NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL 5

p24 Are the vultures circling?

COVER STORY FIRST PERSON

SHIPMANAGEMENT FEATURES

T H E M A G A Z I N E O F T H E W O R L D ’ S S H I P M A N A G E M E N T C O M M U N I T Y ISSUE 16 NOV/DEC 2008

NOTEBOOK

8 STRAIGHT TALK - Would the last person out, please turn off the lights

9 Frontline considers steamingaround the Cape to avoid piracyattacksThis could be a real possibility for a lot of

vessels if the continued fall in charter rates

makes transiting the Red Sea an

economically unviable option

11 On the RecordAlbert Chan - Global Marketing

Manager, Castrol Marine

EMS chooses Gulf of Aden butwith convoysVessels managed by EMS Ship

Management will continue to pass

through the Gulf of Aden but will now

connect to naval convoys to protect

against attack from Somali pirates

12 OverheardPaul F. Friedberg, President of Goltens

Worldwide

13 InterManager should build on itsreputation to boost training urges its new President

14 Marketforces couldsolve our problems andimprove qualityclaims Thomeboss

Ship Managers are ‘credit crunch’winners and costs could fall too

20 How I WorkSMI talks to industry achievers and asks the question: How do you keep up with the rigours of the shipping industry?

36 InsightAndrew Sukawaty - Chairman

and CEO, Inmarsat

54 P&IAs the shipping crisis worsens,

and bust replaces boom,

shipowners who are members of

the 13 P&I mutuals which belong

to the International Group will be

asked to dig deep in their pockets

when the annual renewals come

round in February

62 Taking neighbourhoodwatch to a new levelThe Southern Gothenburg

Archipelago has a num-

ber of claims to fame. It

boasts 5,000 permanent

inhabitants living on

two clearly defined but

differently-named clus-

ters of islands, is com-

pletely car free and is

the home to one of the

world’s unique maritime clusters – the Donsö owners

85 Debate - Resolving shipping’s imagecrisisShipping has long complained of a poor image. But

how much of an issue is image and what role can the

Far East play in defining shipping’s raison d’etre and

help to boost its attraction as a recruitment opportunity

for the future?

90 Asia calling loud and clearThe Asian voice in international shipping is finally

becoming stronger and clearer in global

maritime forums, says S.S. Teo, Chairman of the

Singapore Maritime Foundation and President

of the Singapore Shipping Association and Managing

Director of Pacific International Lines

16 Ulf RyderPresident and CEO of Stena Bulk.“The name of the game for StenaLine now with the escalatingbunker costs is to enlarge theships, and we also have to makethem more friendly for cargo”

SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 20086

TRADE ANALYSIS

50 Bulk trades face liquid crisisAs the words ‘credit crunch’ become a household term infused upon

every newspaper page, web feed, and broadcast going, the bulk

shipping trade is finally feeling the sharp wound of financial ruth-

lessness snapping up every business sector it can sink its teeth into

72 Predicting theseverity of thecoldblastSpecialist refrigerated

cargo vessels are still

very much in demand

due to the world’s seem-

ingly insatiable appetite

for fruit consumptionDISPATCHES

44 TrainingThe Samundra Institute of Maritime Studies in Lonavala, India are a

far call away from the adjoining paddy fields and haystacks of bucol-

ic simplicity

56 Where the threat of the bullet really countsIn an exclusive report for SMI, the BBC World Affairs Correspondent

Mark Doyle travelled to Mogadishu to find out what was the real

motivation behind the pirates terrorising shipping in the Gulf of Aden

69 The Arctic thawThe shipping industry has found

itself in the centre of global

interest as the major maritime

powers turn to the task of

assembling a legal regime for the

Arctic to administer peacefully

and profitably the opportunities

created by global warming

92 Piracy still rife in theMumbai film worlda hybrid of criminality and plagia-

rism undermines India’s sincere

effort to make a standing in the

world of cinematic creation

94 It’s good to talk evenin 30 foot wavesIn its 35 year old history the

Volvo Ocean Race has never been

more connected thanks to

Inmarsat choosing to showcase its

FleetBroadband technology on the

world’s most famous yacht race

REGIONAL FOCUS

49 Banking turmoil tests industry’s mettle

NEWBUILDING

31 How digitisation is navigating the futureSteeped in the midst of a global financial crisis, shipping navigation is

creating a revolution of its own as it enters into the futuristic realm of

digitisation and technological sophistication.

BUSINESS VIEWPOINT SHIP REPAIR

46 Further investment at ASRY

38 MumbaiBucking the trendThere is a well known phrase that ‘everything which goes up must

come down’, and this well-grounded philosophy is the sanguine

stance adopted by the Mumbai shipping industry as it valiantly rais-

es its shield against the global economic crisis currently sinking into

the flesh of world shipping

76 PanamaIts growth all the way, butvery quietlyIt’s very much a softly, softly

approach to growth for the world’s

most significant isthmus and if it is

lucky the financial meltdown could,

only could, pass Panama by with lit-

tle more than a glancing blow

LIFESTYLE

Frontline has not ruled out redirecting its tankers

around the Cape of Good Hope to avoid the

escalation of piracy attacks in the Gulf of Aden.

Indeed, it has suggested this could be a real

possibility for a lot of vessels if the continued

fall in charter rates makes transiting the Red

Sea an economically unviable option.

It follows the decision by Norwegian chem-

ical and products tanker owner Odfjell to redi-

rect all its vessels around the Cape of Good

Hope because of what it describes as ineffec-

tive action by governments to stem the increas-

ing piracy threat.

Frontline CEO Jens Martin Jensen told SMIthat the Cape option was being considered, fol-

lowing confirmation that two other owners that

includes Odfjell and possibly Stolt Nielsen had

decided to redirect their vessels around the

Cape. At the time of press, Maersk was also

considering a similar move.

He told SMI: “We have already had one pira-cy attack on the Front Voyager one month ago

which was fended off by two naval ships and

we will have to go via the Cape if the situation

doesn’t improve and the financial reward for

going through this area is not there

“We need a more unified approach to this

problem, probably warships or helicopter sup-

port down there; we need to act more firmly.

Ships passing through could have soldiers

onboard like during the Gulf War.

Terje Storeng, President and CEO of Odfjell,

said: “Unless we are explicitly committed by

existing contracts to sail through this area, as

from today we will re-route our ships around

Cape of Good Hope. We trust our customers

will appreciate this decision which we have

taken to safeguard not only our crews and

ships, but also the ships' cargo. The re-routing

will entail extra sailing days and later cargo

deliveries. This will incur significant extra

cost, but we expect our customers' support and

contribution.

“Several chemical tankers have been

hijacked at gunpoint, and although hostages up

to now reportedly have been released seeming-

ly unharmed, we do not know if this will be so

in the future. Odfjell is frustrated by the fact

that governments and authorities in general

seem to take a limited interest in this very

serious problem. The efforts that are being

made do not seem to put an effective end to

what can best be described as ruthless, high

level organised crime

“When sufficient protection is in place or

action taken to prevent attacks from pirates in

this area, Odfjell will resume sailing through

the Gulf of Aden and the Suez Canal,”

he said.

Meanwhile, Guy Morel, General Secretary

of InterManager defended shipping’s right

to trade safely in international waters, claim-

ing that routeing vessels away from piracy

hot spots was nothing short of giving in to

them.

He told reporters: “There is a concept that

the seas should be free for trading; they are

international and to be used for free trade. It is

the world at large that has the responsibility of

ensuring that trade remains free on the high

seas. To say that our ships cannot trade where

they normally trade but have to go somewhere

else would be an outrage.”

Meanwhile, Stolt-Nielsen confirmed that

Stolt Valor had been released on November

17th by its hijackers, who took control of the

ship two months ago. All crew members were

unharmed.

The Stolt Valor, which is on time charter

from Japanese owners to Stolt Tankers. was

seized while transiting the Gulf of Aden on

September 15.

Since that time the owners worked continu-

ously with the assistance of the relevant author-

ities and professional negotiators to secure the

release of the vessel and the crew members

on board.

The Company, however, remained deeply

concerned with the welfare of the crew mem-

bers of the Stolt Strength, also a time-charter

ship, which was hijacked on November 11 and

continued to be held by the hijackers in the

Gulf of Aden. ■

9NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONALSHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 20088

The Shipping BusinessMagazine today’s owners andmanagers have been waiting for

The possibility of a paradigm shift in shipping is

as remote and unlikely as the unicorn or the long

awaited return of the dodo.

A time when tonnage supply and cargo sup-

ply/vessel demand are in equilibrium, doing way

with the cyclicality of the industry, is something

that only dreams are made of. As long as you

have market forces in shipping you will have

shipping cycles. I say market forces, but you can

claim market greed or maybe slightly more fairly,

fear of your neighbour. If he has ordered five

new ships then I need to order six: after all the

market is strong, it can take it – for the time being

at least.

Indeed, while the shipping industry rues its

cyclical heritage as damaging to long-term

investment and planning, it comfortably cites it as

the sole reason ‘for the mess we are all in’. “Oh

shipping is always cyclical which is why we

are not surprised the market is the way it is

today,” the stakeholders cry. “We will get through

this crisis but we need to ensure we learn from

our mistakes.”

Hmm, where have I heard that before?

The fact of the matter is that we were sur-

prised. The difference this time round was that

the financial meltdown, or the credit Armageddon

as you can call it, caught the shipping industry

with its pants firmly around its ankles. The writ-

ing may have been on the wall, but the shipown-

ing decorators were out with their tins of paint,

ready to gloss over the worst case scenario. After

all, the market can take it, can’t it?

So the unthinkable has happened. Over-ambi-

tious and under financed newbuilding orders have

been cancelled, ship owners are going bust and

capes are being fixed below £2,000 per day. An

absolutely absurd turnaround to the heady days of

the summer.

What is more absurd is that shipping is being

abandoned by the very organisations who helped

get it into the mess in the first place. The banks

have closed their doors to shipping, at least until

January if we are lucky, and they have no inten-

tion of taking up the shipping slack unless it’s on

their terms.

Unfortunately for the banks, we are not talking

about a poorly sold mortgage deal or an over-

stretched business overdraft. We are talking about

the impact of a slowdown in world trade, impend-

ing recession, massive job losses and a wave of

bankruptcies never before seen. We are also talk-

ing about the need to keep the world economy

moving to ensure we don’t start tasting rampant

deflation and a deep and long-lasting economic

gloom. Shipping is essential to this stabilisation

and recovery but it needs the banks to start behav-

ing as the trusted borrowers of credit and start

releasing letters of credit. Letters of credit are the

lifeblood of trade, so why should it be the banks

who decide when they can be released or not?

They talk of a lack of trust between each other but

if governments are forced to put their hands in

their pockets and throw the banks a lifeline, then

the banks must show the same understanding

when it comes to helping the shipping industry

and helping world trade.

What goes round comes round, and shipping

will recover, I have no doubt about that. But who

will be controlling our fleets; how strong will our

industry be and how well will it be able to cope

with any fluctuations in world trade? Shipping

has done a lot over the last three years to clean up

its image and reputation but it has done so in the

knowledge that the industry is here to stay. Let’s

hope that hope is not just another pipe dream.

Happy Reading

Sean Moloney

STRAIGHT TALK

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Ship Management International Editorial BoardRajaish Bajpaee (Bernhard Schulte Shipmanagement)

Guy Morel (InterManager)

Nigel Cleave (PB Maritime Services)

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Dirk Fry (Columbia Shipmanagement)

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Would the last person out,please turn off the lights

Welcome to Ship Management International

NOTEBOOKSHIPMANAGEMENT NEWS AND REPORTS FROM AROUND THE WORLD

Frontline considers steaming around theCape to avoid piracy attacks

NOTEBOOK

Vessels managed by EMS Ship Management

will continue to pass through the Gulf of Aden

but will now connect to naval convoys to protect

against attack from Somali pirates, writes Sean

Moloney from Mumbai.

Addressing a conference of over 250 EMS-

employed officers in Mumbai, Svein Pedersen,

company President, said there were two vessels

waiting at Fujairah to join the first convoy, but

all EMS ships would join a naval escort, he

stressed.

He told the officers: “I know there are a lot of

concerns from seafarers about whether we go

through the Gulf of Aden or not. I attended a

conference in London at Intertanko where it was

generally accepted that with the increasing num-

ber of naval vessels in the area, the Gulf of Aden

would be safe enough to transit.”

Meanwhile, EMS has suggested that it will

work to nearly double its current crew pool with-

in the next two years as it seeks to man the 40

newbuildings it will take into management.

Simon Frank, Director of Crewing and

Marine Personnel at EMS Crew Management,

said further development of the company’s cadet

programme coupled with an aggressive move

into the Philippines manning market as well as

crew centres in Indonesia, China, Eastern

Europe and South America would be behind the

plan to increase the manning pool from 6,000 to

10,000 by 2010.

He told SMI: “The strategy at all times is todevelop our cadet programme; to develop our

familiarisation training and to aggressively enter

the Philippines market to pile up numbers that

we have today and to add a few extra local areas

like Indonesia, China and some eastern

European and South American countries.”

Mr Frank said the Indonesian market was

becoming a more realistic recruitment area. “I

have been to see some of training facilities there

and I am pleased with the quality of the

Indonesians. There is a political issue, however,

in that there are problems in them getting a US

Visa – so you have challenges on the trading pat-

terns of the vessels. English is also an area where

we need extra training.

“The cadet programme alone will not secure

our goal of 10,000 seafarers by 2010 but we

have said that our aim is to have at least one

cadet per ship,” he said. ■

EMS chooses Gulf of Aden but with convoys

NOTEBOOK

Q. What is the current situation relating tolubricant supply and pricing, and withvessel operating costs rising, what is theshort, medium and long term outlook?

A.We expect the supply of base oil and addi-

tives to remain tight over the next few years

due to limited investment in building base oil

and additives manufacturing capacity, cou-

pled with the rising demand from developing

economies such as China and India. Other

industries, such as automotive and industrial,

are also competing for the same pool of

resources. Castrol Marine continues to invest

in developing lubrication solutions to reduce

the total operating cost for shipping compa-

nies. We have built strategic partnerships

with our raw material suppliers to ensure

continuity of supply and that our customers

get the products they need. We have also

invested in our global supply network, with

an emphasis on the growth economies of

Asia-Pacific. This year we have expanded

our ports coverage throughout parts of China

and Japan, for example.

Q.What impact will the current levels ofnewbuildings have on the demand supply curve?

A. This will tip the supply/demand balance

further. Security of supply will become ever

more critical for ship operators. This means

building strong partnerships with those sup-

pliers. It also underlines our commitment to

rolling-out our network to improve lubricant

coverage and supply. Suppliers must inno-

vate to look for alternative solutions to meet

the needs of customers. Uncertainty in the

financial markets could have an enormous

impact on the global economy, and subse-

quently, demand for global trade and trans-

portation of raw materials and goods. This

will inevitably affect the profitability of the

marine industry.

recordon the

Albert ChanGlobal Marketing Director, Castrol Marine

12 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008 13NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

InterManager and its core values are better known in the market

than they have ever been and so it needs to ensure that owners and

managers do not abandon the efforts they have made in the last

three to four years in recruiting and training seafarers to fill the con-

tinuing shortage of crew, the association’s newly-elected President

has said.

That is why ship owners should place training at the top of their

manning agendas despite having to deal with the effects of the cred-

it crunch on the global shipping industry.

Speaking on the day he was unanimously elected to succeed Ole

Stene as head of the world trade association for in-house and third

party managers, Roberto Giorgi said the industry must not replicate

the mistakes of the downturn in the mid-1980s when ship owners

cut back on all areas of cost including seafarer training.

“Seafarer training has to be a priority for the industry, because

the age profile of the average seafarer is increasing and the indus-

try needs to invest in a future that has as its backbone, adequate

numbers of well trained seafarers,” he said.

While some in the industry believe the crewing shortage could

improve in the medium to long term because of the cancellation of

ships on order and an increase in the numbers of ships being

scrapped, ship managers were expressing continued concerns over

the lack of trained officers for the immediate future.

Mr Giorgi said his key objectives as President were to represent

the views of both owner-managers and third party managers

throughout the global shipping industry; protect the welfare and

well-being of seafarers, particularly by addressing the issue of

criminalisation and by encouraging consistently high standards for

training within the industry; as well as uphold the values of the new

InterManager KPI system to make sure it is adopted fully by the

entire industry.

He told SMI that by the time he finished his first term asInterManager President, he wanted to see an organisation with a

membership larger that the 73 companies it has now – both full and

associate members – and he wanted it to be the accepted voice of

the industry. ■

InterManager should build onits reputation to boost trainingurges its new President

NOTEBOOK NOTEBOOK

Roberto Giorgi, President, V.Ships

“It’s hard to tell, and I wouldn’t want to say that the operators are getting

lousy but if you look at the increase in vessels, competency has declined

because there aren’t enough people in the world. It is inevitable that we will

see an increase in outsourced maintenance work because there is not the

capability onboard.

“I have seen statistics on drydocking capacity and it will not meet, by far,

the demand unless people stop building new ships and yards convert to

repair from new building. That might happen but it is not that easy to do

because they are completely different disciplines. If it does, it will start to

happen in the Far East first but we need to find new dry docks in Europe as

well. There are docks in Europe that are not being used anymore and are

lying idle.” ■

OVERHEARDAre you seeing a reduction in technicalcompetency onboard ship in line with thedwindling numbers of seafarers?

Paul F. FriedbergPresident of Goltens Worldwide

14 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

NOTEBOOK

The time has come for the shipping industry to

deploy market forces to solve its problems and

let incentives be the main driver of the right

behaviour, according to the Managing

Director of Thome Ship Management.

Addressing delegates at the 3rd

International Ship Management Summit in

Singapore, Bjorn Hojgaard said this will not

come overnight, but there has to come a time

when charterers and owners become better at

choosing good ships with good managers.

“They need to understand managers' and

ships' performance on a more detailed level

than they do today,” he added.

Mr Hojgaard told the conference that ship

managers don't differentiate enough between

good and sub-par ships and there is no interna-

tionally-recognised system which can inde-

pendently decide if a ship is well maintained

or sub-standard and that is a frustration.

“Similarly, we don't differentiate enough

between good and sub-par officers and instead

we tend to go by nationality – surely an out-

dated concept in today’s globalised economy?

Shipping is probably the oldest international

business but the industry still talks about sea-

farers of different nationalities,” he said.

Interestingly, he also claimed that managers

don’t differentiate enough between good and

sup-par owners. “Even today there are myths

and legends surrounding the ‘ship owner’ but

in fact ship owners in many respects face

exactly the same issues as a restaurant chain or

a microchip manufacturer,” he stressed.

Ship managers who wish to survive in the

longer-term need to start thinking about sea-

farers in terms of competencies rather than

nationalities, he claimed, “which is a totally

outdated concept that no other global industry

would find acceptable in 2008.

“On an optimistic note, I also believe the

scenario I have set is not all gloom and doom

– I believe the good charterers, owners and

managers know this and have already begun to

change in an attempt to benchmark more

effectively and be more transparent,” dele-

gates were told.

“The InterManager KPI project is an

example of more differentiation through

better transparency and visibility. And

Competence Management Systems for man-

aging crew is another example. My own com-

pany Thome has embraced this and we

believe it will make our performance better.

Just yesterday (Oct 16th) we jointly

announced with the DNV classification soci-

ety that our company has become the first

ship manager to set up a Competence

Management System for its entire managed

fleet.

“DNV signed the contract with us to veri-

fy and certify Thome's Competence

Management System in accordance with

DNV standards, and also with reference to

specifications from the Society of

International Gas Tankers and Terminal

Operators (SIGTTO) as well as the Intertanko

Tanker Officer Training Standards (TOTS).

One of the key focus areas of a comprehen-

sive Competence Management System is

'Human Error' on board the vessel, which is

often a symptom of an underlying problem

rather than the cause,” he said.

In evaluating this aspect, DNV SeaSkill

and Thome Ship Management will systemat-

ically examine crew tasks, work tools, oper-

ating environment, mental well-being, train-

ing and experience, and communications

across different ship types, delegates were

told. “The desired outcome of an effective

competence management system would be an

efficient, knowledgeable, healthy and safety-

conscious crew,” Mr Hojgaard said.

“Given today's challenges with crew short-

age and rising operational costs, shipping

companies investing in such an undertaking

stand to gain a competitive advantage,” he

concluded. ■

Third party ship managers are ring fenced

from the ravages of the current financial cri-

sis and could even see business increasing as

owners strive to keep fixed overhead costs

down by delaying taking ships back in-house

and ships repossessed by banks seek third

party management expertise.

According to Guy Morel, InterManager

General Secretary, there is also good reason

to believe that high vessel running costs will

abate “because of the misery being experi-

enced by ship owners,” especially in the area

of lub oils and dry dockings.

“The proof is that during the boom times

when ship owners were making a lot of

money, managers were making the same

amount of money as they were before. That

proved that movements in the shipping mar-

kets are not affecting ship managers,” he said.

“For third party ship managers, the number

of ships afloat will not change and the number

of ships managed will either remain the same

or increase. I do not think in this period of tur-

moil, that we will see any ship owner making

the decision to increase his fixed overhead

costs by taking his management activities back

in house. There will be some but they will be

very daring. Most ship owners will think they

may have to dispose of their assets in time and

will have to remain very liquid.”

This will be positive for ship managers, he

stressed as the level of business from banks

looks to generate more business for ship man-

agers. “All in all we will have a market situa-

tion that will be rather positive for managers.

“Where we will be feeling pressure is from

owners forced to reduce costs in an environ-

ment where running costs were growing at a

very fast rate. But that could be to the advan-

tage of ship managers because the larger

managers will be able to reduce running costs

through their economies of scale. Secondly I

do think crew shortages and the increase in

crew costs may abate because there will be

fewer deliveries and more vessels scrapped

and laid up. So there is likely to be reduced

growth in demand.

“I also think that the number of officers

who have deserted a seafaring career may

return to sea. I am thinking Indians in partic-

ular who have been turning to shore-based

jobs and now may find themselves unem-

ployed. This may just balance things out,” he

told SMI. ■

Market forces could solve our problems andimprove quality claims Thome boss

Ship managers are ‘credit crunch’ winners and costs could fall too

It’s strange what a little financial crisis does to separate the big boys from

the small guys and on close examination it is easy to see why Stena

Bulk’s President and CEO Ulf Ryder is part of the shipping industry’s

‘big boys’ club; there is no doubt about that.

His demeanour and manner smack of a calculating character – a

shrewd operator capable of making the toughest decisions when those

decisions need to be taken.

Tough times call for tough actions and its times like these that you

need someone with Ryder’s experience and market presence to get the

right message across, even if it is linked to a possible foray into the

market to snap up competitors suffering from the plunge in the world

stock markets.

It would seem that the dramatic fall in shipping company stocks forced

by the financial crisis has thrust Gothenburg-based Stena Bulk strongly

on the acquisition trail to the extent that it has targeted a publicly-listed

tanker company that it confirms it will buy by the end of the year.

According to Ulf Ryder, for Stena as a cash rich company, buying

undervalued stock listed companies is “a more natural target than new-

buildings”. Refusing to identify the target company, he confirmed it was

a quality stock listed shipping company. He would only say: “We have

targets in mind and I think you will see us taking over a tanker company

by Xmas.

“I think a lot of smaller owners will be very disappointed with the

bankers who they have invited to the Christmas parties but who have sud-

denly pulled the plug on the owners’ deals,” he told SMI. We are seeinga lot of that. We have had ship owners coming here who have had long

relationships with their banks who then suddenly say no we can’t support

you anymore. I know banks who have jointly decided that they won’t do

any more ship financing until January when they will revisit the markets,”

he said.

But as one of Sweden’s largest shipowners, does he think the market

will start to stabilise by the first quarter of next year, because all signs

suggest it needs to get back to some level of normality? “I don’t think so,”

he replied. “I think 2009 is going to be a very black year for people with-

out access to real cash. They will have difficult times lifting their ships

from the shipyards and it will have a snowball affect on the shipyards. We

are already seeing the same shipyards, who six months ago came to us

and said they would see whether they could build a ship for us, now beg-

ging for orders. The situation has changed very quickly so I believe you

will see a big fall in shipyard prices next year.”

And presumably an element of further bankruptcy in the ship owning

sector moving forward?

“Unfortunately yes. But then operating morals have decreased dramat-

ically. When I was younger I remember a lot of companies with financial

problems but today, they run these companies into bankruptcy. People say

here are your capes back as we can’t pay for them anymore. Take them

or sue us. So the morals are a bit different this time. So we’re in for a

black 2009 unfortunately in the shipping industry but a good opportunity

for people who have real money,” he replied.

Stena Bulk preceded talk of a further tanker company acquisition

when, at the end of October, it announced it had acquired a 35% equity

ownership stake in the privately held Greek shipping company Paradise

Tankers Holding Corp. The acquisition, which has total share capital val-

ued at an estimated $250 million, provides Stena Bulk with full commer-

cial control of yet another fleet of three newly built Panamax tankers and

two dry-cargo bulk carriers.

The vessels, which will be renamed Stena Callas, Stena Chronos andStena Chiron, are modern epoxy-coated Panamax tankers of 73,500tonnes deadweight, all of which will be withdrawn from the Star Tankers

Pool and immediately enter the Stena Sonangol Panamax Pool. The

Panamax pool is a direct spinoff from the successful collaboration with

Angola’s national oil company Sonangol, involving a 15-tanker strong

Suezmax pool, which Stena Bulk and Sonangol have successfully been

operating for five years.

Commenting on the deal, Ulf Ryder, said: “We will continue our path

forward investing in core areas and quality partners. This is also a return

to dry bulkers, this time on long-term charters to solid customers. The

acquisition we have made in these financially turbulent times would not

have been possible without Stena’s strong financial position.”

He confirmed that the relationship with Paradise was initially forged

back in 2000, when the Athens-based company bought its first tanker

and chartered it to Stena Bulk. “We have known each other for many

years and admire the traditional way of quality operation this long

established company stands for. The transaction provides Stena Bulk

with full control of the Paradise fleet, but does not require our full

commitment of capital.”

The Stena Bulk fleet today consists of around 75 vessels, divided

into two groups: The MAX vessels and other tankers (such as

Panamaxes, Aframaxes and S-47s). According to Stena, the idea to

build the MAX concept started with the need for vessels to be able to

operate in waters and ports with draft limitations. Through the MAX

concept it made it possible to enter shallow waterways, and at the

same time Stena was able to increase loading capacity to handle sub-

stantially more cargo than previously possible. In addition, it claims,

safety was considerably improved.

According to the company, the key is to run vessels that are much

wider than others in the same size class. As Ryder told SMI: “The nameof the game for Stena Line now with the escalating bunker costs is to

enlarge the ships, and we also have to make them more friendly for

cargo.”

Their larger beam gives them a larger loading capacity without affect-

ing their draft. And through double systems for propulsion and manoeu-

vring, proactive safety measures are taken. In 2001, Stena Bulk took

delivery of the first two Stena V-MAX vessels which made up the begin-

ning of a new wide-body product line. Today the MAX series consists of

three different types of vessels (V-MAX, P-MAX and C-MAX), and

more are under development.

In the non-MAX categories, Stena’s Panamax tankers have a

capacity of up to 75,000 dwt. The fleet includes both traditional dou-

ble-hull Panamax tankers and several in-house designed Stena Ice-

Panamaxes. With their ice-class, these vessels provide safe passage

through narrow waters from the Baltic Sea to both the US east and

FIRST PERSON

Ulf Ryder President and CEO of Stena Bulk

SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008 16

“I think a lot of smaller owners will be verydisappointed with the bankers who theyhave invited to the Christmas parties butwho have suddenly pulled the plug on theowners’ deals”

“The name of the game for Stena Line nowwith the escalating bunker costs is toenlarge the ships, and we also have tomake them more friendly for cargo”

west coasts. Its Aframax fleet includes both traditional Aframax

tankers and several in-house designed Stena Ice-Aframaxes, built to

navigate the Baltic Sea, even in extreme conditions with up to a

metre thick ice (ice class 1A Super).

So with acquisition on his mind, and the safety net of wads of cash in

the bank providing sleep-filled nights, is there anything on Ulf Ryder’s

mind? Does the crew shortage situation offer any worries, after all, he

does have a lot of ships to operate and pressure could soon come to bear

on its wholly owned management company Northern Marine

Management to ensure the in-house needs are met ahead of those of the

external clients.

“We have 7,000 seafarers employed by Northern Marine Management

and this is now the big problem we see ahead of us with the seafarer

shortage crisis. Everybody wants to be home at five o’clock or half past

five and the thought of returning home every five six months is not that

popular in modern society.

“We have used a lot of Filipinos in the past who are good seaman, but

we are now switching more and more to Russians. But the world is so

transparent today, and it’s difficult to get any differentiation in salaries.

Everybody hears about whether Teekay are looking for officers and so

will switch which is a bit unfortunate. It’s very very difficult to have a

crew that’s loyal to you and who will stay with you. We have faced more

than a 20% increase in crew wages in the last 18 months alone. Now

some people say with the down turning world economy that it is proba-

ble there will be a lot of ships cancelled, and that more crew will be avail-

able but I’m not so sure that that’s a matter of fact.

But has that increase in crew wages come from switching crew nation-

alities? Not the case, says Ulf Ryder. “I could say that Russians are rather

cheap or Filipinos are expensive but Filipinos are rather well paid and it’s

quite transparent: there aren’t any cheap crews really around any longer.

“I don’t think the financial crisis will have any effect on the crew short-

age because it’s such a shortage and there are so many vessels on order.

Of course I calculate that 30% to 35% of all ships presently on order will

be cancelled by the owners because they can’t get finance and we have

already faced this. We have already been approached by ship owners or

ship yards who say ‘take my 10% deposit and take over the order please’.

So there are many people today who are willing to throw in the towel and

lose their 10% first instalment to escape from the orders. But there are

still so many ships on order and so few skilled seamen and so I think they

will still be in demand,” he stressed.

So concerned is Stena about the situation that there is every chance

Northern Marine Management will stop providing crews to third party

clients by 2010 as its parent company is forced to divert much needed

seafarer capability to its own vessels.

According to Ulf Ryder, Stena tonnage only represented 40% of the

120 vessels of 10 million dwt managed by Northern Marine Management

but the need to crew its own ships including the delivery of six newbuild-

ings in 2010 will mean it will have to stop servicing the needs of the 14

external clients it currently has. ■

FIRST PERSON FIRST PERSON

Recruited at the age of 29 to help establish

Stena Bulk AB, he served initially as a Director

of the holding company, Stena AB, and as

Executive Vice President of Stena Bulk. But

his first responsibility was Stena’s Offshore

explorational drilling activity including market-

ing the employment of Dyvi Stena, a third gen-

eration semi-submersible drilling rig. At the

time, this was Stena's largest single invest-

ment - at $110 million.

He is credited with being the the driving

force behind all of Stena’s bulk & tank mile-

stones of the past 25 years. These include the

formation and listing of Concordia Maritime AB

on the Stockholm Stock Exchange (1984); pur-

chase of the world’s fifth and sixth largest ships

- renamed Stena King and Stena Queen (1988);

purchase of DK Ludwig’s entire VLCC fleet,

later known as the “Concordia Class” (1989);

the Strategic Marine Alliance with Texaco

including the establishment of jointly owned

StenTex (1994); Alliance expansion into the

merged ChevronTexaco (2001); the shuttle-

tanker joint venture with Teekay (1996); and the

development, marketing and commercialisa-

tion of the Stena wide-body concept - the

“MAX” series of tankers (1997).

As CEO Ulf Ryder has been the ‘change

agent’ for each Stena Bulk investment from

deal initiation to consummation and, ultimate-

ly, transformation to the Stena image and phi-

losophy. For example, the Ludwig VLCCs had

been known as quality built ships but lacked

marketing zest. Under Stena Bulk, crew uni-

forms, hull and funnel paint, and informative

brochures created greater market awareness

of the build-quality, performance results, main-

tenance record, 42-man crews and Stena’s

business philosophy. The result was an

enhanced reputation and improved financial

performance.

Prior to joining Stena, Ulf Ryder worked with

the Broström Shipping Group (1974-1982)

where, in his last position, he was Chartering

Manager for Scanscot Freighters, a 20-ship

open-hatch bulk carrier pool of 25,000 to

35,000dwt vessels. He also worked at liner-

agent Hagbard Dennel AB (1970-1974) and

participated in a work-study program at Wm

Brown and Atkinson, Hull (1969-1970).

He completed the Harvard Business

School's Advanced Management Program in

Boston (1987) as the youngest attendee of that

time and graduated from the Gothenburg

Handelsinstitut in 1969.

He is President of Skuld A/S Committe, Oslo

and is a Member of the Board of Lundsbergs

Skola. He enjoys tennis, jogging and time with

his family at their summer house on Haron

Island in the Swedish west coast archepelago.

Ulf Ryder

“There are many people today who are willing to throw in the towel and lose their10% first instalment to escape from theorders. But there are still so many ships onorder and so few skilled seamen and so I think they will still be in demand”

aren’t run of the mill; they need management with the right experience.

That is where we feel we will make a difference,” he said.

“As far as the crew supply issue is concerned, we would say we are

better placed than perhaps some of our competitors,” he said. “We

have experience of crew supply in eastern Europe and India and the

Pacific Rim for many years as Bibby so we actually control some of

the main supply areas. We are closer to that crew market than most

technical managers might be. With us it is all about transparency and

we would hope that the owners would be able to trust us about the mar-

ket rates and how the market is moving because we should be that

much closer than if you were going through a third party crew suppli-

er,” he told SMI.“The main thing we are looking for is full management but we have

a number of customers and we will continue to develop markets that

actually don’t want full ship management but want a segment of ship-

management, whether that’s crew management, crew supply, training

or technical management,” he added.

Osborne gets more excited about offering what he calls a ‘tailored

service’ based on listening to what the owner really wants as opposed

to managing 1,000 ships. “Shipmanagement thrives or suffers as a con-

sequence of what the owner is doing,” he said, “and owners at the

moment are going to be extremely concerned about the credit crunch:

we already know a couple of projects that are certainly in jeopardy

because the banks are closing their books. But having said that, we

have to put it against the context of the investment in shipbuilding at

the moment. So while it would be perhaps an end to one headache if

the current newbuilding situation solved the crew shortage issue, I

don’t think it will. In my view, the vessels that are currently afloat will

continue to enjoy comparatively good times and will continue to trade

and need management. Where it will be affected will be the newbuilds

and the ordering.

Agreeing that supplying a ship’s crew at the drop of a hat in the cur-

rent market conditions is not something third party managers are in a

position to do, Jon Osborne contends that if you plan ahead “you can still

find quality crew and again because we have our grass roots organisations

in Mumbai, the Ukraine etc we can still find quality people.

“The problem is those quality people tend to ask a lot more money

than they did 12 months to two years ago and ship owners have got to

get used to that reality in the marketplace. People never want to recog-

nise when prices are going up and so we tend to go through stages with

each customer where there is denial, then you will try a different

nationality mix to reduce costs which can make a difference at junior

levels but at senior levels the rates are international and are converg-

ing,” he added.

So in these difficult times, what are the concerns facing you as you

enter the shipmanagement sector?

“The main issue we have is that there isn’t a great deal of trust in the

marketplace between ship owners and ship managers. For us we charge

a management fee and that is all we make out of the business which we

have to run profitably. We are aware that other ship managers don’t do

that and will look for other income sources from the owner: because of

that ship owners are not trusting of their management. The difficulty

for us is to not only say we are different but how do you prove it? We

know we are a quality operation, we have DOCs in the UK and India

and manning agencies round the world but we can tailor our solution

to the owner but if the owner is saying it is all very well but your man-

agement fee is more expensive than the fellow down the road and I

know all you lot will rip me off, we will then lose out.

“There has to be transparency. At the moment it is topical to say

that management fees are low and they need to be raised and we would

concur with that but ship owners would say that on the other hand

managers are making money out of me left right and centre without

disclosing that. So if the industry gets more transparent then fees

will rise.

“The industry does need to tackle the issue together. You get lots

of small owners and lots of small managers that don’t all move in the

same way. From our point of view we would look to solve this

through network relationships and if they talk about the cheaper

option down the road, we would say to the owner, if you have a fleet

of six ships, then give us one and give him five and after 12 months

see who you are happier with,” he concluded. ■

HOW I WORK

JON OSBORNEManaging Director, Bibby Line Group

Osborne gets more excited about offering what he calls a‘tailored service’ based on listening to what the ownerreally wants as opposed to managing 1,000 ships.

There are not many shipping companies who can claim over 200 years

of history and boast a name that is synonymous with the city in which

it is based and the industry in which is has plied its trade for so long.

Bibby Line is British shipping and Bibby Line is Liverpool through

and through but as of a few weeks ago, Bibby Line is now also a stand-

alone third part shipmanagement operation that in the view of its

Managing Director Jon Osborne, may be better placed than many of its

competitors to offer the type of segmented shipmanagement service

that it believes the market is looking for.

A family run and independent business since day one, Bibby Line

Group has succeeded in the toughest markets for nearly 200 years from

marine, distribution and financial services. Since it's formation in

1807, the activities of this family-owned British company have

evolved into a group of dynamic, service orientated businesses.

Historically, the Group's main business has been in the ownership,

operation and management of ships, but the present day activities also

include floating accommodation, offshore oil services, contract distri-

bution and financial services..

But on October 1st this year, Bibby Line Group launched a new full-

service ship management venture, Bibby Ship Management Group

because it believed a tougher global economy had highlighted the need

for more flexible shipmanagement expertise. The move followed the

decision by Bibby Line Group to end its involvement in Liverpool-

based Meridian Marine Management after receiving an undisclosed

sum from Pacific Basin. The new company will bring together the

Bibby International Services business with many of the former

Meridian staff.

According to the announcement, Bibby Ship Management Group said

it would headquarter the business in Liverpool and operate a flexible,

tailor-made ship management service comprising all aspects of special-

ist crew and technical management, including training, payroll, insur-

ance, vessel inspection and accident investigation to third party clients.

It will be the umbrella company for subsidiary trading companies in

the UK, the Isle of Man, the Ukraine, India, the Philippines and

Singapore. The Ukraine company, formerly crew manning agency

MA Olevent, is the newest addition to Bibby and was acquired in July

to expand the company’s Eastern European market, particularly in the

supply of crew to the offshore oil and gas industries.

But according to Jon Osborne, Bibby Ship Management will inher-

it from the Meridian Marine Management operation, a fully managed

fleet of 13 vessels “from day one” and around 25 to 30 ships on crew

management. “Where we have traditionally been strong and where we

think we will make headway again is in offshore vessels, gas and

chemical tankers because these types of owners appreciate their ships

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HOW I WORK

NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

SHIPMANAGEMENTSHIPMANAGEMENT

workHow I

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

“The main thing we are looking for isfull management but we have a numberof customers and we will continue todevelop markets that actually don’t wantfull ship management but want a segmentof shipmanagement”

“Shipmanagement thrives or suffers as a consequence of what the owner is doing andowners at the moment are going to be extremelyconcerned about the credit crunch”

lar, because we want to enhance the

focus and give members a more

visible ISSA and give them more

value for money. And we will do this

by investing in projects like the quali-

ty initiative and education and all

those things our members would like

us to do,” he added. It is not just the

Register of Ship Suppliers that puts

ISSA members in front of their clients

but also the ISSA catalogue of every

spare part imaginable. Using these two

directories, owners can not only see

and select the ISSA number of the

item they require but order it from a

supplier of their choice at the vessel’s

next port of call. With nearly 7,000

copies of the ISSA catalogue sold

every two years, it is a major revenue

earner for the association. “The next

catalogue is due out and we have

already agreed that we will start to

build on this next generation of cata-

logue; to try to do it better and maybe

slightly differently in several ways so

we can make it a better tool,” Jens

Olsen added.

Sound words indeed, but after such

a highly-publicised presidential elec-

tion surely the priority must be to bring

the association even closer together?

“As I said when we had the elec-

tion on the board, and as always with

an election you have a wedge; you

have two blocks. What I see now is

that we will again put on our working

clothes and we will work as a

team. There will always be different

opinions about things and there

should be but the executive board is

behind me in agreeing that we will

get together and work in the same

track and that is the most positive

thing that I was looking for. There’s

no doubt about it that the strength of

ISSA is the executive board because

we work in the same direction. I don’t

even recall any need for voting in the

executive because when we finish

discussing an issue, as a body we

agree to move forward together and

that is a strength. We have had

extremely positive leadership over

the past nine years and I will try to

continue the same principles even

though of course Wim and I are very

different personalities. But we have

so many things in common and one is

our love for the industry. So that’s

really what’s driving us and that is

what we need to have driving us in

the future.” ■

HOW I WORK

JENS OLSENPresident-elect of the International Ship Suppliers Association, ISSA

Taking over as President is a big responsibility and focusing on the

top job will be that little bit more of a challenge. So it’s going to be

interesting. There’s always room for improvement, there’s always

scope for doing things differently

I suppose if you were to slant that well known saying about ‘what the

four certainties in life are’ to the vagaries of the global shipping indus-

try then it would go something like this: that markets will always go

up and down; that regulators will always want to get involved and that

ship owners will always strive to get the best deal they can. Oh, and

finally, that ships will always need supplying irrespective of the cur-

rent or future financial and economic situation.

OK, in times of uncertainty, margins will almost certainly be driven

down and chandlers may have to wait a little longer for their money,

but nevertheless business has to trundle on. After all, the needs of the

seafarer and of the regulator through enforced rules for vessel stan-

dards and quality will always generate demand for provisions and for

spare parts.

But observers of the heady world of ship supply will know the

anguish the industry has been going through in trying to drive up mar-

gins and respect from the ship owners and to drive out the unscrupu-

lous from the backstreets of the world’s ports. There will always be

someone trying to make a quick buck out of supplying vittals or spare

parts to a visiting ship. According to the International Ship Suppliers

Association, if a supplier doesn’t come up to the required level of qual-

ity then he is not worth trading with. The need for an audit trail in the

industry is essential if the ship owner is to be sure that all the stores he

has ordered will turn up and at the price quoted.

Introduction of a pan-ship supply industry quality standard was the

brainchild of Wim van Noortwijk, the ebul-

lient and charismatic President of the trade

association ISSA but after nine years at the

helm, he is stepping down. And after a

closely fought presidential election battle

between candidates from both sides of the

Atlantic, he will hand over the ‘presiden-

tial’ baton in January, to a Dane.

Jens Olsen was the preferred choice of

just over half of the ISSA executive board,

who voted at the recent ISSA Convention in

Baltimore, and the second choice for the

remainder. But with many years of chairmanship of OCEAN, the

European lobbying arm of ISSA, under his belt Olsen could be right

for believing he is able to step up to the mark and lead the association.

Through OCEAN, ISSA has made strides in the area of customs regu-

lation and has the ear of the European Commission across a broad

church of issues. But by playing an active role in helping to formulate

regional and international regulation through its NGO status at the

IMO and at the ILO, ISSA is punching well above its weight and effec-

tively so. Something many in the industry believe has to continue

alongside the need to look after individual and local supplier interests.

European ship supply is alive and well but so also is it in the

Americas, Far East and Australasia and not forgetting the ship supply

powerhouse of the Middle East. The biggest task facing Jens Olsen,

the President-elect, must be to bring these ship supply communities

even closer together, especially after what was a closely fought elec-

tion battle.

“Taking over as President is a big responsibility and focusing on the

top job will be that little bit more of a challenge. So it’s going to be

interesting. There’s always room for improvement, there’s always

scope for doing things differently but we will address these issues. So

yes, I look forward to the challenge.”

According to Olsen, the key issue has to be adding value to the

association’s membership – a dilemma nearly all the trade associa-

tions face on a daily basis and something that will be brought into

sharper focus when you consider that the additional cost of

being a member of a trade association may be one of the first things

to go when times get bad. ISSA members do share one major benefit

of their membership, however, and that is their inclusion in the ISSA

Register of Ship Suppliers – an annual ‘yellow pages’ of the good and

the great in global ship supply that is used by owners and managers

as their guide to the supplying companies in the individual ports.

“Well at the moment the executive board is trying to focus on a lim-

ited number of different items which we will be addressing in particu-

SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 200822

HOW I WORKSHIPMANAGEMENT SHIPMANAGEMENT

“Well at the moment theexecutive board is trying to focus on a limitednumber of different itemswhich we will be addressing in particular,because we want toenhance the focus andgive members a more visible ISSA and give themmore value for money”

“We have had extremely positiveleadership over the past nine yearsand I will try to continue the sameprinciples even though of courseWim and I are very different personalities”

“They will never be able to get back what

they have invested in. Our theoretical value cal-

culation for a 10 year-old cape is probably $70m

to $75m. So latest transactions conducted at

$90m, down from $130m, are still not enough. If

the theoretical value of a 10 year old capesize is

$70m and that hasn’t been reached yet, then

someone buying now will be buying something

quite expensive. Probably not as expensive as it

would have been two to three months ago,” he

stressed.

Alvin Cheng added: “If you look at the fact

that the orderbook in the dry bulk sector is about

60%+ of the existing fleet, to digest a lot of this

tonnage, even when the world economy recov-

ers, is difficult and we are not seeing a lot of

scrapping yet. There would need to be a substan-

tial amount of scrapping before it all makes

sense. The question of conversions from bulk to

tankers is skirting around the problem, it doesn’t

really resolve the issue.

“There will be casualties but there will also be

winners and these will be the more traditional

ship owners who now have a fleet of ships which

doesn’t include a large number of recently pur-

chased tonnage. These guys will still be making

money in the long term because they have a

lower investment cost. But those guys that

bought their capes for $130m to $140m will def-

initely be ruined. And how big those losses can

be, no one can tell,” he concluded.

The biggest problem facing the dry markets at

the moment is the effect the FFA paper settle-

ments will have on company survivability. As

Alvin Cheng warned, shipping markets should

prepare themselves for more bankruptcies and

shipping company casualties as businesses

struggle to meet the settlement terms for the dry

cargo paper contracts

There are some owners who have speculated

in the paper markets who face astronomical loss-

es, said Mr Cheng. “I understand that the begin-

ning of November will be settlement for a lot of

these contracts. Because the banks are not lend-

ing any money unless on a very specific project-

related basis, I can see a lot of people will be

short of cash. They will have no way of settling

their debt apart from filing for bankruptcy,” he

told SMI.But what of the brokers' view? “We believe

the world is in a degree of panic,” said Alan

Marsh, CEO of leading international ship-

broking house Braemar Seascope.

Speaking at the announcement of a record set

of interim results for the six months to the end of

August, Alan Marsh said: “Owners who signed

contracts 18 months ago still don’t have refund

guarantees. There will be legal cases where

owners have cancelled because they say you

haven’t given us the refund guarantee but the

yard will turn round and say you haven’t the

right to cancel because there is nothing in the

contract to say that if we don’t give you the

refund guarantee you will cancel,” he added.

“We know the English courts will say it is

unrealistic to say that you as a shipyard have got

the right to determine in two years time whether

you will give a refund guarantee otherwise it’s

not an option. So those are the issues that are

coming,” he added.

Ship owners wanting to withdraw from a new

building commitment would be able to do so if

the yard fell seriously behind on delivery. But

failure to obtain ship finance after signing a con-

tract would result in far more than the loss of

down payment, usually around 20%, with the

owner potentially liable for the full price of the

order and exposed to litigation.

Should pre-delivery finance not be available,

or the ship finance bank collapse after a firm

order has been placed, the owner “would be in

real trouble”, added Braemar Seascope director

Quentin Soanes. In that situation the winners

would be the lawyers, who “would have a field

day”. An owner would have the right to with-

draw if the yard was unable to provide refund

guarantees, with any subsequent court case like-

ly to rule in favour of the customer.

But going forward, is the situation good?

According to Alan Marsh, in the short term it

may not be but in the long term it might be

exceptionally good news with the reduction in

the number of ships.”

And newbuilding cancellations there will be.

With estimates ranging from 35% to 50% of the

recently placed orders expected to fail, with the

resultant closure of many of the Chinese

Greenfield shipyards and conversion of other

established building yards into repair facilities,

the future is gloomy. And what of those vessels

due to be completed in 2009/2010? According to

many in the market these will be snapped up by

hungry cash rich owners, once they are con-

vinced the market has hit rock bottom or they

will be repossessed by the banks left holding the

screaming baby.

But as stock prices tumble and company val-

ues plummet, buying stock can be a lot cheaper

than steel, something that is fully understood by

Swedish shipping giant Stena Group.

The dramatic fall in shipping company stocks

forced by the financial crisis has thrust

Gothenburg-based Stena Bulk strongly on the

acquisition trail to the extent that it has targeted

a publicly-listed tanker company that it said it

will buy by the end of the year.

Ulf Ryder, President and CEO of Stena Bulk,

told reporters at Stena’s offices in Sweden, that

buying undervalued stocklisted companies was

“a more natural target than newbuildings for

Stena which is a cash rich company”.

Refusing the identify the company it has tar-

geted, Ulf Ryder said it was a quality stock list-

ed shipping company. He said: “We have targets

in mind and I think you will see us taking over a

tanker company by Christmas,” he told SMI.

If a week is a long time in politics what is

a four week period in shipping’s history

when the markets went from concerns

over a potential economic downturn to a

complete industry meltdown with vessel

values plummeting, charter markets collaps-

ing, ship owners going to the wall and bankers

completely turning their backs on an industry

they have been keen to support and earn from

through the strongest market levels the indus-

try has ever seen and is likely to see for some

decades to come.

Any market commentator worth his salt

would have been laughed out of school had he

predicted such a scenario but the realities are

harsh and many fear could be long-term. While

a return to normality may happen, in time, for

some sectors but not for others, what level

could be considered as normal is difficult to

say and no one is prepared to stick their head

above the parapet to offer a credible sugges-

tion. The markets are in need of a leader to get

it out of this crisis but alas it appears the

shipping industry and the banks may have lost

their nerve.

Dagfinn Lunde, head of shipping at DVB

Bank painted the starkest picture of the financial

crisis affecting shipping when he told an indus-

try conference in November that the downturn in

shipping would be “deep and long” and that in

two years’ time "we will have a crisis very sim-

ilar to that of the mid-1980s", which some

experts believed was the worst ever experienced

by shipping.

"There will be many more bankruptcies," Mr

Lunde told the Lloyd's Shipping Economist Ship

Finance & Investment Conference in London.

"You can see this from the leverage of the com-

panies and the charter rates. It is a question of

weeks and months."

Dagfinn Lunde shares

the macabre but realistic

view that the bankruptcies

will not be sparing of even

the bigger and more estab-

lished names in the market

and would not only involve

dry bulk operators but also

other sectors such as contain-

ership operators.

According to shipping

industry investors like Pacific

Shipping Trust, this is the start

of the great market correction

with improvements unlikely until

at least the first quarter of next year.

Alvin Cheng, Chief Executive Officer, told

SMI: “We have not seen the bottom of the mar-ket yet and traditionally market rates come

down before asset prices perform a correction.

We are seeing the beginning of this market

correction so I guess that asset prices will fol-

low. We do not expect the correction to sta-

bilise until the first quarter of next year. But on

the other hand, as far as container ship asset

values are concerned, we are confident in the

medium to long term, that the correction will

not be that significant.”

He went further to suggest that in the next

few years “we will probably see a recovery of

the asset price and ultimately for a portfolio

like ours where we hold our assets on a

longer-term basis, we can probably recover

some of this lost ground.”

While he remained confident that Pacific

Shipping Trust would be able to maintain the

value of its investments, this could not be said of

the dry bulk markets, he claimed, for anyone

who has invested money into dry over the last

two years, “will have lost that equity for ever”.

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DISPATCHESCREDIT CRUNCH

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SHIP MANAGEMENTDISPATCHES JAPAN

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

Financial Crisis:Fanning the flames of despair

“There will be casualties but therewill also be winnersand these will be themore traditional shipowners who nowhave a fleet of shipswhich doesn’t includea large number ofrecently purchasedtonnage”

“Because the banksare not lending anymoney unless on avery specific project-related basis, I cansee a lot of peoplewill be short of cash.They will have noway of settling theirdebt apart from filingfor bankruptcy”

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NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

But not all banks are keen to retain their inter-

est in the newbuilding markets. One German

bank was reported to have offered to pay a ship

owner’s deposit plus a $3m bonus to walk away

from the deal. Such is their lack of interest in this

market at the moment.

But one winner throughout the financial crisis

could be the ship managers who could start to

mop up some of the excess tonnage. Indeed,

according to Guy Morel, General Secretary of

InterManager, ship owners will still need ships

which will still need managing. “My feeling is

that the volume of shipmanagement will remain

the same. It is more important that we do a good

job and please our owners, and when the owners

are under pressure they will ask for a tighter

budget. We will try to do everything we can to

adopt to the new circumstances. But except for

26 SHIP MANAGEMENT INTERNATIONAL ISSUE 16 NOVEMBER/DECEMBER 2008

CREDIT CRUNCHDISPATCHES

OfftheCuffMohammad SouriChairman and Managing Director of the National Iranian

Tanker Company (NITC)

Views on the current financial situation from a shipowner’s point of view“Stock market ups and downs have been with us for years andyears and this is the beauty of life but it is not going to damage thetrend of shipping. During the last 53 years of its operation, NITChas been profitable for 50 years of that time and for three years werecorded a minor loss. So this is a good sign that if the markets arebumpy they will not stay forever, so today’s stock market difficultieswill recover. Don’t forget, houses still need to be built, cars have tobe run and factories have to operate so for all these reasons ship-ping will continue. The oil price may come down and if it does it willhelp shipping because the poorer countries will have more moneyto buy oil.”

that, I see no reason why shipmanagement will

be seriously affected.”

This was a view repeated by Roberto Giorgi,

President of V.Ships and the newly-elected

President of InterManager, who said: “Our strat-

egy is always to be diligent with regard to mon-

itoring our exposure to risk – both on a daily

basis and to ensure that we carry out a thorough

risk assessment before taking over new con-

tracts. Historically, the downturns in the mar-

ket of the severity we have seen unfold in

recent weeks, tell us that the banks and other

providers of shipping finance will be faced

with problem loans and will need to turn to

experienced ship managers and other service

providers for help. The extent of the problem is

becoming clearer but you should bear in mind

that we are dealing with a different audience

today than during the last market cycle. Assets

are controlled by diverse companies as well as

traditional ship owners and in certain cases

there will be a big experience gap.”

He added: “Ship managers will play a crucial

role and will be working harder on behalf of

their clients to maintain service standards in the

face of inflationary pressures. The current mar-

ket turmoil, however, where we are seeing a

major slowing down in the rate of fleet growth

and a stronger dollar can help us in our efforts to

control costs. It is important to point out, howev-

er, as other managers have done, that there is no

simple solution. Increasing regulation and pres-

sures to perform mean that owners need to be

realistic in determining vessel operating costs

even though they are seeing asset values and

earnings collapse.”

But how will the financial crisis affect the

composition of today’s third party managers?

Will it be a question of survival of the fittest and

the largest or will the boutique but efficiently

operated and run ship management companies

survive equally as well?

“Again, history tells us that there is room for

the larger, multi-sector, global players like

V.Ships who can utilise a large resource base and

buying power, and the niche specialists who can

hold their own in specialist sectors and maybe

even consolidate their position during hard

times. Talk in the past of shake outs in third party

ship management never came to fruition – per-

haps this was wishful thinking on behalf of some

“The financial crisiswill certainly take its

toll but I think it represents someopportunities for shipmanagement

either because someship owners are left

with some ships theydidn’t plan to have

or other ship ownersare looking to

reduce their costs”

Guy Morel, General Secretary of InterManager

you also have the strange situation where there

are no letters of credit whatsoever, meaning that

there is nothing moving: we are not talking

about a little bit at a lower rate, we are talking

about zero – nothing.

“I know one bank and I won’t say the name,

which has already starting asking for extra col-

lateral from owners. That is the first step. What

you will definitely have and you are already

seeing is more and more people walking away

from deposits. That will have a great impact on

the shipyards meaning they will have to go out

and find someone else to complete the project.

So in this environment, it will not be easy for a

shipyard to find someone to complete a project

because first of all they will have to pull their

pants down regarding price. The market will

find itself in a very strange position where 2011

deliveries will cost $10m to $20m more than

2009 deliveries.”

So does the world need the shipping industry?

“No, the world doesn’t care if ship owners go

bust because there will always be someone else

to take over the ship and operate the trade. What

I do agree with is that the world does need the

goods that shipping transports,” he concluded.

But while the bulk markets contract and

owners start losing their shirts, there still

remains some level of optimism for that other

great shipping trade – tankers. As Lennart

Simonsson, CEO and Managing Director of

Gothenbuirg-based tanker owner Brostrom,

said, some markets will end up better than

others depending on the trades involved.

He told SMI: “If you talk about the tankerbusiness as such then that is a different ball

game. The tanker industry is focused on deliv-

ering oil for the transportation industry. With

the high oil price everyone has been trying to

ensure they don’t store more oil than is need-

ed so you will see markets in coming years

that will be extremely good and markets that

will be bad. But the overall trend for the

tanker industry is pretty good.

“A lot of people in the oil industry includ-

ing the traders, have been more affected by the

disappearance of letters of credit than anyone

else. But because of the financial crisis you

will see a lot of requests from the banks

regarding financing of existing and new ves-

sels to increase margins and everyone will try

to get as good a result as they can. The under-

lying transportation need in the oil industry is

still there but the question is will we see the

same shipowning groups as we have seen in

the past, but the basis is there.

So when will the market return to normali-

ty? “It depends what you mean by normality,”

said Lennart Simonsson. “To reach stability

will take many years in my opinion but if you

ask what the situation will be like in a year’s

time, I believe you will see good markets and

you will see bad markets but the overall level

will be pretty good I think.”

Speaking just days before Brostrom

had announced a dive in pre-tax profits to

SEK187.5m for the nine months to the end of

September from SEK431.4m in the same three

quarters of 2007, Mr Simonsson said Brostrom

would continue to focus on the sector it is in and

not rush into further newbuildings at this stage.

“I think that from a business point of view we

have focused very much on contracts of

affreightment, and spot markets and making sure

we have the volumes. If we have these, even in

a bad market, we will provide a decent return.

“Spare tonnage will be there and I think

there will be a lot of yards, in Turkey, for

instance, who have produced a lot of vessels

in their own name, who will try to sell them.

There will be more tonnage about but will it

be there to compete in the market because you

need the right crew and the right financial

setup behind it, so I don’t think it will have

that big an impact on the commercial markets

we are operating in,” he added. ■

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NOVEMBER/DECEMBER 2008 ISSUE 16 SHIP MANAGEMENT INTERNATIONAL

larger players. What we are seeing, however, is

that there is perhaps less of an appetite for

expanding managed fleets unless the rewards

match the growing risks.”

Annette Malm Justad, CEO of Eitzen

Maritime Services, is equally aware of the

opportunities the financial situation could pose

for third party managers. “The financial crisis

will certainly take its toll but I think it represents

some opportunities for shipmanagement either

because some ship owners are left with some

ships they didn’t plan to have or other ship own-

ers are looking to reduce their costs or even have

a more flexible organisation. I think generally

speaking, the crisis will offer some opportunities

going forward,” she said.

Jeremy Hayley Bell, Managing Director of

Pacific Basin Tankers, said that the crewing cri-

sis meant that managers were still being selec-

tive as to the business they take on but there

will almost certainly be an element of ‘ambu-

lance chasing’ going on as managers seek to

manage ships repossessed by the banks. “With

the current issues in the market there will be

casualties and one hates to be an ambulance

chaser, but let’s face it, distress management

has been part of business in the past and we feel

that we’re very well placed to be able to pro-

vide assistance there.

“You’ve also got the question of the value of

ships falling and whether an owner wants to go

through with completing his purchase of the

ship, whether it’s second hand or a new build-

ing. In which case, a ship can be left in some-

one’s hands who hadn’t actually planned to

take it on. Whether they’re shipyards or banks,

they will need somebody to help them operate

those ships and we’re well suited to do that and

well experienced to do that. We’ve done that

for a number of banks in the past and we have

principally the same staff here that were doing

it before, so we’re well positioned to do that.

So I’m sure there will be a lot of opportunities

there,” he added.

But what effect will this crisis, the worst some

are saying since the depression of the 1920s,

have on shipowning as a sector and as an indus-

try? Pacific Shipping Trust’s Alvin Cheng

believes that shipowning has come a long way

and that owners are definitely more professional

and sophisticated than they were years ago. “The

younger generation of owners who took over

from their fathers and grandfathers are far more

educated, more numerically savvy,” he told SMI.“A lot of them have MBAs and come from

investment banking backgrounds so they are

much more sophisticated in the way they look at

the markets. Instead of the back of an envelope

calculation, they use spreadsheets. These owners

I think will come out in tact and they will con-

tinue to grow and they will be even stronger.”

Cheng believes there will be consolidation in

the market but with the traditional owners

being the winners: “Those owners that are rid-

ing on the coat tails of the market will fall and

they will take a huge tumble and they will be

eliminated. Some of the major traditional

shipowner names will still be there, I don’t

think any of the major names will disappear –

major names as in traditional, long standing

established names,” he said.

Asset playing has become too dangerous a

game to play, he stressed, and has become some-

thing more akin to roulette. “If you just look at

the bulk market. How can rates

go up so high and tumble in no

time to where they should be.

We are not talking about levels

which are historically low, we

are talking about levels which

the market should have been at

before, but were not because of

the last two years of absolute

crazy speculation,” he said.

One such younger genera-

tion owner is Evangelos

Pisatiolis, head of the Nasdaq

quoted Top Ships. But he

remains convinced that during

such dire times, ship owners are

powerless to act without the

support of the banks.

In a frank interview with

SMI, he said: “There is reallylittle you can do, looking at it

from the point that literally

nothing is moving. Even if you

are running 24 hours which

many ship owners who