· issue 1 may/june 2006 ship management international 3 42 questioning industry ethos ... owners...

ISSUE 1 MAY/JUNE 2006 SHIP MANAGEMENT INTERNATIONAL 3

42 Questioning industry ethos- a round table exclusive

SHIPMANAGEMENT FEATURES

28 Getting to grips with the bottom lineA vital ingredient influencing the planning of shipping operations, whether directly or with third party involvement, is understanding the competitive cost base in the key areas ofoperating expenses

32 Glamorising the art of shipmanagementIt’s hard to imagine there are any celebrities in shipmanage-ment but there is something about V.Ships’ ebullient and flam-boyant president that brings in the crowds

37 Third party shipmanagementIs it the panacea to the industry’s woes?

62 InterManagerInterManager is 15 years old this year. We examine the associa-tion's development and analyse its achievements and objectives

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 1 MAY/JUNE 2006

China’s impact on the global shipping industry is not lost on the crew travel sector with an anticipated growth in travel demand forcing many managers to take more operational control.

78 Crew travel

16 How I workSMI talks to four industryachievers, and asks thequestion: How do theykeep up with the rigoursof the shipping industry?

NOTEBOOK

8 Crew healthBeing aware of the effect poor seafarerhealth and safety has on a fleets' efficiency

9 BoxportsThe pace of growth in the European and Mediterranean container trades continues at a dynamic pace, driven by globalisation, larger vessels andexpansion in the intra-regional trades

13Homeland SecurityThere are some in the shipping industry who remain concerned that the Bush administration's HomelandSecurity policy lacks any clear strategy including who is going to foot the bill

24 The noble art of the asset play was once considered the only wayto make money in shipping and, traditionally, a nobleman nevertarnished himself with something as vulgar as trade. So is the traditional asset player dead?

58 ASTUTE PURSUITMercator Lines - a true success story.The market opportunity that Mercator Linesexploited to the hilt was by way of acquiring and running single-hulled tankers for crude carriage, at a time when these tankers had been condemned by the IMO for phase-out by the year 2010

Making it the old fashioned way

MARKET WATCH

OWNER PROFILE

60 Mitropoulos ‘fatigue’ worryEMSA pollution callBrussels backs Lithuanian seafarers EC competition probeInternational initiative on Baltic pilotage

REGULATORY RADAR

74 Repeal of Regulation 4056SMI asked two leading law firms from either side of the Atlantic to givetheir views on the European Commission’s plans to abolish Regulation4056/86 (European Liner Shipping Conference Regulation)

BUSINESS OF SHIPPING

LETTERS

TRADE

US Dept. of Defense

88 Vantage V8

LIFESTYLE

FIRST shown as a concept car at the 2003North AmericanInternational Auto Showin Detroit, but with deliveries to customersnot starting until late2005, the Vantage immediately caused aworldwide sensation

ONMYMIND

9 Annette Malm JustadCEO of EMA

GREECE

80 Finance and BankingRecently published research showsthat banks continue to trust Greekshipping especially as their lendingto it has risen yet again. We look atthe facts

76 SpotlightCostamare Shipping

Frankly speakingDiamantis N. Manos

6 STRAIGHT TALK

MAILBOX14

21 Ad Hoc 22 P&IFraud and overcharging of seafarer medical bills is a pill very bitter to swallow

40 Dun and BradstreetChina - The financial indicatorsand risk factors

HONEST COMMENTARYPROACTIVE ENGAGEMENT

4 SHIP MANAGEMENT INTERNATIONAL ISSUE 1 MAY/JUNE 2006

LAW

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

The shipping industry has a habit ofmoving in cycles. The markets arecyclical, we all know that, and thegood times follow the bad times assure as night follows day. But the

debating of key issues influencing, and holdingback, the shipping industry is as predictable asit comes. Indeed, whether it is the role of class,the need for greater information transparency orthe call for urgent action to plug a widening sea-farer recruitment and retention gap, it seems wehave heard it all before.

But the time has now come for action. Toughaction that needs to be taken to safeguard thefuture of the shipping industry and ensure thereare no further vessel casualties, oil spills or sea-farer deaths. I am talking about investing in aqualified and plentiful pool of seafarers with thestakeholders being the entire shipping commu-nity. A prominent shipping executive summedit up perfectly when he told me: "You cannothave only one guy carrying out a good trainingprogramme, everybody has to do it. If as anindustry we are moving ahead in the samedirection then all players will benefit because aseafarer on your ship today may be working onmy ship tomorrow.”

And he is right. Today's seafarer is a freeagent and can come and go as he pleases fromone employer to another taking his hard earnedand expensive training with him. He may alsoleave the industry if he feels the financialrewards are not justified. A bit of a waste youwill all agree. But the problem does not endthere. Some managers are fearful that the rapidpromotion rates currently being witnessed insome corners of the industry could have detri-mental effects on the quality of the seamanshiponboard the world's ships. Also there have beencases where a seafarer sacked from one compa-ny has immediately walked into a more presti-gious job with another competitor. Worryingtimes ahead.

But act we must and in-house and third partymanagers must accept they have to cooperateon this issue to benefit all. Having highly qual-ified, competent and hardworking crewsonboard ship is not about corporate or commer-cial one-upmanship, it is about safety, cleanseas and projecting a positive image about theshipping industry. So open up the doors to yourtraining establishments, work together to recruitand retain your shipboard staff and above alllets start doing what we have been talking aboutfor years.

Your SMII have great delight in welcoming the world'sin-house and third party managers to the launchissue of Ship Management International.Published every two months, we will use onlythe best writers there are to bring you the objec-tive and hard-hitting shipping business cover-age and analysis you have demanded. If youhave any views or comments about our firstissue then please forward them to me at [email protected]. I would like to thankthe shipping industry for supporting this maga-zine, in particular the members of InterManagerwho have chosen it as their preferred shipman-agement reading and also many of the world'sowners who have craved a magazine that willobjectively cover this vibrant and exciting indus-try that is shipmanagement. I would also like tothank the members of SMI's editorial boardwhose job it is to ensure we report accurately andin an unbiased way and to the tremendous and professional team that is ElaborateCommunications who are every bit as passionateabout the shipping industry as I am.

Good reading!

Sean Moloney

STRAIGHT TALK


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ABC application approved March 2006

Ship Management International is published six timesa year and is entirely devoted to reporting on thedynamic and diverse in-house and third party shipmanagement industry. Subscriptions UK and ROW – 1 year: £85 ($153); 2 years: £160 ($288).

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

Ship Management International Editorial Board

Rajaish Bajpaee (Eurasia Group of Companies)

Stephen Chapman (InterManager)

Nigel Cleave (Dobson Fleet Management)

Andreas Droussiotis (Hanseatic Shipping Company)

Dirk Fry (Columbia Ship Management)

Sean Moloney (Elaborate Communications)

Svein Pedersen (Thome Ship Management)

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May/June 2006 Issue No. 1

www.shipmanagementinternational.com

A NeverEnding Story

Welcome to Ship Management International

Shipowners and managers should bemore aware of the effect poor seafar-er health and safety is having on theirfleets' efficiency as they face losing

hundreds of thousands of dollars throughunnecessary vessel deviations and stoppagesdue to accidents onboard, brand new figuressuggest.

Different surveys published by two sepa-rate and highly respected seafarer health serv-ice providers in the US claim that not only isseafarer health and safety a growing concernfor shipowners but the number of mentalhealth problems among the world's seafarersis growing at an alarming rate. And this is allhaving an effect on owners' bottom line.

Indeed according to one leading medicalpractitioner we interviewed, an emergencyevacuation or a single repatriation of a sickcrew member back to their home country cancost as much as $100,000 if the case is com-plex. “Treating them appropriately as soon aspossible even on the vessel can sometimeseliminate the need for an emergency evacua-tion and lead to a better outcome for the sea-farer,” he said.

In a survey of 10,319 incidents reported toMedAire in the 10 years to July last year over2,158 were skeletal while 1,245 were of adematological nature. As many as 1,022 inci-dents, or 9.9% of the total related to ear, noseand throat infections while a significant9.24% had to do with gastrointestinal prob-lems among crew members. Interestingly, 95calls, or just under 1% of the total, related topsychiatric issues – an area of growing con-cern among today's seafarers. According tothe MedAire data, 17.5% of the calls related toprior conditions of which skeletal againtopped the list at 23% followed by genitouri-nary at 10% with dermatological and dentalboth at 9%. Infectious diseases accounted for7% of the prior condition incidents.

Worryingly for the shipowners and man-agers, 23% of the incidents reported were jobrelated with 15% unknown.

A similar survey by the Department ofEmergency Medicine at the GeorgeWashington University of over 866 seafarer-related medical advice calls over the last fiveyears shows that a massive 83.8% of callswere medical with 14.4% injury-related and asimilar 1.8% of calls to do with psychiatricproblems among the ships' complements. Ofthe shipboard telephone calls or emails han-dled personally by the University's emer-gency physicians, injuries and psychi-atric cases required a significantly high-er number of contacts per case com-pared with medical cases. Psychiatrycases accounted for the most medicationwith 12.5% requiring four medications.

According to Dr Ray Lucas, MedicalDirector and Assistant Professor at theDepartment of Emergency Medicine atthe George Washington University,medical care providers are seeing morepsychiatric problems among seafarersand there have been more cardiac anddiabetic problems associated with anolder composition of crew mem-bers over the past 15 years.“We have received calls oncrew members as old as 70.We also encounter more diffi-culty in getting good informa-tion on a growing number ofexpatriate or immigrant crew-mem-bers where English is not their primarylanguage. One supposed case of sea-sickness ended up being vomiting from adiabetic complication; the diabetes wasnot disclosed beforehand and finding out theinformation at the time was difficult becausethe crew member did not speak English,” hesaid.

Michael van Hall, Managing Director ofMaritime Operations at HSI/vHH, a leadingmaritime medical case management company,said health screening of seafarers was the onlyreal tool in the fight against poor health onboardship. Shipowners had to think very carefully

about “screening sailors because under interna-tional maritime law once they have signed to goonboard a ship, their health becomes theshipowners' responsibility”, he said.

He added: “In the U.S. the simpleDepartment of Transport exam ensures mostsailors are passed ‘fit’ but the reason we areable to screen out between 12% to 15% ofthese “Fit For Duty” card carrying applicants

is that the average seafarer age is 58 yearsold and only more comprehensive testswill highlight the true medical condi-tion of the sailor. We have conductedover 55,000 exams and have neverbeen sued by the unions for turningdown their members. Their MedicalDirectors all admit that if they wereallowed to run the same tests as wedo, they would have disqualified the

sailors themselves.”This was a point echoed by DrLucas: “Under US employ-ment law and with someunion regulations, if a crewmember can find a physician

to declare them “fit for duty”sometimes the shipping compa-

ny has no other recourse than tolet them go to sea. It is the quality

of the medical screening that is mostimportant.”

Rowland Raikes, director of theUK-based Medical RescueInternational, said seafarer health was

influenced by the type of physical jobsinvolved onboard ship as well as the nor-

mal instances of cardiac and stroke problemscertainly among older members of the crew.But he stressed: “Medical screening can helpto block out a lot of these illnesses such as car-diac problems, hepatitis, diabetes and obesi-ty.” Malaria was a problem, he commented,because while the prophylactic may work inone location, by the very fact that the ship isalways on the move, it may not prove to bebeneficial at another port of call. ■

NOTEBOOK


SHIPMANAGEMENT NEWS AND REPORTS FROM AROUND THE WORLD

Crew healthdesperate for a much needed shot in the arm

It’s a boom time in shipping if webelieve all that we read. The marketshave performed better than they havefor years, the shipbuilding yards are

full and scrapping is at an all time low. Andas if that is not enough, the pace of growthin the European and Mediterranean con-tainer trades continues at a dynamic pace,driven by globalisation of the world econo-my, the introduction of much larger vesselsinto the deep-sea trades with associatedrapid feeder demand growth and alsostrong expansion in the intra-regionaltrades.

Well these are the finding of a new reportby Ocean Shipping Consultants whichclaims the outlook is for continued sus-tained demand growth in the European and

Mediterranean container port markets withthe strongest rates of growth focused in theeastern parts of the region – the Baltic andBlack Sea markets and in Turkey. Indeed,analysis of historical figures shows thatcontainer port demand in Europe and theMediterranean increased by 126% in thenine years to 2004 and by 40% to 77.23mteu between 2000 and 2005. Over thedecade, the share held by ports in SouthEurope and the Mediterranean increasedsteadily from 39.6% to 46.2% while totalcontainer transhipment throughputincreased more than threefold between1995-2004 and by 58% to 22.5m teu in thefour years to 2004. The share of the SouthEurope/Mediterranean region increasedfrom 45.4% in 1995 to 58% in 2004.

The share of trade by the ports in thewestern north-continent range hasremained broadly stable, the report sug-gests, while ports in the UK have lost ➩

NOTEBOOK


Europe's boxports set to enjoy explosive growth ONMYMIND

Annette Malm Justad CEOAnnette Malm Justad (48) took over asCEO of Eitzen Maritime Services ASA onApril 1st 2006. She was previously VicePresident and Head of Purchasing in YaraInternational ASA (Hydro's fertilizer arm).She holds a chemical engineering degreefrom NTH and a Masters degree inTechnology Management fromMIT/NTH/NHH. She is also a member ofthe board of Camillo Eitzen & Co ASA.

What is the biggest business issue currentlyconcerning you?

“Apart from working to see Eitzen MaritimeServices grow and develop in the way we want itto, I think from a general shipmanagement pointof view I am concerned at the situation facing therecruitment and retention of quality seafarers. AtEMS we try to create a platform whereby the sea-farers feel they reap more benefits than justreceiving a salary such as quality training, quali-ty ships and qualitywork.”How can shipmanagers keep costs lower?

“As a ship manager you have to be wary ofkeeping costs too low that money drains out theother end of the pipe. It is about striking a bal-ance between keeping costs down yet maintain-ing a quality service.”Do shipowners receive the third party ship-management service they deserve?

“A lot depends on the actual shipping trade youare in as the perceived standards will bedifferent.”How will the shipmanagement industrychange in the next five years?

“There is bound to be more consolidation in thesector especially if regulations become moreonerous and demanding from inside and outsidethe industry.”

The pace of growth in the European andMediterranean containertrades continues at adynamic pace, driven by globalisation, larger vessels and expansion inthe intra-regional trades

continued on page 11

market share due to the transfer of tranship-ment flows to the north continent andincreased feedering of smaller ports in theBritish Isles from the north continent, whichhas resulted from the near-saturation ofcapacity at UK deep-sea ports.

Container port demand in South Europeand the Mediterranean grew by 164%between 1995-2004 and by 45% between2000-04. Over the decade to 2004, theCentral Mediterranean range gained in sharefrom 27.9% to 32.1% - derived from bothimport/export growth and the establishmentand strong expansion of transhipment han-dling. However, in the four years to 2004, theshares of the Western Mediterranean andEastern Mediterranean/Black Sea rangesadvanced relative to the other two ranges.

While growth in the Central Mediterraneanwas held back by capacity constraints andother problems, import/export and tranship-ment handling in the Western Mediterranean,where Spain is the dominant port market,both posted strong increases. At the sametime, the expansion of the Turkish container

port market has been particularly instrumen-tal in boosting demand in the easternMediterranean. The establishment of a newtranshipment hub at Port Said east and rapidgrowth in the Black Sea markets will helpsustain this trend. The relative significance ofthe Atlantic region has fallen back slightly,essentially due to the smaller scale and slow-er growth of activity on the Iberian coast andin the Atlantic islands.

The development of transhipment will be acompound of underlying economic-growthinduced demand and the policies of majoroperators in converting direct flows into tran-shipped flows. Over 2004-10, non-tranship-ment (essentially import/export) containerhandling demand in North Europe is forecastto grow by up to 51% to 48.4m teu. Furtherexpansion of between 25% and 34% tobetween 56.9m and 64.7m teu is anticipatedin 2015. North European transhipmentdemand is forecast to increase by between56% and 68% to between 14.73m and 15.87mteu in the six years to 2010 and by a further31%-42% over 2010-15. ■

NOTEBOOK

CRUISING THE NETShipyards are slowly coming round to thebenefits of embracing internet technology toreduce shipboard costs with at least onecruise ship newbuilding mulling over theidea of installing Voice over Internet Protocol(VoIP) for its onboard communications.Martin van der Veeken from communica-tions giant NEC Philips believes that con-verging different technologies onto one com-municating infrastructure such as SIP(Session Initiation Protocol) which is fastbecoming the industry standard, will cutvoice and data communication costs andpresent the possibility for future communica-tion advances. Watch this space! ■

continued from page 9

While America's efforts toprotect its ports andcoastal waters againstterrorist attack may be

grabbing the newspaper headlines,there are some in the industry whoremain concerned that the Bushadministration's Homeland Securitypolicy lacks any clear strategyincluding who is going to foot thebill.

By summer's end, more than400,000 port workers will bematched against the terrorist watchlists as the first major step to tightenport security. Ultimately, by year'send, all 750,000 workers with unre-stricted access to ports will needtamper-free identification cards. Butwith the government planning tospend hundreds of millions for new

technology to safeguard US ports,some businesses wonder about therisks and benefits of the new tools.Besides security checks for workers,Homeland Security wants a “newgeneration of tools” to detect nuclearmaterials and to better screen allinbound cargo, such as radiationmonitors that would be used toinspect some of the 11 million cargocontainers entering the US daily.Already, 214 monitors are in place,screening more than half the cargoentering US ports for radiation, offi-cials said. By the end of next year,they said, 621 monitors will beinstalled capable of screening 98%of incoming shipments. Customsofficials say that there will beenough money in the budget to pur-chase and install the monitors. ■

NOTEBOOK


The rising co$t of Homeland Security

LETTERS


SIR. The community of independent ship managers around the worldis changing at a faster pace than ever before. As more quality servic-es are demanded by our principals, every manager seeks ways ofimproving performance and creating extra value for our valued cus-tomers. One of the ways in which we can achieve this is by improv-ing our information flows within our own companies and in the widermarketplace. Good quality information for ship managers is vital asit helps us make better decisions for the benefit of our principals. Inareas such as new technology, telecommunications, education andtraining and technical services, today’s successful ship managerneeds to be fully aware of developments that often take place rapid-

ly. That is why Thome Ship Management was delighted to hear aboutthe launch of Ship Management International magazine.

As proactive members of the InterManager Group, Thome isdelighted to acknowledge the first publication dedicated solely to theindependent, third-party shipmanagement sector – an increasinglyimportant sector in world shipping today. We believe this new maga-zine will provide the market with a much-needed clear and honestcommentary on global shipmanagement trends and will act as a trulyindependent voice in an industry in which independence becomesever more important.

We look forward to seeing Ship Management International becomeestablished as the premier publication serving the entire shipmanage-ment community all over the world. As a forward-looking manager atthe forefront of many of the exciting new trends in shipmanagement,Thome welcomes the launch of Ship Management International.

Olav Eek Thorstensen,

CEO and President, Thome Ship Management, Singapore

Good quality information for ship managers is vital as it helps us make better decisions for the benefit of our principals. In areas such as newtechnology, telecommunications, education andtraining and technical services.

HONEST COMMENTARY Thome Ship Management Pte Ltd

SIR. The need for self-regulation of theshipmanagement industry with verifica-tion rather than following the demands ofa compliance culture are the drivingforces behind InterManager’s KPI initia-tive. The processes of self-regulation needuniform measurement criteria.

While it is important that shipmanagersare able to agree on a standard for opera-tional KPIs that gives a representativepicture of the quality of a ship's opera-tional performance; is limited in number;is transparent and is economic to collect,there is a clear need to engage with theregulators in a more pro-active way. Somany changes in rules are coming fromthe IMO and elsewhere today that theonly way forward is to join forces on abroad front and use the combinedresources of all concerned to ensure thatthe practitioners’ viewpoint is not missingfrom the legislative process. Currently,there are huge gaps between the discus-

sions and decisions taken at policy con-ferences and in policy making bodies andwhat actually goes on at sea.InterManager sees its agreements andrelationships with BIMCO, INTERCAR-GO and INTERTANKO as essential inheading-off increasingly reactive, kneejerk and politically inspired regulation.So we ask the shipping industry in gener-al and the shipmanagement sector in par-ticular to put their support behind ourKPI initiative so we can start helping tomould this fine industry in the way that’sbest for it.

Stephen Chapman

General Secretary

InterManager

PROACTIVE ENGAGEMENT Stephen Chapman

Moulding this fine industry inthe way that’s best for it.

MAILBOX

PETER CREMERSCEO, Anglo-Eastern Group, Hong Kong

When a task requires the personal touch,

I am normally there, arm deep, getting it done.

“I am up at around 6am every morning and go straight out for a jog.Keeping fit is important but so is family life so by 7.30am I like to be sit-ting down to breakfast with my family and reading through the morning'snewspapers.

“The office is a subway ride away and I am usually at my desk no laterthan 8.45am. I dive straight into my emails and talk with senior manage-ment to catch up with happenings overnight. My press assistant alsokeeps me up to speed with any relevant news events that may haveappeared in the shipping and local press. Customer liaison is essential andI like to keep in regular contact with our principals to check in with whatnews they may have. A quick call to Anglo's Montreal and US officeskeeps me abreast of their developments as by this time they are just clos-ing up for the day and may have something to report.

“At 10:30am every morning we hold a senior management meetingwhere each member of staff takes a turn in presenting what has happenedwithin their department over the previous 24 hours. This usually takeshalf an hour. I also try to find time to phone our Singapore office andTokyo is next on my list as we have a lot of Japanese customers who forlanguage reasons alone, liaise directly with our representative in the city.Shanghai is my next 'port of call' to see what developments have beengoing on in our newest management office.

“It is not unusual for clients to visit our offices either passing throughor to specifically visit the superintendents looking after their ships. I maytake the opportunity to take them out to lunch or I may find myself at ashipowners' association luncheon or even take a bite to eat with my sen-ior staff. Once back in the office, I will call our Mumbai office to see whatis happening there and as the afternoon moves along, will talk to ourAntwerp and Glasgow offices respectively.

“I like to use the afternoons effectively and most days senior manage-ment will stop by to discuss issues they are working on; others may beafter my advice. I also use the afternoons to check in with staff involvedin setting up our annual seminar in Mumbai. This is our chance to showour clients our facilities in Mumbai and for them to meet any crew whomay be on leave at that point in time.”

SHIPMANAGEMENT HOW I WORK


workHow I

SMI talks to four industry achievers, and asks the question: How do they keepup with the rigours of the shipping industry?

“I like to use the afternoons effectively andmost days senior management will stop by to discuss issues they are working on; others may be after my advice”

Peter Cremers is one of three owners of Anglo Eastern alongsideMarcel Liedts and Richard Wong. Within that group his responsibilitiesare the commercial side of the business and he has two main priorities:clients and staff. PC is a naval architect by trade, so he does have the abil-ity to manoeuvre in the technical area, but leaves the majority of it toMarcel Liedts, Group Managing Director and technical wizard!

He describes himself as both a 'doer' and a 'delegator'. “I am very goodat both! When a task requires the personal touch, say a specific requestfrom a client, I am normally there, arm deep, getting it done. My col-leagues say I am usually not to be messed with in this scene as I am in'Go' mode. On the flip side, when a job requires a number of peopleworking together I can take charge and delegate to arrange the best pos-sible team and supervise their progress accordingly.

“By 6-6.30pm the day is closing, and I will either head to a privatemeeting (usually with the Belgian Chamber of Commerce – I am theirVice-Chairman in Hong Kong), take dinner with clients or head home.”

WIM VAN NOORTWIJKPresident, International Ship Suppliers AssociationChairman of the Governance Board, and part owner of AntwerpShiprepair NV., The Netherlands

My work with ISSA is very important and I spend a lot of time helping

to push forward the association’s goals and intiatives

For a man who once worked for John Wayne and Kerry Packer youwould think that heading up an international trade association for shipsuppliers would be a doddle. Seemingly not! “It has its challenges,” notesWim van Noortwijk, ISSA President, “but we remain focused on achiev-ing our goals of quality and integrity in the ship supply business and willwork hard to see them through.” The John Wayne connection? “He hadinvested in an oily water separator company and as a young man in my20s, I was asked to come to California to work briefly with him.

“I am one of those people who like to read the morning papers in mybedroom, relaxing with a glass of fruit juice. Normally I read two Dutchpapers as well as watch the Belgian and Dutch news on the TV beforeclicking over to CNN. I have a private office at home so I spend the firstpart of the morning going through emails and making telephone calls tothe Far East. I split my time between ship supply, the ship repair yard andmy other business interests so my day will generally be mapped out byhow things are progressing first thing in the morning.

“I get a lot of emails and I have up to four 'secretaries' in my variousworking businesses separating the wheat from the chaff so to speak. Idon’t believe in replying to all emails because not all are invited. If Ianswered them all I would be there all day.

“Depending on my workload, I have the option of travelling to myshipyard in Antwerp, going to my procurement company in Holland orspending time with my other businesses which include a waste watertreatment business in Holland. My work with ISSA is very important andI spend a lot of time helping to push forward the association's goals andinitiatives. I work very closely with the association secretariat in Londonwho helps to plan my time as well.”

Only eight months into his third term as president of ISSA, Wim vanNoortwijk has set out a three year plan that he believes will take the asso-ciation to higher levels of quality and accountability. “ISSA needs tostrengthen into an organisation that can continue to help its members intheir specific market situations; further define what and who is an ISSAmember by demanding stronger and more quality-driven membership cri-teria; create joint ventures and incentives that benefit ISSA members suchas education, leasing and factoring etc. and above all, the associationmust use its clout as a representative association in the international ship-

ping industry to promote and elevate the global image of the quality shipsupplier. I want to see ISSA grow to represent more fully the internation-al ship supply sector by extending the membership criteria to groups cur-rently excluded such as suppliers to ship suppliers; maritime manufactur-ers; other maritime industry associations; lawyers; logistics providers;management and service companies; ships agents; as well as ship supplyagents/consultants and shipyard service and repair companies.

“I am very disciplined as a person and like to think that my value is incorporate governance and strategy. Because of a lifetime surrounded byoperational experiences across the wide spectrum of shipping I feel I havebuilt up a sound knowledge and understanding of most aspects of ship-ping. Senior management entering shipping today tend to have a fullerand more detailed education than we ever did but we benefit from a life-time of experience that gives us a more global approach to issues.

“Sport is very important to me but I am not into jogging but I play atleast two games of hockey every week – normally for a pensioners sidein Holland. We play our games throughout Belgium and Holland so I canfind myself driving two to three hours to a game. I also referee games inthe Dutch national hockey league as well as veteran tournaments in othercountries such as Greece, Switzerland, UK and Singapore. We are all get-ting older and I find I need two to three days to recover. I am also a cer-tified Austrian ski instructor so I like to take to the slopes in the winter.My other passion is my 71.6 foot long ex-RNLI lifeboat called 'Dolphin'.I sail her off the Dutch and Belgian coasts and have been as far down asthe Isles of Scilly.” ➩

SHIPMANAGEMENTHOW I WORK


“I get a lot of emails and I have up to four 'secretaries' in my various working businesses separating the wheat from the chaff so to speak”

RAJAISH BAJPAEEPresident and Group MD, Eurasia Group of Companies andPresident of InterManager, Hong Kong

Eurasia has offices in a number of different time zones but we have

strong processes of management and organisation that link them up

together.

“I rise every morning between 5.30am and 6am and go for a 45 minutewalk. I like to walk: I feel it gives me the time I need to reflect on the dayahead and think over my priorities. Meditation and yoga are also impor-tant to me as they help me relax and clear my mind. It is almost as mucha part of my life as eating or working. After my walk I make myself aglass of lemon and hot water before starting some yoga. Breakfast is usu-ally something light – maybe cereal or toast and some fruit juice and thenI'm off to work.

“My office in Hong Kong is a 20 minute drive away and I relax listen-ing to music in the car – something soothing or classical but definitelysomething that is cleansing. The first couple of hours in the office are theproductive ones to me because it is then I spend my time resolving themost pressing issues before I get into the ritual of responding to emailsetc. At 11.30 I break briefly for some fruit juice and then some lunch at1pm. If I am lunching at my desk (normally fruit and salad) I like to catchup with the daily newspapers – normally three of them and relax a little.

“Eurasia has offices in a number of different time zones but we havestrong processes of management and organisation that link them uptogether. Through these process we have built efficiencies in our people.Technology is a godsend and it means that wherever you go you are notfar from your office.”

Rajaish Bajpaee has just started his second term as President ofInterManager – the trade association for the world's in-house and thirdparty ship managers – and is starting to see it reap the rewards of its muchpublicised transformation from a members' organisation into a fullyfledged trade association with membership increasing week by week. But

what lessons has helearned from his stintas President? “Thesingle most impor-tant aspect I havelearned is how tobuild, and value, thetrust and confidenceof my associationcolleagues within thesh ipmanagementindustry who alsohappen to be mycompetitors at a cor-porate level. It is alsorefreshing to be partof an association thatis dealing with indus-try-wide issues thatwill and do affect the way we operate as a sector.

“I frequently travel 200 days each year so I find yoga and meditationimportant in helping me fight jet lag and tiredness. Many people havetheir own thoughts about combating jet lag but I adjust my watch and mymind to the place of destination as soon as I get on the plane as I believethat works best. Once I land I like to walk and again participate in someyoga as it helps me adjust more quickly. I love getting close to nature. Ifthe place I am in suits, I like to walk in the woods, or by a lake or close tothe sea and just wonder at the beauty. I used to paint, oil on canvas, buthaven’t taken it up for over 20 years but if I ever got the chance and thetime, it would be something I would restart. I love image – whether it islooking at nature or an oil painting or photography which I got involvedin quite seriously when I was younger. What I'm really saying is that Idon’t have that much time for hobbies although my love for cricket hasgot me out playing on the odd occasion for the Eurasia cricket team.Teamwork is important.” ➩

SHIPMANAGEMENTHOW I WORK


“The single most important aspect I havelearned is how to build, and value, thetrust and confidence of my association colleagues within the shipmanagementindustry who also happen to be my competitors at a corporate level”

DAVID COCKROFTGeneral Secretary, ITF, London

The ITF is a global organisation with offices in virtually every time

zone. That means some late night and early morning phone calls and

a lot of email contact.

A normal working day depends very much where I am. I spend about halfthe year travelling but when I am in London I start with 20 minutes or soon the exercise bike (if I manage to get a hotel with a gym and no earlymorning meetings I do the same abroad) followed by a light breakfast, ashort period reading The Telegraph and The FT and a drive to the officewith my wife, who is a senior lawyer for a major bank. She and I are bothlate starters and finishers and the drive gives us some time to talk aboutdomestic things. When travelling, life can be different although the won-ders of Eurostar and early morning planes means that it is getting increas-ingly easy to do short haul trips in a day, in which case I wake at 5 or soand leap in a taxi.

The ITF is a global organisation with offices in virtually every timezone. That means some late night and early morning phone calls and a lotof email contact. The Blackberry has made this process a lot less stressfulas much of the email is non urgent but if you have to find a terminal andlog on, you are always tempted to do more than press the delete button.An average day in the office is around nine to 10 hours but when travel-ling on business it is usually longer since everything, including breakfaststhrough to dinners, involves talking business and my first reaction whena meeting is over is to get on a plane home as soon as possible. The work-load usually prioritises itself since I have a good team who usually onlyinvolve me if an issue is too sensitive to be dealt with alone or if the per-son raising it expects to talk to 'the man at the top'. I would like to think Idelegate but I am sure others would disagree. Juggling family and busi-ness life is easier since my children left university, although my daughterwas married last year which occupied quite a bit of my time and money.The most important quality in my job is honesty and integrity and the fact

that the wide range of people I deal with, both unionleaders, employers and government officials, know thatif they reach an agreement with me or the ITF, we stickto it. I expect the same from my team together with thebasic principles of trade unionism - defending the weakagainst the strong - which brought me into the movementin the first place.

I travel about half the year. It seems to get more everyyear both as the level of ITF involvement in globalaffairs increases and as it becomes easier and cheaper tomove around the world. Since a lot of what I do is repre-sentation, I am more often subject to other peoples'timetables which makes planning trips an intense balanc-ing act by a very experienced personal assistant. I wouldlove to delegate travelling, but most of my senior offi-cials have a timetable which is almost as busy. Jet laghas never really affected me. West is easier than East butmy general principle has always been to stay awake aslong as possible when I arrive. I never have a problem

sleeping on planes, even though, to keep the ITF's costs to a minimum, Iand my colleagues normally travel economy.

My main sport is skiing which developed when I lived in Geneva forsix years working for another international union federation. I always tryand take a week's ski holiday and this year I managed two. I try to do asummer break with my wife. This year after our Congress in Durban, wewill tour South Africa for two weeks, after which I will stay inJohannesburg for our South African affiliate's Congress. Other than that,my social life is mainly family based and involves driving between differ-ent parts of England. ■

SHIPMANAGEMENT HOW I WORK


“My main sport is skiing which developedwhen I lived in Geneva. I always try andtake a week's ski holiday and this year Imanaged two.”

DNV's Madsen quick to make changesHenrik O. Madsen has been quick to make hismark as the new DNV ceo by announcingchanges in both business areas and top manage-ment. Apart from introducing ICT RiskManagement that will be operative fromJanuary 1 next year, he has also appointed fivenew members to the executive board. Tor E.Svensen, coo in DNV Maritime, will continue inhis current position as well as assume responsi-bility as deputy ceo. “I want to enable a newbusiness area ICT Risk Management to deliverand develop services that use DNV’s riskexpertise to create solutions to our customers’safety and business critical IT systems and ICTstrategies,” said Henrik Madsen, who took over

as ceo on May 8. “We are actively seekingacquisitions in this field, most recentlyHamburg based Tireno in January 2006, Utrechtbased CIBIT in May 2006, and also taking fullownership in Q-Labs,” he added

Professor Günther ZadeProfessor Günther Zade, founding fatherand former Vice-Rector and AcademicDean of the World Maritime University(WMU) has died in Germany. He was 70.

Professor Zade was involved with the designand establishment of the WMU prior to its open-ing in Malmö, Sweden, in July 1983 and thendedicated his life and intellect to the creationand progressive development of the University.As Vice-Rector and Academic Dean of WMU,he contributed directly and positively towardsthe well-being and academic achievement of theUniversity and, more importantly, those of itsstudents. Even after his retirement in 2001, hecontinued to serve WMU as a research fellowand became editor of the WMU Journal ofMaritime Affairs.

IMO Secretary-General and WMUChancellor Efthimios E. Mitropoulos, said: “It

was with great sadness that we learned of thedeath of Professor Zade. His dedication andforesight in the formative years of theUniversity helped to nurture WMU to becomewhat it is today – a unique model of internation-al learning and co-operation. His singular devo-tion to the development of maritime educationand training is wholeheartedly acknowledgedthroughout the maritime community and manyWMU graduates are where they are today, inhigh-level roles in the maritime world, becauseof Professor Zade’s role as their mentor."

Professor Zade is survived by his wife Inge,his daughter Maja and his son Ralph.

BUSINESS OF SHIPPINGAD HOC

Professor Günther Zade

Henrik O. Madsen

Ad Hoc

It’s enough to get the headline writers’ working overtime. How manyclichés and puns can you think of that aptly describe the malady cur-rently affecting seafarer health. “Seafarers sick at excessive healthbills” is one; “Operating costs soar as owners seek emergency med-ical aid” could be another. But joking aside, the raw deal shipown-

ers and their P&I Clubs are getting from the way medical authorities treatthem is enough to make any shipping ceo sick as an old sea dog!

The problem is not just limited to the medical condition of seafarerscoming onboard ship but also the high costs owners increasingly have topay to put problems right and unknown to many owners and their clubs,the scams perpetrated by some dodgy ships’ agents who will refer a sickseafarer to an expensive hospital in return for a percentage of the bill paid.

“Sadly, too many sailors arrive onboard ships beset with diseases andmedical conditions that could so easily have been screened out earlier,”said Michael van Hall, of van Hall Health, a seafarer health cost contain-ment specialist which recently merged with Health Systems Internationalof Indianapolis.

To appreciate the real impact of stringent examinations on shipfinances, by screening out sick sailors Crowley Marine/Liner Servicesreduced their P&I premium from $55,000,000 per year to $35,000,000over the course of seven years, reported Michael van Hall.

As he stressed: “Remember that in the US, hospitals and doctors haveabout 150 contracts for re-imbursement for the same medical procedures.As the Jones Act dictates that medical care is reimbursed at ‘Usual andCustomary’ charge, a medical provider sees the sailor as - at last - gettingwhat their Charge Master demands. The fact that a hospital will thinkthey have died and gone to heaven when they receive 60% of the bill letalone 100% as dictated by the Jones act shows the extent of the issue.”

This was a point echoed by Christina DeSimone, President & CEOof Future Care, who like van Hall Health specialises in the seafarerhealth cost containment business. She said: “While many industriesdoing business in the US and abroad have negotiated reduced rates forhospital and physicians services, the maritime industry has no such pro-tection in place. The illness or injury of mariners is treated as a ‘newevent’ each and every time an incident occurs. Shipowners seekingAmerican healthcare for their crewmembers normally do so without thebenefit of medical insurance. As a result shipowners pay on the basis of‘billed charges’, the highest possible retail rates for all elements of acrewmember’s medical care, rather than a much lower per diem or PPOnetwork rate.

“Frequently the seamen’s medical treatment is directed in the firstinstance by ship’s agents, who may be well-intentioned but who lack the

expertise required to handle medical problems. Hospitals and doctors, notbeing bound by prior agreement, consider themselves free to conduct asmany procedures as they wish at the highest cost. There is no reducedcost structure in place for the hospitalization and treatment of mariners,”she said.

But screening seafarers is only part of the problem. According to vanHall, a growing issue facing shipowners and their P&I Clubs is healthcarepiracy, “or to put it another way, the milking of the system by unscrupu-lous doctors and port agents for their own pecuniary gain. When you con-sider that for every ship coming to US blue water, $3,000 is spent onhealthcare, and with up to 60,000 vessels visiting US ports each year, thepotential for fraud is massive, up to $180m to be precise.”

But what form does this fraud take?“Well, it can be multifaceted from dishonest ‘dock doctors’ who take thesick and injured sailor to a hospital that has expressed the greatest willing-ness to pay for the referral rather than the centre that can provide the bestcare, to dishonest agents who deliver ill patients to unscrupulous doctorsand hospitals in exchange for their own 30 pieces of silver,” he said.“There are also instances of sailors on their last voyages before retirement,purposely injuring themselves so they can be admitted to hospital andhave other longer-term and more serious ailments treated at the shipown-ers’ and P&I Clubs’ expense.”

But does the shipping industry need to have a collective defenceagainst fraud and overcharging? “Absolutely!,” he replied. Especially thefraud aspect. You have to remember that “overcharging” is in the eye ofthe beholder - in reality it is dictated by their charge master. The doctorsand hospitals have their charge masters and they look at a sailor as theirXmas bonus,” Michael van Hall added.

Louise Livingston who manages the bodily injury team for ThomasMiller (Americas), said the key to controlling costs, while maintainingthe level of treatment, was "timely notice by owners, managers or localship agents of a crew member’s injury, illness or hospitalisation." TMAexecutives can monitor a seaman's condition and treatment, and audithospital and other medical bills, particularly if greater than $10,000, orarrange an outside medical auditor to do so. Advantages include limit-ed charges for itemised services.

Failure to pay promptly can have other drawbacks, such as creatinggrounds for seamen's legal actions in the US against owners in claimswhere jurisdiction may not otherwise lie; creating a lien against theship, subjecting the vessel to attachment or arrest; and loss of discountat eventual settlement. ■

BUSINESS OF SHIPPING P&I


AN APPLE ADAY?A working containership deals with an average of 10 medicalclaims worth a total of $150,000 per year. Imagine the medicalbills if an owner had a fleet of 10 ships!

Shipping has become sophisticated in the early years of the 21st Century,forced by greater demands from charterers, consolidation, stability of earnings andeasier access to capital markets. A few years ago, who would have thought that theworld’s second largest tanker owner, Overseas Shipholding Group, would havemade it onto the Dow Jones Transport Index during the course of 2005, the onlydeep-sea shipping company to be afforded such status?

And this so-called sophistication is not just the preserve of tankers: in 2000there was just one publicly-listed dry bulk ship owner, Anangel AmericanShipholdings, which went back into private hands in 2003; now there are 17 list-ed dry bulk companies.

To many, shipping is nothing if not traditional. During the 1980s and, particu-larly in the 1990s, many traditional ship owners made most of their money fromasset plays – buying and selling ships at the right time, which made up for theabysmal returns on the freight markets. Publicly-listed shipping companies wererare breeds, and largely confined to the container business. In those days, the ship-ping industry was highly fragmented and Greek and Norwegian ship ownersearned a worldwide reputation for being able to accurately read and judge theprospects of a market; hence their extraordinary and well-honed sense of when tobuy and sell ships and make a fortune in the process.

Ship owners' access to capital markets was limited then, and not helped any bya disastrous set of junk bond issues in the late 1990s, all of which inevitablydefaulted. For the most part, ship owners were reliant on traditional debt/mortgagefinancing to pay for newbuildings, or second-hand tonnage. Given that through-out the 1990s, the average rate of return on capital from operating ships wasaround 1%, it was not surprising that institutional investors had little, if any, inter-est in shipping.

All that has changed in just a few short years since 2000. Despite the dotcombubble bursting, institutional investors still have an appetite to invest in the unusu-al. In the last three years tankers and dry bulk carriers have enjoyed their highestever freight rates. Although rates have fallen a long way from their peaks, ownersof these ships are still making plenty of money, generating positive cash flowsand, when publicly-listed, are consistent with paying dividends and deliveringsteady dividend growth – music to institutional investors’ ears. Besides which,freight rates are still at historically high levels and many view the current cycle asno more than a significant correction from the previous, massive and unprecedent-ed spike.

MARKET WATCH


The noble art of the asset play wasonce considered the only way to

make money in shipping and, tradi-tionally, a nobleman never tarnishedhimself with something as vulgar as

trade. But sky high freight rates and an increase in the number of publicly-listed ship owners, with

shareholders to answer to, meansthat some owners have concen-

trated on trading their ships to carry cargoes and are reliant on

the operational income. So is the traditional asset player dead?

the old fashioned way

Making

A measure of the confidence institutional investors are prepared tobestow on shipping was clearly demonstrated last year, when they backeda blank-cheque IPO that enabled Angeliki Frangou to raise $180M to buyConnecticut-based dry bulk owner and operator Navios – NorthAmerica’s largest dry bulk shipowner and operator, originally establishedin the 1950s by US Steel to carry its coal and iron ore cargoes.

But what of the traditional asset play? The late Peter Tudball, a formerchairman of the Baltic Exchange, used to delight in telling stories of buy-ing a ship at a Lords cricket test match, and selling it a few years later atGlorious Goodwood. Or was it the other way round?

“I often joke that in decades gone past that shipping operations wassomething unseemly one did between the noble acts of buying and sellingvessels,” said Morten Arntzen, president and chief executive officer ofOverseas Shipholding Group. Now we make money the old fashionedway: from earnings from operations,” he added. Arntzen has seen it as ashipowner and from the perspective of a long career in ship finance.

But Peter Schaerf, managing director of New York-based finance groupAmerican Marine Advisors, said asset plays still had an important role inshipping. “While it’s true that most of the public companies have share-holders to answer to and have been concentrating their efforts on earningsfrom operations, there are exceptions. Genmar is a prime example. Theybought plenty of single hull [tanker] tonnage and sold it at a profit,” hesaid.

Some observers argue that Stelios Haji-Iannou’s decision to to hold outfor the highest price possible for his Stelmar Tankers operation, with theeventual agreed takeover by Overseas Shipholding Group last year, wasnothing more than a grand asset play.

“I think the idea that asset play opportunities are not still there is one ofperception rather than reality. And freight rates have been good, so it’s notsurprising people want to hang onto their ships.” He said that in the years2002 to 2005, Panamax dry bulk carriers were earning four and a halftimes the level of years 1999 to 2001. According to some estimates, theworld Panamax dry bulk fleet earned a combined total of $7bn betweenthe beginning of 1999 and the end of 2001. According to some, tankerearnings have risen more than fivefold during the same time frame.

But Arntzen did agree that asset plays were not dead. “While asset ➩

MARKET WATCH


Secondhand ship pricesApril 2005 In millions of US dollars(Based on vessels of maximum five years of age)

VLCC (305,000 dwt) 117.545Aframax (105,000 dwt) 64.173MR Products Tanker (45,000 dwt) 46.379Capesize (172,000 dwt) 54.365Panamax (64,000 dwt) 31.686Super Handy (52,000 dwt) 19.194

Source: Baltic Sale & Purchase Weekly as at April 3, 2006-04-26

New building resales millions of US dollars

Ship Type April 2006- Dec 2005 Average 2004VLCCs (300,000 dwt) 138 140 108Suezmax (150,000 dwt) 83 87 57.5Aframax (105,000 dwt 74 70 N/A

Source: Clarkson Research Services. Note new building resales not a feature in the dry bulk market

“I often joke that in decades gone pastthat shipping operations was somethingunseemly one did between the nobleacts of buying and selling vessels. Nowwe make money the old fashioned way:from earnings from operations”

plays are still possible and asset management critical, it is no longer theroad to riches or the key success factor going forward,” he said.

“To succeed in shipping today and tomorrow, you have to run safe,secure, reliable ships and invest so you can do it better each year. It is arace to quality, not a race to lowest opex costs. Shipping is becoming moredemanding and more professional. This requires scale, systems, well-trained staff and a hunger for continuous improvement. It will favour thepublic, transparent companies. But good private companies will be able tocompete as they always have.

“You throw these trends into a world newbuilding market that showsno sign of getting soft for quite some time, combined with a relentlessgrowth in world trade, and operations become king,” Arntzen added.

The strength of the freight market of the last few years is reflected insecond-hand ship prices, which are astronomical, especially for anythingthat is less than five years of age, even though the freight market has comeoff its latest peak.

Resales of new ships under construction are giving a few owners theopportunity to sell these vessels without ever taking delivery of them,while making handsome profits over the prices at which they placed theorders. But again, owners seem reluctant to sell. Given a minimum of afour-year wait to secure newbuilding berths at Japanese, South Korean

and even Chinese shipyards, there have been plenty ofshipowners willing to pay high prices to owners whoalready have ships at an advanced stage of construction.The difficulty is finding owners willing to sell.

The firmness of the second-hand market helps to sup-port shipbuilding prices, although raw material costs arealso another major factor. Steel prices are rising in Asia,having fallen in the second half of 2005, and the shipyardsare still having little difficulty in passing on the highercosts to customers. And the proof of this is that there hasbeen no let-up in ordering of new ships.

“But shipbuilding prices need a strong second-handmarket to stay high. Once the demand goes out of the S&Pside, then it becomes much harder for yards to win neworders and eventually, they start dropping their prices,”said a London-based sale and purchase broker.

“And while prices are rising, any owner who’s thinkingof selling a newbuilding without taking delivery is probably waiting in thehope of selling at the peak of the market,” said a London-based sale andpurchase broker.

Despite OSG’s commitment to operational earnings, it has not shiedaway from asset plays entirely. “We did close to $900M of ship sales andsale charter backs last year, underscoring this point. Having some flexibil-ity in your fleet ownership is also important,” Arntzen said.

“What we’ve seen in the last few years is a massive concentration ofownership of tankers – tankers especially,” said a New York-based finan-cier, who asked not to be identified as one of his jobs is advising a Greekowner on second-hand purchase opportunities in newbuildings. “This hasmeant a much less-fragmented business on the ownership of operations oftankers. The number of five or 10-ship companies in the tanker sector hasdiminished dramatically in the last four or five years. These were the com-panies run by entrepreneurs who succeeded in buying ships cheaply andselling them for higher prices,” he said.

“Another thing to consider is that when owners do resell ships with aview to reinvesting, the second-hand and newbuilding price of everythingelse is so high that many are put off from reinvesting. The result is thatpeople hang onto their ships for much longer,” he added.

But, he said that when this bull market does eventually end, “there willbe owners who have ordered ships at the peak of the shipbuilding marketwho will find themselves with negative equity before they take deliveryof them and with little opportunity to get any return on the investment fora few years. Some may be forced into distressed sales, which will defi-nitely create opportunities for buyers, with a view to selling those ships ata profit a few years later. And the cycle will start again.” ■

MARKET WATCH


Shipbuilding Prices In millions of US dollars

Ship Type Q1 2006 Q4 2005 Q3 2005 Q2 2005 Q1 2004 Average AverageAll 2004 All 2003

TANKERSVLCC 125 120 117 113 114 110 77Suezmax 75 72 70 70 70 71 51.5Aframax 62 59 57 58 59 59 41.5LNG (147,000 cu metres) 218 208 205 190 190 185 160

DRY BULKCapesize 60 59 57 58 59 62 48Panamax 34 36 35 33 34 35 27Handymax 30 30 28 25 28 30 24

Source: New building brokers in London

Worldwide Spot Freight Earnings(Time Charter Equivalent in US dollars/day for modern tonnage less than 10 years old)

Ship Type Apr 7 Average Av 2005 Av 2004year-to-date

VLCC 33,891 69,333 60,319 96,055Suezmax 24,003 47,130 47,573 65,215Aframax 20,342 38,682 41,650 49,592Capesize 36,212 35,519 51,613 70,935Panamax 14,437 14,750 22,931 33,950Handymax 16,313 14,930 21,268 28,135

Source: Clarkson Research Services

The average daily earnings recorded at the end of April 2006would have been close to the peak of the previous dry bulkrate cycle seen in 2000, which means that these earnings arestill historically high, even though they have fallen a long wayfrom the all-time highs seen at the end of 2004.

Avital ingredient influencing the planning of shipping opera-tions, whether directly or with third party involvement, isunderstanding the competitive cost base in the key areas ofoperating expenses (manning, insurance, R&M, purchasingand procurement).

This year began with many in the industry expecting manning to be abig headline issue. One reason was the publication in December 2005 ofthe Bimco/ISF Manpower Update. Its predecessor (issued in 2000) hadidentified a sizeable shortfall in officer availability and expected the posi-tion to get worse. Hence, in late 2005, there was anticipation as towhether this had turned out to be the case.

The December 2005 headlines can be summarised:• An assessed global supply of officers of 466,000 (a 2% shortage) –which compares with the 2000 figure of 404,000 (then seen as a 4%shortage).• An assessed global supply of ratings of 721,000 – which compareswith the 2000 figure of 823,000.

Certainly, there are critics of these numbers. The obvious question is,if there is a shortfall of officers, why is there no evidence of ships beingprevented from sailing due to the lack of a Chief Engineer or a 3rdOfficer? Either the assessed shortfall is not real or some ship’s comple-

ments will not stand scrutiny. There are some issues of fraudulent certifi-cation that come to light but no one has suggested that this is rife.

Whatever one thinks of the headline numbers, there are some seriousissues that lie beneath them. There is a significant tranche of senior offi-cers that are approaching retirement age. Yet, many of their obviousreplacements at senior rank appear to be less keen than their predecessorsto stay at sea beyond the age of 50. The world fleet is set to expand at adramatic rate in the next few years. Furthermore, there is considerableexpansion pending in highly specialist domains such as ice-class opera-tions and LNG shipping. At the same time, the shipping industry stillseems to be making little progress in marketing the attractions of a careerat sea – and the subsequent prospects within the industry when comingashore. Finally, there are mentions of morale problems – many stemmingfrom added tasks imposed on crews under the ISPS remit and other issuessuch as problems with shore leave and visas – though the prospect ofcriminalisation is a big disincentive for some when it comes to their will-ingness to take on senior shipboard roles and duties. Furthermore, wherethe shipboard personnel is supplied by a ship manager, there is talk ofowners wanting to distance themselves even further.

R&M – price hikes in the steel and coatings sectors

Those owners who employ third party ship managers tend to expect theirmanager to offer them some commercial advantage in dealings with the

SHIPMANAGEMENT OPERATIONS

bottomlineGetting to grips with the

ship repair industry. However, this can see managers faced with makingdifficult choices. There may be no certainty of continuity in the manage-ment contract. The owner may have a reputation for switching betweenmanagement companies or be a particularly active player on the sale andpurchase (S&P) market. Hence, there will be choices between the ‘quickfix’ (that keeps the impact on the ‘bottom line’ to a minimum) and a moreexpensive but longer lasting solution.

This area of choice has been especially germane over the past 12-18months. In virtually every shipping sector, freight rates have been at veryhigh levels. Commercially, this leads to one imperative – minimising off-hire. This might just mean that several ‘quick fixes’ are less attractive thenone good solution.

The ship repair industry has one inherent flaw in its marketplace.That is, yards seldom enjoy long order backlogs. For repair yards, their‘certainty’ tends to be measured in months. Naturally, ship owners andmanagers look to use this to their commercial advantage. Meanwhile,the repairers will be looking to earn a little more from time pressed, cashrich owners – who may begin to reconsiderwhether a lengthy diversion to a very cheap(but possible not time diligent) yard shouldbe the primary motivation. On the otherhand, the ship repair sector is on the verge ofa further large scale expansion – through theopening of new dock capacity – in China.The key factor looking ahead may turn out tobe whether the inauguration of this capacitywill see Chinese prices drop (as a battle formarket share develops) as, if they do, priceswill come under pressure in other repair loca-tions. In recent times, Chinese repair priceshave risen – from about 50% ofSingapore/Middle East levels to perhaps75%-85% – but they remain highly competi-tive in the context of the world stage.

The biggest influence on yard selection forsizeable repairs is likely to be the cost of steelreplacement. Owners and managers will bewell aware of likely steelwork price differen-tials between, say, China, Singapore, theMiddle East, Eastern and Western Europe,etc. but what has become a factor for the ‘bot-tom line’ has been the upsurge in the price ofsteel itself. ➩

SHIPMANAGEMENTOPERATIONS


3.6 0

5

10

15

20

25

30

35Operating CostAverage T/C Rate (12mth basis)

40

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

3.8

4.0

4.2

4.4

4.6

4.8

5.0

Earnings and operating expensesPanamax bulk carrier 000s US$ per day

The ship repair industryhas one inherent flaw in

its marketplace. Thatis, yards seldom enjoy

long order backlogs.For repair yards, their‘certainty’ tends to bemeasured in months.

Naturally, ship ownersand managers look touse this to their com-

mercial advantage.

Alongside this, there has been another key cost hike. This relates tocoatings. The marine coatings sector has been in transition, mainlythrough the ending of the use of TBT-based products, leading to a wideranging debate on the cost and performance of replacement products.Most of the replacements favour a copper base. Meanwhile, driven by thedemands of the Chinese economy, the price of copper has soared to recordhighs (with a similar price path being seen by other key coatings inputssuch as zinc, titanium dioxide and epoxy resins) – leading to a series ofprice hikes by coatings manufacturers.

Insurance – wider issues than premiums, renewals and deductibles

The engagement of a reputable ship manager can be a factor in the delib-erations and, hence, premium setting decisions of underwriters. It maygive the insurers some ‘comfort’ with regard to expertise on the technicalmanagement account and in terms of matters relating to ISM, ISPS or PortState Control targeting. This said, below the surface, the world of marineinsurance is seeing quite significant turbulence.

The hull market is cyclical. Its primary issue is capacity – overall andin its international spread. Premiums rise, new players enter. The newentrants can offer favourable premium levels because they have yet toincur a claims tail. Premiums fall. Then the claims and the underwritinglosses kick in and some capacity exits. Also, some cover goes away fromtraditional markets (such as London) but often it reappears on the Londonmarket in the form of reinsurance.

The other significant developed is that ‘marine’ is losing its distinctidentity in the insurance market. There is now an increased share ofcapacity devoted to marine-aviation-transport (MAT). This may be goodnews and bad news. The good news is that the insurance sector has broad-ened its risk portfolio and so a poor marine performance might not trigger

quite such a serious premium hike backlash. Conversely, the bad news isthat problems in other business areas could impact on marine.

The P&I sector has its own issues created by its concept of mutuality.The Clubs nominally ought to be targeting a break-even picture. The sec-tor has made losses on underwriting that, until recently, have been madegood by profits on investments. However, the Clubs do need to build their‘war chests’. This is due in part to deteriorating investment returns and anincrease in the number of large claims but also is a prudent move in thelight of changing liabilities emerging from environmental legislation orother politically-motivated moves by governments. ■

Drewry Shipping Consultants, www.drewry.co.uk

SHIPMANAGEMENT OPERATIONS


60

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Index

Average 2000-2003

Average 2004

Average 2005

2000 2001 2002 2003 2004 2005

Indexed steel price trend (1Q2000 = 100)

Its hard to imagine there are any celebrities in shipmanagement but there is somethingabout V.Ships’ ebullient and flamboyant President that brings in the crowds. A cursoryheadcount of delegates queuing up to listen to Roberto Giorgi’s speech on the future ofshipmanagement at the recent CMA show in Stamford (where SMI caught up with him)indicated standing room only and there seemed to be a permanent entourage of people fol-

lowing him around as he meandered through the various banks of exhibition stands. Whether it is his charm or the extent of his fleet that entrances those around him is unclear

but the interest is there and Roberto acknowledges that he and his company have an importantrole to play in helping to push forward the quality boundaries of shipmanagement and in accel-erating the acceptance of third party shipmanagement among traditional shipowning companiesaround the world.

“It’s a big role because today third party shipmanagement represents probably 20% of thetrade internationally so we have a duty to perform a first rate job in running our ships but also


GiorgiRoberto

Glamorising theart of ship

management

to be proactive externally to promote an image of shipping that is morein line with reality,” he told SMI.

Portraying and promoting a positive and as he claims ‘true’ image ofshipping has been a strong soap box sermon of the shipping industry formany years but with concerns deepening over the shortfall in qualifiedofficers onboard ship, the subject appears to be coming more sharplyinto focus.

“We have a lot of good people in our industry but it’s very difficultto sell this to the media. So what do we do? We start to talk to the pressthat specialise in our industry and also try to build good relations withthe normal media. We also try to promote the image of shipping to thestudents at our universities so the younger generation will learn moreabout shipping in general,” he said.

V.Ships recently invited 65 University students to its offices inMonte Carlo for an open forum where the subject was very much aboutshipping, and interest was certainly high among those there especiallyon emotive subjects such as the environment and security.

Graphic pictures of the atrocities of 9/11 mean that security and thefight against terrorism are constantly on most people’s minds. The envi-ronment is also a big issue to today’s younger generation and RobertoGiorgi understands the importance of proving how shipping can coex-ist with efforts to foster clean seas and a cleaner environment.

The role of the media in shipping cannot be underestimated he hints,because if the press claims the shipping industry is secretive and nottransparent and brands it as accident-prone and a major cause of pollu-tion then public opinion forces the regulators to take their own action toremedy the problem.

“We should be more proactive in lobbying and promoting the image of shipping today to the regulator and to the general public,” heasserted.

The V.Ships President supports the idea of self assessment of theshipmanagement industry and heralds the idea of a common set of keyperformance indicators as a benchmark to assessing this quality.However, he does qualify this support by suggesting there should bedifferent KPIs for different vessel sectors within the industry.

“If you run a passenger vessel it’s different to running a tanker so theKPI can change and must be customised according to that sector. ButKPI is definitely part of our future, no doubt.”

Quality assessment and verification seems to be the order of the daywith InterManager’s KPI initiative currently vying for the limelightwith OCIMF’s TMSA and Intertanko’s Poseidon Challenge. In light ofall of these initiatives, is it about time the shipmanagement industryoperated as a single voice in promoting the qualities of the industry?

“Absolutely! Everybody knows we are looking to form a trade asso-ciation for ship managers in InterManager and we believe it’s much bet-ter to be together than to be fragmented. I think we need to have a verywell defined common objective and focus on that objective,” he said.

At the time of writing, V.Ships had yet to join InterManager but whenasked whether it would, Roberto was not shy in coming forward. ➩

SHIPMANAGEMENTPROFILE


Portraying and promoting a positive andas he claims ‘true’ image of shipping has

been a strong soap box sermon of theshipping industry for many years

but with concerns deepening over theshortfall in qualified officers onboard

ship, the subject appears to be comingmore sharply into focus.

“There are a number of challenges facing owners today.There is a need for compliance ofan increased number of rules andregulations; a shortage of crewand shore-based personnel; a need for greater cost control, a worsening image of the industry in general and greaterpublic and media scrutiny”

SHIPMANAGEMENTPROFILE


“We are definitely, because as I say we are a main promoter alongwith a number of other managers of the trade association idea. So defi-nitely yes but everything has to be right.” This was a reference to hisview that InterManager had to be seen to be different in what it offeredits members and not just a name change from the old ISMA days.

V.Ships takes its shipmanagement responsibilities very seriously andwith over 900 ships under various aspects of management is the world’slarger third party manager by practically a factor of three. Boasting 56offices with a total of 1,465 shore-based and 23,500+ seagoing staffdrawn from over 40 different nationalities, the extent of its presence inthis industry is impressive. But when you realise that only 20% of theworld’s fleet is outsourced to a pool of over 350 management compa-nies – and 50% of that total is managed by the ten largest managersoperating today – you begin to understand the carrot that drives execu-tives like Roberto Giorgi to promote quality shipmanagement as anessential necessity in today’s shipping industry.

With many single office ship managers unable to offer the range ofservices of their larger competitors and the entry barrier to the industryrising every year, the future looks somewhat rosy for V.Ships and itslarger competitors especially if Roberto’s predictions for further majoroutsourcing materialises.

“There are a number of challenges facing owners today,” he said.“There is a need for compliance of an increased number of rules andregulations; a shortage of crew and shore-based personnel; a need forgreater cost control, a worsening image of the industry in general andgreater public and media scrutiny.

“The world will become much more litigious so you need to makesure that when you are under scrutiny you can come out completelyclean.”

Roberto Giorgi strongly believes there will be a major shift in ownersoutsourcing the management of their vessels in traditional markets suchas Greece to create wealth for the companies. But more interestingly,more outsourcing, he believes, will come from owners of larger fleets.

“We can also look forward to greater innovation in outsourcing ie.moving away from ‘vanilla’ style shipmanagement. There will also bemore joint venture partnerships between owners and managers whichhelps to maintain the owner’s brand while at the same time supportingthem with know-how,” he added.

“I think greater outsourcing is happening because there’s a shortage ofshore and crew personnel in the industry. This is a big, big issue, proba-bly one of the biggest issues there is. So today it’s very difficult for aclient to diversify his operation from say being a chemical vessel opera-tor to being a tanker operator and having the same crew complement.”

But while it is considered a strength of the third party ship managerto have access to large pools of seafarers, it is the industry problem ofofficers shortfalls and training issues that is causing today’s managersthe most headaches.

“We currently employ 23,500 seafarers within V.Ships and we con-trol the pace of their recruiting and all their training. However, weunderwent a mindset change in our organisation to ensure that we start-ed to treat the seafarers like clients which means we don’t wait for theseafarers to come to us, we go to the seafarers. We are opening morebranch offices in seafarer nations like India where we have five to sixbranches; in the Ukraine where we have the same and also in Russia.We are replicating what we did with our shipmanagement operationswhere we opened offices in places that were close to our client base.Now we are opening offices and building offices to be close to therecruitment of our seafarers,” he stressed.

Giorgi also alluded to a change in the V.Ships organisation thatencouraged some people to focus only on recruitment and others tofocus purely on management and retention.

But hearing these concerns from the world’s largest ship managershows that the issue of seafarer recruitment is serious enough to involvethe collective efforts of all players in the industry.

“Collectively it’s a gain: You cannot have only one guy carrying outa good training programme, everybody has to do it. If as an industry weare moving ahead in the same direction then all players will benefitbecause a seafarer on your ship today may be working on my shiptomorrow.”

So what of the future?

“We are very bullish about future business for ship managers. I thinkyou need to have the right ingredients to grow in this industry and youreally need to be of value to the owner. It’s not only a question of costbut of offering an intelligent service and other issues like reputation,credibility and size. Size is important especially when things go wrong.Ship management is more about partnership: it is more customisedbecause each client has a different priority and a different objective andthese have to be met,” he concluded. ■

“If as an industry we are moving aheadin the same direction then all players willbenefit because a seafarer on your shiptoday may be working on my ship tomorrow”

Roberto Giorgi strongly believes therewill be a major shift in owners outsourcing the management of theirvessels in traditional markets such asGreece to create wealth for the companies. But more interestingly, more outsourcing, he believes, will come from owners of larger fleets.

3T hird party shipmanagement looks to have a bright future. Thesheer amount of regulations and recommendations currentlylanding on an owner or operator’s desk is frightening. So fright-ening that in terms of numbers of vessels, most of the smallerowners and operators are unable to cope. Many have already

thrown in the towel and opted to put their vessels with third party man-agement concerns.

However, the rules and regulations are not the only reasons companiesrely on the increasing band of third party shipmanagement companies.There are some owners that are mainly asset players, such as Frontlineand its associate companies, who feel they benefit from such association.There are others set up along the German 'doctors and dentists' KG taxdeferment system whereby a finance house or a large shipmanagementcompany will persuade ordinary individuals to invest in share schemes.Once a share scheme has been put in place and a vessel earmarked, oftena newbuilding, a management company will takeover the commercialand technical operation of that vessel.

Frontline is by far the largest of the so called 'shipowners' to use out-side management concerns. The company, backed by entrepreneur JohnFrederiksen, is basically a finance and commercial management concern,which aims to keep its overheads to a minimum. To achieve this, much ofthe day-to-day running of the fleet is outsourced. Frontline and its asso-ciates – Golar LNG, Golden Ocean, Knightsbridge, Seatankers, ITC andsoon to be split Ship Finance use six different third party shipmanage-ment companies in a bid to keep the bulk of its eggs in different baskets.

The favoured six are V Ships Glasgow, V Ships Oslo, InternationalTanker Management (ITM), Wallem, Thome and Golar Management. Ofcourse by going down this route shipowners do not have to worry aboutthe latest IMO conventions, the Tanker Management Self-Assessment(TMSA) scheme, or any other diversions but can just concentrate onadding value for their shareholders.

Frontline monitors what it describes as the important aspects of ship-management as if it had its own in-house technical team. For example,each vessel has its own dedicated form, which the third party shipman-agement concern must fill in on a regular basis. These are then scrutinisedby Frontline’s in-house management team.

Virtually every other large ship owner/operator handles their own tech-nical management, although some have boosted their fleets by takingships on long-term charter in which case the original owner/operator willhave the burden of looking after the technical aspects of the ship and hercrew.

In some cases, even though owned by their principals, these technicaldepartments will be operated at arms length as separate entities within anorganisation funded by cross charges, which usually take the form of a setfee. In most cases they will not seek third party business but work solelywith their principals’ vessels.

Vessels are becoming more specialised, especially in the tanker andgas carrier sectors. Obviously, the more specialised the ship, the morespecialised are the people needed to look after them. But there is a prob-lem looming on the horizon in the shape of a distinct shortage of techni-cal shore staff capable of managing specialist vessels, such as ice classvessels and LNG tonnage. The third party ship manager will need toemploy such people at whatever the cost, hoping the extra overheads canbe recouped in the management fee.

The world’s fleet is growing in all sectors. Although we are seeing afall-off in containership ordering at present, this has been replaced by thealmost unprecedented interest in tankers of all types, including gas carri-ers, as the IMO single hull phase out draws closer.

In some quarters, the spate of tanker ordering in the first three monthsof this year was put down to the introduction of the IACS CommonStructural Rules, although many industry experts have dismissed this the-ory by saying it was just a coincidence. One company executive whorecently admitted he farms out his technical shipmanagement functions isLars Mossberg of Marinvest (a Swedish concern operating five prod-ucts/chemical carriers with another four buildings owned by investmentschemes). ➩

SHIPMANAGEMENTINSIGHT


Is it the panacea to the industry's woes?

rdpartyshipmanagement

The world’s fleet is growing in all sectors.Although we are seeing a fall-off in containership ordering at present, this has been replaced by the almost unprece-dented interest in tankers of all types

He said that he had to engage help to cope with the extra burden that reg-ulations imposed on a company, be they self-assessed or mandatory.Mossberg explained that he uses Thome Ship Management to look after hisships technically and DNV to look after the design and inspection of thevessel as his resident class society. He illustrated his problem by sayinginspection manuals could cost anything up to $25,000 per ship, whichmeant that companies only owning a few ships could find these and othercosts prohibitive, whereas a shipmanagement concern with many moreships on its books could spread the cost more evenly.

Spreading the costs is a huge advantage to a third party shipmanagementconcern with a medium to large sized fleet on its books. Buying power leadsto discounts for all types of services,including repair and maintenance,spare parts, bunkers and lubes, insur-ance and P&I cover among others.The shipmanagement companies aretherefore able to keep their over-heads down and work within theirfees, which are still reasonably mod-est when compared with the value ofthe asset being managed and itspotential earning power.

In the tanker industry, TMSA ison everyone’s lips at present. Thisscheme was introduced in January ofthis year by OCIMF, but is generallyregarded as the brainchild of theInternational Marine Transportation(IMT)/ExxonMobil camp. Severalcomments have been made that thesmaller ship owning companieswould not survive as the cost of thiscontinuous improvement schemecould prove to be up between$50,000 and $70,000 per vessel peryear. Once a third party shipmanage-ment company has qualified for thefour main elements of the scheme,the cost of continuously improvingon the performance would bereduced drastically. However, ashipowner with three or four vesselswould find the initial cost of meetingthe recommendations unacceptable.

Most shipmanagers have investedin the systems necessary to operatevessels within the various rules andrecommendations. These systemsare geared to cut overheads, enablingshipmanagers to make more of aprofit on the fees earned and to rein-vest money in personnel and/orimproving the systems.

One leading manager and investorin IT offering third party shipman-agement specifically to tanker own-ers is International TankerManagement (ITM). This companywas established by BarberInternational in 1998, now whollyowned by Wilhelmsen MaritimeService. ITM has offices in Dubai,

Singapore, Germany and India and offers both technical and commercialmanagement to operators such as Frontline, Norse Management, IranoHind, Yusuf Bin Ahmed Kanoo, Simatech, Seatankers, Marlink andIdeenkapital. The company’s Hamburg office looks after 14 vessels ownedby KG investment concerns, while Dubai is set up to handle the back officetasks for the whole group, as well as handling full technical management.

Managing director Ole Wang said recently that he had set a target tomanage 120 tankers by 2010, or some 20% of the total third party tankermanagement market. At present the company has 64 vessels under manage-ment, either technically or commercially. He thought the burgeoninginvestment currently ongoing in Dubai and other Middle East Gulf centreswould provide new opportunities for third party management.

SHIPMANAGEMENT INSIGHT


Many of the new companies springing up in the area, especially thoseinvesting in crude, chemical, products and gas tankers, will not have thetechnical expertise to operate their vessels as they are in effect just invest-ment vehicles, or quasi government concerns.

Somewhat surprisingly, there are only around 420 tankers under thirdparty shipmanagement. However, this is put into perspective when muchof the third party business handled by the world’s largest shipmanage-ment concern V Ships, is geared to companies owning very few vessels.Also the majority of Intertanko members have five ships or less in theirfleets. For every large company grabbing the headlines, there are hun-dreds of smaller concerns involved with all types of vessels, which needhelp to operate their vessels on a day-to-day basis.

As far as the future is concerned, Wang believes IT will take on aneven greater significance in the day-to-day running of vessels.Eventually, every vessel will be on-line and engineers will be able toembrace diagnostics more than they do today again saving costs, he said.ITM has developed relationships with the regulators, including flagstates, port state control and class societies. In addition, business relation-ships have also been exploited with oil majors, charterers, terminal oper-ators, insurers, service providers, vendors and others.

In a crisis, public relations/media response functions can also be acti-

vated by third party shipmanagers, who will then represent the shipowner.ITM achieved ISO 9002 and 14001 on 30th April 2000, one of the

world’s first shipmanagers to do so. This was followed by ISO 9001:2000in June 2003 and today it is firmly committed to OCIMF’s TMSAscheme. By achieving this, a modern third party shipmanagement con-cern can take away the burden of adhering to the various rules, regula-tions and recommendations that could trip up a lesser organisation, suchas an owner with just one or two vessels. Such an owner would still haveto go through the same process, regardless of the number of vessels in hisor her portfolio.

Wang said earlier this year in an interview that he thought that the aver-age annual fee per vessel on ITM’s books was around $130,000 for fulltechnical management. He said that ships were being managed todaymuch cheaper than several years ago, due to the advance of technology,such as IT.

He also said that a lot of inexperienced companies were investing inchemical tankers. One of the problems encountered here is that the rate ofnewbuildings is running at a much higher rate than the number of quali-fied people available to look after them.

Size does matter in third party shipmanagement, according to Wang.For example, there have been several spin-off management concernsemanating from the likes of V. Ships and Wallem. One of the latest isLondon-based FR8. This company owns two tankers via a bareboat dealand has another two on order. The company said it is keen to break intothird party shipmanagement next year once all its systems have been putin place and tested. Managing director Captain Bhattcharya agreed thereis future potential for third party shipmanagement, especially in thetanker and gas markets. ■

SHIPMANAGEMENTINSIGHT


In times of crisis, public relations/mediaresponse functions can also be activated by

third party shipmanagers, who will then represent the shipowner

TRADE DUN & BRADSTREET


SOEs make up about 15% of the business universe, but still account for alarger proportion of national output owing to their larger-than-averageturnover. Corporate profitability at the roughly 150,000 enterprises in thestate sector appears to have declined in '05, in line with the corporate sectoras a whole, but probably to a greater extent than average. In '05, the NationalBureau of Statistics found that out of 120,000 industrial SOEs, 29,000 post-ed net losses, in aggregate summing to CNY102.6bn (USD12.5bn). The restreported net profits, a sum of CNY747.3bn (USD91.2bn). A Ministry ofFinance study grouping SOEs in the industrial, construction and services sec-tors found that reported profits in aggregate summed to CNY904.7bn, up by1/4 from '04.

Accordingly, industrial SOE data show worse-than-average financialweakness for the state-owned sector as a whole. It appears that industrialSOEs suffer from chronic financial losses. Indeed, there has been repeatanecdotal evidence of bail-out lending for SOEs and for large-scale manufac-turers throughout '05, with prominent bankrupt companies often resumingproduction within months, as if nothing at all had transpired.

The same pattern of increasing financial losses holds with regard to listedfirms. 234 firms listed on the Shanghai and Shenzhen stock exchanges(including SOEs and privately-held firms) expected to have posted losses in

'05, while a further 101 firms said that they anticipated their net profits tohave fallen by 50% or more in the past year. The fact that this does not appearto have derailed real GDP growth since '05 or affected China's risk ratingowes to various factors.

First, profitability and liquidity are often inversely related in Chinese com-panies, because the state-owned banks actively discriminate in favour ofSOEs. Thus, a profitable, privately held enterprise may suffer from difficul-ties raising working capital, while a loss-making SOE can receive rollovercredit on its own terms and on demand. Second, banks have been willing tolend to companies with non-profitable strategies, simply in order to lowertheir existing NPL ratios. These 2 factors could mean danger for China overthe 2-year forecast period ('06-'07), if bad loans overwhelm the banking sys-tem even with GDP rising so fast. However, the value of Chinese firms'accounts as a guide to performance is debatable in any case. New accountingstandards, focusing more closely on operating profits, are due to be rolled outin '06. These could substantially increase published corporate profit andlower the incidence of loss-making companies, which is anomalous in such afast-growing economy: SOEs are more likely than private-sector firms tobear extra-ordinary costs. The neutral trend of our risk rating for Chinareflects these factors.

Usual TermsMinimum Terms: SDRecommended Terms: L/CUsual Terms: 30-90 days

Transfer SituationLocal Delays: 0-2 monthFX/Bank Delays: 1-2 monthsImport Cover: 13.0 months

Chinese companies have poor credit management methods, and exporters

especially are frequently faced with default by parties overseas who per-

suaded them to allow a credit sale. Profits in upstream sectors, such as in

mining, are extremely good, while firms in the aviation and steel-making

sectors, for example, remain under pressure. Producer prices overall are still

rising faster than the CPI, squeezing profits.

The firming of the yuan towards the CNY8:USD mark continued in Apr.,

after Prime Minister Wen Jiabao stated in Mar. that “more flexibility” would

in the future be allowed in the FX market. FX reserves rose by 29.5% y/y,

and 4.2% q/q, to reach USD853.6bn at end-Mar. The figure was released

ahead of schedule and demonstrates that the Chinese state FX reserves now

exceed those of Japan.

Economic Indicators 2003 2004 2005e 2006f 2007f Export Credit AgenciesReal GDP growth, % 10.0 10.1 9.9 9.0 8.5 US Eximbank Full cover available

Inflation, annual ave % 1.2 3.9 1.8 1.5 1.9 Atradius Full cover available, no discretionary limits

Govt balance, % GDP -2.8 -1.7 -1.6 -1.8 -1.9 ECGD Full cover available

Urban unemployment, % 11.2 10.5 9.8 8.6 8.5 Euler Hermes UK Full ST cover available

C/A balance, % GDP 3.1 3.6 5.3 4.0 2.2

Nov 05 Dec 05 Jan 06 Feb 06 Mar 06 Apr 06

8.12

8.12

8.12

8.12

8.12

8.12

8.12

55

50

45

40

35

Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 0530

Local Currency Exchange Rates Payments Performance(Yuan [CNY]: USD)) (London, 18 Apr 06) (% of payments made 30 or more days over terms)

EURGBPJPY*USD*(x 100)

9.849614.2211

6.81998.0205

Risk Factor

D&B COUNTRY RISK INDICATOR

DB3bChina

Copyright © 2006, Dun & Bradstreet. All rights Reserved. While the editors endeavour to ensure the accuracy of all information and data contained in this report, neither they or Dun &Bradstreet Limited accept responsibility for any loss or damage (whether direct or indirect) whatsoever to the Customer or any third party resulting or arising therefrom. The analysis shownon this page is taken from D&B's monthly publication, International Risk & Payment Review, which covers 132 countries around the world. To obtain the latest analysis, please contact D&B'sCountry Risk Services Group on +44 (0)1494 422700 or visit www.dnbcountryrisk.com

SHIPMANAGEMENT ROUND TABLE


As part of our pledge to

provide cutting edge

comment, we assembled the

leaders of the world's largest

shipmanagement companies

around a board room table to

debate key issues affecting

their industry.

If any of our readers have comments to make on theissues under discussion or the panellists' repliesthen please email them to: [email protected] and we will include them in future issues.

SHIPMANAGEMENTROUND TABLE


DiscussionChaired by SMI editorial director Sean Moloney, the panellists included Stephen Chapman, General Secretary, InterManager; Dirk Fry,

Managing Director, Columbia Ship Management; Douglas Lang, Managing Director, Anglo- Eastern (UK), Bill Lunn, Marine Manager

at Navigo Shipmanagers; Patrick Russi, General Manager QA Marine & Safety, Stolt-Nielsen Transportation Group in Rotterdam;

Mudit Paliwal, Head of Business, Fleet Management; Svein Pedersen, Managing Director of Thome Ship Management, Singapore;

Andreas Droussiotis, Chief Executive Officer of Hanseatic Shipping; Egil Rensvik, Research Director at the Marintek, Norwegian Marine

Research Institute in Trondheim; Yngvil Asheim, President of Hoegh Fleet Services; David McFarlane, Risk Safety and Quality Manager

of V. Ships Ship Management; Patrick Slesinger, Director & Chief Information Officer Wallem Group; Dirk Lassen, Manager Director of

Chemikalien Seetransport; Rajaish Bajpaee, President and Group Managing Director of the Eurasia Group and President of

InterManager; and Svein Sorlie, Senior Vice President, Wilh Wilhelmsen ASA Oslo.

Self assessment of the industry and quality of operation came under discussion as didthe contentious issues of information transparency and owner/manager relations andthe effect the poor image of the industry is having on seafarer recruitment and retention.

Sean Moloney

How crucial is it for ship managers and owners to self- regulate when thereare many who argue that the shipping industry is over-regulated as it is?Andreas Droussiotis

I believe the shipping industry needs to self-regulate. We have too manyinterested parties coming out with their own regulations and assessmentsso we need to simplify the process. We need to make sure that those regu-lating the industry are the ones who really understand the business as well. Sean Moloney

Are you saying that today's regulations do not meet the wishes anddesires of the shipmanagement practitioners?Andreas Droussiotis

No, they do, but there are so many bodies dealing with regulation of theshipping industry today that we need to really bring everything togethersuch as with the key performance indicator (KPI) initiative currentlybeing taken forward by InterManager. We believe we will manage toconvince all the market players to join in and if that is the case then wewill really have an industry regulated in the proper way. Sean Moloney

Maybe it’s a good time to bring in Svein Sorlie who has been workingon the KPI issue. Svein, do you think this quality initiative and othersthat are going on will secure the favourable notice of the regulators?

Svein Sorlie

The shipping industry is over regulated because it has failed to show therequired responsibility itself. There have been many accidents and dis-asters over the years but the industry has not communicated its messagecorrectly to the public. However, I now believe we are entering a new erawhere we can show the rest of the world that we are taking the requiredinitiative to better explain our issues and to have the required transparen-cy in our industry so that people can be comfortable with what we aredoing. It will not be a simple and short term process but a very longprocess to build trust again in the industry, but we deserve trust. If yousee the quality of shipping in operation today and the number of acci-dents we have compared to the cargo volume transported, it is clear thatthe shipping industry is a very safe industry. But this is not a perceptionshared by the public so we have a big communication job still to do.Before we have that fixed correctly we will still suffer from regulatoryintervention from various sources. ➩

Round Table


Rajaish Bajpaee

If we look at the history of shipping, we see that most of these regula-tions or at least the significant ones were crafted on the back of a catas-trophe or an accident. Starting with the Titanic which created SOLAS,you then had the Torrey Canyon which prompted ratification of theMARPOL convention and latterly 9/11 which brought about ISPS. Somost of them are a knee-jerk or spontaneous reaction to an accident orincident. They are not built or founded on a process or a thinking whichis driven from improving long-term sustainability of safety and quality.The industry regulators are far more disconnected and detached fromthe reality of the practitioners. Today's predicament of over regulationis because as an industry we have failed to take the responsibility of ouractions and the leadership we ought to have taken. Regarding KPIs,long term sustenance of quality and excellence can only be nurtured inan environment of self-regulation with verification. A compliance cul-ture will not lead to long-term sustenance of excellence and quality. It’sa fundamental conviction that we have because wherever you have acompliance culture, you will always try to find the best or the smartestway to manage that situation and I think ISM is a very good example ofthis. Today the entire world's merchant fleet of 55,000 ships has SMCand the companies which manage them have DOC but we cannot putour hand on our hearts and say all 55,000 ships are quality ships or safeships although the ISM is intended for the purpose of safety and qualityand environmental protection. When ISMA started the first code of qual-ity assurance it was a process oriented code which had a spin-off effect ofencouraging many other quality assurance codes in the industry prior tothe ISM. They are all trying to focus on verification of the process to theextent that it has now become something of a habit. Every ship has aprocess and every ship has a quality manual so what is the outcome? Themeasurement of the outcome of that process is the goal or the focus ratherthan the process itself because it is almost now a habit. But in order tomeasure the outcome, there must be some standard measurement criteriawhich can be easy to compute, is transparent and which will enablebenchmarking. If we can benchmark each company’s performance wewill also be motivated to improve our own standards next time to meetthe best in class instead of sinking down to a compliance of minimumstandards in the industry.

“If we can benchmark

each company’s performance we will

also be motivated to improve our own standards

next time”

How crucial is it for ship managers and owners to

self-regulate when there aremany who argue that

the shipping industry is over-regulated as it is?

Sean Moloney

I’m going to bring Dirk Fry and Patrick Slesinger in on this issue andin particular question what needs to be done to ensure the industry as awhole starts to clean up its act and operate at a higher standard?

Dirk Fry

Well first of all I would like to disagree a little bit with your negativestatement that the industry does not comply with international stan-dards. World shipping carries about 90% to 95% of all goods transport-ed worldwide and I dare to say that overall, shipping is an extremelysafe and well run industry. Now on the other hand I must also agreethat there are many other stakeholders in our industry who have decid-ed to set up their own systems against which our performance is meas-ured. But it becomes more and more difficult for the industry to com-ply with all the different scenarios we are asked to comply with so fromthis point of view I think it is a very positive step for the industry to optfor self regulation. We want to show the world and our clients that wedo our job right and that we are unfairly tarnished with an image that isfar from what is reality.

Patrick Slesinger

Yes I certainly agree with Dirk’s standpoint. I think one of the greatestissues we face to date with various regulations and various forms ofmeasurement is that it is very specific bodies that have come up with self-serving measurement criteria. If successful, I believe the KPI initiativewill provide a holistic and commercial view of shipping as opposed tocertain tick the box solutions or key measurements for singularly interest-ed parties. Obviously the ability to be able to sing our praises or at leasthold the base line upon which to be judged in the positive areas asopposed to the negative areas is a very fundamental point as well. ➩



“I believe the KPI initiativewill provide a holistic and commercial view of shipping”

What needs to be done to ensure the industry as a whole starts to clean up its act and operate at a higher standard?

Sean Moloney

How does it fit in with other initiatives such as Poseidon Challenge thatIntertanko are pushing or even TMSA?

Rajaish Bajpaee

The Poseidon Challenge believes that all the stakeholders in the chain ofresponsibility must commit themselves to a culture of continuousimprovement, a culture of excellence, a culture of zero tolerance. Onlythen will the chain be strong. However, the chain is only as strong as itsweakest link so if one constituency or one stakeholder does not commititself then the entire chain will fail. As the Poseidon Challenge is allabout creating an environment of continuous improvement our initiativefits in very well with the general sentiment prevailing in the industry.

Sean Moloney

Do you think this goal of zero tolerance, zero casualties and zero ves-sel detentions can be achieved?

Rajaish Bajpaee

Well we know that perfection is a utopia but still we have to pursue thegoal of perfection. Even though total excellence, zero incidents andzero tolerance may be unachievable, to put it as a goal in which to pur-sue is the right thing to do.

Svein Sorlie

I believe that the major problem is related to transparency. In the pastit has been possible to hide away, not really stand up to what you aredoing. Shipping is normally quite conservative and responds veryslowly to trends in society but there have been certain positive develop-ments involving transparency of information and telling the rest of theworld what the industry is doing that have taken place. However, Imust say I’m a little bit concerned if industry players are launching ini-tiatives that are in a way triggering a fallback to old habits - where youhave incentives, or you are trying to hide if you have an accident oryou’re trying to take advantage of tax havens and other shady places todo business just to avoid having to take responsibility for what you aredoing. I believe that the zero tolerance in shipping is good as an objec-tive but it could also have certain consequences because it couldencourage people to try to hide away.

Sean Moloney

Can I bring Douglas Lang in on this? What are your views on the com-petitive side of the industry and how the individual managers can worktogether to improve the situation?

Douglas Lang

In terms of competitiveness I don’t think the industry has changedover the last 20-30 years. If we really look at each company close-

ly I don’t think we’ll find a great deal of difference. Probably95% to maybe 99% of what we do is almost identical to each

other so what does it come down to: what are the differencesbetween the shipmanagement companies? It comes down

to the quality of people we employ from the very topdown to the sea staff. In terms of fees we are probably

within a cent of each other in a lot of cases so this talkof competitiveness and differences really comes

down to the fact that the individuals in the compa-ny are the people that make the difference and thatcomes down to the corporate ethos within thatcompany. That’s what people select us on. ➩


Do you think this goal of zerotolerance, zero casualties andzero vessel detentions can be

achieved?

“I believe that the zero tolerance in

shipping is good as an objective but it

could also encourage people to try to

hide away”

SHIPMANAGEMENT

Bill Lunn

When you take people like charterers they have to play their part.There’s no point in us being good quality operators and the charterersignoring us and chartering the cheapest rust buckets they can find. Theindustry will just get into a deeper and deeper quagmire, so everybodyhas to play their part, definitely.

Sean Moloney

What’s the reaction you’re getting from the owners you talk to?

David McFarlane

I would say the owners are probably all singing from the same songsheet insomuch as they’re looking for transparency. They are lookingfor seamless communication which is essential and they’re looking forsafe ships. It’s also their reputation that they’re putting into the handsof the ship manager to operate their ship on their behalf. Going back alittle bit to the original question which was will self-regulation help allof this? I think this is a way forward without a doubt, however, the oilmajors, flag states and port states will always be there: they’ll alwayshave a role to play and until ship managers/operators can try and getthis message of trust, transparency and complete compliance acrossthen it’s going to be very, very difficult for all these external bodies totake a step back. Hopefully with this KPI initiative we can try going for-ward in that general direction.

Sean Moloney

Accountability is important in today's industry but should good qualitymanagers be singled out through some sort of IMO-driven 'white list'and conversely should poor quality managers be included in 'grey' or'black' lists. What’s your view Patrick?

Patrick Russi

I think there is definitely a need for recognising a quality owner orquality operator but again it’s one thing to proclaim yourself to bein that bracket and it’s another thing to demonstrate by yourresults and your performance that you’re worthy of it. I thinkthat also applies to the industry as a whole. We can go out thereand say we are a quality, well managed, well founded, well-runindustry but if we keep having catastrophic incidents then whatis happening doesn’t match what we’re saying. Yes I dobelieve that there should be quality recognition because ourindustry is not free of charge. There is a cost to maintaining

higher standards whether it’s through training and proceduresor equipment so you should be able to differentiateyourself from others in the marketplace. Ithink we do need to have differenttiers of recognition. ➩

Accountability isimportant intoday's industrybut should goodquality managersbe singled outthrough some sort ofIMO-driven 'white list'and conversely shouldpoor quality managers be included in 'grey' or 'black' lists.

“There is definitely a need forrecognising a quality owner orquality operator but it’s anotherthing to demonstrate by yourresults and your performance thatyou’re worthy of it”


ROUND TABLE

Sean Moloney

How would you see that reward or that recognition taking place?

Patrick Russi

We've been down this road before where we’ve said recognition shouldbe reflected in insurance rates or in the degree and number of inspec-tions that your ships get subjected to. Instead of people wasting timeand resources focusing on say organisations which are perceived to beof a higher quality is it better not to focus those resources further downthe ladder on those players that need to shape up or give up. I thinkthat’s where we need to go.

Mudit Paliwal

One could look at this issue with two different viewpoints as such. Oneis the issue of recognition while the other is the issue of reward. Whenquality initiatives are undertaken there’s a lot time, energy and resourcesthat need to be redirected into these initiatives. The focus on quality hasto come right from the top, so that you run a top - qualityorganisation/operation all across the organisation. In terms of a reward Itend to agree that there must be a reduction in insurance premiums,higher management fees i.e. monetary benefits. In terms of recognition– lesser port state control, vetting inspections etc. At the end of the dayif you are a good ship manager, it is a business that you have chosen tobe in and must provide the best possible service to your customers. It isnot in the interest of the industry to have a two tier structure.

Svein Pedersen

Just to follow on from what the last speaker just said, we have to bevery careful. There are so many players out there and if you split shipmanagers into tiers then the poorer managers will try to win business bylowering their fees and more accidents will happen. We should put our-selves on a level where everybody can follow and we should assistthem. Maybe I shouldn’t say that there will be more competition butwe have to bring everybody up to our standards.

Andreas Droussiotis

What I would really add to this is that the quality charterers do go forthe quality managers and the quality owners so the substandard playersare actually phased out. Take Exxon or any of the oil majors for exam-ple. Will they accept substandard owners? Will they accept a substan-dard manager with a very bad record? No they won't. So there’s no wayout but to really perform to a quality standard.

Rajaish Bajpaee

I just want to comment on this reward and recognition. It’s not only theshipmanagement industry but also the shipping industry per say that isunder rewarded and under recognised for the risk and for the service

that it delivers. We in the shipping industry are always preaching to theconverted, that we carry 95% of the cargo and that half the world willfreeze and the other half will starve if shipping was not there. But peo-ple outside the industry do not know about it. Shipping doesn’t have aconstituency; shipping is an invisible industry. The legislators have animage that shipowners are wealthy individuals, enjoying a lavishlifestyle who hide behind shields and pay no taxes and they are alwaystrying to find loopholes. If the man on the street doesn’t know aboutthe contribution of shipping, how shipping touches his or her everydaylife, then the rewards will not be there. The task and the challenge fac-ing the industry is to get this message across to the common public.

Sean Moloney

Let’s talk a little bit about image because I think it touches on whatSvein was saying earlier about transparency. What do you think needsto be done to improve the image of shipping?

Dirk Lassen

Well the image of shipping is linked to the crewing issue and from mypoint of view what we see now is a heavy rise in crewing costs, this ofcourse has a big outcome for us. The short term looks negative butin the long run I think it will create a positive image to the ship-ping industry because as the high ranked officers on boardget good money many young Europeans will considerthe sea again as a career which has not been the casefor many years


“We need to highlight what we are actually doing

on research and developmentand we probably need to

do more research and development because we need to show we

are innovative”

Is there anything you can alldo as a quality industry toactually push forward your

common goals whilst still maintaining this competitive edge?

Sean Moloney

Is there anything you can all do as a quality industry to actually push for-ward your common goals whilst still maintaining this competitive edge?

Yngvil Eriksson Asheim

I think we need to work on a lot of different levels. I don’t think oneinitiative is enough. I think it’s very, very important that the industryworks together on this issue. Far too often individual companies try tosolve all their problems themselves instead of joining forces. We needto highlight what we are actually doing on research and developmentand we probably need to do more research and development because weneed to show we are innovative. I’m personally very concerned aboutrecruitment in our industry not only referring to the seafarers but also tothose available to run the companies.

Andreas Droussiotis

A positive image of shipping is surely one of the most important thingswe are lacking and the whole shipping industry needs to be blamed forit because even international associations have not done anything toimprove the image. If we look back to the 1980s it was a time whenowners were moving their officers from Western Europe to the Far Eastin order to save money. Ten years later they are wondering why theydon't have Western Europeans in the top positions. The social progressin Europe is something which has also contributed tremendously to thelack of interest. Its not only the wage gap that is failing to attract them,but quite simply the fact that they don’t want to undergo all the stress

and pressure that comes with life onboard ship: the increasedinspections and now criminalisation. I’m

sure every single person round thetable understands the inex-

perience we havethrough the quick

promotionsof all the

o ff i -

cers especially from the Eastern block countries. You then sit back andsay okay I have all the nice quality systems and procedures in place butI’m at the mercy of the individuals that are on board. The issue is basi-cally training and upgrading and there is a certain truth in what MrLassen has said, you also need to make wages an incentive to the job.

Egil Rensvik

The shipping industry had been thought of as a low-tech industry. Froma research point of view a lot of the vessels today are real high-tech,both related to the design and the development process, with advanced,integrated control and automation systems and with new challenges inthe management and operation of the ships. The shipping company ispart of the supply chain and some of the companies are moving towardsbeing logistics providers rather than being just shipping companies.Another trend is the increased sourcing and outsourcing of activities inthe shipping companies. This requires better ship–to–shore communi-cation and, in the future, more use of advanced scheduling decision sup-port systems. This close interaction between ship and shore is alsobecoming more and more important especially in attracting young peo-ple to sea. Lack of long time practical experience has to some degree tobe compensated by the use of simulators for training of crisis scenarios,accidents and handling of critical situations. The shipping companiesshould be more proactive in promoting these kinds of elements if theyare to attract young people to the industry.

Svein Sorlie

Now I’m going to do a PR stunt for InterManager. I think many of theproblems that we have been struggling with in shipping for the last fewyears are due to our defective communication with the people aroundus. We have allowed others to set the agenda and we have also not beenable to 'play the network' in the proper way through our discussionswith other stakeholders in the industry. I think somebody else said weare only in the news when there's oil on the beach and there are deadbirds floating around. I think it is here that InterManager has a signifi-cant role to play as a communicator not only for shipmanagement ingeneral but for all who are involved in operating ships technically.

Rajaish Bajpaee

I want to reflect back on the previous issue of manning and I think it isan issue which will challenge us for the next two to three years. I share

the sentiments of my colleagues around the table about the crisis weall face and how it affects our operations but the cause is rooted in

the industry’s irresponsible approach to dealing with its humanresource problems. You go back 50 years and we had American

crews. When they became expensive we moved to Europe andwhen Europe became expensive we moved to the Far East andwhen the Philippines became expensive we found ourselvesin China and from China we go to Vietnam and fromVietnam we go to Africa and so it goes on. We've alwaysbeen trying to find 'bandaid' solutions to our problems.Today you can take delivery of a ship six months afterordering. But it takes six to seven years to train a cadet tochief engineer or master level so there is a fundamentalmismatch between the rate with which you can churn outships and the rate you can churn out a trained officer tocommand the ship. Ships have become faster, bigger,they carry more expensive cargos and the liability situa-tion has increased but we have untrained crews command-ing the bridge, or commanding in the engine room, all withfast promotions. If you sack a seafarer then another compa-

ny is waiting, willing to give him promotion. This is the sit-uation that has been brought about by a complete irresponsi-

ble attitude of the industry. ➩



Svein Pedersen

I think the young seafarers joining the industry today are better educat-ed than they were maybe 20 years ago. The problem we are facingtoday, and this is mainly with Indian and Chinese seafarers, is that theircountries are now enjoying good times economically; the infrastructurein these countries is getting better and better. But if they don’t get thepromotion they want they will leave for more lucrative shore-basedjobs.

Patrick Slesinger

I think we’re doing ourselves a bit of a disservice here. Obviously thereare commercial pressures when it comes to crewing but I don’t believethat we go out and switch continents for five dollars. The simple fact isthat the traditional places for crewing such as India are now major busi-ness process sourcing areas and it is the economic development of thosecountries with the offshoring of call centres from America to India to thePhilippines etc that is driving this fundamental interest. Why go to seato earn potentially less money? I don’t know many call centre operativeswho at the end of their days work, face the possibility of a jail sentence:the criminalisation of a seafarer is a very real thing. We’re not going tocompete with call centres, you just can’t. I mean you’ve got to find dif-ferent ways. To keep bumping up salaries, even if we could find themoney, means you are still not going to be able to compete. The num-ber of hours for work, just getting to and from work is nonsensical. Youoffer someone the same amount of money to go and sit in an office foran eight hour shift or go onboard a vessel, what are they going to do?

Sean Moloney

But what can you do because you’re going to be chasing this pool ofseafarers that are eventually not going to exist any more or quality isgoing to drop?

Patrick Slesinger

No you don’t fear the change, you go somewhere that has sustainablegrowth. If you look at China there is sustainable growth there. They area seafaring nation and are certainly not tapped as far as they could be.If Africa is required for crews in ten years time then we should be mak-ing proactive moves today. The quality required on board is still avail-able in the marketplace, it’s a question of us being realistic and ofcourse those who ultimately pay for the seafarers salaries and compen-sation being realistic about what is required and not just turning roundto a ship manager and saying you’re supposed to provide us withtrained crew and then acting all surprised at the lack of qualified staffafter they refuse to sponsor a cadetship programme.

Svein Sorlie

I would just like to make a short observation because I’ve been in thisbusiness for almost 20 years and what we are doing now is exactly whatwe have been doing all these years: sitting here complaining about ourmiserable destiny and all the terrible things that are happening aroundus. We have not been able to do anything about it. I mean I think allpeople involved in managing or operating vessels have the same opin-ion as us. How come we are not able to change the pattern?

Sean Moloney

What do you think we now need to do to improve the image of shippingand achieve all these positive things we’re talking about now?

Andreas Droussiotis

The sources of supply have been exhausted, it’s been said by many. ForChina okay there are different opinions about China but in this particularcase to resolve the issue is not a matter of putting more money on thetable as Patrick has said because by doing that you don’t increase thequality but just end up poaching people from other companies and itbecomes a vicious circle. What you need to do is to spend as much as youcan on training and upgrading and hope, that by improving the image ofthe industry, you will attract additional people to the profession.



“Our experience is that it’sharder to attract good qualityshore staff in Singapore whenthe economy strengthens. Andit’s especially hard to get wellqualified ex-seafarers to comeashore for desk jobs as it’s oftenthe case that they receive betterpay and benefits while at sea”

What can you do becauseyou’re going to be chasing thispool of seafarers that are eventually not going to existany more or quality is going todrop?

Dirk Fry

I fully agree with Andreas. We have to make the industry more attrac-tive to younger people and certainly initiatives like the EU directiveon the criminalisation of seafarers don't help. Fortunately internation-al organisations like Intertanko and other organisations have taken upthis challenge and are threatening to take the European Union to courton this directive. Yes we know that other competitors are trying to lurepeople away from us by offering them more money but I still believeour only way is to improve the image of the industry and continue ourpolicies of training. We can only hope that with the very obviousshortage of officers and engineers in the industry, shipowners mightrealise that other money is needed to pay for this training and so I would ask them to come into the boat; it’s a famous boat that we all want to sit in and to make the funds available to be able to trainthese people.

Douglas Lang

I’d just like to make the point, if I was a young person sitting here lis-tening to you people talking, the last industry I’d want to join is ship-ping. Now Svein you said you were 20 years in the industry, wellround this table there are hundreds of years of experience. Now whyon earth are we still here? Because it’s an exciting industry to work inyet we cannot collectively enthuse young people to come into thisindustry. Why? Because we sit round in groups like this and cut ourwrists and tear our hair out. We cannot enthuse young people to comeinto this industry. Young people today are better educated than theywere before, they’re better informed than they were before, we don’tneed posters, we don’t need anything. Young people can find out anawful lot about this industry and they take a choice. If they come intothe industry they can earn a wage that will pay their mortgage off bythe time they’re thirty never mind staying at shore, their tours of dutyare two months, there’s lots of industries where people are away fromhome much longer than that, shore-based employees of ship management companies for example. We’re dwelling entirely onsome of the wrong aspects about this job. There are some fantasticareas working as engineers, working on the deck, working in almostevery area of shipping you come in contact with exciting people yetyou dour people around this table have forgotten that and unless youremember that and go out into the industry/into the general public andenthuse them with your own enthusiasm then you’re not going to getanyone in.

Andreas Droussiotis

Yes okay fine but a few cadets on board the ships don’t resolve theissue. I don’t believe it’s a matter of bringing enthusiasm or anything,it’s not. Yes he said he’s been in shipping 20 years, I’ve been in it for32 years so what do I say? I blame myself for it. Do you blame your-self for the years you’ve been in it?


I think it’s about time we went out and said what an exciting businesswe are in. I spend quite a lot of time talking to young people and Ispend some of my time working out how we can enthuse people inschools to take the right subjects in order to get them into our industryand I think it’s about time everybody around this table actually spentsome time on that. It’s not very exciting for young people to come intoa room where sitting – you have to excuse me – are 20 older men around50-55 years old. If we are not willing to look at how we treat people andhow we train them, we talk about how we need to train them but how dowe train them? We talk about the salary but we are not talking about thetotal package, we need to do that. I think it’s wrong also to focus onlyon the seafarers because we need both people ashore and at sea. Even ifI have not been in the business for 30 years as some of the others I've

been here for 15 and I find it wrong to call that 'not been in the businessfor a long time'.

Andreas Droussiotis

Ashore you have plenty. I don’t think that any company has any prob-lem with people who are highly educated in maritime studies or in navalarchitecture or engineering.


But we need both and we need them to work together and that’s actual-ly one of our biggest challenges in my opinion. We need good practi-cal people who can work very well together with the more educatedpeople and that’s a challenge for us. We are not actually good at that inmy opinion.

Andreas Droussiotis

I really don’t agree with it. If I go round the table one after the other,even Svein who really was trying to make a joke, he never had a prob-lem finding shore based personnel. The only problem is to get shorebased experienced personnel if you’re talking about superintendents,technical or marine. The problem will be forthcoming with the shortageof experienced people onboard the ships but for the time being I don’tbelieve that any one of us has a problem to stop a vessel due to unavail-ability of people. The problem is there and will become greater. ➩



“There are some fantastic areasworking as engineers, workingon the deck, working in almostevery area of shipping you comein contact with exciting people”



“Having attracted people to sea you have to give them a

sense of belonging, you have tomake sure they understand that

there is a career, that they aregoing to have if you like an

ownership in the company”


And that’s why you get older and older people in offices and that makesthe industry less attractive to younger people so the spiral is going in thewrong direction.

Svein Pedersen

I support the view that it’s increasingly difficult to attract quality shore-based staff. Our experience is that it’s harder to attract good qualityshore staff in Singapore when the economy strengthens. And it’s espe-cially hard to get well qualified ex-seafarers to come ashore for deskjobs as it’s often the case that they receive better pay and benefits whileat sea.

Svein Sorlie

Andreas, first of all I don’t share your approach to this. I think I’mmore in Yngvll’s direction. If we are to have a successful recruitmentpolicy in the future we have to view the shore-based and onboard situ-ations together and we have to outline a lifetime career for the people.Just look at the world newbuilding programme. Those vessels have tobe filled with crew and officers. What are these owners doing when itcomes to recruitment and training? Nobody wants to take the fight tothem because they are too big.

Patrick Russi

In my view we are facing very stiff competition from shore-basedindustry and shore-based careers. I recently spoke to a young man whohad just come out of high school and was looking for a career and Iasked him what the careers officer had discussed with him. He said ahuge range of opportunities had been discussed ranging from technolo-gy to finance to medical to legal but shipping wasn’t even on the list,hadn’t even been considered, it wasn’t even there. The careers officersin the high schools don’t even have anything on their files to do withshipping so we are facing a huge challenge I think in enticing people tocome to sea. Having attracted people to sea you have to give them asense of belonging, you have to make sure they understand that there isa career, that they are going to have if you like an ownership in the com-

pany. You have to identify the resource, get it at an early age and thenyou have to grow it yourself which is the sort of stuff I think most of usare probably doing. We are facing very serious competition if you likefrom shore-based industries because it’s been said before that the differ-entials aren’t there. There’s a tremendous opportunity out there and wehave to fight but I don’t think we should be too hard on ourselves say-ing that it’s our own fault because I think the world at large has to faceup to what has happened. In the mid 1990s the industry had to adjustto very low freight rates and went through some very lean years. I thinkour own chairman wrote in our company magazine we were makingless than a 5% return on investment. This was significantly lower thatwould be accepted in other sectors of the industry. Although marketshave improved in recent years, the industry has to work with the adjust-ments that had to be made previously. It will take time for the reinvest-ments that are being made on both the hardware and software sides towork through.

Sean Moloney

Ladies and Gentlemen, thank you for your participation.

Almost exactly three years ago, the name of Mumbai-basedshipowner Mercator Lines would hardly have evoked enthu-siastic response from most members of the Indian shippingfraternity, let alone at global level. In April 2003, Mercator’sfleet strength was a mere five vessels aggregating under

400,000 dwt. In the three years since, the astute pursuit of a businessopportunity that would not present itself a second time has given thecompany a fleet of over 2 million dwt, an exceedingly healthy bottom-line and the accolade of India’s second largest private sector shipown-er, behind Great Eastern Shipping.

Not only that, but its Rs1 face value share currently commands aprice of Rs 43 on the Bombay Stock Exchange, with a price-to-earningsratio that continues to make it a worthwhile purchase. Rich rewardshave come the way of its shareholders, including consistently good div-idends and an extremely generous 3:2 bonus issue (i.e. three shares forevery two shares held), made earlier this year.

The market opportunity that the two brothers-in-law who runMercator Lines exploited to the hilt was by way of acquiring and run-ning single-hulled tankers for crude carriage, at a time when thesetankers had been condemned by the International MaritimeOrganisation for phase-out by the year 2010. With India importing 70%of its crude oil requirements, there was a crying need for tankers whichcould bring in crude from vendors the world over, especially theArabian Gulf. Single-skinned tankers were going cheap in the second-hand market, and Mercator Lines picked up some of them at bargain-basement rates.

“About five years ago, the huge 33m tonnes a year ReliancePetrochemicals refinery came up in Gujarat; and it needed crude oilfrom abroad to keep it working,” recalls 56 year old H. K. Mittal, thecompany’s chairman and managing director, and a chemical engineerby training.

“We realised that the future was in crude carriage, not in producttransportation. At the time, we had been thinking of expanding in a big

way on the product side. That is why we had acquired an MR producttanker in 2001. But once we realised that the future was in crude, weentered this segment in early 2003. It took us a couple of years to planand arrange the required funds. That is how we started with an Aframax,and went on expanding swiftly.”

Today, Mercator Lines has overtaken Essar Shipping to merit theaccolade of the country’s second largest private sector shipowner. Itowns 21 vessels, aggregating just over 2m dwt, which includes ninegeared Panamax breakbulk vessels that it took on long-term charterfrom the Norwegian company Klaveness in late-2005.

While accounts for the fiscal year ended March 31, 2006, are yet to befinalised, the declared results for the first nine months revealed the com-pany notching a 53% rise in operational income to Rs5.93 billion($134m) from Rs3.88bn for the April to December 2004 period, even asnet profits improved 23% year-on-year, to Rs1.36bn from Rs1.01 billion.

“Our profits in the third quarter were constrained by a substantialincrease in interest, to the extent of 255%, and depreciation, which wentup by 185%; and our problems were compounded by a much higherprovision of 197% that needed to be made for tax for the year,” saidMercator’s 47 year old managing director Atul Agarwal, whose wife isthe sister of the company chairman. The two became business partnersonly when Mr Agarwal was sought as a prospective groom for theyounger sister of the Mercator chairman’s wife.

At the time, Mercator Lines had been acquired by Mr Mittal from itsprevious owner, T. V. Ramchandani, in 1988. It made its initial publicoffering in 1993 and since then has always made a profit and alwaysdeclared a dividend.

“It has never happened, even in the worst year for shipping, that thecompany has gone a year without declaring a dividend,” said MrAgarwal. “And growth has always been there, year on year.”

Credit for this situation must be given as much to their business phi-losophy as their foresight. With both belonging to the Marwari commu-nity that boasts natural business acumen, it is hardly surprising that

OWNER PROFILE MERCATOR LINES


The market opportunity that thetwo brothers-in-law who run

Mercator Lines exploited to thehilt was by way of acquiring andrunning single-hulled tankers forcrude carriage, at a time whenthese tankers had been con-demned by the InternationalMaritime Organisation for

phase-out by the year 2010

Astute pursuit Mercator Lines: a true success story

H.K. Mittal, chairmanAtul Agarwal, managing director

their brains have worked well in tandem. Both brothers-in-law are veryclear in their minds that the company exists for the main purpose ofmaking money and providing its shareholders with capital appreciation.It is not averse to exploiting any segment in shipping, should an oppor-tunity present itself.

“Whether it is liquid or bulk, containers or gas, if there is money tobe made, we will not hesitate to get into it,” said Mr Agarwal. “Andwhether we make our money operating vessels, or indulging in assetplay, our objective will be to maximise returns for our shareholders.”

Indicative of the kind of lucrative contracts that Mercator has won isa $32m, five-year deal with the British Gas subsidiary BG Exploration& Production, for the charter hire of a single-hull tanker. The vessel hasbeen deployed purely as a storage tanker at the Panna-Mukta oilfields,in which BG has an equity stake.

“Most of these single-hulled tankers have been fully depreciated wellbefore the IMO deadline, so whatever we earn from their deploymenttoday is pure profit – and they can be scrapped at any time if they proveuneconomical to run,” said Mr Agarwal. “As the tanker segment hasbeen very strong over the past two years, we had opted for consolidationin this sector. We will continue to focus on the tanker segment as ourcore business, while handling the bulk sector through our Klaveness ves-sels, or – for that matter – any other segment that will prove profitable.”

Nevertheless, Mr Agarwal insists that the company’s orientation hasbeen towards a long-term policy, and that its second-hand acquisitions inthe tanker genre in 2005-06 have all been quality double-hulled vessels.

“Our good results have been basically because of the strategic acquisi-tions we made during fiscal 2003-04 of four second-hand Aframax ves-sels, including three that have been chartered in,” he said. “For the size ofthe company that we were at the time, it was a massive expansion.”

The basic thinking behind the single-skin tankers’ acquisition wasalso extremely sound. “We had to look at the return on the capitalemployed,” recalled Mr Mittal. “We also had to look at the prices ofdouble-hulled Aframaxes that were being built in those days, and theirdelivery schedules. If I had ordered one in 2003-04, I would not havegot delivery before 2007 or 2008.

“That was the wrong time for us to be buying double-hulls. Theywere simply not commercially viable for a company like ours. Today,however, things have changed, and quality second-hand double-hulledtonnage has become available in the market.”

Mr Agarwal agreed: “Tanker freight markets are down substantiallyover the high points of December 2004. This is the time that we wantto pick up quality double-hulled tonnage, since India’s crude carriageneeds continue to be healthy.”

To ready the funds for such acquisitions, Mercator has taken severalsteps, including securing permission from the Indian stock exchangeson which it is listed to issue securities up to $75m through the medi-um of a private or public offering in either domestic orinternational markets. “The securities could takethe form of American depositoryreceipts, global depositoryreceipts, bonds

or equity shares,” said Mercator’s director and the chairman’s elder son,Shalabh Mittal, who joined the company after completing a degree inBusiness Administration He has been placed in charge of the company’syear-old Singapore subsidiary.

The company had been virtually forced to launch the Singapore sub-sidiary, and another branch in Panama after the refusal of theDirectorate-General of Shipping in September 2005 to allow it to exe-cute the charter deal with Norway’s Klaveness. Some shipping expertstermed the DGS move ill-conceived and an entirely avoidable loss tothe Indian flag, since Mercator added 11 Panamax bulkers to its fleetduring calendar 2005.

Some of these ships have since been placed on time charter while therest are ferrying coal between foreign ports. Mercator holds the optionto buy three of these vessels at rates that are about $10m-15m cheaperthan their projected market price. The company has also sought permis-sion for the issue of 8,000,000 warrants carrying entitlement or optionto apply for an equal number of equity shares on preferential basis tothe promoter's associate company AHM Investments, in accordancewith the guidelines of the Securities and Exchange Board of India.

With foreign institutional investors seeking the equity of the compa-ny, Mercator has sought an increase in the limit of investment by suchinstitutions of up to 70% of the company’s paid-up equity capital. Inshort, it is an all-round shoring up of its financial soundness. Today, theMercator bosses feel that Indian shipowners can really compete withthe best international shipping companies. Earlier, indifferent Indianpolicies allowed other countries’ shipowners to flourish, since theycould carry Indian cargo. It has come to a point where Indian bottomscarry a mere 20-22% of Indian cargo.

“Greek owners employed Indian seafarers, carried Indian cargo andmade money,” said Mr Agarwal, ironically. “Indian owners employedIndian seafarers, often faced a shortage of good seamen, and did not makemoney because they could not carry the country’s cargo! Take, for exam-ple, the policy of appointing the Shipping Corporation of India (SCI) asthe nodal agency for crude carriage. Could SCI provide all the vesselsneeded for the crude? No. And the government stopped the Indian privatesector from acquiring vessels. So who benefited?The Greek owners! Wrong policies of theIndian government were responsible.

“A lot has been done on theeconomic liberalisation front, Iagree, but a lot still remainsto be done,” he said. ■

OWNER PROFILEMERCATOR LINES


Today, the Mercator bosses feel that Indian shipowners can

really compete with the best international shipping companies

Welcoming the recent BIMCO/ISF man-power 2005 update for its more encouragingprojections of the calculated shortfall oftrained and available officers worldwide,IMO secretary-general EfthimiosMitropoulos has raised concerns over theoutcome of recent analyses of accidentswhich indicated that, due to inappropriatelevels of manning and watchkeepingarrangements, particularly in short sea voy-ages, fatigue had emerged as a significantcontributory factor in accidents. He told arecent meeting of the STW sub committeethat perhaps the time had come for these

principles of safe manning and the provi-sions related to watchkeeping arrangementsand hours of rest within the STCWConvention to be re-assessed, possibly bythe identification of factors against whichmaritime administrations could evaluateproposed or actual manning levels on shipsof similar types, size and trade.

Meanwhile, at the time of going to pressthe IMO Maritime Safety Committee wasmulling a recommendation that the STCW'95 regulations be completely revised afterfour separate amendments over the past 10years. According to the IMO, furtheramendments are likely over the mediumterm so perhaps the time had come foranother comprehensive review of the con-vention. Rear Admiral Brady, director gen-eral of the Maritime Authority of Jamaicaand chairman of the IMO's STW subcom-mittee, previously claimed that advances intechnology over the last 10 years promisedtraining opportunities that had not yet beenincluded in the revisions. ■

REGULATORY RADARWHAT’S GOING ON IN THE CORRIDORS OF POWER

Mitropoulos 'fatigue' worry

The European Maritime Safety Agency(EMSA) has launched a second call for tendersto provide additional oil pollution responsecapabilities in EU waters. This comes after itset in place an initial network during 2005,based on response vessels in the Baltic,Mediterranean and Atlantic regions. EMSA islooking to extend its Atlantic andMediterranean capabilities from 2007. ■

EMSA pollution call

A detailed investigation has been launched bythe Commission into Sea-Invest’s acquisition ofjoint control in EMO-EKOM. Both companiesare cargo-handling companies mainly active inthe loading, unloading and storage of iron oreand coal. The EC's initial market investigationfound that the proposed transaction gave rise tocompetition concerns on the market for coal andiron ore terminal services at the ports ofAntwerp, Rotterdam and Amsterdam, includingZeeland, the so called ARA range. Meanwhile,Brussels mandarins have cleared the proposedacquisition of the French shipyard Chantiers del'Atlantique (CAT), by Aker Yards ASA. TheCommission found that the proposed transactionwould not significantly impede effective com-petition in the European Economic Area (EEA)or any substantial part of it. ■

In the wake of the IMO resolution recommend-ing the use of pilot for ships navigating throughthe entrances to the Baltic Sea, the internationalshipping community has joined forces with theDanish maritime authorities to find ways to fur-ther enhance the safety of navigation. Opentransparent dialogue will be encouragedbetween pilotage service providers and users toensure optimal pilotage services in general andto encourage the use of pilots for ships navigat-ing through the entrances to the Baltic Sea.

A Joint Pilotage User Group was formallyestablished at its inaugural meeting at thebeginning of May. Svend Eskildsen, directorgeneral of Royal Danish Administration ofNavigation and Hydrography, will act as chair-man and initial members will include the RoyalDanish Administration of Navigation andHydrography, the Danish Maritime Authority,INTERTANKO, INTERCARGO, ICS,OCIMF and BIMCO. ■

W A T C H I N G T H E W A T C H K E E P E R S

EC officials have approved the introduction of amechanism in Lithuania to refund employers’ socialinsurance contributions in respect of EU seafarersworking on Lithuanian flag vessels. The mechanismallows for the partial or full refund of employers' con-tributions. The authorised scheme will run fromJanuary 2006 to end 2011 and is expected to cost upto Euro 4.63 million per annum. ■

Brussels backs Lithuanian seafarers

EC competition probe

International initiativeon Baltic pilotage


The origins of InterManager can be traced back to the late 1980s.At that time, shipmanagement was emerging as an important industryin its own right, but lacked any real forum for debate as an homoge-neous group. The idea of forming an association of shipmanagers wasfirst floated at that time, partly to serve this need but also in response towhat was perceived as unfair criticism of a growing industry sector.

A perceived deterioration in shipping standards over the precedingtwo decades was blamed by manyindustry commentators on the shipman-agement sector. The argument ran that,with the replacement of the traditionalshipowner structures by new types ofowner such as K/S investors, third partymanagers had become the instrument ofcost-cutting and substandard operations.

According to InterManager presidentand Eurasia president and group manag-ing director, Rajaish Bajpaee: “In thelate 1980s the worldwide consciousnessof the need for quality practices in theday to day management of ships had yetto emerge as a pressing pan-industryissue. This was a difficult period forshipping in general, and the industryfaced a depression of historic propor-tions. The situation was only worsenedby a spate of serious accidents, whichwere blamed on human error and man-agement failures.

“The mood at the time has been suc-cinctly captured by Lord Justice Sheenin his inquiry into the loss of the Heraldof Free Enterprise where he famouslydescribed the management failures as'the disease of sloppiness', which pervaded every level of the vesseloperator’s hierarchy.”

During the late 1980s the shipmanagement sector was still in its infan-cy, and lacked a common voice. Mr Bajpaee believes this made the sec-tor vulnerable to the witch hunts, which inevitably followed the shippingcasualties of the day, and it soon became clear that the maritime industryhad found a convenient scapegoat to blame.

Acknowledging the pressure on standards, the shipmanagement sec-tor reacted and embarked on a quality assurance system by which neg-ative trends could be acted upon. The result of this initiative was the

creation of the International Ship Managers' Association (ISMA) in thespring of 1991.

“Recognising the possibility that the very existence of the sector wasat stake, the leading quality shipmanagers of the day resolved to pres-ent a united front to the pressures being faced by the industry,”explained Mr Bajpaee. “The shipmanagement sector achieved this byway of self-regulation, and by voluntarily binding themselves to aCode of Conduct and Practice. It was only a matter of time thereafterthat this united front was incorporated in 1991 into an independentassociation of shipmanagement companies, known then as ISMA.”

The Association was incorporated to act as the visible and unitedface of a movement within the shipmanagement community towardsquality assurance and accountability. According to Mr Bajpaee: “Themost substantial achievement of the Association was in providing the

shipmanagement sector with a homog-enous voice, and in the formulation ofthe 'ISMA Code' ... an exceedingly rig-orous code of conduct, which had to becompulsorily followed by theAssociation’s membership, and veri-fied independently by way of an exter-nal audit mechanism.

“The ISMA Code was unique andrevolutionary because it was proactivein nature and advocated voluntary selfregulation. There were several codesof conduct, which emerged as reac-tions to the rash of highly publicisedcasualties and incidents, but thesecodes were just that – reactionary.These codes did not subscribe to thehigher ideal of excellence in shipman-agement, and eventually lost their rele-vance when the ISM Code made basicquality practices in shipping mandato-ry.”

Mr Bajpaee believes the ISMACode has continued to retain its rele-vance even in the present day whenshipping is highly regulated since theCode subscribes to the rigorous pur-

suit of excellence in many more dimensions as opposed to focusingupon the basic standards of quality and safety which are achievable inday-to-day shipmanagement.

“More recently,” he said, “the Association has come to recognisethat excellence within the shipmanagement sector alone cannot guar-antee quality in shipping. The maritime value chain is only as strongas its weakest link, and accordingly each link within the chain needsto be strengthened. The Association has therefore embraced a broad-er and more inclusive philosophy of inviting the participation of eachlink within the value chain, in the pursuit of excellence.

SHIPMANAGEMENT INTERMANAGER


Building for the future

“The ISMA Code subscribes to therigorous pursuit of excellence in

many dimensions”

Spreading the quality ideal

15 years of InterManager 1991-2006

“In this behalf, the Association has recently introduced'Associate Members', that is, industry players who are not engagedin shipmanagement as their core business but who contribute to thesector through their involvement as partners within the maritimevalue chain. These members need to be elected on the basis of thecommitment they demonstrate towards the Association’s pursuit ofexcellence.”

Mr Bajpaee said the re-branding of the “erstwhile ISMAoccurred in the context of this expansion of the membership, andnearly simultaneously with this significant paradigm shift in theAssociation’s approach to quality.

“This broadening of the Association’s approach to excellence hasoccurred under the umbrella of what is known as the 'KPIInitiative'. The KPI Initiative is a movement for the establishmentof pan-industry objective Key Performance Indicators (KPIs)against which the performance of ships and their operators wouldbe judged,” he expalined.

“The movement aims at harnessing the expertise of each linkwithin the maritime value chain, and developing a set of universalKPIs through the participation of all sectors in ocean transport with-in the Initiative. Hence the need for an active constituency ofAssociate Members who will be called upon to contribute theirunique expertise in the formulation of the pan-industry KPIs. TheseAssociate Members are today very actively involved inInterManager’s work, and the success of the KPI Initiative rests ontheir continued involvement and engagement.

InterManager has grown considerably over the years and tospread the quality ideal, in 1994 membership was extended to crewmanagers. “InterManager is widely acknowledged as the voice ofquality conscious players within the shipmanagement industry andallied industries,” commented Mr Bajpaee. “We see ourselves asevolving into an increasingly visible and proactive association,which will act in synergy with other similar trade associations,Governments and Inter-Governmental organisations for promotingand enhancing sustainable and objective quality in shipping.” ➩

SHIPMANAGEMENTINTERMANAGER


1988The formation of a professional, homogeneous organisation to representthe shipmanagement sector was first aired in Hong Kong partly as aresponse to perceived unfair criticism and partly in recognising the possi-bility that the very existence of the sector was at stake.

1989Five of the largest shipmanagement companies form a group, later to bereplaced by ISMA, to prepare the foundations for an Association and tocompile a Code of Shipmanagment Standards for members, which wasthe forerunner of the ISM Code.

1990By the end of 1990, the Code and articles of association for the proposednew Association are completed and circulated to about 50 shipmanage-ment companies and interested parties.

1991In April 1991, ISMA officially comes into being at a meeting in London.Marisec becomes the secretariat for the Association's 35 founder members.Denholm managing director David Underwood is elected founder president.

1994ISMA president Joachim Meyer of Hanseatic welcomes the ISM Code butstates it is not as comprehensive as the ISMA Code, which covers allaspects of ship operations and shipmanagement. Membership is extend-ed to include crew managers.

1995The first full-scale revision of the ISMA Code takes place. All the require-ments of the final ISM Code are included and new provisions are made toallow for crew management members.

1996The revised Code is issued in February. Rules for associate membershipare eased to accept companies deemed to have equivalent quality stan-dards, but this brings in only a few new recruits. The executive committee,as a result, decides against becoming a full trade association to returnISMA to an Association of quality shipmanagers.

1998Increased business is anticipated by shipmanagers as a result of theimplementation of the first phase of ISM and the fallout from the Asianfinancial crisis. Members are warned to assess carefully any potential newclients seeking shipmanagement services to solve their ISM requirements.

1999Speculation about consolidation within the shipmanagement sector mir-rors developments in the wider shipping market. This leads to talk of a two-tier market with the big shipmanagers set to grow in size to achieveeconomies of scale, while the smaller operations are forced to offerrestricted services.

2000The ISMA Code is totally reviewed and a new version issued.

2005InterManager is launched in Hong Kong. The new trade association isarmed with a broad mandate to galvanise the contribution of the globalshipmanagement sector to the industry-wide drive for improving the imageand performance of shipping.

INTERMANAGERCHRONOLOGYA perceived deterioration in shippingstandards over the preceding twodecades was blamed by many industrycommentators on the ship management sector

InterManager's KPI Initiative will be asgroundbreaking a development, as the ISMACode, believes president and Eurasia Grouppresident and group managing director,Rajaish Bajpaee. “Eventually, the various KPIswill be distilled into a single rating for shipsand their operators, and this single rating willobjectively account for every relevant aspectof the ship’s management,” he explained.

“The rating will become a powerful tool forinvestors, underwriters, ship owners, flagstates, ports and port states, regulators andindeed anyone who would possibly want toassess the quality of a vessel or her operators.

“The KPI movement addresses the coreissue, which faces the shipmanagement indus-try, namely quality ... the quality of tonnage,the quality of crew and quality practices inshipmanagement, he added.”

InterManager general secretary StephenChapman believes that the key issue for shipmanagers is how these KPIs dovetail withTMSA (Tanker Management and SelfAssessment). “To start with one has to under-stand a fundamental that underpins whatInterManager holds close ... quality comesfrom self-regulation with verification forwhich is needed uniform measurement criteria.This is common too with the oil companies’TMSA initiative,” he stressed.

The KPI Project was initiated by a Sponsor

Group of 18 ship owners and ship managers,and spearheaded by InterManager. The projectaims to develop a set of KPIs for ship man-agers, which would be acceptable to all stake-holders on a pan-industry basis. These stake-holders include the IMO, ILO, all Port StateControl organisations, oil majors, charterersand classification societies among other regu-latory and enforcement agencies.

Mr Chapman said that Phase I of the KPIProject was complete. “It [Phase I] has identi-fied and adopted the 'conjoint value hierarchy'(CVH) methodology for developing a set ofKPIs based on the requirements of all stake-holders. These KPIs will be easily collectible,measurable and, besides being verifiable byany and all stakeholders, will facilitate a self-assessment culture, which would elevate theshipmanager's performance from the presentculture of compliance with minimum criteria.”

According to Mr Bajpaee, KPIs should fol-low predefined measurement standards and beauditable. However, he said this is a longprocess of not only development of standardsand delegation of audit functions, but also ofhaving the acceptance of all stakeholders.

“The KPIs must be quantified in such a waythat they are neutral,” commented CaptainWilliam Lunn, marine manager, Navigo ShipManagers. “They should not be influenced byfactors such as changes in fleet size or ➩



“The use of KPIs within shipping has

gathered pace as the industry focus hasshifted from detailedprocess regulation to

goal-based regulation”

Stephen Chapman

Accountability is key to quality management

exposure hours. Generally, therefore they should be expressed as per-centages or ratios.”

While many responsible ship managers have developed their ownin-house KPIs, there has, as yet, been no common standard to setthese industry-wide. Mr Chapman said the use of KPIs within ship-ping has gathered pace as the industry focus has shifted from detailedprocess regulation to goal-based regulation. “Stakeholders who couldrequire more proof of a shipmanager’s operational worth includeowners, charterers, oil majors, insurance companies, P&I Clubs andunderwriters, port state authorities and flag state authorities.”

Mr Bajpaee said: “It is in its own best interest that the shipmanage-ment sector takes the initiative to develop uniform measurement stan-dards and mechanism of audits. KPIs are a necessity if the shipman-agement sector is to break the myths of accountability and transparen-cy. A uniform method of performance measurement will enable easeof comparison and scope for continuous improvement.

“The accomplishments of the shipmanagement sector may not be sospectacular when compared to what the sector can achieve by combin-ing its strengths, identifying its weaknesses and formulating criteria for

self-governance through a common forum. InterManager, once again,must exert itself with full support of the shipmanagement sector.”

Rob Grool, Wallem Group managing director, welcomes currentinitiatives to create general KPIs which can be an industry standard.He said: “Ship managers are the operators of the future; ship owningwill be more and more an asset play, with the day to day technicaloperation between the moment of buying the ship and selling it takencare of by the managers.

“No ship owner, who realistically allocates the costs of managinghis ships through his own organisation, can ignore the cost, efficiency and knowledge benefits of conscientious third party shipmanagers. We are uniquely qualified to assess the quality of perform-


“To succeed I believe we do need toget support and involvement by all

major players in the market including owners, charterers, oil majors, and P&I

Clubs. If they do not feel accommo-dated, the matter will fail totally”

ance of the many different ship types and sizes of all ages under our management.”

Hanseatic Shipping Co managing director, Andreas Droussiotisbelieves the shipmanagement sector is right to develop its own stan-dard KPIs. “But,” he says, “to succeed I believe we do need to getsupport and involvement by all major players in the market includingowners, charterers, oil majors, and P&I Clubs. If they do not feelaccommodated, the matter will fail totally. The need for the industryto develop is only on account of the fact that we are the ones whoknow what is best for the industry at large.”

In agreement with Mr Droussiotis, Captain Lunn commented that itwas very important for ship manager to develop KPIs. “We have toshow that we are capable of self- regulation, otherwise we will con-tinue to be bombarded by unilaterally imposed regulations andrequirements from numerous stakeholders.

He said that in terms of individual items that should be highlightedin the KPIs, “safety and environmental management are top of theagenda for everyone”.

As to what the benefits of these KPIs would be, Mr Bajpaaeexplained: “The maritime industry, as a whole, and shipmanagementsector, in particular, have not developed any uniform system of per-formance measurement and monitoring. Although the industry per-forms to extremely high standards, the absence of documented andaudited performance parameters and records lead to unjustified anddistorted public and political views. Much hue and cry has historical-ly led to tarnishing of the industry image whenever there are maritimecasualties or incidents of pollution. ➩



“We have to show that we are capableof self-regulation, otherwise we willcontinue to be bombarded by unilaterally imposed regulations and requirements from numerousstakeholders”

“The shipmanagement sector therefore stands to improve its publicimage, as well as set exalted performance parameters to aspire to.”

Mr Grool said that while shipmanagers have been using explicit orimplicit KPIs for many years to check performance against the goal ofcontinuous improvement as per the ISMA standards and others (ISM,ISO, ISO 14000, OSHAS, Green Award), TMSA will make thedemand for KPIs more externally driven. “Proper KPIs, and a clearinsight into how data are used to arrive at those KPIs will make theperformance of the ships more transparent,” he commented.

Expanding on the transparancy ethic, Capt Lunn believes the KPIswill foster greater trust, while Mr Droussiotis said the KPIs will allowshipmanagers to operate in a more realistic and professional wayrather than trying to cope with requirements for the sake of therequirements. “Also,” he went on, “the people on board will be moreconcerned to learn rather than to fill in forms and be confused by thedifferent requirements of all parties.”

Mr Chapman believes there are many good reasons why both indi-vidual shipmanagement companies, and the shipping industry as awhole, need to adopt common standards. “One reason is that KPIscurrently in use tend to be limited, often varying widely between com-panies. As a result, they do not actually help a company to manageitself well, nor are they useful for comparing performance betweencompanies, so called bench marking.

“Increasingly, in the shipping industry, as in other major industries,KPIs are being used not only to better manage a company’s opera-tions, but also to provide the foundation for a company’s corporatesocial responsibility strategy. To properly manage a company today,executives also need to understand broader performance indicators,including those for social, environmental, safety, security, and corpo-rate governance,” he concluded.

The ongoing shortage of seafarers is only going to be exacerbatedby the wave of newbuildings, which will be delivered over the nextfew years, believes InterManager president and Eurasia Group presi-dent and group managing director, Rajaish Bajpaee. “The only way aship owner can possibly deal with this problem is to engage the serv-ices of a reliable and capable manager who has had the foresight toinvest in a robust and sustainable crew pool,” he explained.

“Some of us within the shipmanagement industry saw this crisiscoming, and we have invested considerable amounts of time, moneyand expertise in bracing ourselves for the situation. Those who havefailed to do so are finding themselves dealing with crises in qualityand are facing increasing detentions and losses due to their lack ofpreparation and foresight,” continued Mr Bajpaee, who believes thereis a similar shortage in staff ashore. “But again those of us who havetaken care to invest in our people are finding it considerably easier toweather the current storm.”

On the shore-based staff issue Captain William Lunn, marine man-ager, Navigo Shipmanagers says his company has not yet experiencedany recruitment problems, “but there is a real danger it will occursometime in the near future”. He does agree that there is a shortage ofquality seafarers, but that this can be improved by better developmentof career prospects for seafarers coming ashore and by better paystructures especially for nations with developed seafaring superstruc-ture. “It won’t happen overnight,” he commented.

Typically forthright, Rob Grool, Wallem Group managing directorbelieves there is no argument about a lack of seafarers. He says thatwhile retention of seafarers is a core issue for shipmanagers “it is not a belief, it is a certainty that there is a shortage of quality seago-ing staff”.

Like Mr Bajpaee, he also believes the situation is being madeworse by the expansion of the world fleet and the fact that ships ➩



Fleet growth compounds seafarer shortage

“Those of us who have taken care toinvest in our people are finding it considerably easier to weather the current storm”

are getting bigger and the demands on crews are increasing. Mr Groolsays the situation could be improved by an image makeover for theindustry to attract career minded capable people and by offering qual-ity training both ashore and on board. He said: “Law-makers,shipowners, managers and authorities should realise that going to seais more than a job, it is a way of life.”

To combat the worsening manpower shortage ColumbiaShipmanagement Ltd has run an internal programme aimed at har-nessing and developing the skills of its staff to improve working rela-tionships with customers. According to managing director Dirk Frythe company also has a programme in place that offers young and tal-ented people long-term employment prospects at sea and then ashore.He said this programme has been fruitful.

Hanseatic Shipping Co managing director, Andreas Droussiotisbelieves the seafarer shortage will get worse over the next few yearslargely because of the number of new vessels being added to theworld fleet. “For the last two years the additional requirement was forabout 50,000 seafarers, out of which 3,500 are masters, chief engi-neers and chief officers and they do not grow on trees. It takes about

a year to build a vessel and 10 years to have a cadet in the position ofmaster. This shows the extent of the problem we face.

“The only thing we can do [to improve the situation] is invest asmuch as we can in training and upgrading. This at least partly willresolve the problem.”

Mr Droussiotis believes that the profession of the seafarer needs tobe made more attractive. “We need to create a better image of ship-ping in the minds of people. As difficult as it may sound, we also haveto find additional areas to recruit from.”

Shipmanagement fees are a thorny issue among most shipmanagers.Many are adamant that the fees they receive are not adequate. HanseaticShipping Co managing director, Andreas Droussiotis puts it succinctly:“Fees are in no way proportionate to the exposure, responsibilities,requirements and demands of all parties involved in the operation.”

InterManager president and Eurasia president and group managingdirector, Rajaish Bajpaee contends that shipmanagment fees do notallow consistent investments in manpower, technology and infrastruc-ture to allow shipmanagers to exceed customer requirements. He saysthat while managers' work expectations have increased through theimplementation of regulations such as ISPS and the ISM Code, feeshave not increased in proportion.

Mr Bajpaee does not put the blame for unrealistic fees solely at thedoor of shipowners, and believes that intense competition for businessamong shipmanagers is a major factor. Further, he does not believe inthe idea of performance-based bonuses saying that shipowners shouldacknowledge the improvements in quality management and investaccordingly.

Captain William Lunn, marine manager, Navigo Shipmanagersagrees with Mr Bajpaee. “Fees are under commercial pressure fromcompeting managers,” he said. “There seems to be little reward fordelivering a superior service. Bonus schemes for achieving pre-agreedtargets are being talked about, as are penalties for failing to deliver.These might have some merit ...quality operators need to feel justifiedin ‘going the extra distance’,” he continued.

The competition issue is one endorsed by Dirk Fry, managingdirector, Columbia Shipmanagement Ltd, who believes there are toomany managers tendering for new business by offering unrealsiticoperating budgets and low fees. He believes such practices are short-sighted and lead to too many ancillary problems. ■



Fees restrictinvestment

‘There are too many managers tendering for new business by offeringunrealistic operating budgets and lowfees. I believe such practices are short-sighted and lead to too manyancillary problems’

Kirstie Nicholson is a Consultant in the Brussels office of Lovells,the international law firm (www.lovells.com).

In December 2005 the EC Commission published its proposals toreview Regulation 4056/86, and set out details of the future regulationof the international maritime industry under EC competition law.

The Commission's key proposals are: the abolition of the blockexemption for liner conferences; the repeal of the current exception oftramp and cabotage services from the EC Competition law powers ofinvestigation and enforcement; and the publication of guidelines for theapplication of the EC Competition rules to the maritime sector.

The Commission's proposals have a number of implications for themaritime industry. For the liner industry, liner operators will no longerbe able to continue to co-operate through conferences in the form inwhich they have traditionally existed. However, liner operators will beable to continue to discuss certain, much more limited, types of infor-mation in the future.

Removal of the current exception for tramp shipping means that theCommission's powers of enforcement of EC Competition law willapply to this sector, most significantly the Commission's power toimpose hefty fines for breaches of EC Competition law. This proposalbrings the treatment of the tramp shipping industry into line with allother industry sectors.

The Commission's proposals came as no surprise to most. However,the Commission's commitment to develop and adopt specific guidelineson the application of EC Competition law to the maritime industry, inparticular, on information exchange within the industry, are to be wel-comed. There has been little clarity in the application of EC Competitionlaw to the unique forms of cooperation, such as conferences and pools,which have traditionally existed within the maritime industry.

It is clear, however, that the Commission has much further work todo in order to identify the concerns of all relevant parties and to pre-pare the proposed guidelines. The Commission has indicated its will-ingness to continue discussions with the industry in this respect -- anoffer of which the industry should take full advantage. A number ofissues remain open, so the future regulation of the industry under ECCompetition law is not yet certain. ■

By Brett M. Esber, Partner at US law firm Blank Rome

Repeal of the EU block exemption will likely create conditionsin the US Transatlantic trades that are very much like those in the USTranspacific trades. Although the Ocean Shipping Reform Act of 1998(“OSRA”) did not repeal the antitrust exemption for liner shippingconferences, the result of OSRA was to significantly weaken the abil-ity of conferences to police adherence to conference pricing directives.As a result, conferences are essentially non-existent in the US trades,with the exception of course of the Trans-Atlantic ConferenceAgreement.

Instead of conferences, the principle means of cooperation among carri-ers in the US trades is through consortia and alliances. With respect to thesharing of more general trade information, many carriers participate in dis-cussion agreements covering the US trades. Under these agreements, carri-ers meet to discuss conditions in the trade and frequently adopt recommen-dations on price adjustments and surcharge levels. These recommendationsare not binding on the agreement members.

The repeal of Regulation 4056/86 and implementation of the rules thatwill likely replace it will eliminate the only remaining carrier conferencecovering the US trades while allowing the same types of carrier coopera-tion and, most likely, the same sort of information sharing currently permit-ted by US laws. Although shippers have been the driving force behindthese changes both in the US and EU, I believe carriers have benefited aswell. By ensuring that negotiated rates will remain confidential, carriersare given the ability to draw important distinctions between their customerswithout running the risk of having to give every good customer the samerate given to their best customers. After all, negotiation is best done in aprivate and confidential manner, with each party free to agree on terms thatare acceptable to it without the need to explain their pricing decisions to alltheir other customers.

The repeal of Counsel Regulation 4056/86 takes the OSRA changes onestep further. What OSRA rendered ineffective, EU law would prohibit.Following the repeal of Regulation 4056/86, neither US nor EU laws willpromote carrier conferences, and both sets of laws will allow carrier con-sortia and alliances. ■

LAW


Repeal of Regulation 4056:

SMI asked two leading law firms from either side of the Atlantic to give theirviews on the European Commission’s plans to abolish Regulation 4056/86(European Liner Shipping Conference Regulation).

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Established in 1974 by Captain Vassilis Constantakopoulos,Costamare quickly became a significant player in the bulk car-rier sector. It was just 10 years later that the company made itsmove into the containership sector. It was a pioneering move

for a Greek company at the time but has paid off. For the last 22 yearsits ships have serviced virtually all the leading charterers in the mar-ket such as APL, China Shipping, COSCO, Hapag-Lloyd, HyundaiMerchant Marine, Maersk Lines, Mediterranean Shipping Company,Mitsui OSK Lines, NYK, ZIM etc.).

The 1990s was the decade of development, creativity and recogni-tion for Costamare. In 1994, its ordered its first ships, considered atthe time as among the largest in the container marketís evolution. Theshipbuilding program covered the construction of 24 panamax andpost-panamax containerships. In 2003, a year before celebrating its30th anniversary, the company ordered five 8,500 teu post-panamaxbottoms which were then jumboised early after the initial order toaccommodate 9500 teus. The vessels will be delivered within the firstsemester of 2006.

The current fleet of Costamare and its affiliate companies consistsof 50 cellular container vessels of a total carrying capacity of about200.000 teus representing about 2.4% of the world carrying capacity inteus, making Costamare the largest independent container operatorworldwide. All vessels are Greek flagged – a policy that will continue,the company said. A company spokesman stressed that Costamare'soverriding aim has been to “be proactive in meeting customersírequirements providing high quality services, while meeting the high-est possible standards of safety and maintenance protecting the assetsunder its care, its employees and the environment. Costamare consid-ers its welfare and training of all employees, particularly seafarersmanning the vessels, as one of the keys to its success”. In 1998 man-agement of the Company passed to Costis Constantakopoulos, chair-man of the company. ■


Costamare Shipping

Managing Director, Costamare Shipping

How affected are Greek shipowners by the heightenedregulatory environment and what does the industryneed to do to state its case more effectively?

“Shipping is an international industry and as such must be gov-erned by international rules and standards. The adoption of anyother unilateral or regional measures creates confusion and dam-ages the shipping industry and its constructive and important rolein the development of the world economy. Greek shipownershave no difficulty following the adopted international rules and standards but they oppose any unilateral, or regional measures.”

Are Greek owners becoming more open minded to thebenefits of outsourcing services such as shipmanage-ment?

“Costamare specialises in the container sector and t covers everyaspect in managing its fleet. If we diversify to other types of ves-sels then we might examine the possibility of using the servicesof third party managers.”

The shipmanagement industry is dominated by callsfor greater transparency and greater quality throughcomparable key performance indicators. What is yourview on this.

“For a long time now we have used KPIs and as a general remarkconsider then as an absolutely necessary tool for the managementof any company. The use of key performance indicators allowthe level of efficiency and quality of work performed to bejudged. The most important thing is the infrastructure on whichthe KPIís are based and the organization of the interrelation andinteraction of all the departments so the data collected presentsthe real picture of the information the management needs.”

How healthy is Greek shipping at the moment?

“Greek shipping is a dominant worldwide industry coveringmore than 16% of the world tonnage. It is very healthy today,especially after the last two booming years (2004-2005).”

FRANKLYSPEAKING

The current fleet of Costamare and its affiliate companies representsabout 2.4% of the world carryingcapacity in teus

Diamantis N. Manos

SHIPMANAGEMENT CREW TRAVEL


China’s impact on the global shipping industry is not lost on the crew travel sector with an anticipated growth in travel demand forcing many managers to take more operational control

Up,upandaway

For many ship operators crew travel is ranked among the top threeexpenditures and costs can vary depending on the travelling needs ofseafarers being repatriated and the need for last minute bookingsamong senior staff.

But while the demands placed on crew travel specialists by shipoperators would appear to be intense, such demands and the skillsrequired do not seem to have deterred some shipmanagers from form-ing their own travel agencies.

Nigel Cleave, group managing director of Dobson FleetManagement explained that because of the high number of crewemployed by his company and the associated crew travel arrange-ments required, his company set up their own IATA travel agencysome time ago to handle both group and external travel related busi-ness.

“The agency not only provides quick airline access when lastminute change of flights are required, but we have been able to passon considerable savings to our ship owners. In addition to specialisedmarine travel knowledge, DFM has access to the latest airline com-puter reservation systems, thereby providing real-time information onflight routings and seat availability.”

Another shipmanager operating its own travel agent is HanseaticShipping Co which utilises Eurasia Travel Network, a company oper-ated by its the Schulte Group sister company Eurasia. Based inCyprus and with branches in all the main shipmanagement areas,Hanseatic recruits its seafarers from the Philippines, Poland, Cyprus,UK, north Europe and the Isle of Man.

According to Andreas Droussiotis, Hanseatic chief executive offi-cer, managers need to be able to provide any-time-of-day tickets to itsseafarers to travel on time, especially on urgent matters or emergencyincidents where an officer may be required because of sickness or anaccident. “We also wanted to develop our own network and providethe service to third parties,” he commented.

Griffin Global Group, a company specialising in this sector, arguedthat only those companies totally focusing on crew travel can managethese issues cost effectively while appreciating the necessary traveldocumentation required for seafarers particularly in these times ofsecurity awareness. Marie-Clare Boyes, from the Group’s Greekoffice, Griffin Travel Marine SA, said: “Because our staff are marine

specialists they are fully aware of visa and immigration issues thatmay affect the seafarer not only at the point of destination but also atpossible transit points en route. We aim to provide the seafarer withthe most convenient routing, subject to flight availability, while main-taining cost efficiencies to the owner or manager.”

P&O Marine Travel's general manager, Dennis Woodard agreedwith the important role shipmanagers play in the crew travel sectorbut said that the cost issue was important, particularly with the currentlevel of fuel surcharges being applied by the airlines.

He said the crew travel market is continuing to expand, with amajor factor being the rapidly growing Chinese economy. “China isimporting goods on a grand scale, which is impacting on th demandfor bigger and better ships. We are also seeing passenger vesselsincreasing insize, which means more people are being carried andthere is a need for more crews.”

These sentiments are echoed by Griffin. “With a growing numberof new vessels on order, the crew travel market will continue grow-ing,” commented Ms Boyes. She said that the manning markets arechanging, with big growth in Eastern Europe and also in China.

“The Far East has been a very strong area for Griffin during the lastcouple of years and the company has been very focussed in providingadditional services to the marine and offshore sectors. To that end wehave invested new resources into Sales and Client Services depart-ments and have already seen growth coming from new clients as wellas those who have been with us for many years.”

One shipmanager with a different perspective is TESMA Holdings,which does use the services of specialist marine travel providers.According to the company's director of business development, PerSeniksen, the willingness to become an extended arm of TESMA'screw management operations was a key selection factor.

“TESMA requires the marine travel service provider to handle allcommunications with family, port agents and airlines and to arrangeall necessary travel documentation such as visas. A network of repre-sentation in global shipping centres is essential. But, more important-ly is the aspect of having strong contacts who can secure the seats[tickets] for seafarers in a world of tight availability and capacity atairlines is critical.” ■

Shipping and ship finance have performed well over the last 12months measured against the backdrop of record high vesselfreight rates and ship values reached in late 2004 and early2005 and taking into consideration the inevitable decline that

followed.Whereas freight rates have since fallen substantially across all ship-

ping sectors and well below half of their recent heights for many ves-sel types, vessel values have not followed suit and have fallen quitemodestly in comparison. Vessel prices have been resilient as a resultof the still relatively robust freights when set against those of only afew years ago and have been buoyed by the abundance of investmentfunds looking for ‘exciting’ returns compared to other investments.There is also an expectation, still held strong, of continuous good per-formance and returns in the light of the massive growth in internation-al trade still being experienced by China and India, as well as the restof the world economy. Consequently, the rising supply of shippingtonnage aided by increasing newbuildings and a lack of scrapping hasbeen well absorbed by the increase of demand by the world economyand international trade.

During this period, Greek shipping has performed especially well.Not only has the average age of the fleet improved from 23 years to19 years over the last two years as a result of massive newbuildingorders and young second-hand vessel purchases, but Greek ownershave enjoyed the benefits of high earnings and liquidity on anunprecedented scale. For those owners highly committed to shipping,such liquidity has been largely used to modernise and grow theirfleets, aided by an increasing use of the public markets, as well as indeveloping sizeable cash hoards for future acquisitions.

Although the pace of newbuildings and sale and purchase of sec-ond-hand vessels has slowed down recently, the underlying theme isstill one of positive growth and evolution by Greek shipping aimingto take advantage of any relative low vessel price opportunities to fur-ther grow and improve the quality of their fleets.

Consequently, during the last 12 months there has been no notice-able Greek owner failures or non-performance towards their banks.On the contrary, banks that were naturally cautious and expected amassive fall in both vessel prices and freights, witnessed a relativesoft sliding which still keeps their loan portfolios healthy and per-forming. In addition, banks looking for lending opportunities amongthe larger and financially stronger owners have been aggressivelycompeting for quality business by slashing spreads and fees and cre-ating an ‘owners’ market.

Although cautiousness is still the order of the day, invariably allbanks are confident about Greek shipping and its ability to withstand

GREECE FINANCE & BANKING


Seizing opportunities with financial liquidity

Recently published research, shows that banks continue to trust Greek shipping especially as their lending to it has risen yet again

lower freights, should they occur. Moreover, banksunderstand that Greek owners are looking to extendfurther and to seize any relative opportunities based ontheir good liquidity as well as the relatively low lever-age of their fleets against what is still a robust netincome stream of earnings from their fleet utilisation.

Although the industry is experiencing record highoil prices, geopolitical conflict fears, as well as a pos-sible slow down in the rate of growth in Chinesedemand (and increasing interest rates are also of con-cern), owners and banks remain confident of the futureand in their belief of continuous good performance bythe shipping industry.

Greek shipping is of course at the fore in this confi-dence and continues to perform very well. As a result,Greek shipfinance reflects this and Petrofin-Bank-Research©, published this April, shows that banks con-tinue to trust Greek shipping especially as their lendingto it has risen yet again.

In the past four years we have witnessed a steadygrowth in banks’ ship lending portfolios to the Greekmarket. Following the trend, this year also shows con-sistent growth. The overall portfolio has risen from$32.353bn to an impressive $36.112bn. This repre-sents a growth of 11.62%. ➩

In the graph, left (Graph 1) we note the evolution of Greek shipfinance since 2001.

We note that the previous years’ rises were more of a ‘leaps andbounds’ nature, whereas the ‘as of end 2005’ figure shows a softerrise. This trend is in line with what has been happening to shipping.Last year’s impressive 26.61% increase was, of course, due to theremarkable strengthening of freight rates and tremendous demand forvessels that drove their prices to all-time historical heights. Thisunavoidably reflected in the volumes of the shipfinance, as the aver-age loan increased accordingly, whereas the percentage of financeremained largely the same, averaging 65-70%.

For the purpose of analysis, we have divided banks into Greekbanks, international banks with a Greek presence and internationalbanks without a Greek presence.

Since 2001, all 3 categories of banks show a 21.6% steady averageannual growth in Greek shiplending.

GREECEFINANCE & BANKING


0

5000

10000

15000

20000

25000

30000

35000

40000

Total Bank Portfolios available to Greek shipping

Dec 01 Dec 02 Dec 03 Dec 04 Dec 05

Growth since 2001US$m

Source : Petrofin Bank Research ©April 2006

Table 1

Overall Growth in Greek Shiplending

Int. Banks Witha Greek presence

Int. Banks Withouta Greek presence

Greek Banks

Totals (Rounded)

19.540 177.16% 40.2% 29.03%

10.049 63% -16.74% 12.99%

6.523 97% 2.82% 18.48%

36.112 118.53% 11.62% 21.58%

Overall Greek shiplending

portfolio in US$ billions as of 31st December 2005

Percentage of growth

between December 2001 and 2005

Percentage of growth

over the last 12 months between December 2004

and December 2005

Average yearly growth since 2001

In the table below (Table 1) we observe the overall growth in Greek shiplending:

Graph 1

It is important to note that the reduction in the exposure of theInternational Banks without a Greek presence (-16.7%) is due mainlyto the shift, this year, of Deutsche Schiffsbank (current portfolioUS$3.4bn) to the International Banks with a Greek presence, as wellas to the merger of the Vereins und Westbank with HVB, which hasbeen in the list of banks with Greek presence for a number of years.Hence, also, the tremendous growth of the banks with a presence inGreece. Had Deutsche Schiffsbank remained in its previous sub-cat-egory, then the percentage growth from 2004 to 2005 would havebeen +11.4%!

The International Banks with a Greek presence are the banks thatcollectively top the list in Greek shipfinance. As of end 2005, theycommitted to the sector US$19.54bn as opposed to US$13.94bn theyear before, in an increase of portfolio of 40%. The Royal Bank ofScotland heads the group, as well as coming first overall, with their,by far the largest, portfolio of US$8.099bn. RBS remains for yetanother year the biggest lender to Greek shipping with an averageannual percentage growth of 32.85%. For the first time, the secondposition is held by HSH-Nordbank (banks without a Greek presence)with a US$3.47bn portfolio, a rise of 22.28% from the year before.

This is how the top 30 banks fared as of end 2005:

It is evident that Greek shiplending has been going from strength tostrength. Irrespective of the number of banks that have entered or leftthe sector, the overall picture of the last five years is one of continu-ous commitment and growth. Here, we should also note that up torank 13 all these banks have reached and exceeded the $1bn mark,whereas in the previous year only nine banks had achieved this.

The total number of banks involved in Greek shiplending is 40, asof 31st December 2005. This is reduced down from 50, primarily dueto mergers as well as some withdrawals from the Greek market bybanks without a core emphasis in shiplending. ➩

In terms of nationality, and compared to the two previous years, theyare as follows:

GREECE FINANCE & BANKING


Table 2

Top 30 banks holding Greek shipping portfoliosas of 31st December 2005

Rank Bank position Portfolio Av. annual Bank position 2005 growth 2004

1 Royal Bank of Scotland 8099 32.85% Royal Bank of Scotland2 HSH-Nordbank 3468 22,28% Deutsche Schiffsbank3 Deutsche Schiffsbank 3400 9,68% HSH Nordbank4 Credit Suisse* 1850 15,63% Credit Suisse*5 Calyon* 1500 not available Calyon*6 Alpha Bank 1480 9,63% National Bank of Greece7 HSBC 1170 11,43% Alpha Bank8 National Bank of Greece 1140 -18.57% Citibank9 DVB Nedship 1070 21,59% HSBC10 DNB 1067 27,78% DVB Nedship11 Citibank 1015 -16.8% Emporiki Bank12 ABN 1000 33,33% Piraeus13 HVB 1000 22,7% DNB14 Emporiki Bank 938 7,82% HVB15 Piraeus 897 3,46% ABN16 Fortis Bank 700 27,27% KFW17 KFW 641 -10.26% EFG Eurobank18 Commerzbank 608 14,29% Fortis Bank19 EFG Eurobank 602 6,05% Commerzbank20 Nordea 526 44,9% Bremer Landesbank21 Bank of Scotland 504 61,66% First Business Bank22 Laiki Bank 476 28,07% BNP PARIBAS23 First Business Bank 457 3,02% Laiki Bank 24 Bremer Landesbank 448 -5.38% Nordea25 BNP Paribas 401 0,12% Bank of Scotland26 Egnatia 266 24,88% Vereins und Westbank27 Nord LB 226 88,33% Egnatia28 Natexis 185 351,22% Dresdner bank*29 Dresdner* 175 -12.5% Nord LB30 Kexim* 150 not available Bank of Ireland

* Market estimates

Table 3

Number and nationality of Banks engaged in Greek Shipfinance

Nationality End 2003 End 2004 End 2005

UK & Ireland 5 5 4France / Belgium 8 6 3Scandinavia 2 2 2Germany 10 10 9Holland 5 5 4Greece 15 14 14Other European 4 4 2Total European 49 46 38North America 4 3 1Far East and others 1 1 1Grand Total 54 50 40

Irrespective of the number of banks that have entered or left the sector, theoverall picture of the last five years is one of continuous commitment and growth

The International Banks with a Greekpresence are the banks that collectivelytop the list in Greek shipfinance. As ofend 2005, they committed US$19.54bnto the sector as opposed to US$13.94bnthe year before

The recognised home of Piraeus' shipowners

Also, the reduction in the number of banks is also due to unwind-ing portfolios coming to an end by those who were intent in leavingthe sector anyway.

Examining the situation more closely, Graph 2 shows that the num-ber of non-Greek banks with a physical Greek presence (11) has goneup by 2 compared to last year. In actual fact, these banks have shownconsistent growth throughout the last 5 years.

Once again, this is the leading group of banks commanding a totalportfolio of $19.540.5bn. Deutsche Schiffsbank is the prime contrib-utor to this impressive increase of 40.19% by bringing in a portfolioof $3.4bn.

In Graph 3 we observe that the sector of international banks with-out a Greek presence shows a decrease in numbers from 27 banks to15. This decrease is accompanied by a decrease in portfolio for thefirst time in five years from $12,070.13m in 2004 to $10,049m in

2005, i.e. a -16.74% reduction. It should be noted that with the excep-tion of three banks, the rest in this sub-category have shown a steadygrowth. Despite the decrease, international banks that are not repre-sented in Greece are showing an ever-growing interest in the Greekshipping market and the fact that local partnerships and local repre-sentative offices are opened, shows just that.

In terms of Greek banks (Graph 4), their number has remained sta-ble at 14. Their portfolio marked an increase by 2.82% from $6.344bnto $6.523bn.

Greek bank exposure has been steadily increasing since December2001, when our research was first published. Since then, the fundsavailable to Greek shipping have risen by 97% (Table 1).

It is important to observe that in this market of huge volumes andhuge numbers, Greek banks retained their competitiveness and arecompeting for Greek business on an equal footing with other ➩



RBS

Deutsche Schiffsbank

Calyon*

HSBC

DVB Nedship

Citibank

ABN

HVB

Fortis

BNP Paribas

Natexis

$8099

$3400

$1500*

$1170

$1070

$1015

$1000

$1000

$700

$401

$185

International Banks with a Greek presence Greek shipping portfolios as of 31.12.0511 Banks - Total portfolio: $19.54bn Total exposure to bank

0 2000 4000 6000 8000 10000

* Based on market estimates • Where figures were supplied in euros: Eur = $1.2


Loans drawn in Loans commited but not yet drawn

HSH NordbankCredit Suisse*

DNBKFW

CommerzbankNordea

Bank of ScotlandBremer Landesbank

Nord LBDresdner*

Kexim*Bank or Ireland

INGDB/SHL Shipping

Corner*

International Banks without a Greek presence Greek shipping portfolios as of 31.12.0515 Banks - Total portfolio: $10.04bn Total exposure to bank




0 500 1000 1500 2000 2500 3000 3500

$3468$1850*

$1067$641$608$526$504$448$226

$175*$150*

$140$115

$80£50

It is important to observe that in this market of huge volumes and huge numbers,Greek banks retained their competitiveness and are competing for Greek

business on an equal footing with other international banks

Graph 2 Graph 3

international banks. Overall, a good pace of growth was maintainedyet again last year.

As newbuildings are being delivered or their finance is secured,shipfinance volumes have also risen. Although, the observed soften-ing of freight rates has had an impact on the growth volume of Greekshipfinance, banks continue to trust Greek shipping and this is themajor trend that has emerged from our study.

My belief is that there will be a further slowdown in the rate ofgrowth of Greek shipfinance, but it will still be in the positive. Theeffect on Greek shipping of such behaviour by the banks is support-ive, since banks have become experienced in the volatile sector ofshipping and as well as safeguarding their interests, they have alsoemerged as great supporters of the industry.

Although the market has shown some signs of correction, nothingtoo dramatic happened during 2005. The big question of whether aslump would follow the recent boom is still unanswered. The‘China’, and increasingly the ‘India’, factors are still extensively dis-cussed and are generally accepted as the major driving force behindtoday’s market. China’s annual growth continues, its demand inresources and its rising exports worldwide are keeping transportation

in full steam. However, newbuilding deliveries have also risen sub-stantially across all sectors. Hence, it is a tug-of-war between increas-ing demand and increasing supply.

Greek Shipfinance has attracted the attention of the internationalbusiness community for its returns and steady growth in the last years.

The banks are also comforted by the good quality of their loan port-folios and the near zero record of bad loans for yet another year.

Consequently, most banks anticipate an unspectacular 2006 and afurther year of relatively good performance. ■

By Ted Petropoulos, Petrofin S.A.






Alpha BankNational Bank of GreeceEmporiki Bank of Greece

Piraeus BankEFG Eurobank

Laiki BankFirst Business Bank

Egnatia BankAegean BankOmega Bank

Bank of CyprusAspis Bank

Agricultural Bank of Greece*Marfin Bank

Greek BanksGreek shipping portfolios as of 31.12.0514 Banks - Total portfolio: $16.52bn Total exposure to bank

0 300 600 900 1200 1500

$1480

$1140

$938

$897

$601

$476

$457

$266

$107

$60

$40

$31

$28*

(as investment bankers)

Although the market hasshown some signs of correction, nothing too dramatic happened during2005. The big question ofwhether a slump would follow the recent boom isstill unanswered

My belief is that there will be a furtherslowdown in the rate of growth ofGreek shipfinance, but it will still be in the positive

Graph 4

LIFESTYLE V8 VANTAGE


FIRST shown as a concept car at the 2003North American International Auto Show inDetroit, but with deliveries to customersnot starting until late 2005, the Vantageimmediately caused a worldwide sensationas it allowed Aston Martin to enter a newsector of the premium sports car market

Completing the current Aston Martin line-up by joining theflagship Vanquish S and the elegant DB9, the V8 Vantagewas the culmination of the first phase of reinvigorating theAston Martin brand around the world that began in the year2000.

“The Vantage is a significant car for us,” explained Dr Ulrich Bez,Chairman and CEO of Aston Martin. “The Vantage is a true AstonMartin, built with the same high integrity and passion as all of ourcars. This is the more affordable Aston Martin and its design and agili-ty should help to widen our appeal, taking us into a new sector of themarket and attracting younger customers to our marque. The V8Vantage has all of the hand-built bespoke attributes for which AstonMartin is renowned.”

The exterior of the Vantage is perfectly proportioned from everyangle with a low, purposeful stance. A truly beautiful car, it is also care-fully detailed and painstakingly assembled, displaying the designintegrity and quality synonymous with the Aston Martin marque.

“The Vantage features many of the design cues that have becomebasic DNA for all Aston Martin models and are leading edge in cardesign,” added Dr Bez.

The long bonnet and two-seater cabin create the instantly recognis-able Aston Martin stance, poised and aggressive yet undeniably ele-gant. Minimal front and rear overhangs are combined with a widetrack to enhance the sculptural qualities of the bodywork. At the reara hatchback offers access to a large luggage shelf.

“It was important to ensure that the design was pure, clean andinnovative, while at the same time you should be able to cover thefront nose badge and instantly recognise the Vantage as an AstonMartin,” said Dr Bez.

Inside, Aston Martin’s design integrity is matched to striking 21stcentury style. The dials are made from aluminium, and together withthe switchgear have a very distinct design and unique Aston Martinlook and feel.

The look, feel and functionality of the interior was a key priority,ensuring the Vantage reflected the new direction that the company istaking.

Aston Martin believes the ambience of the cabin is extremelyimportant, with materials treated respectfully and functionally; woodand aluminium are real, never fake, while there are signature toucheslike the glass starter button.

The leather for the seats are taken from a total of seven hides andwill age with the car. Aston Martin has yet to really gauge the effect

long-term ageing will have on the model but is confident it willenhance the look of the vehicle in years to come.

It takes up to 200 man hours to hand build the V8 Vantage and wait-ing lists worldwide are currently standing at 18 months because allmodels are built precisely to order. That means you can not onlychoose your body colour from over 200 colour palettes or suggestyour own favourite (Aston Martin will advise on what coloursenhance resale values), but you can choose the entire look of the inte-rior all the way down to the stitching on the seats and the colour of theseatbelt. Interestingly, you can even choose the colour of the brakecalliper which is visible through the wheel hubs.

Chassis, Engine and Performance

The Vantage has endured the most extensive test and developmentprogramme in the company’s 92-year history.

Seventy-eight prototypes were vigorously tested over more than 1.5million miles, including over 12,000 miles in the scorching deserts ofDubai, where ambient temperatures hit 48ºc and the bodywork of thecars reached 87ºc. At the other extreme, cold weather testing wasundertaken in Sweden, with temperatures as low as -30ºc.

High speed testing was conducted at the Nardo test track in Italyand extensive trials were carried out at Nurburgring’s Nordschleife inGermany.

The V8 Vantage is the second model to use Aston Martin’s uniqueVH (Vertical Horizontal) architecture. Constructed at Gaydon inWarwickshire, England from lightweight aluminium extrusions, pre-cision castings and pressings, the underframe is bonded with aero-space adhesives and mechanically fixed with self-piercing rivets.

The complex die-cast components are combined with door innerpanels of cast magnesium, with a windscreen surround made form ➩

LIFESTYLEV8 VANTAGE


High speed testing was conducted at the Nardo test track in Italy andextensive trials were carriedout at Nurburgring’sNordschleife in Germany

The V8 Vantage's elegant lines are formed from a combination of aluminium, steel and advancedcomposite exterior panels. Composites are usedfor panels with a high degree of complexity anda deeper shape, such as the front wings, whichincorporate the distinctive side strakes

a single aluminium casting. The entire frame is bonded with a cold-cureadhesive with exceptional damping properties. This helps soak up thevibrations which may otherwise appear if the structure was welded.

The unique VH architecture provides an excellent structural back-bone, while the use of sophisticated materials such as lightweightalloys, magnesium and advanced composites for the body further con-tributes to the car’s low weight and class-leading rigidity.

The V8 Vantage's elegant lines are formed from a combination ofaluminium, steel and advanced composite exterior panels. Compositesare used for panels with a high degree of complexity and a deepershape, such as the front wings, which incorporate the distinctive sidestrakes.

Aston Martin’s engineers worked with Ford Research andNottingham University to develop RTM (Resin Transfer Moulding)composite panels, using unique processes and materials, resulting inlightweight panels with an extremely high surface finish. The processensures that the optimum amount of reinforcement material is used ineach area of the panel to ensure optimum strength and weight.

Steel pressings are used for the body side panels to achieve the sheerdepth of the design. This delivers the required style without resorting tousing several panels in the rear three-quarter area, resulting in a remark-ably clean and uncluttered appearance.

A Pure Sports Car

The Vantage is very much a pure sports car, so from the outset, the pri-ority of Aston Martin’s engineers was to focus on lightness, agility andpower. The car is compact and nimble and at just 4.38 metres long it isthe smallest model in the Aston Martin range.

The new 380 bhp engine is a 4.3 litre, low emission, all aluminiumalloy V8, unique to Aston Martin. This new V8 engine uses the latesttechnology to deliver outstanding performance in all environments.

The layout of the powertrain adopts a transaxle configuration, where-by the front mid-mounted engine is connected to the transmission - atthe rear of the car - via a cast aluminium torque tube and carbon fibreprop-shaft. This configuration gives the car a 49:51 weight distribution,providing outstanding handling characteristics and excellent all roundcapabilities.

Aston Martin has adopted a dry-sump lubrication system for theVantage. Often used in racing cars, this system allows the engine to sitvery low within the body, lowering the centre of gravity and improvinghandling and the overall balance and stability of the car. The systemalso helps to improve engine durability by maintaining lubricationunder conditions of extreme cornering and braking.

The advanced quad-cam 32-valve engine is individually hand assem-bled by skilled Aston Martin technicians at the company’s new engine

production facility in Cologne, Germany, where every Aston Martinengine, including the V12 for Vanquish S and DB9, is built.

The bore and stroke dimensions are optimised to provide an excel-lent balance between outright power and torque, while a resonanceinduction system improves tractability and performance. The inletcamshaft timing is variable resulting in improved low-end throttleresponse, mid-range torque and seamless power delivery. Maximumpower is 380bhp @ 7000rpm and maximum torque 302 lb ft @5000rpm.

The Vantage is offered with a new 6-speed manual transmission. Thesmooth and fast shift action ensures the ultra close ratios can be used tomaximum effect.

By the end of this year Aston Martin will have a total network of over140 dealers worldwide. According to the company, the US currentlyaccounts for 35% of overall sales with Europe and the UK coming nextwith 30% each and the remainder spread in other areas.

“It is difficult to typify the classic V8 Vantage customer but with thelower price bracket of £79,995 the car is up against the Porsche 911Carrera S. If we got 3% of this market it would be more than enough.And it is a growing market,” the company added. ■

LIFESTYLEV8 VANTAGE


ENGINEAll alloy quad overhead camshaft 32 valve, 4.3 litre V8. Variable Inlet Camshaft Timing. Dry sump lubrication system. Fully catalysed stainless steel exhaust system with active bypass valves. Front-mid mounted engine. Rear wheel drive

Maximum Power 283kW (380 bhp) @ 7000 rpm

Maximum Torque 410 Nm (302 Ib.ft) @ 5000 rpm

Maximum Speed 280 km/h (175 mph)

Acceleration 0-100 km/h (62 mph) in 5.0 seconds0-60 mph in 4.8 seconds

Fuel capacity 77 litres (16.8 UK Gal / 20.2 US Gal)

Kerb Weight 1570kgs (3461 Ib)

Boot capacity 300 litres (10.6 cu.ft)

Aston Martin V8 Vantage Specification

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