BOW WAVE 276

Bow Wave Issue 276--Guest Columnists Edition

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Wavy Line	sam@wavyline.com
(c)2005 WavyLine.com	Issue No 276 07 Mar 05
Published free of charge to Readers
Editor: Sam Ignarski
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In this issue:

1. Welcome
2. The Month of February in Marine
3. In the Wake--The Views of Gray Page for March
4. German Logistics Portal
5. Sea Watch
6. And Finally...

1. Welcome

New Readers this week include:

Readers at SMJ Surveys
Kate Sliwinska of Berkshire Hathaway in London
Marine Ivestigator Captain John L. David
Lawyers Marie Rogers and Luis Alberto Villar of Goni & Co
Alan Curran of Elbourne Mitchell

News of Readers

Robert Thio is retiring from the London P & I Club/ A. Bilbrough & Co Ltd. this week, after fifteen years of service. Contact him at:-

robertxthio@yahoo.co.uk

Wolfgang Kleiner, the head of Rhine container shipping pioneers Combined Container Service has retired.

Barrister Robert Wijfells who is the Founder and Editor in Chief of European Transport Law is the presiding figure over an upcoming Seminar in Vienna on 17th and 18th March entitled Transport Liability and Recourse in Theory and Practice: Scope of the International Unification of Law. The speaker panel is virtually a who's who of this field and the registration fee is Euro 789. Details of the event can be viewed at:-

http://www.bbl-law.com/doc/Vienna2005.pdf

AfterOfficeHours News

The new on-line directory designed to list people and companies who can be called upon in circumstances of extreme urgency continues to add new listings. This week the following companies published details on the searchable database:-

Phillipines Law Firm Del Rosaria and Del Rosario
New York Attornies Lester Schwab Katz & Dwyer LLP
Dutch P&I Specialists Post & Co (P&I) b.v.
Thomas Gutruf Consulting
Shipbroking and Intermediaries Law Specialists Paul Smith & Co
Chambers of Iain Milligan QC, 20 Essex Court

Register Now. Free Trial Period. Very Reasonable Rates.

http://www.afterofficehours.com

As ever we are grateful for the contributions by our guest columnists featured below.

Enjoy.

2. The Month of February in Marine

Walter Mellert writes:-

Dear Mariners,
fewer days in a month don't necessarily entail fewer news items - here are some of the highlights:

--> After a short rise early January, all major shipping indices (dry, handymax, panamax, capesize, clean and dirty) display a tendency to head south.
--> 81 blt bulker "Aurelia" loaded with zinc ore sinks off Japan. 16 crew saved 6 missing.
--> Polar researcher "Spirit of Enderby" breaks navigation record by reaching 78° 40" South, three miles further than any ship before. Retreating iceshelfs made it possible. --> China's domestic automobile production (est. 5.8 mio units pa) is expected to continue growing by 15 to 20% despite recently lifted import restrictions. Another traffic jam in the making.
--> Temporary cease-fire in the wake of tragedy? Malacca Strait piracy has gone from 21 confirmed cases in 2004 to zero in January this year. Back to normal business in Feb. --> Death sentence for Fawaz al-Rabe'iethe, leader of the 02 "Limburg" bombing, is upheld by the Yemeni court of appeals. Some of his comrades' jail sentences were increased. The last appeal would be to the high court.
--> Tankers "Genmar Kestrel" and "Trijata" collide near Port Said and lose some 6000 bbl of Arabian light crude. --> 22 m trimaran, Ellen MacArthur, 27348 miles in 71.5 days singlehanded at an average speed of 16 knots beating the record by more than a day. Who says the oceans are a man's world.
--> Cross channel ferry "Dieppe" hits pier at her namesake port and sustains bow damage. Officer in charge had alcohol in his blood but claimed he had the drink after the accident. Yeah, sure!
--> The number of piracy attacks may be down (325 in 2004 vs. 445 in 2003), but the violence is increasing sharply with 30 known murders. Indonesia still tops the list. --> 89 blt GCC "Jokulfell" carrying construction steel capsized and sank off the Faroe islands. 5 crew saved, 4 recovered dead, 2 still missing.
--> A freak wave hits 5 yr old 24'400 GRT cruiser "Voyager", breaks bridge windows, disables communication and electrics & causes engine failure. Ship adrift off Majorca with 480 pax and 300 crew. Her sister the "Explorer" had a similar encounter in the Pacific in January. Maybe "freak" is the wrong word.
--> Classification Societies are in for a rougher future as the EU pushed Erika3 bill aims to make shelter from potential liabilities a thing of the past.
--> Boxship rates are really up, with nearly $14 per TEU day for gearless and $ 19 for geared vsls for 6 - 12 mts charters.
--> 27 yr old St.Vincent flagged 1059 gt GCC "Sea Rey" carrying containers from Turkey to Libya sinks in the Aegean. 8 saved, 2 missing.
--> Scary quote: "Asbestos use has fallen five fold in America and Europe since 1960 but it has increased by a similar figure in developing nations. More asbestos is being used in Asia than was used at its peak in the U.S. 30 to 40 years ago." Raises some interesting thoughts on shipbuilding.
--> Based on worldwide oil demand of 84 mio bbl per day for 2005 and growing by 2.7% we hear that 2006 freight futures on VLCCs are going based on about $ 50'000 per day. --> Quote of the month: "Trust and help those who are seeking the truth, but be wary of all who say they've found it".
--> Embedded sensors in "smart" containers recording any attempt at unauthorized opening should become available sometime this year. To equip all of them will take a while.
--> We hear that some pax of the "Voyager" are going to sue the captain for sailing them into a storm. Maybe their next holidays should be Disneyland, where things are under control!
--> 83 built boxship "MSC AlAmine" (previously known under 5 other names - (some unresolved identity crisis?) grounds off Tunesia and dirties the beaches.
--> MSC pays $ 500'000 for 1'200 m2 of corals damaged by "MSC Diego"s anchor & chain in a "no anchoring" zone off Florida in late 2002.
--> P&I clubs join forces in fighting substandard shipping. We'll keep our fingers crossed.
--> High speed cat with, no doubt, plenty of radar hits coastal vsl in Hongkong fog.
--> Qatar is looking for partners to order 12 new 210'000 m3 LNG vsls for the RasGasIII project. At a total cost of $ 2.8 bio this would be the largest order ever; lease back at roughly $ 80k a day!
--> A quick one on tanker prices: Second hand 300'000 double hull built in 2000. Bought in 2003 for $ 63 mio, sold last month for $ 112 mio. With world oil consumption outstripping production by almost 2% things won't get cheaper.
--> Ecuador banana shortage drives reefer prices lower - by 15 cents to $ 6.15 per fruit box. To use a different measure, $ 1.30 to 1.40 per cubic foot is about right too. --> Thunderhorse, the world's largest floating platform will soon commence exploiting the 1 bio bbl namsake reserve at a peak planned rate of 250'000 bbl perday, 150 miles off Louisiana. Price tag: $ 5 bio.
--> Propulsion pod dispute between RollsRoyce and RCCL on cruiser "Infinity" is likely to last for years - nomen est omen? Should keep the lawyers happy! --> UmQasr port security is said to be improving but delivery is usually straight to the truck - each with armed co-driver - as port storage is plagued by rampant pilferage.
--> Looks like the "Norway" (ex "France") will not get a second life as a hotel. Scrapping seems to be her fate - sad end for a proud lady.
--> Experienced seafarers - particularly in the LNG trade, are getting scarce - with shortcuts taken opening a pandoras box of quality, risk management & security worries.

Note:-

Any opinion expressed in this item should be regarded as the personal opinion of Walter Mellert and not one made in his capacity as an employee of Swiss Re and any such opinion is not the opinion of Swiss Re, of any of its affiliated companies or of any of its officers or employees.Accordingly, Swiss Re hereby expressly disclaims any liability, loss, cost or expenses arising directly or indirectly from the content or expression of views of this newsletter or of other Websites to which this newsletter may provide a link.

3. In the Wake--The Views of Gray Page for March

-->Back In Favour - The Shipping IPO

Historically high freight rates in both the tanker and dry cargo markets have renewed the interest of investors in placing their hard earned cash into shipping. 2004 saw the successful listing of such names as Camillo Eitzen, Arlington Tankers, Top Tankers, and John Fredriksen's Golden Ocean and Ship Finance International Ltd. They have performed well to date on the back of the strong freight rates. 2005 looks set to continue the trend and break all previous records for the numbers of shipping IPOs. Amongst the latest are those of DryShips Inc, already well into spending the US$100m war chest raised through its IPO in January 2005, and TK Shipping announcing that it wishes to adopt the lead set by John Fredriksen's Golar LNG and Savery's Exmar, by listing its LNG tanker arm. International Shipping Enterprises Inc is another name seeking investor's funds at the moment.

The IPO for Dry Ships Inc. is of interest, much as a result of the effect that its war chest has had on second hand prices for bulk carriers. Most commentators had expected market prices to already have peaked at the end of 2004. However, record prices have continued to be paid for second hand tonnage, fuelled perhaps by these IPOs, with investors needing to see signs of a quick return. Dry Ships have definitely felt that their money was burning a hole in their pocket. It has reportedly spent between US$350-430m on ships since the start of 2005. This included paying US$47.5m for a 4-year old panamax that only cost US$20.5m at build, and US$75m for a 2001-built capesize costing US$36m at build. The previous owners must be rubbing their hands with glee, especially having owned them through two years of booming earnings.

But what of the supporting market? China remains preeminent in driving dry bulk rates up with its vast imports. However, just a few weeks ago, the Chinese government announced the introduction of "voluntary" import licenses for iron ore. This is partly over the perceived increase in speculative imports that are driving domestic prices up, but also over worries with the growing problem of congestion at Chinese ports. BHP Billiton considers congestion in Chinese ports to be a serious risk to its business for 2005. Others say the license measures are simply to help clear the 21 million tonne back-log of iron ore still sitting on docksides. Whether this will have any more than a temporary braking effect has yet to be seen. However, similar action in the spring of 2004 broadly saw capesize freight rates fall continuously for nearly 6 months, with rates moving from US$99,000 per day in January down to US$39,000 by June.

We suspect that some of these new IPOs will be keeping their fingers crossed that China continues to grow, otherwise they may be facing some unhappy shareholders, and a return to shipping being seen as a place to avoid investing your money.

-->Forward Freight Agreements - A Hedge With Thorns

2004 was an interesting year for the dry-bulk FFA market, with significant growth in both cleared and OTC trades. There were some significant losses recorded, along with a number of defaults, some public and some not. The FFA has been a device that has allowed owners to significantly increase their profits in an already strong physical market, or in some cases to practically wipe those profits out in one fell swoop.

There remains a significant difference in risk differentials between derivatives trading in the tanker sector and derivatives in dry bulk. There also remains a significant risk difference between cleared trades and OTC. FFA derivative trading in the tanker sector is a more mature market, with the majority of players having adopted strong risk management mechanisms and the majority of trades occurring via clearing systems such as those offered by Oslo-based NOS ASA (Norwegian Options & Futures Clearinghouse). Derivatives in the tanker sector also benefit from much greater liquidity. However, derivative trading in dry bulk are conducted in a younger market, with more players trading OTC, less liquidity and less analysis of credit exposures. Mind you, the size and financial capacity of a company are not always a reliable measure of the risk either - take the example of Enron. Nonetheless, there will always be a market for both mechanisms of trade, as each appeal to different players, but perhaps the greater risks in OTC are not so clearly understood.

Commentators place dry bulk FFA losses down to poor credit risk assessment of counterparties on OTC trades. By definition, OTC trades are a higher risk as the players cannot (or choose not to) meet the listing, risk management and balance sheet requirements to join a clearing house like NOS. Deals are therefore conducted directly between these players, or via the growing number of brokers dealing on OTC. There is also the risk that exposure to a defaulted trade may have a domino affect, leading in turn to defaults up the chain.

So who has suffered? The biggest reported loss for 2004 was China's Jinhui Shipping, losing US$67 million on FFA trading. Jinhui has suspended all FFA activity, citing the correlation between the physical and paper markets as now almost non-existent. Jinhui took this loss on the chin and bounced back with impressive profits, buoyed further by a rising share price on the back of investment from Fredriksen's Golden Ocean. Navitrans has been another casualty, with some US$6.5 million in reportedly unsettled FFA trades conducted OTC with Daeyang in Korea and Sinochart in China. Both Daeyang and Sinochart took legal action and obtained garnishee orders against Navitrans through the New York courts in late 2004.

Not even cleared trading appears to be immune. Some US$8.5 million in anonymous FFA trades through NOS in late 2004 has apparently led to the exchange launching criminal action in Greece, in December 2004, against unknown parties. NOS also saw fit to improve its risk management systems as well as its capital structure and coverage because of it.

These are just the problems we know of. There may be more OTC trades that have turned sour and not come to light and, if the Chinese economy takes that down-turn shipowners fear, then expect there to be more. Consider also the problem of recovery in an FFA default. FFAs are typically not maritime claims - so arresting a ship for security in many jurisdictions is problematic, if not impossible.

Contact Gray Page at:

enquiries@graypagelimited.com

4. German Logistics Portal

Professor (and Captain) Peter Irminger of Bremen University is the presiding editor over this German portal aimed at the modern field of transport economics.

http://www.logistics-pilot.de/de/index.php

5. Sea Watch

Singapore P&I Correspondent Richard Gordon has published the latest edition of his webzine, which gives Readers a good run around current industry concerns in South East Asia.

Read it at:-

http://www.seasia.com.sg/base/newsletter/seawatch_janfeb2005.pdf

6. And Finally...

Thanks again to Frazer Hunt in Sydney for these

Godfather

A Mafia Godfather finds out that his bookkeeper has swindled him out of ten million dollars. This bookkeeper is deaf and mute. It was considered an occupational benefit and the reason he got the job in the first place. It was assumed that since a deaf bookkeeper would not be able to hear anything he'd never have to testify in court.

When the Godfather goes to shake down the bookkeeper about his missing $10 million bucks, he brings along his attorney, who knows sign language. The Godfather asks the bookkeeper: "Where is the 10 million bucks you embezzled from me?" The attorney, using sign language, asks the bookkeeper where the 10 million dollars is hidden. The bookkeeper signs back: "I don't know what you're talking about."

The attorney tells the Godfather: "He says he doesn't know what you're talking about." That's when the Godfather pulls out a 9 mm pistol, puts it to the bookkeeper's temple, cocks it, and says: "Ask him again!" The attorney signs to the underling: "He'll kill you for sure if you don't tell him!" The bookkeeper signs back: "OK! You win! The money is in a brown briefcase, buried behind the shed in my cousin Enzo's backyard in Queens!" The Godfather asks the attorney: "Well, what'd he say?"

The attorney replies: "He says you don't have the guts to pull the trigger."

PS......

Harold, the Computer Guy

I was having trouble with my computer. So I called Harold, the computer guy, to come over.

Harold clicked a couple of buttons and solved the problem. He gave me a bill for a minimum service call.

As he was walking away, I called after him, "So, what was wrong?"

He replied, "It was an ID ten T error."

I didn't want to appear stupid, but nonetheless inquired, "An 'ID ten T error'? What's that? Ya know, in case I need to fix it again?"

The computer guy grinned, "Haven't you ever heard of an 'ID ten T Error' before?"

"No," I replied.

"Write it down," he said, "and I think you'll figure it out."

So I wrote out ......... I D 1 0 T

I used to like Harold.

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