BOW WAVE 238

Wandering at Will Edition

news and views on trade, insurance and risk

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Wavy Line	sam@wavyline.com
(c)2004 WavyLine.com	Issue No 238 14 Jun 04
Published free of charge to Readers
Editor: Sam Ignarski
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In this issue:

1. Welcome
2. In the Wake--The View of Gray Page
3. Wither the Hull Market?
4. Weather Picture of the Week
5. Lloyd's List New Look
6. And Finally...

Bow Wave Reader Vacancies

UIB are looking for a young and energetic P&I broker to fill a vacancy created by the imminent departure of Abby Jeeves. Ideally suiting someone with at least 5 years experience in P&I, this job might appeal to an established broker looking to take on a more demanding role or an underwriter who is looking for a change of emphasis. Applicants should apply in confidence to Phil Mitchell at:-

pbm@uib.co.uk

David Cheslin of Dunelm Public Relations (and guest editor of Bow Wave) wonders whether any Bow Wave readers have sons or daughters (or friends of sons and daughters) seeking a start in PR. Dunelm is looking for a recent or imminent graduate with strong writing skills to join its team specialising in shipping and marine insurance matters. More details can be obtained from:-

davidcheslin@dunelmpr.co.uk

1. Welcome

You'll see that, since our fate is ruled by chance, Each man, unknowing, great,
Should frame life so that at some future hour
Fact and his dreamings meet.

Victor Hugo, To His Orphan Grandchildren

New Readers this week include:

Jim Juergens,VP Risk Management of Crowley
Peter Guldentops of Bolero.net
Judith A Francis, Bahamas Maritime Attache in London Broker Gillis Brobbel of Aon in Rotterdam
Julian James Sales Director of Prima Solutions in London London solicitor Maryam Taher
Craig Brown of V Ships Company Marine Legal Services Ltd PR man Russ Green of RTG Communications in Hong Kong Ashley Dinning of the Port of Melbourne
Capt. J.R.B.Harding Spica Marine Inspections in Mombasa

News of Readers

Sid Lock has left Thomas Miller

contact him at:

sid_lock@yahoo.co.uk

Russ Green, the former editor of Cargo News Asia based in Hong Kong is now working with IRI - Marshall islands in the Far East.

contact him at:-

rtgreen@netvigator.com

Our Issue this week seems rather longer than usual not least because the analysts over at Gray Page have in this month's instalment of their regular column chosen to wander at will over the subjects of ISPS--Market Movements--Alternatives to Bunker Burning.

Also included is a recent column by your editor on the hull insurance world which seemed to provoke more than usual interest upon publication.

Enjoy.

2. In the Wake--The View of Gray Page

Worries over quality of ISPS Code advice and security consulting services

With three working weeks or so to go before the ISPS Code comes into force, there seems to be an increase in the number of public bashings being meted out by one industry group or another, to one industry group or another over their respective roles in, or as the cause of the problems of implementation.

During the Intersec Security Conference at Sandown Park this week, a representative of a leading classification society raised concerns over the quality of advice, training and security planning being provided by security consultants to ship owners and port authorities as part of their ISPS compliancy efforts.

Issues raised included the lack of relevant background knowledge of both individuals and companies offering ISPS code services; the quality and depth of training being given to ships crews and company security officers; and weakness of security plans drawn up using
"one-size fits all" templates and replicating them across fleets of varying types of vessels.

None of these concerns are new. But now that ship security planning is being tested in the auditing process, evidence that the knowledge of some company and ship security officers, and the security arrangements both ashore and onboard ships are not what they should be is beginning to appear.

Flag State Authorities have come under regular attack by ship owners for the lack of timely, relevant and workable guidance provided to companies. However, some of this venom is now being directed, albeit behind closed doors, at Recognised Security Organisations and some of the maritime security consultants who have been predominant in providing ISPS consulting services.

Interesting then that it is the same organisations who quickly established costly training courses, worked hard to secure lucrative consulting contracts for their security-oriented business partners and publicly asserted their qualifications to be RSO's, that are now voicing concerns over the lack of
relevant background knowledge of both individuals and companies offering ISPS code services; the
quality and depth of training being given to ships crews and company security officers; and weakness of security plans drawn up using "one-size fits all" templates etc. etc. etc.

Record turn-around time for ISPS Compliance for Iraqi Ports It was reported in this week's Lloyd's List that the Iraqi Port Authority has awarded the contract for ensuring that Iraqi ports are compliant with the ISPS Code by the 1 July deadline to the Al Shammery Group, known as Sapco. In turn, Sapco have subcontracted the work to UK-based Global Marine Security Systems Company, headed by former Scots Guard officer Lord Richard Westbury.

According to the article, a source in the Coalition Provisional Authority is reported to have said that "They started work on Friday and plan to have it done by the end of the month." By our reckoning that gives the Sapco / GMSSCo and IPA teams three working weeks to train the appointed number of port facility security officers, conduct the port facility security assessments and get them approved, write the port facility security plans and get them approved too and then to have the plans audited in situ and presumably issue the
certificates of compliance. A friend on the ground in Iraq recently commented that getting the Iraq ports back on the road to 21st century operational effectiveness, after being in the dark for 25 years or more was proving quite a challenge. At the same time, Ugo Salerno the Chief Executive of the Italian Classification Society RINA and out-going Chairman of IACS has expressed concerns that 90 per cent of global ports and terminal operators are likely to miss the July 1 deadline for ISPS Code certification. Given that major ports in other countries are seemingly having trouble in meeting the compliance date, two questions come to mind. How do you secure a port in compliance with the ISPS Code that is barely operational by international shipping standards? And secondly, how do you do that in all of three working weeks? There would be more than a few who would like to know the secret to that one.

Security in the marketing mix

When the ISPS Code was first introduced, there was a small school of thought that it could prove to be a means of attracting tonnage away from one flag and over to another. This notion was, more often than not, dismissed by ship owners and Flag Administrations alike, who are argued that the organisational headache of transferring ships from one flag to another for the sake of ensuring timely ISPS Code compliance outweighed the risks of failing to meet the deadline. After all, the deadline was surely going to be extended when the IMO realised how impossible it was going to be for ships and ports to meet any way, or so the argument ran.

Praise is due then for those "blue sky thinkers" who have been proved right by the announcement from the Liberian register that it is winning over new ship owners, who were struggling with their own
administrations' efforts (or lack of) to get security plans verified and audited on time.

Apparently and number of owners have moved ships over to the Liberian flag in the past few weeks, as they seek timely compliance with the ISPS Code. Moreover, enquiries are still being received from other owners interested in swapping flags for the same reasons.

It proves the marketing theory that, when offering a service, not all customers prioritise price over
quality. Nevertheless, there is comfort for other flag registries in the knowledge that there will always be plenty of customers who know the price
of everything and the value of nothing.

Talking of cost--

One of the biggest questions regularly asked in relation to the ISPS Code is what's going to happen if your ship doesn't comply?

Well, Singapore for one has set out its stall in this respect by announcing potential jail terms of up to 6 months for anyone presenting false or misleading information on maritime security to its port authority. There are equally stiff financial penalties in lieu of a custodial sentence.

An MPA circular doing the rounds - if you'll excuse the pun - says that ships calling at the Port of Singapore could be asked for a list of security related information, including of course a valid International Ship Security Certificate. However, more detailed information such as the security level at which the ship operated in any of the last 10 ports it called at may also be requested. Failure to comply might result in sanctions ranging from the detention or expulsion of the vessel, to fines for the owner, Master or vessel's agent.

Harsh but fair, you might say. Any way you look at it, at least Singapore's intent is clear.

MARKET MOVEMENTS

Tanker Heaven--Bulker Blues?

Back in the normal world of the day to day shipping market for the first time since February this year, and as a likely result of the recent security problems in Saudi Arabia, VLCC freight rates have broken the Worldscale 100 mark for trips from the Arabian Gulf to the US Gulf.

Security questions will persist in Saudi Arabia and the Gulf region in general for some time to come. However, for those that feared rates would soften as capacity surpassed demand, there has been additional good news with the OPEC's confirmation that production quotas will increase. This should offset somewhat the downward pressure on rates that 20 or so new-buildings scheduled to deliver into the market in 2004 may have had in the coming months.

However, record oil prices are having the opposite affect in the bulk carrier market, where freight rates have followed our recent predictions and continued to fall. High fuel costs will continue to weaken returns for owners, although the US$16-23,000 a day being achieved by Panamax bulk carriers in the Pacific and Atlantic basins, will still be profitable. The big question remains as to how long for?

The buoyancy of dry bulk freight rates has been sustained by the overwhelming demand from China for raw materials and primary commodities. However, in an effort to slow the country's overheating economy, a new policy from the Chinese Government is making it increasingly difficult for companies to obtain the loans required to underwrite new construction projects. The result is that the demand for additional steel, for example, has dried up and sources within China are claiming that in fact there is currently a surplus of steel in the country - an increase in demand is not expected any time soon. Indeed, if the corrections to the Chinese economy take hold, further reductions in import demand can be expected.

Such indications would normally be a trigger for older vessels, which would not be profitable in a falling market, to be scrapped. However, steel prices in India have plummeted by US$66 / tonne between February and June of this year and this will have a knock on effect in scrap prices. The current levels of US$ 380 - 390 per ldt is still almost double the level of two years ago, but these levels surely cannot be sustained if the steel price falls any further.

Owners are faced with a dilemma. Sell older vessels now, while scrap prices are still high and demolition yards are still buying and risk the loss of good, but possibly weakening, freight returns. Or, continue trading older tonnage while the market is still quite strong and hope that when the freight market turns, they won't return to the S&P market to find scrap prices through the floor.

Oh for a crystal ball!

FUTURE DEVELOPMENTS

Toys for the boys?

Stephen Wrage of SkySails GmbH gave a fascinating presentation at Lloyd's List Events' 3rd Annual Bunkering in the Baltic and the North Sea conference in Hamburg at the end of May. Included in his presentation was the assertion that by deploying what is in effect a massive towing kite at altitudes between 100 and 500 metres, a vessel could reduce its fuel costs by up to 50 per cent and increase ship-speed by 10 per cent.
This was a bold statement to make in front of an audience that relies on 180 million tonnes per year of fuel consumption industry for its living. Nevertheless, the SkySails concept was met with interest and a few wry smiles.

However long it takes to get the concept off the deck, this is an inspiring example of blue sky thinking for all budding innovators out there.

Contact GrayPage Limited at:

enquiries@graypagelimited.com

http://www.graypagelimited.com

3. Wither the Hull Market?

As trailed last week, your editor's Quarterpoints column in Lloyd's List examined the parlous condition of the present hull market and asked where it was all leading.

Where are all the princes who proved their hand at hull cover?

AS SOMEONE who grew up in the liability world of marine mutuals, I have never taken more than an outsider's interest in the other great branch of the marine insurance world, the first party insurance of things, otherwise known as cargo, hulls and property.

But as the marine insurance world entered the softening years of the 1990s increasingly dramatic things began happening, especially in the world of hull.

The first man who ever took me through the basics of hull insurance was Roger Nixon who had been a chairman of the Joint Hull Committee at the Cornhill before leaving and joining a start-up project in Thomas Miller, known subsequently as Dex.

His career had been dogged by the fact that he had been a leading player in the movement to issue new, stricter hull conditions just at the time when the market balance was turning decisively in favour of the buyers of hull insurance.

This turn in the market led to nearly a decade of soft rates, red ink and widespread disillusion with marine insurance as a class of business. Dex was one of many responses to t he atrophying of rates, under which traditional players in hitherto discrete market areas decided to converge their products and offer both liability insurance and hull insurance, using the traditional strong market bases they enjoyed.

Mark Carter, the then head of the Dex organisation, avowedly took to the market place with caution, emphasising in public that the new venture, designed to take large lines on hull insurance and to handle claims using the superior practices of the clubs, would not rush to take a large market share as rates were still very low.

Nor was this the only such effort launched at the time. Jonathan Jones of Terra Nova also launched a converged product, in his case grafting on P&I cover to his existing hull insurances written in his Lloyd's Syndicate.

All these initiatives were launched around 1998; unfortunately, many years before the market for
hull showed any signs of hardening.Anyone who had a large share of the hull market in, say, 2000 was pretty much lashed to a foundering craft. Of the great leaders in the London market, three stood out in size: Jonathan Jones of Octavian, Trevor Hart of Marlborough and Bernard Devreese of Coatesworth, none of whom survived to whatever lee shore has emerged after
the great market turning events of September 11.

The recent news that the young new chairman of the Joint Hull Committee, William Beveridge, has gone on gardening leave suggests at least that the writing of hull insurance is still no sort of picnic.

Just when the talk has been of the dire industry necessity of getting those rates up, the spectre of the shipyard claim has come and haunted the players.

The Diamond Princess, Pride of America and the Amsterdam, all big claims in the hundreds of millions, have cast gloom on what was beginning to seem like optimism in the market.

Where is all this leading? Where are all the princes of the marine market, many of whom were great global names in the industry who enjoyed their standing by reason of their shrewdness in hull underwriting?

This is a time where financial directors in the large insurance conglomerates enjoy the prerogatives of power. Is this the year these gentlemen, who generally speak good idiomatic English but with a Germanic or American accent, decide that marine hull is no longer a core part of what their insurance company does?

That in the contending for funds, capital, solvency and capacity, which now takes place between the various lines of business in pretty much every insurance company , the marine first party lines may retire from the game?

The future may look rather different. Where might a new non-core hull insurance industry be found? Where do its denizens go post gardening leave, post non-core, post large corporate?

Will they still enjoy a metropolitan base, in the established insurance centres of London, Oslo, Paris and New York? Or will they have to hoof it out into regional markets, backed by insurers of less than boundless wealth, and knock on doors in a place like Piraeus, Shanghai or New Jersey, rather like Jonathan Jones seems to be doing in his post-convergence life.

With so much hanging on whether to write such risks at all, the better informed that decision is the better are the chances of underwriters avoiding the undertow of the tides of red ink under which so many have been caught.

4. Weather Picture of the Week

The BBC Weather Center has taken to publishing a picture of the week on its website, a place where underwriters can go to remind themselves during slack periods about where we all fit in around the forces of nature.

This week's effort is a fine portrayal of sheet lightening

http://www.bbc.co.uk/weather/multimedia/gallery/

5. Lloyd's List New Look

Lloyd's List has given itself a summer makeover with a new layout and improved functionality in its online edition.

Dark blue has been exchanged for a lighter green and gray but the biggest visual change is that the newspaper's brand has been re-instated in favour of any 'dotcom' associations.

Neville Smith, the content manager says, "The basic idea was fewer clicks and less clutter...but there are also lots of functionality improvements which make using the online edition more fruitful."

After logging in users are one click away from seeing all the headlines and the e-version of the paper (Adobe Acrobat PDF pages to you and me) so they can read the stories any way they want.

We understand that there have been fewer bumps in the road than has been usual at such times in the affairs of papers. Smith says this has been the smoothest upgrade yet to the service with very few technical glitches so far.

The curious non-subscriber can go to the site and take a advantage of a free trial:-

http://www.lloydslist.com

6. And Finally....

Many thanks to Fraser Hunt for this one...

An elderly lady phoned her telephone company to report that her telephone failed to ring when her friends called - and that on the few occasions when it did ring, her pet dog always moaned right before the phone rang. The telephone repairman proceeded to the scene, curious to see this psychic dog or senile elderly lady He climbed a nearby telephone pole, hooked in his test set, and dialed the subscriber's house. The phone didn't ring right away, but then the dog moaned loudly and the telephone began to ring.

Climbing down from the pole, the telephone repairman found:

1. The dog was tied to the telephone system's ground wire via a steel chain and collar.

2. The wire connection to the ground rod was loose.

3. The dog was receiving 90 volts of signaling current when the phone number was called.

4. After a couple of such jolts, the dog would start moaning and then urinate on himself and the ground.

5. The wet ground would complete the circuit, thus causing the phone to ring.

Which goes to show that some problems can be fixed by pissing and moaning.

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