bimco refletion 2012

REFLECTIONS

2012

BIMCO161 Bagsvaerdvej2880 BagsvaerdDenmark

www.bimco.org

Quality is never an accident;it is always the result of high

intention, sincere effort, intelligent direction and skillful execution; it represents the wise

choice of many alternatives.(William A. Foster)

An ocean of expertise

2012 BIMCO Reflections Cover Only.indd 1 19/12/2011 13:40:06

BIMCO’s Reflections on Shipping Industry Issues

Yudhishthir Khatau, President of BIMCO

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PRIVATELY CONTRACTED ARMEDSECURITY PERSONNELOf the greatest concern to BIMCO is the more recent acceptance of the use of armed guards which has been driven by their de facto use by owners and oper-ators. Their decision has been driven in the main by:• Primarilythedemandfromseafarersforwhatisperceivedastheonlywaytohaveguaranteedsecurity.

• Theherdinstinct.• The neutral position taken by the military, but

overt statements as to their effectiveness.• TheovertsupportgiventotheconceptbytheUnit-

ed States.•VesselscapturedthroughineffectiveapplicationofBestManagementPractices(BMP)andowner/op-eratorsdecryingtheuseofBMPasaresult.

• Ironically, the fear inspired by avoiding capturethroughtheuseofacitadel.

This has given rise to a new important debate on Corporate Social Responsibility (CSR) and indeedadds to the legal, liability and commercial con-cerns,notwithstandingtheexcessiveandoftenun-necessaryuseofarmedguardsonvesselspotential-lyriskinganescalationinviolence.Thislatterargu-mentgrowsmonthbymonth,aspiratesopenfireonvessels,andiffireisreturnedindicatingthatarmedguardsareonboard,theyappeartobediscouragedandleave,searchingforeasierprey.TheUKPrimeMinister has shown an interest but it is worrying that hethinksthatarmedguardspreventattacks–theydonot–theyjustdefeatattacks–forthetimebeing.

Inthiscontext,IMOMSCCirc1/1405isimportant.Self-regulationbyPrivateMaritimeSecurityCom-panies (PMSCs) or self-regulation by the industry,however,has tobeaddressednowand indeed, leg-islation by flag states if they propose to legitimisePCASPthroughlicensing.Thelatter,though,isun-likelygiventhegrowthinflagstatesallowingtheir

explicitlyashehasachoiceastohowhemanageshis duty of care to the seafarer.

• The introduction of 1405 increases the “require-ments”ontheowner/operatortocomplywithbothsetsofguidelines:1405andBMP.

BIMCO is therefore in the process of developinga standard contract for the employment of armedguardsonmerchantvessels.Thegoal is to finalisethecontractJanuary2012.

SUMMARYWhatevertheoutcome,theindustryisnowbear-ing the brunt of the failure of the internationalcommunity to recognise the geopolitical natureofthepiracyproblem.Theindustryneedstofinditsownwaytodothissuccessfullywithoutperma-nentlycommittingitselftothedesperateactionsitcurrentlyhastoapplytoprotectitsseafarers.

Closing RemarksThe previous articles represent a brief summary of some of the most crit-ical issues requiring BIMCO’s atten-tion and involvement. We hope that, by reading this report, members will feel more assured of BIMCO’s com-mitment to protecting their interests in a broader forum. Other readers will have a better grasp of the wide variety of services BIMCO provides, not only for its members but for the shipping industry at large.

usebutstillwithoutlegislation–temporaryorother-wise–andcertainlywilltaketimethatdoesnotex-iste.g.theUKsaysitwillbuthaslittleideaofthepro-cessesneededorindeedhowtospeedilyimplement.

NowthatIMOMSCCirc1/1405hasbeenproducedthereareanumberofissuesthatBIMCOfeelsown-ersandoperatorsshouldbeawareof:•As the major argument for the use of armedguardsisadutyofcare,then1405hasper se,legalramifications.

• Thisironyneedstobeaddressed,astheunionswilluse it against owners and operators if it was estab-lishedthatownerswerecuttingcornersornotpay-ingforthequalityadvised.

• 1405hasfarmorestrength,asalthoughnotoverlyprescriptive,itisfarlessgenericthanBMPasthereareanumberof“measurable”factorssuggested.

• Conversely, if an owner/operator does not usearmedguardsitnowbehoveshimtofollowBMP

Source: US Navy Photo

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CONTENTS

4 State of the Shipping Industry and Forward Looking Perspectives

8 Keep Regulation Global

10 Shipping and the Environment

12 The Human Element: It’s a People’s Business

14 Piracy – A View on the Way Forward and Armed Guards

by The PresidentFOREWORD

We all know very well that shipping is cyclical, capital intensive and a high risk business. The year 2011 has changed nothing in that respect and neither will 2012.

It gives me great pleasure to introduce to you Reflections 2012, highlighting BIMCO’s view-point on some of the most critical issues facing the shipping industry. We have similarly tried to best present the situation in the various market segments, and I guess we shall have to be patient a little longer, as we await better times!

But as often seen before, there will continue to be new opportunities and many will be tempted and some rewarded for exploring them. We are also likely to see consolidation in the industry; in fact some of the largest carriers in the container trades are forming partner-ships and others are forming VLCC pools to best ride out the storm.

I firmly believe that shipping will prevail and find calmer waters, as has always been the case, but when? That’s the big question! With postponement in the delivery of newbuild-ings, restraint in the ordering of new tonnage and perhaps only ordering for replacement instead of speculatively, recycling of older tonnage and idling, we could see an earlier re-covery, but I doubt that the will is there! Shipping is a cash-flow business and ship owners need cash to service their loan portfolios, particularly at present, with critical banking eyes closely monitoring balance-sheets and debt servicing. An idled ship unfortunately gener-ates no cash, only costs!

The environmental agenda continues to build up, but with some good news at least in the context of shipping’s contribution to Global Warming. It is as if the politicians have finally realised that shipping is indeed the most environmentally friendly mode of transport per tonnes/mile and that today’s high cost of fuel will induce ships to be more energy efficient and thus emit less CO2. However, we will of course continue to work constructively with governments to find an equitable scheme that will ensure shipping can meet possible re-duction targets.

Happy reading! I hope you will enjoy it!

2012 BIMCO Reflections Inside Only.indd 3 20/12/2011 14:59:35

BIMCO REFLECTIONS – 20124

State of the Shipping Industry and Forward Looking Perspectives

GLOBAL ECONOMY: TACKLING UNPLEASANT ISSUES REMAINS VITAL TO BRINGING BACK OPTIMISM AND SPURRING DEMANDThe world needs daring and decisive political leadership, especially in the EU and the US, for confidence and optimism to find its way to the consumers. Unfortunately, the political stale-mate in the US continued throughout 2011, bringing with it new uncertainty and double-dip horror stories and whereas the EU found ways to stabilise the Southern economies, the unease regarding the size of the problem and the question as to whether the EU has found the cure is still lurking. Emerging and developing nations, in particular China and India, stayed on the growth track despite the large Western economies slowing down imports as a result of hesitant private consumption. With a slow-down as well in exports, China and other Asian economies heavily relying on exports will have to stimulate focus even more on domestic con-sumption. The need to nurture domestic de-mand in all Asian nations, even more than to-day, is a natural counterbalancing exercise.

Consumers and governments are saving more and cutting costs, which are sound actions by themselves but not really helping econom-ic growth to kick in. This is evident also when looking at JPMorgan Global Manufactur-ing PMI, which is now in limbo around the threshold level of index 50. The US Manufac-turing sector is edging closer to stagnation

while the Eurozone’s ditto continues the sharp downward movement deeper into contraction. Mixed signals from Japan and China blur the picture, as they too are faced with very difficult domestic challenges.

With a 4% World GDP growth in 2011 and the prospects of a similar level for 2012, shipping will continue to be impacted by significant oversupply of tonnage in all segments, but ship owners have traded in harsh market conditions before – not an unusual scenario in a cyclical business environment – and there are of course remedies in the form of idling and recycling of tonnage to bring better balance between supply and demand, a condition for improvements in freight rates.

When addressing the effects of the weak world economy on individual shipping market seg-ments, it is first and foremost the container and tanker sectors that have taken the beating, whereas the dry bulk markets appear to have suffered less with considerable lower but ac-ceptable rates by the end of the year.

The good news is that the world is still turning and trade is growing, albeit at a slower pace; if the political will returns to the US and EU, per-haps confidence can be restored in the financial sector, a necessary condition for investments, consumption and overall economic growth.

SHIP SUPPLY: DECELERATION FROMALL-TIME PEAKNewbuilding deliveries in 2011 surpassed an only one year old record. The dry bulk fleet topped the ranks, growing by almost 75 million DWT. Had it not been for a record high level of large vessels being recycled, the glut of ton-nage would have created even greater challeng-es for owners.

Looking forward, our crystal ball tells us that the dry bulk fleet will grow by not less than 12% in 2012, while the containership fleet is set for another year of growth close to 8%. As regards oil tankers, crude oil tankers are facing one more very challenging year as the fleet is set to grow by 7%, whereas product tankers have left previous years with a high inflow of new ton-nage behind to see only 3% increase of the fleet in 2012.

Taking all the three main shipping segments into consideration, none of them are able to de-liver comforting sounds from a large-scale re-cycling potential to counterbalance the ampli-fied pace of newly-built vessels about to enter the world fleet. A potential positive surprise could come from the dry bulk segment as it did in 2011.

Financing of business, as well as of the order-book, will be key issues on every owner’s agen-da. As the traditional large European shipping banks are undecided regarding their future ex-


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The demand side is set to be relatively stable in 2012 although it’s likely to grow somewhat slower than in 2011 – at least in volume terms. Overall iron ore demand is likely to slow. Still, a lower world market price as compared to the domestic costs of mining it within China holds the key to provide positive demand shocks for this valuable steel ingredient. Growing de-mand for thermal coal from large Asian con-sumers is said to be a steady demand driver.

Looking forward: expect the unexpected, as has been the lesson learned. Maybe even India will

begin to influence the market as a significant importer. This would fulfil the prophecy and release a vast potential that has been simmering for a very long time and provide a much-need-ed second major demand driver. Supplement-ing China as the dominant factor in the market would create a more sustainable freight market going forward. However, this will not happen in just one year; moreover it appears destined to remain a long and dusty road for several years to come. An optimist would surely name In-dia as the best thing that could happen to the dry bulk shipping industry. In the meantime,

Freight Rate Developments, 2010-2011

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posure to the industry, alternative sources of finance from all over the world and in many guises have stepped in. We certainly see this trend continuing throughout the coming year.

DRY BULK SHIPPING: WILL THIS BE THE YEAR WHEN INDIA TAKES OFF?The year 2011 had barely started before a se-ries of unforeseen events took place across the globe. Most of them affected dry bulk ship-ping negatively and the large Capesize vessels were particularly under pressure. Amongst the events were the flooding in Australia and South Africa, the triple disaster in Japan and the “Arab Spring” that also affected the supply of oil into Europe.

Half a year down the road, during which many Capesize vessels had earned less than any other dry bulk vessel size, the unexpected happened again. Strong demand for iron ore and coal from China and the recovering Japan, sourced from Brazil and Australia, ignited freight rates for Capesize vessels. A tight tonnage situation in the Atlantic basin combined with increased congestion in loading and discharging ports pushed average rates above USD 30,000 per day. A far cry from the peaks of the super cycle, but surely an indication of the peak levels we have in sight for the near- to mid-term future as the supply side remains a considerable burden for the industry.



volatile iron ore exports and strong demand for thermal coal is likely to characterise India’s contribution to the dry bulk markets.

TANKERS: SLOW ECONOMIC GROWTH DAMPENS OIL DEMANDGrowing demand for crude oil tankers is orig-inating from countries close to the large crude oil producers. That in turn provides fewer tonne/miles as compared to demand emerging from the Western Hemisphere, where slowing demand continuously offers fewer long hauls. As a rule of thumb, volume demand in the East must grow by a factor two to offset the decline in volumes that used to go to the West. On the oil product side, refineries in the Far East or Middle East are coming on stream later than expected, which means that the export volume will be lower than previously expected.

The product tanker sector holds optimistic prospects for the near future, but it is a com-plex business and ever changing business con-ditions and opportunities can be difficult to forecast. But as the “demand stories” of Atlantic gasoline arbitrage, Winter markets, and refin-ery dislocation are struggling to perform to ex-pectations, the focus has turned towards a wid-er range of products. Moreover, demand for oil products with a lower sulphur content than the local refinery is capable of producing provides for trading of the same product with different sulphur content between nations. This leads to a growing demand for oil product transporta-tion despite the overall lower oil demand.

Amongst the swing factors that could improve earnings in both tanker segments are slow steaming, virtual arrival, longer hauls, e.g. to avoid the growing threat from pirates and of course a faster than expected recovery in the large oil consuming nations.

The slow steaming of any tanker would ease the pressure from the supply side, as it remains the least bad option for the cash-strapped own-er as he attempts to maintain his cash flow. Moreover, being at the right place at the right time continues to be crucial to take advantage of any non-planned-for events that would pro-vide a window of higher earnings, e.g. shortage of prompt tonnage in the Mediterranean due to Bosporus Strait congestion.

Taking the longer perspective, should the world decide to move away from using nuclear power plants for generation of power faster, this could improve tanker demand. Recent evidence from Japan has provided better days for LNG carri-ers, but demand for other fossil energy sourc-es will be advantageous for tankers and bulkers should the demand arise from nations without a regasification facility or a grid able to handle LNG. Moreover, the trend of the US becom-ing more and more self-sufficient with oil will potentially affect the tanker industry in a far-reaching fashion.

CONTAINER SHIPPING: WE HAVE BEEN HERE BEFORE ……and liner companies know the most effective medicine that will make the pain disappear, but not cure the decease. Will they start idling tonnage again…? Looking at the market dur-ing 2011 – “no” is the unfortunate answer. The amount of laid up tonnage is noticeably distant from the level that made 2010 a very good year.

Going into 2012, the sector is battling on two fronts from the trenches. A bad global eco-nomic weather forecast is the main demand threat, while the oversupply issue is an internal problem to handle.

Demand is very unevenly distributed; while the volume of inbound loaded containers to US West Coast Ports is barely growing, the intra-Asia trades and new-market trades are growing briskly. This difference in growth rates is very illustrative of the underlying market.

The battle against oversupply has to be fought simultaneously with low demand and in a tough competitive environment. On the world’s largest trading lane from the Far East to Eu-rope, it has been possible to observe the “open exchange of punches” between the market par-ticipants. Vessels of ever increasing sizes have lowered the cost per transported unit – and triggered a massive cascading from this trade of sub-optimal vessels. This trend will only be-come more severe. 2012 will see another 50% increase in capacity in the segment for Ultra Large Container Ships (ULCS) capable of car-rying more than 10,000 containers.

A very high number of newbuilding contracts have made this sector stand out from the tramp shipping segments, which have avoided a repeat of last year’s astoundingly high contracting ac-tivity. Half of the new box ship orders are for 2013-delivery, which is the earliest possible de-livery. It is not clear whether it is pressure from shipyards or owners that has pushed delivery dates closer – instead of further away which probably would be more prudent. 62 of the or-ders in 2011 are made in the ULCS segment – bringing the total to 174. That is an increase of 50% of vessels bound for the Far East – Europe trading lane, which is already the mostly chal-lenged market.

Source: BIMCO, IMF

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KeepRegulation GlobalTHE NEED FOR GLOBAL REGULATIONShipping is a global industry and with more than 90% of international trade being carried by sea, also the most important element in the world’s supply chain of goods. This fact is duly noted in BIMCO’s objectives, serving to facilitate har-monisation and standardization of commercial shipping practices while promoting fair business transactions and free access to markets. Howev-er, shipping cannot fulfil its role without clear-ly defined rules of play, involving safety, securi-ty and environmental protection. BIMCO there-fore promotes internationally agreed regulatory instruments as the best guarantor of a level play-ing field for all parties engaged in the transporta-tion of goods by sea. Advocating for states’ ratifi-cation and implementation of such instruments is a key element in BIMCO’s efforts to seek a high-er degree of harmonisation within the industry.

CLEAR ROOM FOR IMPROVEMENTREGARDING RATIFICATIONInternational conventions governing most areas of maritime transport, such as maritime safety, ma-rine environment protection, ship owner liabili-ty, security, and standards of training and watch-keeping, are already in force and applied interna-tionally. It has regrettably been difficult to generate sufficient support for some international conven-tions, as some states have experienced challenges beyond their economic, social or political reach to implement them. As a result, some important conventions have not been ratified by the neces-sary number of nations to enter into force, creating short-comings in the application of an overall and

version from the global limit of 4.5%. Another ex-ample is the suggestion put forward in the State of California, USA, to implement special rules on bio-fouling. The proposed regulation establishes per-formance standards which would have to be met by any merchant ship entering Californian waters and BIMCO believes this would be impossible to comply with.

Such unilateral initiatives only create uncertain-ty and misunderstandings and should be avoid-ed! It is important for the shipping industry and those regulating its activities to engage in con-structive dialogue to find workable solutions that will be supported internationally. As an organisa-tion internationally recognised for its pragmatic approach, BIMCO will always strive towards find-ing practical solutions to regulatory issues within the shipping industry.

FUTURE CHALLENGES REGARDINGINTERNATIONAL REGULATIONSThe broad range of new and stiff regulations aris-ing out of politicians’ increasing environmental agenda will further add to the problems of an in-dustry still significantly impacted by the financial crisis and an excess ordering of new tonnage. There are significant cost factors that come into play for ship owners! That goes for the ILO Maritime La-bour Convention, which is progressing well re-garding number of ratifications and will create an updated global platform concerning working con-ditions on board ships. Furthermore, the IMO Bal-last Water Management Convention is expected to enter into force in a foreseeable future, with severe

global regulatory framework for shipping. BIM-CO continues to raise this crucial issue and will do so again in the beginning of 2012 in Internation-al Maritime Organization (IMO), suggesting also the implementation of a “ratify or explain” princi-ple in IMO. This will be aimed at providing a tan-gible tool in determining the reasons for the lack of ratification of certain conventions by certain states.

In a regulatory environment, where regional reg-ulators are pushing their own often political-ly inspired agenda, it is important that individu-al states recognise that their inaction and failure to support international regulatory instruments may indeed inspire unilateral action. This is obvi-ously counter-productive to a global industry that needs internationally-agreed regulatory instru-ments to maintain a level playing field. BIMCO is a strong supporter of the IMO and deeply respects its achievements in respect of regulating the ship-ping industry.

THE CHALLENGES FROM REGIONALISMAs mentioned, regional unilateral regulatory ini-tiatives are challenging for maritime transport as they are complicating the regulatory environment that the shipping industry is operating in. Unfor-tunately, new regional initiatives are still being in-troduced, e.g. the European Commission’s propos-al for EU implementation of the new sulphur limits in Emission Control Areas (ECAs). In the proposal, the Commission not only endorses the implemen-tation of MARPOL Annex VI but even suggests a 3.5% sulphur limit for heavy fuel to be used in EU waters, which would appear as an unjustified di-


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retrofitting costs to existing ships. The Convention will set a new global standard on the discharge of ballast water, but serious issues arise: Is the tech-nology workable? Will there be sufficient shipyard or repair yard capacity to fit these systems? And if there is no option to retrofit or insufficient ballast water systems to meet demand, will governments grant exceptions and how?

Whereas BIMCO has promoted early ratification of the Rotterdam Rules to help harmonise the rules around the carriage of goods by sea and modal, the process is slow and a successful outcome is increas-ingly uncertain. The slow process has unfortunate-ly given space to politicians favouring regional in-itiatives, which is likely to further delay the pro-cess and add to the uncertainty. BIMCO believes it is essential for states to increase the ratification speed to pave the way for a genuinely global and contemporary regime on international transporta-tion of goods. It would indeed be regrettable if the Rotterdam Rules should suffer the same fate as the earlier Hamburg Rules and leave the industry with both, in addition to Hague - Hague Visby! It re-quires leadership and drive from the largest trad-ing nations to bring the process forward. We will certainly continue to stimulate, however difficult, the drive towards implementation.

THE OVERCAPACITY ISSUE IN SHIPPING AND SHIPBUILDING YARDSDuring the boom years, shipbuilding yards ob-viously reacted to demand and expanded to seek business opportunities. The industry is now faced with modest economic growth, overcapacity, the

youngest merchant fleet ever and a historical-ly high newbuilding capacity. In this perspective, shipbuilding yards will have to reconsider their future direction. A slow-down in the delivery of new ships is, in the present circumstances, a pre-requisite for the shipping industry’s recovery, and this coupled with attractive recycling prices could bring back a better supply and demand situation in shipping. For socio-economic reasons, some states may select to subsidise shipbuilding yards, allow-ing these to offer newbuildings at very low prices to protect employment amongst the workforce. This could create more obstacles for recovery and could make room for artificial economic stimulants through subsidies and thus generally distort trade and the free market mechanisms so vital to inter-national trade. In this scenario, ship owners may be tempted by low newbuilding prices in the coming years, as shipbuilding yards will strive to fill slots, but the temptation must be resisted, at least for a few years, to bring some balance back into the ship-ping industry.

Ship owners and shipyards need to look at this jointly, as both industries are inter-dependent and exposed. Resorting to the traditional form of subsidies will destroy the market forces and lead to instability and turbulence in the shipbuilding industry with severe negative flow over effects on shipping.

There are significant opportunities for shipyards with excess capacity in the form of retrofitting. The industry is faced with a broad range of envi-ronmental regulations from Ballast Water Treat-

ment (BWT), sulphur emissions limits and ener-gy efficiency to bring down the CO2 emissions. Al-though the BWT systems will be a cost item and for some a significant one, there are attractive business cases for ship owners selecting to retrofit. For sul-phur, the fitting of scrubbers to existing ships may be attractive and any measure to enhance energy efficiency will be reflected in lower fuel consump-tion and hit the bottom line fast.

Source: www.flickr.com, user Alphast



THE CLIMATE DEBATEIMO’s work on Green House Gas (GHG) regula-tion for international shipping is progressing. At the 62nd session of the Marine Environmental Protection Committee (MEPC 62) in July 2011, a new chapter to MARPOL Annex VI was adopted that introduces an Energy Efficiency Design Index (EEDI) for new ships. EEDI is a technical measure aimed at limiting CO2 emissions from international maritime transport.

This new regulation is the first globally binding measure to limit CO2 emissions from any sector. BIMCO was very pleased to see IMO adopting such a regulation to improve energy efficiency for inter-national maritime transport. The adopted amend-ments to MARPOL Annex VI impose limits to En-ergy Efficiency Design Index (EEDI) for new ships built after 1 January 2013.

EEDI sets out technical standards for improving the energy efficiency of certain categories of new ships which will, in turn, lead to less CO2 emis-sions. The EEDI reduction will be 30% by 2030 from a baseline average of ships built in the last de-cade. EEDI should result in better ships and not just slower ships and will provide opportunities to build and operate more energy-efficient and cost-effective ships. It challenges ship designers and ship builders to utilise their naval architectural and en-gineering skills to the full, focusing on efficiency improvements.

MEPC 62 also agreed that all ships shall carry a Ship Energy Efficiency Management Plan (SEEMP). A SEEMP provides a structured approach to monitor-ing ship and fleet efficiency performance over time, and options that may be considered when seeking to optimise the performance of a ship.

The adopted regulations provide for a party to waive compliance for a ship built in the first years. Though controversial, it is not the first time IMO has included such provision and in the case of tech-nical and operational measures to reduce GHG emissions from ships, a waiver was crucial to the adoption.

Waivers being granted from the flag state for com-pliance with the EEDI requirement have, however, commercial implications and BIMCO recommends that due to the lifespan of ships and the signifi-cant uncertainties in respect of governments’ envi-ronmental agendas and how these may be applied, members should abstain from building new ships without certified EEDI compliance. Non-compli-ant ships would be compromised in relation to their future second-hand value in the market, potential-ly restricted in their ability to trade worldwide and be less attractive in the charter market due to their perceived lower efficiency.

BIMCO has developed an easy-to-use EEDI Cal-culator to assist its members calculating EEDI and plotting a ship’s index against the relevant ship type specific regulatory limits imposed by MARPOL Annex VI. The aim is to make the EEDI perfor-mance of known ship designs more visible, as well as providing an easy way to assess changes in EEDI when design parameters are altered. The calcula-tor is available for downloading from the BIMCO homepage at the address https://www.bimco.org/en/Products/EEDI.aspx.

The issue of potential Market Based Measures (MBMs) is also progressing at IMO. Last year a group of experts did a thorough assessment and comparative analysis of 10 different proposals for possible MBMs. The expert group’s report provided a solid foundation for further deliberations in IMO.

Shipping and the Environment

We expect the discussions to gear up on MBMs now the technical and operational measures have been concluded.

The European Commission is expected to propose some kind of regional initiative for shipping dur-ing the next year or so. We remain very sceptical towards regional measures for shipping on GHG. Legally, it is questionable whether such a measure can be applied in a manner that is not distorting trade, and if it really can, BIMCO is equally scepti-cal whether the emission scope would provide any meaningful reductions in emissions. It is essential that regulatory measures aimed at reducing GHG emission from ships are measured for effectiveness against their environmental impact.

SULPHUR EMISSIONSDuring MEPC 62, the US Caribbean Area was in-cluded in MARPOL Annex VI as an assigned Emis-sion Control Area from 2015 and onwards. For this area, together with the other Emission Control Ar-eas, which are the Baltic Sea, North Sea and North America, it will be mandatory to use fuel oil with a maximum sulphur content of 0.1%.

The European Commission has proposed a revi-sion of their Sulphur Directive. The proposal is in general aligned with MARPOL Annex VI, and it should be noted that the European Commission has not changed its position despite efforts to weak-en the 0.1% ECA sulphur limit which is applicable from 2015.

BALLAST WATER MANAGEMENTThe International Convention for the Control and Management of Ships’ Ballast Water and Sediments focuses on treating ballast water to achieve the highest possible kill rate of organisms and bacteria ensuring that no potentially harm-


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of world merchant shipping by gross tonnage have ratified it. Furthermore, the combined maximum annual ship recycling volume of the ratifying states must, during the preceding 10 years, amount to not less than 3% of their combined merchant shipping tonnage. So far, no country has finalised the ratifi-cation process.

In accordance with the Hong Kong convention, ships to be sold for recycling will be required to carry an inventory of hazardous materials (IHM), which will be specific to each ship. The IHM must identify the location and approximate quantities of materials found in the ship’s structure that may

Energy Efficiency Design Index

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ful non-native species are introduced into a port or coastal area.

The Convention has been ratified by 31 states, the combined merchant fleets of which constitute ap-proximately 26% of the gross tonnage of the world’s merchant fleet. At present, the Convention is ex-pected to enter into force in late 2012 or early 2013, pending the ratification of an IMO Member State, being a major Flag State (i.e. Panama), which would fulfil the Convention’s tonnage requirement.

At MEPC meetings, new systems are continuously entered in the IMO approval process. To date, basis approval has been given to 34 Ballast Water Man-agement Treatment (BWMT) Systems and about 20 systems have been given final approval and of these some 17 BWMT Systems have been type approved by their respective Administration.

It is estimated that between the entry into force of the Convention and 2016, more than 50,000 ships will have to be retrofitted with a BWM system at considerable cost to ship owners due to a number of possible ship specific technical challenges in re-lation to, for example, additional power require-ments, space limitations and pipe, and/or ballast water pump re-dimensioning. BIMCO believes the implementation task to be immense and recom-mends ship owners to initiate the retrofitting pro-cess as soon as possible, as bottleneck situations are almost inevitable.

RECYCLING OF SHIPSThe Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships was adopted in May 2009 by IMO at a Dip-lomatic Conference held in Hong Kong. The Hong Kong Convention will enter into force 24 months after the date on which 15 States, representing 40%

present a danger to workers in recycling facilities and to the environment during recycling.

BIMCO is pleased that a growing number of ship owners are willing to take the “green” route when selling ships for recycling. The BIMCO recycling contract, RECYCLECON, is tailored to the needs of those ship owners and reflects, where possible, the requirements of the Hong Kong Convention. It provides a useful and timely contractual tool for owners and recycling yards during the transition-al period before the Hong Kong convention enters into force.



The Human Element:It’s a People’s Business

FAIR TREATMENTSeafarers are the most critical resource for the shipping industry and world trade. Fair treat-ment of seafarers cannot be compromised and must therefore continue to be an essential and intrinsic part of the maritime industry agenda.

Unfair treatment of seafarers is a worldwide problem with severe consequences for the seafar-ers involved, ship owners as well as the shipping industry’s image and ability to attract people to the profession. Although there would appear to be a downward trend in high profile cases in-volving unfair treatment, combining a “zero tol-erance” policy for environmental incidents with massive media coverage, day-to-day problems experienced by seafarers in relation to port calls etc. seem to be almost impossible to counter in practice, especially in certain parts of the world.

BIMCO continues to advocate against unfair treatment of seafarers, both with respect to con-crete cases and by raising awareness of such cas-es as well as opposing any liability initiative that would serve to disadvantage seafarers compared to other citizens’ rights.

INTERNATIONAL OBLIGATIONS SHOULD BE RESPECTED BY GOVERNMENTSIt is essential that states strictly adhere to and respect their international obligations in UN-CLOS, including article 230 barring states from imprisoning seafarers on board foreign vessels except in cases of wilful and serious acts of pollu-tion within their territorial waters. While crim-inalisation in terms of retroactive enactment of legislation making something illegal is manifest-ly unfair, it can also be feared that the increas-ingly severe environmental rules around the

world will result in more cases of unfair treat-ment. BIMCO believes that seafarers doing ev-erything in their power to avoid an accident or mitigating its effects, should not be penalised based on hindsight as to how they might ideal-ly have acted.

Unfair treatment includes implications going be-yond the incident itself. Even if absolved of re-sponsibility for an incident, seafarers may suf-fer repercussions such as problems in obtaining employment or entry visas to foreign countries. Furthermore, seafarers in certain jurisdictions are exposed to presumption of guilt rather than innocence, deviating materially from the judicial norm of a person having to be proven guilty and given the benefit of the doubt. BIMCO will con-tinue to oppose such discrimination and unfair-ness against seafarers.

LEGISLATIVE FRAMEWORKCONTINUOUSLY DEVELOPINGThe 2006 IMO/ILO guidelines continue to be essential in promoting fair treatment of seafar-ers, but they are regrettably not always respect-ed. The entry into force in 2010 of the IMO’s Casualty Investigation Code, containing man-datory provisions to observe when obtaining evidence from seafarers, represents a welcome development. In November 2011, the IMO As-sembly adopted a resolution, to be adopted also by the ILO Governing Body, urging states to comply with the guidelines and implement them alongside the Code. The resolution invites states to take steps to ensure the expeditious fi-nalisation, in their respective jurisdictions, of all court proceedings involving seafarers in maritime accident cases. In recognition of un-fair treatment of seafarers not being condoned


13

standing and appreciation of needs, which will lead to a more well-balanced educational frame-work in the long run. Vertically speaking, cours-es on important aspects and topics will be made available at different levels from young people entering a trainee or internship programme to executive and management level. Horizontally, BIMCO’s educational programmes aim to cov-er different sectors and a wide range of topics across the shipping industry ranging from con-tractual, technical, and operational to economic, legal and financial issues.

STCW MOVING FORWARDThe entry into force date of the Manila amend-ments to the International Convention on Stan-dards of Training, Certification and Watchkeep-ing (STCW) will commence 1 January 2012. During the last part of 2011, flag states includ-ing the European Union and the United States have initiated the process of implementing the new regulations into their national legislation. Reissuance of new certificates to all officers with certificates issued in accordance with the 1995 STCW convention (existing officers) will take place between 2012 and 2017. The flag state de-cides how the new certificates should be issued and on what terms. BIMCO supports a pragmat-ic stance towards training in the transitional pe-riod from 2012 and 2017 to ensure a smooth re-placement of certificates of competency for ex-isting officers.

of knowledge-sharing. BIMCO’s classic educa-tional activities include, but are not limited to: Summer Shipping Schools, Master Classes, BIM-CO 39 events, in-house courses and seminars on particular topics of importance.

Since May 2011, BIMCO has launched a flag-ship project – BIMCO eLearning Diploma Pro-gramme (BeDP) – which allows students to en-joy BIMCO’s best knowledge and expertise us-ing the most advanced technology, yet in a flex-ible and affordable way. This has attracted great attention from both members and non-mem-bers alike, varying from owners, agents, bro-kers, banks, legal firms, to insurance companies, maritime universities, as well as governmental organisations.

The above-mentioned educational programmes are inter-linked yet at the same time are de-signed to serve different target groups, depend-ing on the depth of each individual’s knowledge and working experience. Through the combina-tion of physical courses and the eLearning pro-gramme, BIMCO is better equipped than ever to reach out and serve the shipping industry.

BIMCO wishes to develop into a major educa-tional hub to promote higher maritime edu-cation and enhance the skills of our industry’s workforce. The organisation recognises its ex-pertise and finds it of equal importance for the organisation to co-operate with carefully select-ed universities and tutors to further add quali-ty and substance to its programmes. BIMCO is currently in dialogue with various universities for potential co-operation to further enhance the educational platform. Closer ties between aca-demia and the industry will create better under-

under any circumstances, the resolution applies to all maritime accidents and not just those re-sulting from pollution.

The prospects of an early entry into force of the ILO’s Maritime Labour Convention 2006 will also be a contributing factor towards ensuring fair treatment, as it contains an obligation for states to hold an official enquiry into any serious marine casualty leading to injury or loss of life and to co-operate with other states to facilitate such an investigation.

COMPLIANCE IS THE KEYSeafarers knowingly and wilfully breaking the law, e.g. due to deliberate environmental pollu-tion, can and should be prosecuted. Environmen-tal laws often impose severe penalties for non-compliance and it is crucial for shipping com-panies and their crews to familiarise themselves with applicable rules and regulations. Rules in the US relating to oily water separators and oil record books are examples of stringently applied require-ments, which must be strictly adhered to. BIMCO has, in close consultation with the US authorities, developed informative pamphlets about these rules in order to raise awareness and to enhance understanding and facilitate compliance for ships calling at US ports.

A WELL-BALANCED EDUCATIONAL FRAMEWORKBIMCO believes the demand for effective mar-itime training and education has never been greater and will continue to grow. It is of great importance that any educational activities of BIMCO reflect the knowledge and expertise within the organisation and are brought across to members as well as non-members in the form



Piracy – A View on the Way Forward and Armed Guards

CURRENT SITUATIONAfter over 3 years of continued and ever-increasing pirate attacks on merchant ships in the Gulf of Aden, the Somali Basin, the Arabian Sea and the Indian Ocean, the situation has reached a position of stale-mate with seemingly little chance of resolution be-cause of the lack of real awareness of the magnitude and seriousness of the problem within the interna-tional community and a long list of commercial, le-gal and liability issues. The naval assets in the region are capable and willing; they are even given the rules of engagement to take effective and robust action against the pirates. However, the scale of the lawless-ness ashore and therefore at sea continues unabated because of a lack of resources to meet the challenges. There is no sign of this changing in the immediate or even long term future.

Any BIMCO view or action serves the primary pur-pose of protecting the crew, ship and cargo – in that order – against such criminal activity. The freedom of navigation on the high seas is enshrined in the UN Convention on the Law of the Sea (UNCLOS), leav-ing contracting governments with an obligation to co-operate to the fullest possible extent in the repres-sion of piracy on the high seas.

THE BIG PICTURE AND NEW STRATEGIC APPROACHThe inability of governments to identify the issue as a geopolitical one however, one that is in their vi-tal interests to address with sufficient resources, is the major problem. The resources are needed in or-der to ensure the safety and success of global com-merce. Whilst governments continue to ignore the rights of the shipping industry as defined in UN-CLOS, the shipping industry must now consider a new strategic approach.

LACK OF POLITICAL WILL AND FAILURE OF INITIATIVESA major factor contributing to this stalemate and ex-acerbating the situation is the lack of political will (in the West in the main) to make difficult decisions:• Legally–onarrestandprosecutionthereisnosign

of the political will in the West to implement UN Security Council Resolutions (UNSCRs).

•Militarily – there is limited political will to riskmore kinetic action – both at sea and ashore – even on a restricted level.

• Ransoms–Althoughpreferringownersnottopayransoms, the lack of political will to provide suffi-cient resources to eradicate piracy leaves the owner with no alternative other than to pay a ransom.

The present level of piracy activity, however, has had no disruptive effect on trade or the availabil-ity of consumer goods. The shelves are still fully packed; there is petrol at the pump, no line ups, no stock-piling. In the general media (TV, daily news-papers etc.) there is only marginal coverage of the situation and thus it has been difficult to reach the general public and in turn, influence politicians. Creating the necessary public and political interest to drive action is therefore being addressed

Furthermore, IMO’s various initiatives including the latest “Piracy – Orchestrating the response” have had little effect on administrators, regula-tors and politicians. Equally, the Contact Group on Piracy off the Coast of Somalia (CGPCSs) and its Working Groups (WG) have so far had little suc-cess in finding effective and lasting solutions to the problem, neither has the Djibouti Code of Conduct had any real effect. There is a veritable alphabet spa-ghetti of initiatives that might have more effect if harmonised, but sadly this is not the case.

Economic boycott of the region by the industry or by the seafarers – i.e. refusing to trade in the region – is the last remaining and most difficult option to address. There will always be ship owners and oper-ators tempted to trade by the likely increased freight rates, there will be seafarers tempted by the risk to earn additional pay, but in the main, the contractu-al obligations are too expensive to breach. Is there really anything more the shipping industry can do?

A NEW STRATEGYMany ship owners are now calling for “drastic ac-tion” at a time when the One Earth Foundation has estimated that nearly 4,500 seafarers have been at-tacked with nearly 1,500 being taken hostage and that the cost of piracy is around USD 7-12 billion. Few pay any attention to these facts. A general state of frustration within the international shipping com-munity has therefore developed, leading to ship own-ers feeling obliged to take legal and liability risks to protect their seafarers by employing private con-tracted armed security personnel (PCASP – see be-low) on their ships transiting the piracy affected ar-eas as there is no alternative to meet the duty of care required to guarantee the safety of their employees – the seafarers.

BIMCO is developing a new strategy in an attempt to catch the attention of all supranational organisa-tions and governments by addressing political lead-ers directly (Presidents and Prime Ministers) on the significant threat to world trade by the continued un-challenged activities of the Somali pirates, the plight of seafarers and ship owners (and the implications for their bankers and insurers), in order to encour-age them to find the political will to take more robust action against piracy. This strategy will be developed over the New Year and during early 2012.


BIMCO’s Reflections on Shipping Industry Issues

Yudhishthir Khatau, President of BIMCO

15

PRIVATELY CONTRACTED ARMEDSECURITY PERSONNELOf the greatest concern to BIMCO is the more recent acceptance of the use of armed guards which has been driven by their de facto use by owners and oper-ators. Their decision has been driven in the main by:• Primarilythedemandfromseafarersforwhatisperceivedastheonlywaytohaveguaranteedsecurity.

• Theherdinstinct.• The neutral position taken by the military, but

overt statements as to their effectiveness.• TheovertsupportgiventotheconceptbytheUnit-

ed States.•VesselscapturedthroughineffectiveapplicationofBestManagementPractices(BMP)andowner/op-eratorsdecryingtheuseofBMPasaresult.

• Ironically, the fear inspired by avoiding capturethroughtheuseofacitadel.

This has given rise to a new important debate on Corporate Social Responsibility (CSR) and indeedadds to the legal, liability and commercial con-cerns,notwithstandingtheexcessiveandoftenun-necessaryuseofarmedguardsonvesselspotential-lyriskinganescalationinviolence.Thislatterargu-mentgrowsmonthbymonth,aspiratesopenfireonvessels,andiffireisreturnedindicatingthatarmedguardsareonboard,theyappeartobediscouragedandleave,searchingforeasierprey.TheUKPrimeMinister has shown an interest but it is worrying that hethinksthatarmedguardspreventattacks–theydonot–theyjustdefeatattacks–forthetimebeing.

Inthiscontext,IMOMSCCirc1/1405isimportant.Self-regulationbyPrivateMaritimeSecurityCom-panies (PMSCs) or self-regulation by the industry,however,has tobeaddressednowand indeed, leg-islation by flag states if they propose to legitimisePCASPthroughlicensing.Thelatter,though,isun-likelygiventhegrowthinflagstatesallowingtheir

explicitlyashehasachoiceastohowhemanageshis duty of care to the seafarer.

• The introduction of 1405 increases the “require-ments”ontheowner/operatortocomplywithbothsetsofguidelines:1405andBMP.

BIMCO is therefore in the process of developinga standard contract for the employment of armedguardsonmerchantvessels.Thegoal is to finalisethecontractJanuary2012.

SUMMARYWhatevertheoutcome,theindustryisnowbear-ing the brunt of the failure of the internationalcommunity to recognise the geopolitical natureofthepiracyproblem.Theindustryneedstofinditsownwaytodothissuccessfullywithoutperma-nentlycommittingitselftothedesperateactionsitcurrentlyhastoapplytoprotectitsseafarers.

Closing RemarksThe previous articles represent a brief summary of some of the most crit-ical issues requiring BIMCO’s atten-tion and involvement. We hope that, by reading this report, members will feel more assured of BIMCO’s com-mitment to protecting their interests in a broader forum. Other readers will have a better grasp of the wide variety of services BIMCO provides, not only for its members but for the shipping industry at large.

usebutstillwithoutlegislation–temporaryorother-wise–andcertainlywilltaketimethatdoesnotex-iste.g.theUKsaysitwillbuthaslittleideaofthepro-cessesneededorindeedhowtospeedilyimplement.

NowthatIMOMSCCirc1/1405hasbeenproducedthereareanumberofissuesthatBIMCOfeelsown-ersandoperatorsshouldbeawareof:•As the major argument for the use of armedguardsisadutyofcare,then1405hasper se,legalramifications.

• Thisironyneedstobeaddressed,astheunionswilluse it against owners and operators if it was estab-lishedthatownerswerecuttingcornersornotpay-ingforthequalityadvised.

• 1405hasfarmorestrength,asalthoughnotoverlyprescriptive,itisfarlessgenericthanBMPasthereareanumberof“measurable”factorssuggested.

• Conversely, if an owner/operator does not usearmedguardsitnowbehoveshimtofollowBMP

Source: US Navy Photo

5 51 0

8

30

7

18

47

15

24

19

28

11

56

19

30

2

20 26

69

25

88

19

52

4

51

1 30 0

7 71 0 1

15

0 1

12

58

15

43

66

46

18 26

3

Piracy Figures

S-Red Sea / BAM Arabian Sea

Somali BasinGOA/IRTC

2009

Approached Attacked Pirated Disrupted Trend of Pirated ships

2010 2011 2009 2010 2011

2009 2010 2011 2009 2010 2011


REFLECTIONS

2012

BIMCO161 Bagsvaerdvej2880 BagsvaerdDenmark

www.bimco.org

Quality is never an accident;it is always the result of high

intention, sincere effort, intelligent direction and skillful execution; it represents the wise

choice of many alternatives.(William A. Foster)

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