapping some of your own vessels?

“Yes, we will be scrapping some of the older vessels, just like every one

else, because it doesn’t pay really with the high running costs today and

the low charter rates.

“As an industry, there will also be a lot of cancellations in the ship

yards and a lot of the vessels will not be delivered. That is also a positive

situation as these two aspects will bring us out of the crisis earlier than

what would have happened otherwise,” he added. “I think that in excess

of 40% of the world orderbook will be cancelled and a lot of the newly

planned shipyards will not be built because they won’t get financing

either,” he added.

But when values are low and stock prices are falling, isn’t that the

time to look at possible acquisitions to boost your fleet. After all, stock

is still cheaper than steel in some cases.

“Definitely. Of course it is better to buy when the market is low than

when it is high but it is still important that we focus on our core busi-

ness because we want to improve our operation in our existing seg-

ments. If we can manage that with an acquisition then it would be an

idea. On the other hand I think it is important to have an increase in the

amount of cash now than it was some other time back, so the risk level

on the shipowning side has been increasing,” he added.

Looking at Eitzen Maritime Services and its position in the global

shipmanagement and ship supply sectors, how will future growth be

affected by the current state of the shipping markets. After all, a series

of precisely timed and some would say expensive acquisitions has pro-

pelled Eitzen Maritime Services (EMS) from being a strong provincial

player into arguably the world’s largest ship supplier with strong oper-

ations in Europe, the Middle East, southern and southeast Asia as well

as coverage in Central and South America.

“The ship supply market is very fragmented; there are no global

players as such and margins are low and so it is a hard fight in every

port,” said Annette Malm Justad, EMS Chief Executive.

“But the owners and the managers are consolidating on their side.

They don’t want to have 10 different suppliers in every port, at a time

when they need more support in servicing their ships. They are looking

for more providers who can give a fuller service.

“Our strategy is to adopt a global approach to ship supply and on the

other hand it is a low margin business with low value products so the

purchasing power you have by dealing with larger volumes and being

able to source your products more efficiently will also improve your

financial situation,” she said.

EMS has continued to hit the headlines over the past two years with a

series of big acquisitions. On June 7th, last year, the EMS board approved

an agreement to purchase Dubai-based Seven Seas Shipchandlers and its

sister companies in Djibouti, Bahrain, Oman, Qatar and Kuwait on a

debt-free basis of $115 million. It followed the acquisition in 2007 of the

Spanish Provimar Group, which holds a very strong position on the

Iberian Peninsula and in the Mediterranean. The Provimar acquisition

also gave EMS footholds in North and South America, in addition to

EMS’ existing operations in Europe and Asia. In August of last year, EMS

consolidated its position in the South American market by acquiring

Argentina-based Claudio Pollon for $250,000.

According to Annette Malm Justad, EMS Ship Supply has the task of

supplying all the Eitzen-owned and EMS-managed vessels. But while

the contracts may be guaranteed, the company still has to ensure it is

delivering the right levels of quality for its owner and its customer. “It

is not the case that we get it for free, we have to ensure we are a good

supplier. While it doesn’t mean we have to compete for every order

every day, because in order to be competitive, that is not right: quoting

for every order is a very costly way to win business.

“We are looking at ways to jointly work together. But we are as good

as anyone on price and internal customers are no less demanding on

price,” she said.

The need for quality in ship supply was a point echoed by Axel

Eitzen. He told SMI: “There are three elements to ship supply: the qual-

ity of the goods you get; availability of the goods in the various ports

and the price. Those three elements are decisive factors and I believe

that if we can simplify the purchase of supplies from the ship manage-

ment side by using one supplier worldwide, you can define the quality

so you are getting precisely the quality you are paying for.

“When you order 100 metres of rope, it is important you get 100 m

and not 90 m, so you can define the quality and you know exactly what

FIRST PERSON

“Of course it is better to buy when themarket is low than when it is high but it isstill important that we focus on our corebusiness because we want to improve ouroperation in our existing segments. If wecan manage that with an acquisition then itwould be an idea. On the other hand I thinkit is important to have an increase in theamount of cash now than it was someother time back, so the risk level on theshipowning side has been increasing”


you are going to get. With the economies of scale associated with being

the world’s largest ship supplier, we can prove we are getting the best

purchase prices due to how we arrange our purchases. So in the end we

can define the quality, price and have a very efficient purchasing sys-

tem worldwide,” he said.

Looking at the shipmanagement side, this sector has undergone a

tough period with low management fees and the need for greater trans-

parency. But is acquired growth the right strategy or is now the time to

consolidate?

“I think we have said all the time that we have an ambition to grow

within shipmanagement because we think that with quality and efficien-

cy it makes sense that we drive on. But on the other hand I think that

while EMS has undertaken some significant acquisitions in the ship

supply sector, you can’t do everything at the same time. Our strategy

when it comes to shipmanagement hasn’t really changed and I think

what we see now in this period is there may be also good opportunities

for organic growth, not necessarily through acquisitions just because

the industry is in turmoil,” she added. ■

FIRST PERSON

“Not necessarily the shipping banks but itis the financial community that is to blamefor this development. I think that is correctto say, especially the merchant bankers inthe US who have been seeing their daily,monthly and yearly profits become sodependant on them giving high level loansto people who cannot afford to take themon and so the spiral goes on”

JENS MARTIN JENSENActing Managing Director and Chief Executive Officer of Frontline Ltd

“Of course everybody has been talking about this for a long time, Imean China and the Olympic effect and all these things that suggestthere will be an economic slowdown. But nobody expected this crisisto happen and of course there is a bit of panic in the market”

Frontline is one of those shipping companies that is generally expected

to set the pace in good times and in bad. Its iconic leader John

Fredriksen is revered by many with his every move scrutinised as

indicative of a possible change in the fortunes of the market. If the ship-

ping industry ever desired a global figurehead to expound its successes,

it need look no further than the leafy suburbs of Chelsea for the answer.

Big John has aura and clout in bucket loads and even his twin daugh-

ters and fellow Frontline execs Cecilie and Kathrine fail to escape the

probing lens of the maritime, business and lifestyle paparazzi as they

bring glitz and glamour to the world of the VLCC and the Suezmax.

But while Fredriksen may be effective at grabbing the headlines, it is

his quietly spoken acting Managing Director and Chief Executive

Officer Jens Martin Jensen who is helping to ensure the world’s largest

workHow I

SMI talks to industry achievers and asks the question: How do you keep upwith the rigours of the shipping industry?

HOW I WORKSHIPMANAGEMENT



HOW I WORK SHIPMANAGEMENT

17

independent tanker owner delivers the quality of service and profitabil-

ity that Frontline customers and shareholders demand.

Jensen rose to prominence in Spring of last year when he ‘temporari-

ly’ replaced Bjorn Sjaastad as Managing Director of Frontline but he

immediately found himself cutting his teeth in a shipping world besieged

by fears of survival, falling vessel values and defaulting charterers.

“I think most people are reacting to the crisis as if it has lasted for the

past 10 years, but it has only been going on for a few months,” Jens

Martin told SMI during a recent visit to Frontline’s Singapore offices.

This was the third time SMI has met up with Jens Martin and the first

time we have met in the Frontline boardroom as opposed to Jensen’s

office – an indication, possibly, of his rise in importance.

Like all in the shipping industry, Jens Martin Jensen was surprised at

the speed and ferocity of the credit crunch but remains philosophical

about the motives behind the actions of the main players in the market.

“Of course everybody has been talking about this for a long time, I

mean China and the Olympic effect and all these things that suggest

there will be an economic slowdown. But nobody expected this crisis to

happen and of course there is a bit of panic in the market,” he claimed.

The three major markets, bulk, containers and tankers have all been

hit in different ways with the most severely being the dry cargo market

– a factor Jens Martin attributes to the complete lack of demand for iron

ore from China and disruptions to the normal trade flow from the lack

of letters of credit.

“The iron ore situation seems quite severe and there are clearly huge

stock piles in China which suggests the Chinese don’t need to import

any iron ore this year. Of course it could be tactics in terms of pricing

issues with the Brazilians and the Australians if you consider the seri-

ous price increases over the last two to three years,” Jens Martin said.

“Maybe it’s a good time to hold back the new pricing negotiations

starting April 1st as quite clearly demand is going down,” he added.

According to the Frontline CEO, the raft of newbuilding cancellations

means that in the months ahead, a new streamlined orderbook will emerge.

“You will see owners being forced to cancel due to their own financial

situation and you’ll probably see some shipyards disappearing as well.”

But Jensen shares the general view that the tanker sector will not

suffer the dire consequences predicted for dry. “It’s all about the big oil

companies who, of course, have done extremely well during the past

few years. They need to move the oil from the oil fields so we don’t

have the same credit issue in this market. You know that 75% of oil has

been moved by substantial companies and they can move it at any time.

You can’t stockpile oil, it has to move and so that is the fundamental

change,” he said.

But as the credit crunch deepens and the cash rich owners hold back

a little bit, looking for potential opportunities, what is Frontline’s strat-

egy when it comes to exploiting the situation or even surviving?

Speaking at the time he said “Pretty much the same. It will make no

sense to start buying ships now or even attempting to sell ships now.

There is no market and clearly the stock market has gone down and

many companies have seen their share price fall between 50% and 70%.

There are, of course, better opportunities if you look at mergers and

acquisitions instead of just buying ships,” he said.

But is this something Frontline is looking at? “We look at it all the

time, even when the stock price was very high; we always look at our

comparable peers as we assume they are looking at us. And of course

we are looking at other shipping companies - that’s an ongoing process

all the time,” he added.

“If you look at the market this year, VLCCs have been trading in a

range from $250,000 dollars a day down to $10,000 dollars a day so of

course trying to read the market right and at this time when there’s a

huge imbalance in earnings if you trade AG east compared to if you try

to do some triangular trade in the west is difficult. So we try to moni-

tor what the best trades are and we move the ships around a little bit. Of

course we are trying to obtain some period coverage right now. If you

look at the whole fleet including the OBOs we have around 40% char-

ter coverage on our fleet so we are fairly well braced for a downturn on

the basis that our counterparts are performing.”

But that means that 60% of your fleet is on spot. Is that worrying?

“In a way we are fairly optimistic that even though oil demand is going

down you still see the Chinese, the Asian market and the Indian market

consuming quite well and of course what we have seen are the different

trades. There are a lot of local movements from South America to

Asia and there are a lot of West African movements as well so these

situations are helping.”

While this all may bode well for the Frontline fleet, Jens Martin has

also not ruled out diversification into other areas if the opportunities

arise. “We have traditionally been in VLCCs and Suezmaxes so of

course there could be good opportunities maybe in the Aframax segment

which would enable us to be in all segments of the crude market or

maybe the products market which would enable Frontline to be a more

diversified tanker company as such.” Jens Martin also speculated on the

possibility that banks could even mirror what happened to Britannia

Bulk and ask Frontline to take over the management of tonnage.

So if I was sitting in Frontline’s Singapore boardroom in three years

time, what message would Jen Martin be telling me?

“I would probably say we were glad to have weathered the storm and

to have capitalised on the opportunities we thought would come along to

give us a bigger fleet and make Frontline a larger company because of

that. And I think we are one of those companies which are quite unique-

ly challenged; we didn’t know this crisis was coming but the way we are

set up by being quite a small organisation and being quite lean means we

would not have to start looking at laying people off or anything like that.

So in terms of our business model it works on the higher market and in

a lower market so we are geared up for that,” he stressed.

“It will make no sense to start buying shipsnow or even attempting to sell ships now. Thereis no market and clearly the stock market hasgone down and many companies have seentheir share price fall between 50% and 70%”

“We have traditionally been in VLCCsand Suezmaxes so of course there could begood opportunities maybe in the Aframaxsegment which would enable us to be in allsegments of the crude market or maybe theproducts market”

HOW I WORKSHIPMANAGEMENT


TERESA HATCHExecutive Director of the Australian Shipowners Association

“Hard work would be two words that sum me up. I just believe in hardwork. I grew up on a farm, nothing to do with the ocean and, from theage of 14, I was driving a tractor, counting how many hours driving Iwould need to be able to afford to go to France”

Teresa Hatch took the position of Executive Director for the Australian

Shipowners Association at a time that promised a once in a career

chance of making a difference, writes Wendy Laursen, from

Melbourne. Employed by the association since 2003, she took the top

job in July 2008, just before the Australian government tabled an indus-

try review document aimed at rebuilding Australia’s shipping industry.

The report recommends the introduction of an optional tonnage tax

regime. Despite Australia’s strong position as an exporter of commodi-

ties such as bauxite, iron ore, coal, grain and petroleum, over 99% of

the country’s external trade is carried by foreign ships, a situation that

accounts for about 8% of Australia’s current account deficit. Teresa

Hatch is passionate about the potential investment opportunities in

Australia and sees a tonnage tax as a key element of the change she

hopes to help bring about. “We want to give Australians every opportu-

nity to be big players in the shipping industry and we think that it is very

much the case that if we build it, they will come. The business potential

is enormous,” she said.

In her role as Executive director, she is just as likely to be heading

for the airport as the office on any working day.

“We are advocates for the industry so we are always

talking to somebody,” she said. “Negotiation is a lot

of what we do.” Not only is she an advocate for the

Australian Shipowners Association (ASA) amongst

the politicians in Canberra, she works closely with

other regulatory bodies such as the Australian

Maritime Safety Authority. In the past, the ASA has

been heavily involved in issues such as the intro-

duction of automatic identification systems and the

development of career paths to attract officers into

ship pilotage.

“It is about creating a policy environment where

owning and operating ships from Australia is a

really positive thing to do,” said Teresa Hatch.

“There are all sorts of things associated with that. It

is making sure that safety is up to scratch, the marine

environment is being protected and the human

resources that we have are being looked after.”

Part of her role involves encouraging Australian

ship owners to think more globally and to see

themselves as part of the international business of

shipping, says Ms Hatch, rather than just thinking

of ships in terms of the necessity of moving goods

between two locations. “We are a very insular

looking nation when it comes to our shipping,”

she added.

Despite this, Teresa Hatch herself plays an active

role in both IMO and ILO forums and she frequents

Europe in her travels to chair the International

Chamber of Shipping Environment Sub-

Committee. The current topic of debate is green-

house gas emissions but she sees new issues on the

horizon including whale strikes, ocean noise and

the environmental dangers of carrying heavy fuel oil into icy environ-

ments. She is proud of the role she plays on such important issues and

her concern for the environment has featured in past career choices.

Prior to starting with the ASA, she worked with the Environment

Protection Authority managing a national demonstration project on

ballast water management.

The ASA is also a member of the Asian Shipowners Forum, a group

which represents owners of the majority of the world’s tonnage.

Australia is situated conveniently within Asian time zones and

Australians can bring a unique perspective to any international forum,

says Teresa Hatch. “Every now and then the directness of an Australian

attitude is quite useful. It is not always appreciated but it can be useful,”

she said.

Raising the profile of Australian shipping is a job she has to do at

home too. Ironically, the current prominence of piracy in the media has

worked in Australia’s favour – engaging the sympathy of the Australian

public and raising their awareness of the importance of shipping. “For

the first time in a long time, the industry is actually getting a lot of

understanding from the general public,” she opined.

Australian seafarers receive a high standard of education and

Australian officers are highly sought after internationally. Like

everywhere, though, there is a chronic shortage and Teresa Hatch is

keen to raise the profile of career opportunities at sea. It is likely that

any introduction of a tonnage tax system will be linked to mandatory

training initiatives to encourage more Australians to sea.

As a sailor herself (she owns a Traditional 30), her love of the sea and

“We want to give Australiansevery opportunity to be bigplayers in the shipping industryand we think that it is very muchthe case that if we build it,they will come. The businesspotential is enormous”

the ships that sail it, drives her engagement with the human elements of

policy. That love no longer extends to ocean racing, though. She has

raced in competitions such as the Sydney to Hobart, but at 34, she feels

she would rather spend her leisure time being a fair weather sailor and

leave the challenges for the negotiating table.

One of the items on top of her list is the tax regime for seafarers. The

reality, says Teresa, is that Australian ships operate at a cost disadvan-

tage of at least A$3 million a year because of the cost differential

between Australian and foreign crews. Reciprocal tax arrangements

with other countries that offer seafarers low tax rates only take effect

after 91 days and as being in the open sea is not counted, seafarers

rarely accrue the required time in any country. This means they pay the

higher Australian taxes and need higher salaries to compensate. The

government’s industry review report holds promise of change. “We

have been talking about tax changes for decades and we will continue

to talk about it, whether the government acts or not,” she told SMI.Teresa Hatch knows regulatory change comes slowly to the shipping

industry, both internationally and at home. Passion and hard work sus-

tain her. “It can be quite disheartening sometimes, when everything you

try to do is so very difficult, and I think if you didn’t have that passion

pushing you forward, trying to make things better, then you wouldn’t be

able to sustain it.” Putting in the long hours needed is nothing new for

her either. “Hard work would be two words that sum me up. I just

believe in hard work. I grew up on a farm, nothing to do with the ocean

and, from the age of 14, I was driving a tractor, counting how many

hours driving I would need to be able to afford to go to France.”

She manages a small but dedicated and similarly hard working team

at the ASA. She says that the ASA only makes policy statements when

there is something to say and when they do, they will have worked out

the details so that their proposals are always practical. Hatch trained as

a naval architect, a background that aids her indepth understanding of

the variety of issues she is involved with. A next level of detail is now

required for the proposed tonnage tax and although systems such as

those in place in the UK and Norway are being considered, the ASA is

now working out how to take the best from overseas experiences and

apply them to Australia.

The ASA had hoped the government review would include their

recommendation for the establishment of an international shipping

register but Teresa remains optimistic about the process overall. It was

the chance to influence change at this high level that attracted her to the

position of executive director. “It is a good starting point for us and that

is now what we are using to move forward,” she said. ■

“Every now and then the directness of anAustralian attitude is quite useful. It is notalways appreciated but it can be useful”

Sean MoloneyThe market is in meltdown with Capes dropping from

$232K per day to $1K now. How serious has the situation become?

Ion VarouxakisWe have seen this before and I remember in 1999 when we saw rates at

these levels and Capes were earning less than Handy Size vessels. We

have seen it before.

Harry VafiasYes but ships did not cost $150m then.

Ion VarouxakisYes, Capes were worth $35m to $40m then and six months later they

were earning $1k per day. Now there is a rational expectation that the

market will go to levels higher than historically.

Harry VafiasThat’s a very good comment – expectation. When it happens we will

see. All the expectations up until now have been wrong either upwards

or downwards.

Sean MoloneyHow responsible are the banks for the current financial crisis and what

can ship owners do to improve the situation?

Michael BodouroglouIt is much worse now that ever before. The banks are responsible for

what has happened which was due to careless lending and easy money

for everybody. Of course the banks have big problems of their own.

Many banks are fighting for their own survival and this makes the envi-

ronment in which we are operating as ship owners much harder to deal

with because of the banks’ own insecurities. No predictions can be made

at this moment, we will have to wait and see how they play the game.

Sean MoloneyBut do they have an element of responsibility to the shipping industry

seeing as they were there benefiting from the industry and lending all

the money in the good times?

Michael BodouroglouAbsolutely but as a banker friend of mine said to me, they are very good

at giving you an umbrella when the sun shines and taking it away when

it rains. There have been many cases of such behaviour by the banks and

there is no reason, unfortunately, not to expect similar behaviour by at

least a number of banks in today’s situation which is worse for everybody

DiscussionRound Table

If any of our readers have comments to make on the issues under discussion or the panellists’replies then please email them to [email protected]

and we will include them in future issues.

As part of our continuing pledge to

provide cutting edge comment, we assembled three of Greece’s

brightest and most dynamic ship owners around a board room table to debate

key issues affecting their industry. High on the agenda was the global financial crisis

that has gripped the shipping industry. How severe is the situation and what options

do ship owners and their banks have if they are to survive?

Chaired by SMI Editorial Director Sean Moloney, the round table participants were

Harry Vafias, CEO of StealthGas Inc, Ion Varouxakis, CEO of FreeSeas Inc and

Michael Bodouroglou, Chairman and CEO of Paragon Shipping Inc.

SHIPMANAGEMENT GREEK ROUND TABLE

SHIP MANAGEMENT INTERNATIONAL ISSUE 17 JANUARY/FEBRUARY 200920

Sean MoloneyHarry what are your views?

Harry VafiasI think the banks are responsible for at least 80% of what is happening

and I am talking about banks in general not just the shipping banks, and

mainly because of the sub prime which started the whole mess in the first

place. I agree with Michael that today the banks are not very well capi-

talised so when they have a chance to take in cash or squeeze owners for

cash when they breach their loan covenants or when a charterer defaults,

they will scrutinise the loan agreement in great detail and whenever they

have a chance to ask for money they will. In very few circumstances

they will be cooperative and flexible. Don’t forget a lot of these banks

that have been lending to ship owners have been virtually nationalised

as a result of the crisis. This means that an element of their shareholder

base and their boards are the states themselves and they don’t care about

shipping. And when you have difficult loans they prefer to just to write

them off as a loss rather than stick with the owner who in three to four

years may recover all the money if the market changes.

Sean MoloneyWhat is the downside for shipping, ship owners and the banks?

Harry VafiasIf the banks start to arrest ships and foreclose deals then owners will

lose their assets – that’s the bad thing for the owners. For the banks,

again it is the same. Instead of recouping a loan that was worth $100m

they may only recover $60m. But it all depends on the percentage of the

shipping portfolio in relation to the bank’s total portfolio. If a bank’s

shipping portfolio is 2% of its total portfolio, then they won’t really care

but if the shipping portfolio is greater, then I guess they will look at it

much more thoroughly.

Sean MoloneyIon, do you think this will bring about drastic changes to ship

owner/bank relationships?

Ion VarouxakisWell I think we will go back to what was happening 30 years ago. In the

last few years, banks relied on charters and were banking on pieces of

paper to finance acquisitions. What I think will happen is that a lot of

operators and charterers will be wiped out through this crisis: they will

be the biggest victims. The first to go bankrupt will be the operators and

the charterers followed then by the owners. Which ship owner in his

right mind is going to charter a ship again for two or three years to any

charterer when at the first sight of a storm they come to renegotiate? And

which bank in their right mind will bank on the strength of the charterer

in the future? So I think we will go back to the situation where owners

will be working mostly spot, voyage by voyage. And if you read the

charter parties they are geared towards being based on a voyage by voy-

age basis. So the banks will go back to name lending rather than bank-

ing on pieces of paper which was what happened for generations so the

owner who is able to weather the storm and who has the resources to be

perceived as being able to weather the storm will be the one who will

get the credit. I think we will go back to what was happening

many years ago, a situation a lot of us haven’t been through

but it will be a logical consequence should this situation

not improve sometime in the near future. Of course if we

see some recovery earlier than most people fear, then

maybe we will see some stabilisation and not have

the terrible scenarios people are predicting.

Sean MoloneyBut the industry is a different animal than it

was 30 years ago.

Ion VarouxakisI think we are going to be going back in

time. You see throughout the world,

attitudes that existed 30 or 40 years ago.

Sophistication will exit the system and

it will be back to basics.

Sean MoloneyWhat are your thoughts Michael on the

move back to the spot markets?

Michael Bodouroglou

I am not sure what you mean that shipping is a different animal now.

Shipping hasn’t changed that much – it continues to be a cyclical busi-

ness and we have had similar crises in the past although maybe the fun-

damentals altered for different reasons. During the last big crisis of the

1980s, some of the banks, mainly American, closed their portfolios

altogether, while other banks most of them European, stayed with their

clients and weathered the storm with them and they profited again in the

long term. So if you ask me whether the banks have hopefully learned

the lessons of the 1980s in order to formulate their strategies of today,

I don’t know but I hope so because the scenario that Harry described of

the banks foreclosing is a loss making situation for all parties.

Sean Moloney

Because of that inability to get easy cash now, the industry has always

looked to that paradigm shift where the massive cycles disappear and

shipping is able to service demand more on a stable level. Will this start

to happen as owners are forced to reign in their buying activity?

Michael Bodouroglou

It depends on the individual ship owner and his individual company.

There are companies that are better positioned than others. Companies

that are exposed in their lending and are not cash rich will definitely

will cut down on buying ships; they will baton down the hatches and try

to survive the storm. Others who are less exposed, but who have

retained cash or who have retained a manageable balance sheet, will be

in a much better position to weather the storm and as always, there will

be winners and there will be losers – people who will go out of business

and people who will take advantage of opportunities. It’s a fact of life.

Ion Varouxakis

There is no doubt there will be a hierarchy of risk: those with newbuild-

ings being the highest followed by companies with Capes but each case

is different depending on the capitalisation involved. But there is no

doubt that newbuildings are a total loss.

Sean MoloneyWhat about the public companies like yourselves?

Michael Bodouroglou

Again, I will not distinguish between public and private companies; a bal-

ance sheet is a balance sheet and it doesn’t matter if you are public or pri-

vate. So the main thing I would look at is a company’s balance sheet and

the exposure it has to the markets it serves and its ability to capitalise.

Ion VarouxakisThere is a difference because with a private company there is no balance

sheet but a personal guarantee. In most cases with private companies you

don’t bank with a balance sheet, you bank with a personal guarantee. In

most cases. ➩

GREEK ROUND TABLE SHIPMANAGEMENT

JANUARY/FEBRUARY 2009 ISSUE 17 SHIP MANAGEMENT INTERNATIONAL 21

Michael BodouroglouYou’re right but the point I was trying to make is that there are a num-

ber of private companies who are in much more difficult situations than

many public companies as there are many private companies who are

also in a much healthier position than many public companies. This is

the point I was trying to make that it is not public versus private. I know

a lot of private owners who made a lot of money in the upside and they

risked all this money and went ahead and ordered newbuildings at very

high prices without having secured financing.

Sean MoloneyThere are also a number of private owners who ordered post-panamax

bulkers in China for instance?

Harry VafiasThat is nothing compared to some of the Greek owners, that’s a joke.

There are owners in Greece, public and private with 15, 20, 30 and 35

newbuildings.

Ion VarouxakisYou can argue that these are the ones in most danger, owners with four

to five ships in the water and with 15 to 20 newbuildings on order. Even

if they have financed these newbuildings there is no drawdown.

Sean MoloneySo will you see a big swathe of bankruptcies going forward?

Harry VafiasIt all depends if their banks are cooperative, but as I have said, unfortu-

nately, the banks that will be cooperative and patient are very few.

Ion VarouxakisThe Greeks learned their lessons from the 1980s because very few

Greeks financed their ships with American banks this time.

Harry VafiasIt’s not because they learned their lessons, it’s because the American

banks aren’t lending any money.

Ion VarouxakisAnd also the American banks learned their lesson as well and now we

will see a new situation. But how will the German banks behave? Also,

if you look at the nationalised banks, what does being a nationalised

bank mean? Will they care about the Greek ship owners when they sell

the assets or do they care about the British home owners? Will it be a

political decision? That is a question we have to wait to see answered.

Michael BodouroglouSome banks are more relaxed than others and vice versa. I think for the

moment, most banks have not yet developed a clear strategy on how to

deal with the situation. They are currently in a policy making process.

It is too early for them to make a decision.

Harry VafiasThe majority of the banks will decide what to do by the end of the first

quarter of 2009 so whatever happens if there is going to be blood or if

it is going to be quiet, we will know very soon. By Feb or March you

will see the bankruptcies or you will not.

Sean MoloneyWhat is your gut feeling about it Harry?

Harry VafiasAs I said it all depends. I am the most unluckiest on this table because

the other two gentlemen do not have newbuildings on order whereas we

have 27 newbuildings. Of the 27 vessels, we cancelled 12 and so we

have still a big number remaining. We have financed 70% of the

remainder so our exposure is 30%. The question is will the banks per-

form when the delivery comes? Will they release the money or will they

start renegotiating or will they say that when they agreed to the loan the

ship was valued at $100m and now it is valued at $50m so will they ask

for a top up? This mostly refers to the private side of the group. On the

public side we are very happy that the LPG market has been more sta-

ble than the dry, tankers and containers, especially the containers. So at

least we have part of the business that is very steady and rates are

steady. If the LPG market was suffering the same as the dry sector, and

with our LPG fleet standing at 50 units, I would not be sitting at this

table but in Hawaii or Brazil hiding from the banks. But of course, no

one knows what will happen in 2009 or 2010 – maybe the gas market

will follows the other sectors or remain stable. But the orderbook is

much smaller than dry or containers.

Sean MoloneyBut if the banks don’t support you on the financing, what then?

Harry VafiasAs owners you have three options: one is you use your own equity which

is not clever because you need your own equity in cases of emergency;

the second option is to renegotiate with the seller and/or the yard to seek

a discount and see how they react; or the third option, which many Greek

owners have already done, is to walk away from the deal – they say to the

yard bye bye, we are off. You keep us what you want to keep. Chase us

if you want but we will stop paying instalments.

Sean MoloneyDo the yards have any options then?

Harry VafiasIt depends who has ordered the ship. If the ship has been ordered by a pub-

lic company then they have recourse. If the order is from a single purpose

company without corporate guarantee then the yard is in a bad position.

Sean MoloneyAre the banks starting to talk more closely to the owners to gauge how

they believe the markets will move forward? Are they doing more fact-

finding now?

Harry VafiasYes a lot more thorough investigations than before. Before we said here

is the ship, and the guarantee and here is the charter. And the banks

would say ‘OK fine, here is the 70% finance’. You did the deal in two

weeks. For a new loan it now takes three months. Even for existing

loans, they are asking how the charter is performing, asking what the

running costs are; basically questioning every single detail.

Sean MoloneyHow are you using this period to gear

up to move forward for the

future. What strategies are

you employing as you

look ahead? ➩


“It all depends if their banksare cooperative, but as I havesaid, unfortunately, the banksthat will be cooperative andpatient are very few”


Michael BodouroglouI can only speak for Paragon. In Paragon, fortunately, we do not have any

newbuildings so the only concerns we have is the drop in vessel valua-

tions. We also have good charter cover with our ships covered for two or

three years. The concern we have is whether the charterers will perform.

If they do perform over the next two years then the company will be in a

good position, not only to weather the storm but also to capitalise on the

situation. The attitude of the banks will also depend on what develops

over the next few months such as if they see charterers defaulting or

going bankrupt or if they develop a better feeling for what the market will

be like going forward; whether there will be any signs of optimism or

alternatively further signs of pessimism. This is why banks and compa-

nies are taking a cautious approach at the moment because there are too

many undetermined factors. There are a number of options a company

can use moving forward but there are still too many unclear factors so

there is no solid plan moving forward. The most important priority for us

is our charterers. The only thing we can say is that it will be very tough

especially for those charterers who don’t perform or who have to renego-

tiate. If companies start to fall we would rather see charterers fall before

us. The main thing is to secure adequate cash flow. We have quite a bit of

cash in the company which we will try to keep to the extent from the

banks in order to support the company in case charterers default. If they

do perform then we will look at acquisition opportunities as well.

Sean MoloneyWhat about you Ion?

Ion VarouxakisI think we are in exactly the same situation as Michael and I could have

said the same as he has. If you want differences, our charters are short-

er but at a higher levels. We are cashing in more money now which I

think is more valuable. We are getting more money in advance rather

than waiting longer for the charterers to survive so from that point of

view we will have the ability to repay a lot of debt through higher

income in the shorter term. This will help bring down our debt to levels

that will be manageable. We don’t have any newbuildings and in a way

consider our biggest risk to be the charterers rather than the banks

because with our cash flow, as long as we maintain this performance,

legally the banks are limited in what they can do.

Harry VafiasThey can foreclose a company if you don’t top up with cash or they can

renegotiate your spread and can hold your hires.

They can come to you and say that the

value of your ship on delivery

was $50m and today it is

$35m, ‘give us the

money to top up

the loan’. If

you say no

they will

say fine

t h e n

pay

us a margin plus 3% and then if you say no they can arrest your ship.

Ion VarouxakisThey will have to go to a judge and believe me there is no judge who

will award the bank foreclosure if you are regular on your payments.

Harry VafiasThat you cannot say because it is a political thing now. There are some judges

who won’t allow foreclosure and others who will. It’s all about chance.

Ion VarouxakisYou would have big recourse for damages against a bank if you kept up

your payments. It’s a technical issue. If you don’t pay your instalments

then it is a clearer picture. If you are basing foreclosure on valuations

then you have lots of things you can do and it is dangerous for the banks

and even for the brokers making the valuation. If it is a fight on a tech-

nical issue it will not be an easy fight for the bank.

Sean MoloneyIs it in the bank’s interest to foreclose when values are dropping anyway?

Harry VafiasIt all depends on the bank’s attitude towards shipping. If the bank has a

$100bn portfolio and shipping is only $500m then it won’t care about

shipping because it is a tiny part of their business. For a Greek bank

though where their portfolio is say $3bn and shipping is $800m then

shipping is a huge part of their portfolio.

Ion VarouxakisNo it is not in the bank’s interest to foreclose the companies, however,

it may be a decision coming from a much higher level within the bank’s

overall structure. This is the reality.

Sean MoloneySo how do you think the markets will perform over the next year and

how will it affect your strategy because Ion you were quoted talking

about possible acquisitions and Harry you have been quoted as saying

there will be improvements in the dry markets?

Harry VafiasI said that despite the fact my public company doesn’t have any dry ves-

sels, I said I think and hope I am right that we will see rate stabilisation

and a slight increase from April and May for Panamaxes to $15K and

Capes to $20 to $25K. Judging by today’s levels they are an improve-

ment but people have bought Capes at $160m so for them it won’t make

any difference because they are still way below breakeven. I don’t

know if I am right or wrong but time will tell because I don’t think rates

can last at these ridiculous levels.

Ion VarouxakisIntuitively, I believe these rates are not sustainable but we have all been

terrible at predicting market rises and falls and when they might hap-

pen. I think the market might surprise us once again. We may see a big

surprise but what it will be and when it will happen, I don’t know.

Michael BodouroglouIt is a very complex equation now. We were all expecting the dry bulk mar-

ket to soften in 2009 and 2010 because of oversupply. What has made mat-

ters more complex is the whole credit crunch and the pessimism and slow-

down that it caused. China is the major driver of our industry and it has

pressed the pause button so it is like a perfect storm in the dry bulk sector.

This is why the model is very complex. But I believe and hope that China

will not continue to press the pause button indefinitely. It will take a few


“Intuitively, I believe theserates are not sustainable butwe have all been terrible atpredicting market rises andfalls and when they mighthappen. I think the marketmight surprise us once again”


months before it presses the play button again for reasons that have

to do with the standard of living in its country. Once this happens I

expect a rate stabilisation and if we see rates in the range of say $20K

for a Panamax, I believe most of the charterers will hold on. It is critical

if, and when this happens.

Ion VarouxakisI would like to elaborate on that. We have seen a number of civil riots

in China and this is a sign that makes it imperative for the Chinese gov-

ernment to keep growth happening. These riots are linked to job losses

and while this is not a good sign, it makes it important for the govern-

ment to find a solution. Over the last couple of months it has been try-

ing to sort out what the best strategy is and I think it will be implement-

ed over the coming months. Now whether China is a bubble, I doubt it

and at some point whether January or April or next year it will come

back. But it will be in a controlled way because China is not a free mar-

ket. A button will be pressed and it will start at some point.

Michael BodouroglouThe levels of scrapping at the moment are also positive factors. We are in

a moment of crisis and a moment of pessimism for all but there are posi-

tive signs as well such as the high level of scrapping and even more impor-

tantly, the drastic reduction in the world orderbook. Before Lehman, I did

not believe the cancellations would be anything more than 10% to 15% of

the orderbook but I now believe they will be much, much larger than that.

Ion VarouxakisAlso, don’t forget the conversion of bulkers into tankers – something

that people don’t realise. This will affect tanker owners with deliveries

in 2009 and 2010.

Harry VafiasIf the market stays as it is until January 2010, then a lot of companies

will not exist so it is not a point of waiting and seizing opportunities. If

the market stay as it is, or only improves by 5% to 10%, many compa-

nies will not exist in 2010 and that includes both public and private

companies. So let’s hope the situation does not last 12 months.

Ion VarouxakisIt is difficult to believe what has happened and it is difficult to believe

it will last another year when we are already four months into it.

Michael BodouroglouI was in London recently at a conference and an economist I listened to

said that historically in times of crisis people become more pessimistic

than it usually proves the case to be later on, so sentiment is very impor-

tant. And this is a unique situation, he said, where we have seen a coor-

dinated response by the banks and by governments around the world.

This is the first time we have seen governments agreeing things collec-

tively and implementing policies at the same time. So there have been a

lot of proactive measures and they may well result in the crisis lasting a

lot less than people fear. Shipping is the reflection of what is happening

in the world economies.

Ion VarouxakisDon’t forget the recession started in the US in December 2007 but we

were the last market to be hit and we will be the first market to recover.

Michael BodouroglouYes, when the economy picks up.

Sean MoloneyYou all mentioned the importance of cost control. Tell me how important

costs are to your companies now? Crew costs are still high but there is the

crew shortage issue which some are saying won’t be as bad.

Michael BodouroglouDuring our last meeting we expressed our concerns about cost escalations

and crewing costs in particular. One of the benefits of this crisis is that we

will see pressures easing off because a lot of crew members will find it

harder to find employment: there will not be the demand for crews so this

will have a balancing effect on costs. Salaries will not be going up the way

they did recently. It will be more important than ever for all companies to

baton down the hatches, look at their cost structures again, think twice

before embarking on any kind of expenditure, review the contracts with

major suppliers as well as make budgets and try to stick to them. I don’t see

crew costs falling at the moment unfortunately but I see them stabilising.

Harry VafiasIt should surely start to fall, when you see the levels of ships going to

scrap. After 2009, 50% of the newbuildings for delivery between 2010

and 2011 will be cancelled, so a lot of crew destined for these ships will

not be going after all. So I think that from the middle of 2009 you will

see a decrease in crew costs, not because of the surplus of seafarers but

because owners will not be able to pay the Captain $10K per month

because the ship he is on is only making $5K per day. So I think this is

one of the positive things to come out of this crisis. You will see a

decrease in running costs and in crew costs and the biggest segment that

will benefit is dry bulk because it has the advantage that it can take vir-

tually any crew member whereas for us, they have to be specially

trained. Then it will start to affect the other segments.

Sean MoloneySo are you saying to your third party managers that they have to push

down costs even more?

Harry VafiasBecause the majority of management companies are part of ship own-

ing groups (and I am not talking about the ones I use now), the last thing

on their mind is seeing how they can reduce the cost of my ships. First

priority for them is working out how they will they survive and the sec-

ond thing is how do they reduce the costs of the ships of the owner of

the management company. Only then will they look at reducing other

people’s costs. Because, unfortunately, shipmanagement agreements do

not have a clause about giving bonuses and penalties if a ship manager

has or hasn’t done his job well, if they are over budget they will get paid

the same management fees than if they are under budget.

Ion VarouxakisThe current environment is the best example of why ship owners should

manage their own ships, because they can react very quickly to a chang-

ing business environment. We have all undertaken a rigorous cost cut-

ting exercise and it is much easier to do that when you manage your

own ships. As far as we are concerned, we have also taken a very proac-

tive approach; we have implemented a series of strategies to reduce

crew wages which we will start in January and we are taking this very

seriously. It is a complex strategy but each case is different.

Harry VafiasIt depends how close you are to your seafarers. If you have 60 ships it is

easy because you just announce a 10% reduction in salaries because in ➩


“It all depends on the bank’sattitude towards shipping.If the bank has a $100bnportfolio and shipping is only$500m then it won’t care aboutshipping because it is a tinypart of their business”

the bigger companies there is a big turnover of people and it is not like

you have employed the seafarers for many years and they are your

friends. They come and go and in the end it is your survival. It is a mat-

ter of survival not a matter of public relations. It is all very nice when

owners are making millions but when they are losing millions, the last

thing on their mind is if they know the Captain or don’t know the Captain.

Ion VarouxakisThe crew composition will be affected as well.

Michael BodouroglouYes there will be less cadets and less fitters.

Sean Moloney

Third party managers believe they are winners here because of the

economies of scale they can keep costs under control. Ship owners who

don’t want to have high office costs and management costs in-house can

go out and get third party management help.

Harry Vafias

That is not true Sean and you know it. We inherit their costs. They want to

charge us their running costs and then they charge us a management fee

and then they want to charge something on top because they want to make

a profit. So I agree with Ion 150% that in 98% of cases when you manage

your own ships in-house and you are dedicated to it, running costs are

overall definitely lower than if you have your ships managed outside.

Ion Varouxakis

It is not just about lower costs, owners can adapt to a changing business

environment. When you manage your ships you can immediately

implement a new strategy and that is a big advantage. So when the

markets improve you can invest in your ships and when the market

drops you can stop, depending on the trade of the vessel.

Harry Vafias

You are very lucky because you don’t have to have oil major approvals.

In our case we cannot cut down on maintenance because the first oil

major terminal that the ship visits, the harbourmaster will refuse entry

because suddenly Exxon Mobil doesn’t accept it. It will be off hire

immediately. So that again is an advantage that bulkers have over

tankers and gas carriers.

Sean MoloneySo what message would you like to give to the banks moving forward?

Harry Vafias

It is pointless giving a message because the banks will do what they

have to do. But obviously we want them to stay by our side and be

patient because otherwise they will lose a lot of money. In the end, these

decisions come from way on top and it is nothing to do with the

shipping departments if they decide they want to pull out of shipping

and take their losses. They will do what they want. But the banks must

be patient and stay with us because even if this situation lasts they will

lose more if they foreclose than if they stay with us and help us through

the crisis. The point is they don’t care and they will do whatever they

believe is necessary. Like in the 1980s, some banks were patient and

lost little money but some where not patient – immediately arresting

ships and selling them at auction, and they lost 30%, 40% and 50% and

didn’t give a shipping loan again. And the majority of those were the

American banks.

Michael Bodouroglou

I think the message to the banks should be that ship owners are not

seeking handouts; the message is that everybody should be rational

and patient. If this prevails, this will be the best case scenario: a loss

mitigating case for all parties. Actually I am a little more optimistic that

Harry on the way the banks will respond. I don’t expect a lot of

foreclosures because banks are also in the business of making money.

Logic will prevail eventually and would only foreclose in case where

they convince themselves that this is a no win situation.

Ion Varouxakis

There will be a lot of qualitative assessments of the types of ships and

types of management. But I agree with Michael, I am not so pessimistic.

I think that those banks with serious problems may pose problems for

ship owners. Ultimately it is not in the bank’s interest to write off these

huge losses by taking action so early. They will wait and see where things

are going and only if they see a deflationary environment where the asset

values will keep decreasing could they take action. If they believe there

will be reflation in the system through all the government action will they

will hang on and maybe put pressure on later on in the cycle.

Michael Bodouroglou

An important point also to consider is that it’s not so much the

foreclosure which is an extreme act on behalf of the banks but it is

equally dangerous if the banks get panicky and try to take all the cash

away from the company. By doing this you are reducing the company’s

ability to capitalise on opportunities and to survive so the banks must have

a more relaxed attitude and allow the companies some breathing space.

Ion Varouxakis

Rates have dropped 98% so that is why we have to wait to see what hap-

pens. If the market rises by 20% this would represent a huge improve-

ment and that would really change things a lot.

If we see an environment where

panamaxes are earning

$20K a day, most

people will

survive.

Michael

Bodouroglou

Another problem

we did not touch upon is

the fact that there have been

many operators in the market. If the people who

call the shots in dry bulk shipping were the owners themselves most of

the ships would be laid up because no ship owner in his right mind

would be willing to hire his ship out at $1K per day. This would

immediately raise rate levels to at least that of the operating expenses.

The fact we see rates below operating levels is because there are so

many operators out there who have to pay a higher rate to the owners

and at the same time they say $1K is better than zero.

Harry Vafias

Those owners with many ships are suffering more than the operators

because the operators only have to pay hire which in most case they

renegotiate anyway. The owners have to pay the banks and they may

have breached their loan covenants; they may have to pay dividends; if

they cut their dividends their share price will be affected; they have to

pay their crews and their employees in the office and they are the one

crushed from all sides. Even if they have 10% of their fleet fixed on

period they can find they get it renegotiated by very good charterers.

Even worse is the situation in the containerships sector where it is

quieter and messier because here you have very expensive ships, very

long charters and very high costs which is a recipe for disaster.

Michael BodouroglouAnd very few charterers

Harry VafiasYes. This is a good thing but also a bad thing.

Ion VarouxakisThe container market will be the last one to recover. They are the first

to drop and the last to recover.

Sean MoloneyGentlemen, thank you very much indeed. ■

GREEK ROUND TABLESHIPMANAGEMENT


A symbol of geophysical strength and stature, an iconic jewel forming

the southern-most tip of Europe and the stepping stone to the neigh-

bouring continent of Africa, Gibraltar is as petite as it is prominent in

the grand scale of world shipping. The Rock by name and by nature, the

diminutively sized yet stalwart country is resiliently sheltering itself

from the economic winds of the global financial downturn.

Fending off the weighty spread of worldwide depression, Gibraltar is

feeling nothing like the pinch of the world’s other nations as they sit

shaking in the shadows of near economic collapse. Steeped in the histor-

ical prestige of world shipping and military influence, Gibraltar’s mar-

itime presence has long been as dominating as its geological structure,

and with its mainstream shipping traffic catchment and global bunkering

strength, it is hardened to any potential major dent in its economy.

Crowning the Mediterranean with its reputable legal system,

Admiralty service and acclaimed registry alongside incomparably com-

petitive price structures, Gibraltar is well-set for sustaining its industri-

ous occupation in the bunkering sector and maintaining the cash flow

of its sound shipping economy. Rock-solid and financially durable, the

pint-sized nation is on a pecuniary endurance test as the slump contin-

ues to suffocate a plethora of the world’s economies.

Strategically poised at the crossroads of international shipping routes

and the mouth of teeming canal traffic, the stopping-station nature of

Gibraltar’s bunkering service is unlikely to cease despite the turbulent

waters of recession, and the overflowing port speaks for itself. Captain

Peter Hall, Chief Executive and Captain of the Gibraltar Port Authority,

said: “We certainly haven’t noticed any downturn. The volumes in

terms of passenger ships and vessels calling for bunkers have been as

high as they’ve ever been.

“We’re slightly insulated in that we’re not very far from the main

traffic route, and that’s the main driver for Gibraltar. We get a lot of

ships consistently coming in for bunkering because it’s literally a detour

of 20 miles off the main shipping routes. As long as we keep our rates

keen, then we’ll continue to attract, so it’s a question of monitoring

bunkering prices around the world and making sure we’ve got the

advantage. And we certainly do, because the rates in Gibraltar both in

terms of actual port handling rates and fuel rates have got an edge on

everywhere else,” he revealed.

“We’re in a global market so further competitiveness in terms of rates

will continue. Gibraltar is actually the leading bunkering operation in the

28

REGIONAL FOCUS GIBRALTAR


by Amy Kilpin

“The market is extremely busy at themoment, so much so that at this particularjuncture, vessels are practically queuing upto come in to port – there is a physicalqueue of ships waiting for space to come inand be served”

29

REGIONAL FOCUS


Mediterranean, currently handling 4.3 million tonnes, and that’s main-

tained and has grown against previous years. There is a tendency towards

the movement of goods coming from East to West and therefore the bal-

last ship movement is from West to East. It’s advantageous to load bunkers

when the ships are empty and want to fill up to go back, and Gibraltar is

a geographical focal point for this,” Captain Hall (pictured) added.

It’s not all plain sailing for the Rock, however, and as a direct conse-

quence of its central position on the global trading highways, Gibraltar’s

arterial port gateway is becoming clogged. Defying its miniscule dimen-

sions, its heaving traffic volumes are causing a definitive waiting list for

re-bunkering services as the limitations of a small port take their toll on

needy vessels.

“We’re almost at saturation point in terms of our ability to handle ships

for bunkers and we are very much squeezed in terms of anchorage

space,” Captain Hall claimed, as the market for bunkering services con-

tinues to race full-steam ahead. And it’s not just an issue the Port

Authority has raised, as suppliers and agencies juggle their service flow

for vessels waiting in demand.

Chris Linares, Operations Manager at the Gibraltar branch of the

multinational Inchcape Shipping Services, said: “The market is extreme-

ly busy at the moment, so much so that at this particular juncture, vessels

are practically queuing up to come in to port – there is a physical queue

of ships waiting for space to come in and be served. It’s not the ideal sit-

uation because obviously we’d like to fit them all in, but unfortunately we

have restrictions in the bay in that there’s only so many ships which can

actually fit into the bay at one time.

“Refuelling is something that will always take place. Ships have a

necessity to refuel and there’s no getting away from that requirement, so

ships will continue to come to Gibraltar for this service because of its

strategic position,” he added. But with concerns that the port congestion

is only likely to worsen as the prime bunkering site continues to reap

operational success and market dominance, there’s a call for action.

Dealing with lubricants-based services to the region, Shell Gibraltar

has also spoken out against the limitations currently being exposed to the

country’s shipping community.

Harry Murphy, Shell’s Country Chair, said: “If you look at the region

encompassing the Straits market, between the three ports of Gibraltar,

Algeciras and Ceuta, around 15,000 vessels a year are being supplied,

out of 80,000 vessels sailing through the Straits. There’s a vast untapped

market there, but the biggest issue we find in Gibraltar is that there are

a finite number of bunkering slots, and a finite number of bunkers.

“In a lot of instances, Gibraltar is turning away business. Because of

GIBRALTAR

“We’re in a global market so furthercompetitiveness in terms of rates willcontinue. Gibraltar is actually the leadingbunkering operation in the Mediterranean,currently handling 4.3 million tonnes, andthat’s maintained and has grown againstprevious years”

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the way the market is going with fluctuating oil prices, nothing is

offered more than seven days in advance. That’s the issue – in seven

days the oil price can fluctuate dramatically and typically this is a com-

modity business where it’s high volume small margin. If you offer

someone a price and in four days time the market has risen $8 or $9,

you’ve made a loss on that business,” Harry Murphy (pictured).

He added: “You’ve got to go with the view that what goes up

must come down and over a period, those troughs and peaks will

cancel themselves out, but it’s proving difficult in a spot business

like this.” Because of the volatile market conditions, Gibraltar

might very well be garnering the benefits of continued market rev-

enue, but it is still exposed to a catch-22 situation in terms of its

capacity and a longer-term solution needs to be sought.

Local ship services company Tarick Shipagents and Bunkering

Services, has had its work cut out with the number of vessels calling at

the port, with an expected future increase strong on the cards. Ernest

Morillo, Shipping Manager, highlighted how “the price of fuel has gone

down and has a lot to do with the increased business. Before it was a

case of taking what was needed, but now they are taking to store, and

31

REGIONAL FOCUS


GIBRALTAR

“In a lot of instances, Gibraltar is turningaway business. Because of the way the market is going with fluctuating oil prices,nothing is offered more than seven days inadvance. That’s the issue – in seven daysthe oil price can fluctuate dramatically andtypically this is a commodity business where it’s high volume small margin”

also if a very good price is being offered for fuel and with a recession

on the way, they are probably buying in bulk.

“There is limited space in Gibraltar and now Algeciras on the

Spanish side of the bay is facing the same problems because many ves-

sels are opting to go to there instead. While Gibraltar has more barges,

more capacity and more suppliers, it has less anchorage space,” he

added. However, Gibraltar is facing some tricky times ahead as its

major players enter into political intricacies regarding the potential for

further bunkering services in the surrounding waters.

“What we’re missing out on is the other side of the bay because

we’re simply not big enough for shipping, there’s not enough space. We

need the east side of the rock, it would bring a lot of improvements and

we’ve just run out of space now. It’s certainly not a case of not having

the business – we have about 30 vessels anchored up at the moment

waiting to come in for bunkering,” Mr Morillo said.

Imbued with political tension, however, the likelihood of a lift on the

east coast bunkering ban appears questionable as the debate is fraught

with controversy. The eastern waters of Gibraltar, currently showcasing

a diverse and extensive array of vessels patiently waiting bunkering

services, is a positive war zone of political rights as the deeply-embed-

ded historical friction between Spain and Gibraltar washes ashore the

proposal with tsunami-like vigour.

Underneath the quaint façade of its narrow cobbled streets, tall and

colourful townhouses and ancient crumbling walls, the pretty familiar-

ity of Gibraltar is at loggerheads with its adjoining companion. The

quintessential English-governed country lies in an unfortunate parallel

line from the Costa del Sol in Spain, denoting Gibraltar’s maritime

presence as not so favourable from the Spanish side of the border.

Fear of potential pollution from its hive of shipping activity has laced

Gibraltar’s maritime development with trip wires, and the ban on bunker-

ing on the eastern side of the rock is one shining example. Thwarting the

port’s potential for development and expansion and the consequential

increase in business for the associating service sectors, the ban is looked

at with much frustration and discontent from the Rock’s main players.

“Most of the congestion is because there is not enough space to

bunker the ships, unless of course the east side is considered for bunker-

ing,” underlined Ian Penfold, Director at M.H. Bland, the oldest ship

agency in Gibraltar. “The anchorage space would free the amount of

ships that are currently catered for, and if Gibraltar wants to expand and

grow that is the only way to do it.

“It would also allow for more capesize or post-panamax vessels

which are at the moment very limited; we only have a few slots for them

now. If there is a spill it is usually contained, and the response system

we have in Gibraltar is very efficient. If there’s going to be a spill on the

eastern side it’s going to happen on the western side anyway – it’s a

matter of control, security and safety, and implementing weather

restrictions. It is the only way forward for Gibraltar if they do want to

expand in the bunkering market,” he said.

Shell Gibraltar recognises the environmental impacts that bunkering

on the east side could entail, but Country Chair Harry Murphy indicat-

ed the sensitivity of the subject and the need for a definitive political

solution to be handled with extreme care. “Any type of oil spill is a

major problem. On the east side, where the Costa Del Sol is the point

of impact for any spill, it could prove an absolute disaster from an eco-

logical and political viewpoint. If bunkering were to be allowed on the

east side, it would have to be very closely regulated with criteria around

maximum weather conditions, and how the operational side of the

bunkering is carried out.”

Craig Thomas, General Manager of Bunkers Gibraltar, added: “Although

the lift on the ban on the east side would improve business, it’s not likely that

the government is going to do it anytime soon. It would be a vast improve-

ment as the traffic congestion would go down and it would make it much

easier for owners to come in without delays. The port is looking at ways to

improve capacity – on the east side there are a huge number of ships sitting

and waiting for bunkering and orders because it’s such a strategic spot for

whichever direction the ship is sailing in. But it’s a matter of arrival and

that’s what the port is trying to do – coordinate the timing of arrivals so there

aren’t 20 ships which just show up on one day,” he revealed.

32

REGIONAL FOCUS

“What we’re missing out on is the other side of the bay because we’resimply not big enough for shipping, there’s not enough space. Weneed the east side of the rock, it would bring a lot of improvementsand we’ve just run out of space now. It’s certainly not a case of nothaving the business – we have about 30 vessels anchored up at themoment waiting to come in for bunkering”

GIBRALTAR


One step ahead of the game, the Port Authority is developing a new sys-

tem to improve the efficiency of traffic control in a bid to generate even

greater capacity at the port through effective time-management.

Augmenting its bunkering status at the nucleus of global shipping,

Gibraltar anticipates a greater influx of vessels calling at the port in future

years, and is approaching development potential with confident aggression.

“Our expansion plans are in the means of technology and efficiency

– we’re about to invest a significant amount of money in containing our

Vessel Traffic System (VTS) system and that’s going to be both a sur-

veillance and information handling system. This will then give us the

ability to handle more ships more efficiently, and thereby creating the

flow that much faster. It will have a number of knock on effects because

if you can squeeze a few minutes out of every single ship then you can

start to get more vessels in,” Port Captain, Peter Hall, highlighted.

“It’s inevitable the world fleet will expand because there’s a lag in

the system. In terms of supply and demand people have already got

orders coming through so it’s definitely going to increase over the

years,” he said. In line with the port’s expansion plans and anticipated

increase in traffic volume, other major changes are taking place at the

port as it steels itself against future increased demand, opening new

windows of opportunity and evolvement.

Captain Hall continued: “At the moment the port authority is a civil

service operation, it’s part of the government. We’re taking that into

public ownership, and the benefits will be right across the board. When

you get a commercial edge to an operation you can change the struc-

ture, add incentives, make changes more easily, and bring in technolo-

gy easier than a governmental-run port.

“To go out to tender and to go through that process of acquisition,

you need to go through a number of departments – the port will be the

master of its own destiny and can raise finance in the commercial

world. We won’t be restricted upon the macroeconomics of the govern-

ment of the country; it will be a stand alone economic enterprise. So if

it is justified then we’ll go and borrow money on a straight forward,

well-founded financial model, and convince the banks to invest in

development and expansion of the port.

“We’ve got a long-term plan, but the immediate targets are to have a

new VTS in place by the end of this year, followed quickly by manage-


“Most of the congestion is because thereis not enough space to bunker the ships,unless of course the east side is consideredfor bunkering” - Ian Penfold Director at M.H. Bland

ment of information. The technology will allow vessels to be booked

more easily and efficiently into the system and everyone involved will

be able to view all the information – the agents, stakeholders, bunker

operators – so that each part of the puzzle can see the whole picture, and

individually they can be a bit more efficient as a result. Later down the

line we will look at what we can do in terms of development across the

port, and this will hopefully open horizons to new trades. We are the

gateway to Spain, after all,” Captain Hall informed.

With long term improvement plans in the pipeline, Gibraltar sees a

future boom glistening on the horizon with shining temptation. But it’s

not the only thing within the panorama of prospective opportunity for

the Rock. Not so many nautical miles off Gibraltar’s coastline, the shad-

owy mountains of Northern Africa paint a scenic picture of epic

majesty, plunging the minute Rock into proportional insignificance.

Lying meek and inconspicuous from the hive of activity between

Gibraltar and Algeciras’ modestly-sized operations, a newly-construct-

ed ‘super-port’ at Tangiers lies in wait, predatorily primed for attack.

Tangiers is stepping towards a whole new era of shipping prominence

and with its valuable position at the aperture of the Suez Canal, hopes

to prove its worth as a major container transhipment hub.

At the crossroads of the north-south and east-west traffic routes, the

$1.4bn super-port hopes to absorb the container ship rat-run traffic, and

with a 1.3m teu annual capacity terminal, 40 hectares in area, and an

800-metre dock, it stands in good stead for some healthy spoon-fed rev-

enue over the coming years. Designed to promote access to foreign

markets for companies in Morocco to develop their business logistics,

the colossal project anticipates traffic of three million teu for the year

2020, private investment worth €1m, and the creation of 145,000 jobs,

as well as boosting tourism for the Moroccan economy.

How this might affect Gibraltar’s bunkering presence is yet to be

seen, as the looming threat of competition over the water is too much in

34



“The biggest issue Gibraltar faces at themoment is lack of storage. There arecurrently two floating storage vessels, butthe very nature of floating storage has afinite lifespan. I don’t see floating storageas being a solution many years into thefuture, and land-based storage is a trickyissue which has been discussed at lengthover the years”

OVERHEARDJohn Bassadone Jr,Managing Director, Peninsula Petroleum

“Floating storage is

coming under increas-

ing pressure, and

bunkering space in

Gibraltar is so tight now.

The hope is that because

of the new storage con-

tract at Tangiers, the

floating storage will be

done away with, directly

benefiting Gibraltar by

freeing up two or three

bunker spaces which are

currently occupied. For

Gibraltar it is a plus, not

a minus, because

Tangier hasn’t got the anchorage for bunkering services and the area

is too open. It will be good to consolidate the region; we’ve always

been of the opinion that competition and additional volume in the

area is good for the country’s economy.”

REGIONAL FOCUS

the embryonic stages of establishment to manifest itself in the full glare

of daylight reality. Gibraltar’s own economic growth is only stunted to

some extent by its lack of available space, and with locally-established

Aegean Marine Petroleum recently selected as sole bunkering company

for the Horizon Tangiers Terminal, Aegean has secured a foothold the

other side of the Straits.

Time will tell for Gibraltar; however, its companies remain tena-

ciously unconcerned by the state-of-the-art super port and the accompa-

nying competition that might prove a little too close for comfort. Tarick

Shipagents’ Ernest Morillo, claimed that with the new port at Tangier

opening, “it was anticipated that we would lose business, but I think it’s

actually going completely the other way. Many ships are now going to

come to Gibraltar, fuel up and go to Tangiers to wait for berthing and

operations there, so I see it working more in our favour than against us

because the area in the straits is so full of demand.”

Paul Imossi, Director of agency Smith Imossi Shipping, added: “In

Gibraltar we don’t deal with any cargo, hence Tangiers won’t be a major

competitor. The player from Gibraltar with the concession for bunkering

in Tangiers is probably hedging its bets; they’re getting their storage

over there in case their floating storage is removed from Gibraltar

because of capacity issues, and they will then look to supply Gibraltar

from Tangiers. The more competition and the more players, the better.”

Given the 6.8 sq km total area of Gibraltar, space is certainly a

restrictive element in terms of growth and development, unlike the

neighbouring expanse of North Moroccan coastline. Storage, both in

the form of land-based and floating units, is a major complication for

the Rock’s bunkering activities and is proving to be the major downfall

in the region’s untapped potential.

Shell’s Harry Murphy claimed that “the biggest issue Gibraltar faces

at the moment is lack of storage. There are currently two floating stor-

age vessels, but the very nature of floating storage has a finite lifespan.

I don’t see floating storage as being a solution many years into the

future, and land-based storage is a tricky issue which has been dis-

cussed at length over the years.

GIBRALTAR

REGIONAL FOCUS

“There are a number of storage opportunities coming up in

Algeciras and in Gibraltar itself, requiring significant investment that

we’re looking at, but they are longer term options and will take time.

Given Gibraltar’s current demand at over 4m tonnes, whatever land

based storage is built would need to be an extremely significant facil-

ity, multiple tanks at over 20 metres in diameter. It will restrict

Gibraltar’s growth in the future if something isn’t done about it in the

short term,” he added.

M. H. Bland’s Ian Penfold also raised a question mark over Gibraltar’s

floating storage capacity as its outlook appears short-lived due to legisla-

tive pressures: “We do not know what the impact will be when the new

legislation comes in place for the floating storage units from 2012/2013.

Because floating storage won’t be allowed in the bay, it is uncertain as to

what the suppliers of floating storage will do as an alternative.”

Despite the uncertainty trickling into the flow of plans for the bay of

Gibraltar, other services aside from bunkering are being sought after as

it spreads its wings against the future competition, legislation and eco-

nomic recession that may all impact on the country’s maritime activi-

ties. With capacity constraints acting as the shackles to the Rock’s

marine enterprises, however, it’s a case for maximum efficiency and

utilisation of its existing resources.

GIBRALTAR

“Yet with piracy rife off the coast of Somalia,ship owners, operators and managers aretreading more cautiously where valuablecargo and crew are at stake, and the optionof by-passing the Canal for long-haul sailingaround the Cape may be forming a slightlymore appealing alternative”

“We’ve also got ships coming in that want repairs, which is addition-

al to the economy because a ship coming in for repairs means money

for everyone; the customs clearance agents are getting the trucks, the

freight and logistics services, the spare parts suppliers and the local

workshops are getting work – but we can’t do anything,” informed Mr

Penfold. “The port authority will not allow ships to stay for repairs

because they don’t want a ship just lying there in the bay taking up

anchorage space. They want the ships to come in, do what they have to

do, and move off,” he added.

With a new port state directive coming into force for all ships at

anchor to be subject to inspection, the service sector is set for even more

grilling, and Gibraltar’s Maritime Administration is hot on the heels of

the requirement for inspections at anchorages, as ships sit and wait for

supplies and bunkering services. Alan Cubbin, Maritime Administrator,

stressed how “the number of ships anchored off the east coast of

Gibraltar because there is no work for them or they are waiting for

orders could well fall into requirements for inspections carried out

under the port state regime,” and so supplementary to service-efficien-

cy, Gibraltar is well-set for some rope-tightening legislative control.

Of its potential, however, Danny Gabay, Managing Director of logis-

tics and port services company Redwood International, said: “Ships are

still going to come to Gibraltar for bunkering, but what we need to

make sure is that when they do come in for bunkering, we have other

services to offer them so that we can take more advantage of these port

calls. It’s very handy to have an airport so near, for crew changes and

for spare parts, for example, and customs formalities are also fairly easy

compared to ports in other areas of the world.”

Mr Penfold added: “Offport limits are a distinct benefit, and obvious-

REGIONAL FOCUSGIBRALTAR

Major shipping lawyers have warned that the number of ship arrests

this year will increase dramatically as significant concern over lack of

finance spreads across the industry.

Unpaid mortgages and fees, coupled with a likely drop in safety stan-

dards and regulations are set to pave a future arrest-frenzy for ship own-

ers and managers, as the economic meltdown blazes with intensity.

Prominent Gibraltarian law firm Hassans has spoken out against the

economic downturn with eminent concern, as finance gets tough, ships

are being laid up and companies are fast going under.

John Restano, Partner in the Litigation Department, said: “Things

have changed dramatically recently, and we are expecting a substantial

increase in the number of ship arrests this year, probably starting in the

second quarter of 2009.

“Bankers are now poised to start enforcing it, and we’re already

starting to see a large number of enquiries flooding in,” he added, indi-

cating that Gibraltar’s strategic positioning and notorious ship arrest

jurisdiction is only set to enforce the rise in work that is expected over

the coming months.

Christian Hernandez, Partner at ISOLAS law firm in Gibraltar, added:“We’ve already started to see some major financial changes in the shippingindustry. We’ve been quite busy the last couple of months with ship arrest.”

“Freight rates have dropped and there’s not so much work goingaround. People have spread themselves very thinly and now they’rereally struggling – they’ve stopped paying suppliers and suppliersknow what’s happening and so are arresting quicker than they other-wise would,” he revealed.

“Banks know that Gibraltar is a very quick, cost-effective jurisdic-tion and they will literally bring the ships to Gibraltar to carry outarrests here, so we’re expecting a great number of ship arrests takingplace here in the near future – owners just don’t have money at themoment and so action has to be taken,” Mr Hernandez added.

As newbuild cancellations, unpaid crew and supplies, and failure to

pay mortages are rife across the industry, lawyers are bracing them-

selves for a heavy influx of ship arrests in the near future, with major

arresting hot spots such as Gibraltar expecting some hefty financial

heave-ho between the banks and owners. ■

Gibraltarian lawyers warn ship arrest flurry is soon to hit

Ship Chandlers

Ship agents and bunkering

Private motor yachts & sailing vessels

Unit 3, Block 4, Watergardens,Waterport, P.O Box 479 Gibraltar

Tel: (+350) 200 72836/40350 Fax: (+350) 200 72861 Email: [email protected]

Website: www.tarik.gi


ly the managers are taking advantage of that because it’s easy for man-

agers to do their crew changes in Gibraltar as they pass through the

middle of the straits, also allowing for spare parts to be shipped to them.

The vessels don’t have to slow down either because the barges can

catch up with them, so it doesn’t pose a security issue.”

With security being a major buzzword of the times, Gibraltar’s

status as the pinnacle of Mediterranean bunkering services is not just a

glorified pit-stop at the doorway to the Suez Canal – for the dampener

comes in the form of a bandana-clad, heavily armed Somalian pirate.

Given that approximately 30,000 vessels pass along the principal ship-

ping highway, a significant proportion of the world’s fleet sail along the

Gibraltar Straits enroute.

Yet with piracy rife off the coast of Somalia, ship owners, operators and

managers are treading more cautiously where valuable cargo and crew are

at stake, and the option of by-passing the Canal for long-haul sailing

around the Cape may be forming a slightly more appealing alternative,

especially with a reduction in global fuel prices and a mounting hijackings

tally. The question is, if such a routing substitution is opted for, how will

Gibraltar fare as the main bunkering hub at the mouth of the Straits?

The Port Authority’s Captain Peter Hall indicated that Canal traffic

isn’t absolutely necessary for business because Gibraltar is literally 20

miles away from the main shipping route on the north-south axis.

However, with developments on the North Moroccan coast in full swing

and a major commercial centre in the offing, access to the southern

peninsula of Europe from mainland Africa is going to be more within

reach, especially with increased levels of trade, commerce and tourism.

The new VTS system in line for the port is designed to streamline the

port’s traffic and improve operational efficiency and surveillance con-

trol, but Captain Hall admitted that “the downside of improved technol-

ogy tracking systems is that if you can identify the ship for legitimate

means, then pirates can identify strategic targets more easily. We make

Gibraltar as hard a target as possible; we’re constantly reviewing our

capability and part of the VTS operation is to have a much more sophis-

ticated surveillance side of things both night and day.

“The other issue on this is as far as a location is concerned, we’re

probably more equipped than many ports – most ports don’t come along

with an attachment of a military base or a special boat squadron, and

constant movement backwards and forwards of Royal Navy vessels.

Because of Gibraltar’s military history, up on the hill is a Royal Navy

and NATO unit offering surveillance of this whole area, so this is not a

typical port and it all adds to making this a slightly harder target than

other places,” he added.

Aside from the criminalities of the seas, Gibraltar also reigns another

throne of competence in the kingdom of felony, and with a sound

English law system, the maritime community’s legal status is as robust



The grounding of the 63,940dwt Fedra off the tip of Gibraltar towards

the end of last year once again thrust the Rock under the global sal-

vage spotlight, with accounts of the various stages of its salvage oper-

ation causing quite a stir in the stormy shipping world.

But it is the area’s prime location as a lay-up centre that will main-

tain its position in the pages of interest in the world maritime press.

James Rammage, Partner at Gibraltarian law firm Triay & Triay,

said: “Unfortunately a lot of ships on the east side are currently laid

up, but in a way it emphasises the strategic location of Gibraltar. It’s

a good anchorage and a convenient location for them to move off in

any direction if they do get work.

“The very fact that they’re there shows that for some of them it’s

more economic just to have a ship waiting for work than trying to run

it with very low cargo on board or under very low charter rates,” he

added. But safety issues are key in such circumstances.

Law firm Triay Stagnetto Neish has had the weighty responsibility of

dealing with a number of the casualties that have recently occurred off

the Gibraltar coastline. Despite its strategic location for anchorage, it’s

also at the southernmost exposed tip of Europe, and the region has been

subject to some severely adverse weather systems.

Guy Stagnetto Jnr, Partner, advised: “We were involved to some

extent with the Fedra case, and also with the owners of the New

Flame. We have been quite heavily involved because the incident

threw up a whole series of legal issues, including limitation issues,

wreck removal and also arrest, including admiralty claims.”

Because of its highly respected legal system, Gibraltar is an ideal

spot for treading through the maritime legalities both in casualties and

ship arrest work, but the country hopes that it won’t be stealing the

limelight for any more casualties off its rocky coastline too soon. ■

A stormy ride

“The price of fuel has gone down and thathas a lot to do with the increased business.Before it was a case of taking what wasneeded, but now they are taking to store,and also if a very good price is being offeredfor fuel and with a recession on the way,they are probably buying in bulk”- Tarick Shipagents’ Ernest Morillo

as its geologically prestigious landmark. Registry and Admiralty serv-

ices are renowned for their proficiency in the country, alongside its

highly commended ship arrest capacity. Gibraltarian lawyers claim that

“it is in an owner’s interest for a ship to be arrested in Gibraltar because

of its streamlined law system and quick efficiency.”

With an anticipated rise in the number of ship arrests taking place as

the world slides into a quagmire of financial calamity, supplemented of

course by its convenient position on the world shipping map, Gibraltar

is ready for an influx of business on the legal front, further fortifying its

steady flow of revenue and defending itself from the economic mine-

field. The EU’s recent ruling on capital gains tax places it further up the

scale of ascendancy as it has been granted permission to set up its own

tax regime and not to follow in the well-trodden steps of the UK.

The Gibraltar Maritime Administration takes itself seriously as an

imperative link between the government and the marine industry in

Gibraltar, and Maritime Administrator Alan Cubbin emphasised the

importance “in establishing a tax regime in Gibraltar that is beneficial

to companies, because then maybe it will attract operating companies to

set up here. It would give expertise to Gibraltar in the maritime field all

round, and would provide an ideal opportunity to grow Gibraltar’s mar-

itime influence across the whole piece.

“The important thing is to bring together all the different areas and

try to develop a sound maritime entity, and this is the changing empha-

sis in Gibraltar,” he added. With a highly-respected flag, firm fleet and

commendable Admiralty system, the smaller pieces of the maritime

puzzle in Gibraltar need to be further amalgamated to form a stable

whole, raising the flag of maritime kudos for the whole global shipping

industry to look up to.

As Gibraltar benefits from its favourable position and bunkering

presence, it is not falling shy to the world financial crisis, and wiping

away the universal tears of sufferance, is instead gazing back at its own

reflection in the wishing-well of opportunity. With so many pros

against the cons of maritime point scoring, the hardy country is cer-

tainly set up to buttress itself against any possible downturn, and with

a solid shipping presence, it looks like the sun won’t be setting behind

the Rock just yet. ■


“Most ports don’t come along with anattachment of a military base or a specialboat squadron, and constant movementbackwards and forwards of Royal Navyvessels. Because of Gibraltar’s militaryhistory, up on the hill is a Royal Navy andNATO unit offering surveillance of thiswhole area, so this is not a typical port and it all adds to making this a slightly harder target than other places”

Flying the flag of competence and merit, Gibraltar’s ship registry is cer-

tainly justified in beaming its smug proficiency all over the country’s

dramatic terrain and out into international waters. Not content with its

Red Ensign Category One status and strong position on the Paris MoU’s

White List, the indomitable country has recently won itself a place on

the US Coast Guard’s QualShip 21 scheme in a further consolidation of

its quality-flag status.

Priding itself on its small but sturdy fleet, the register has grown both

in quantity and quality, driven by its EU standing allowing vessels

access to European cabotage trades and Gibraltar’s infinitely strong and

reputable legal system. The number of ships on the register has grown

exponentially over the last decade, from just 26 in 1998 to 270 in 2008,

and with a predominantly young fleet averaging 10 years, is avidly

awaiting a number of additional newbuild orders.

However, with a worldwide recession thrashing itself across the

industry, ship registries aren’t hopeful in sustaining the levels of growth

they were previously revelling in. Alan Cubbin, Maritime

Administrator (pictured), admitted that it is unlikely for Gibraltar to

maintain an annual fleet growth of 16%, because the “general downturn

in the economics of the maritime world means that the registry has lost

some ships back to Germany as a result of their new tonnage tax.

They’ve agreed to respond by putting a certain number of ships on their

flag and there’s a political aspect to that which cannot really be avoid-

ed.”

The Maritime Labour Convention coming into force in 2010 to 2011

under an EU directive also means that the registry will have to up their

ship inspection regime, alongside a new port state directive requiring

inspection at anchorages. Supplement this with the Gibraltar Maritime

Administration’s cadet scheme, and hard work and industrious determi-

nation is definitely the ethos of the Rock’s registry.

Advocating the importance of recruitment as well as flag strength,

Alan Cubbin said: “The cadet scheme in Gibraltar is better than any-

where else in the world, but if the industry is sensible they must realise

that crew numbers have reached an absolute minimum and have prob-

ably gone a little bit too low. With the new Maritime Labour

Convention coming up, I think it would be sensible for us as a register

and for the industry at large to look at increasing the number of crew on

ships, but you can only do that across the board.”

Sorek Services, a ship agency dealing with a significant proportion

of the country’s registrations, works closely with owners and managers

flying the Gibraltar flag. Jens Sorenson, Director, revealed that

although it’s “difficult to persuade an owner to register a ship in

Gibraltar, once they’ve done so they come back loyally with other ves-

sels. The main thing to look before a ship is taken on is the management

and the reputation of the management and not to just take on a ship for

the sakes of it; there should be ‘controlled growth’ of the flag,” some-

thing that Gibraltar’s registry certainly demonstrates and hopes to con-

43

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Ship Registration & Finance

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“With the new Maritime Labour Conventioncoming up, I think it would be sensible forus as a register and for the industry atlarge to look at increasing the number ofcrew on ships, but you can only do thatacross the board”

record levels of growthRegistering

High on the throne of Gibraltar’s shipping industry sovereignty, John

Bassadone Senior, Chairman of the vast Gibunco Group, is a fountain

of knowledge and expertise on the country’s international maritime

cachet. The impetus behind one of Gibraltar’s leading shipping organi-

sations since 1965, John Bassadone’s company portfolio comprises

petroleum services, marine engineering and ship repair; and boasts a

reputation to be highly revered across the Rock and beyond.

Invited into the privacy of his ultra-chic glass-walled office suite,

SMI took the opportunity to get up close and personal with the shipping

connoisseur himself, and confronted with a panoramic view of the glis-

tening bay of Gibraltar, the aura was one of permeating success. Mr

Bassadone highlighted how Gibraltar is faring as a maritime hub as it

stares hard in the face of a global recession, and how future political

pulling power may open up whole new horizons for the stately Rock,

solidifying its international shipping prestige and economic potency.

“On a political front Gibraltar is such a small place,” he said. “But

in shipping, the biggest problem lately has been congestion in

the port, predominantly from the floating storage sce-

nario. For safety reasons they occupy about five or six

berths of anchorage, so it takes up substantial space

for ships calling in for bunkering and services, and

that’s the only letdown here at the moment.

“At the same time Gibraltar is developing on

the east side of the rock so that we can cover all

our surrounding waters, and up until now has

only been used as an area for ship owners wait-

ing at anchor. The east side is always full of

ships, but now, politically, the Gibraltar govern-

ment is hoping to take full control of the area and

the ships operating there. This will hopefully give us

the opportunity to conduct bunkering on that side of the

rock, which is going to give quite a lot of

scope in terms of avoiding

delays,” he added.

Surrounded by

much controversy, Gibraltar’s major players are holding opposing

views on the likelihood of the government allowing bunkering services

to be employed on the east coast, but Mr Bassadone’s highly-respected

position on the Port Authority board gives witness to insider specula-

tion that it might be more within reach than expected.

“I am sure it is going to happen because I think our port needs it now.

We need to be competitive, and as part of the Port Authority, we need to

generate more income. Additional berths being paid for, for the first time,

will increase income for the port, and it’s logical that we control the area.

It will give priority to those ships requiring any form of service in

Gibraltar far more than ships just on standby. Gibraltar will better man-

age its resources and will be able to provide services to shipping in a big-

ger way, alongside having more anchorage to be able to conduct business

not just for bunkering, but also for services,” Mr Bassadone said.

“The expansion on the east side, on which a firm decision will be taken

at some stage, is going to be a vast improvement for Gibraltar, because

even with the new port coming in at Tangier, it is also fairly restrict-

ed on anchorage. The reason Gibraltar has been so prominent in

shipping is because of the passage through the straits, and it

has always been very competitive – it’s a good port to stop

for ship owners, and as long as competitiveness is main-

tained Gibraltar will go forward in a good way.

“The biggest problem we have in Gibraltar is coping

with floating storage as a port; there is a lot of lobbying

against it at a political level from Spain and at a local

level from ecologist groups and it’s all very controver-

sial. Even the Gibraltar government is trying to find

alternatives within existing storage in Gibraltar, so it’s all

in the melting pot at the moment, but in the very long term

floating storage is likely to disappear,” he revealed. ■


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Upclose personaland John Bassadone

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