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February 2011

News Letter - 6th February 2011


As we indicated in last month’s Newsletter the shipping industry is facing an uphill struggle to obtain reasonable freight / charter rates with product tankers averaging daily rates of $5,000 to $8,000 and VLCC’s struggling to get above $15,000 per day. About the only ‘bright star’ are the larger container vessels which, contrary to initial expectations have seen an improvement of rates over the past six months. Most of this improvement has come about due to slow steaming which has taken up the ‘slack’ rather than any substantial improvement in container movements. Yes, trade is gradually coming back and the largest of the container vessels have absorbed this increase, that plus the slow steaming appears to have had its desired effect.
The only really upbeat area is the cruise industry! Despite the recession the cruise industry seems to be ‘on a roll’ with a further anticipated increase of 8% in passenger numbers in 2011 and the arrival of another 14 new cruise ships. The average annual growth of this industry has been near 8% since 1980!


It is estimated that the Somali pirates (sea terrorists) are so successful that they are costing the shipping industry billions of dollars per year. The ransom rate over the past year has increased by 59% over that of 2009 and their operational area has expended and now covers the whole of the Indian Ocean between the African and Indian coasts all the way south to Mauritius!  Average ransoms of $3.4M in 2009 had increased to $5.4M in 2010. Back in 2005 ransoms paid averaged around $150,000. One of the factors increasing the ransom payment is the dragging out of negotiations by these criminals. They have learned to negotiate for longer periods, pushing up the final settlement. Taking all factors into account, including the naval presence (for what it achieves!) additional insurance costs and security of the vessels as well as ransom payments it is estimated it could be costing the industry up to $12 billion per year. Of course no one bothers to factor in the human costs – after all we are ‘only talking about seamen here’ no high profile figures or ‘Joe public’ to create big headlines about! If the major newspapers would start to report on the human aspect of this problem and the threat this is creating to world trade, then we might get something serious done about this tragedy!
With the present inaction on this problem it would seem that attacks will continue, and more terrorists will join this lucrative industry – why – because they have everything to gain and nothing to lose!
In the meantime governments, who could solve the problem, wring their hands, utter ineffective words and phrases and try to explain how difficult it is to tackle the problem. If the resolve is there the problem can be solved. Forget about Best Management Practise 3 (BMP – 3): these ineffective actions (or lack of actions) give no comfort to the captured and incarcerated seamen’s families. Note how little is said about the human side of this tragedy by the world news media – we are deafened by their silence!


Shanghai has now superseded Singapore as the world’s largest container port. Shanghai handled just over 29 million TEU in 2010 – around 500,000 more than Singapore. This is unlikely to change in the future with Shanghai continuing to widen the gap! Who could have visualized these events say 30 years ago? What with the fall of communism, the economic growth of China (and India), oil totally supplanting coal as the energy source of choice, the growth of IT to the extent that the world cannot function without it, along with the slow but definite loss of influence and effect of the U.S.A. and Western Europe: the world has changed so radically and so totally that a person who died 30 years or more ago would not even recognise it as ‘their world’ if they were to come back. It leaves one with the thought of what will it be like in another 30 years time: assuming in the meantime we do not destroy it and therefore destroy ourselves!


It may be prudent to take into consideration either the fitting of ballast treatment plant for your new builds or at least ensure space is provided to quickly fit such equipment if the need suddenly arises.
The USCG has recently made the decision to finalise their rules on ballast water management which is to come into force on 1st April 2011. The wording of their ruling is expected to be similar to that of the IMO convention on the subject – with one important difference! It would appear they will finalise the wording to the effect that ships delivered from January 2012 must be fitted with BWTS. This will affect any vessel intending to trade into the U.S. It is thought that the USCG action is an attempt to thwart individual states, such as California and New York (there could be others) from implementing their own legislation on the issue. California’s proposal on ballast water management is about 100 times more severe than that proposed in the IMO convention and there is no equipment yet developed which could meet or even come near to meeting their proposed criteria – however we are talking about California!
The IMO convention is still to be ratified and come into force and there is a great deal of uncertainty about when this will happen. Should you need project management or investigation into your options regarding BWTS Carmania are ideally suited to carry out such work.


It would seem the goal of DMC of growing the maritime cluster in Dubai is coming to fruition although not quite as they envisioned and still lacking certain substantial sectors most notably ship finance. We have certainly seen an increase in the number of third party ship management firms as well as some “new” owners pop up in the UAE. Existing firms have also expanded or streamlined their operation. We mention this because other sectors of industry are beginning to notice and share their opinion with us
In recent conversation with an office fit out company in Dubai (GRSi Interiors LLC) the owner mentioned he’d noticed a rapid rise over the last two years in shipping and oil related companies either moving to larger more modern centralised offices; increasing their existing office capacity by taking adjacent available units and European based companies moving to Dubai to create a hub for their world wide organisation. Perhaps we are seeing some positive attitudes returning after the global and local financial crisis that bit in Dubai in late 2008.
The reasons for energy and maritime companies having a presence in the AG in general and Dubai in particular are well documented. However in addition to being at the centre of global energy reserves and the geographical benefits of the location (ease of access, frequent flights to all the worlds major business centres, four time zones and eight hours flying time east and west covering most of the world) part of the reason for Dubai being looked at as a centralised operation base again is the lower rental rates for office space and cheaper outright purchasing that has come out of the 08/09 crisis.
Dubai has always been a safe place to base a business and family and has an expansionist policy that goes well into the next 20 years. Although construction slowed down in 08 and 09 (with some disaster stories following as we have covered) construction overall has kept moving albeit at a slower and more controlled pace: no bad thing. Maybe, in 10 years, Dubai will achieve its goal of being an industry centre for the world, not only for the maritime industry but as an overall commercial hub.
Should you need any advice or assistance on developing new offices or modifying existing offices in Dubai Carmania recommends you research GRSi through their website: www.grsiinteriors.com