BOW WAVE 293

Bow Wave Issue 293--Heritage Edition

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(c)2005 WavyLine.com	Issue No 293 04 Jul 05
Published free of charge to Readers
Editor: Sam Ignarski
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In this issue:

1. Welcome
2. The Month of June in Marine
3. Book Review: The World is Flat by Thomas L Friedman
4. PC Trafalgar 2005
5. Tour Pour La Mer
6. And Finally...

1. Welcome

Poem of the Week

Boarding House

The blind man draws his curtains for the night
and goes to bed, leaving a burning light

above the bathroom mirror. Through the wall,
he hears the deaf man walking down the hall

in his squeaky shoes to see if there's a light
under the blind man's door, and all is right.

Ted Kooser from Flying at Night: Poems 1965-1985.

New Readers this week include:

Mathew Valcourt of Miami lawyers Houck Hamilton
David Anstis of Moore Stephen's Shipping Industry Group
The Revd Canon Bill Christianson of Mission to Seafarers
Nigel Taylor of Lieff, Cabraser, Heimann & Bernstein in SF

News of Readers

Tony Hazell is leaving Lloyd's Franchise Directorate and taking up a position with the Energy Adjusting team at Xchanging Claims Services

Ron Salter after some 37 years with the firm has retired as a partner of Phillips Fox in Melbourne.

He will retain a link with the firm as a consultant and will now conduct his practice as a commercial and maritime arbitrator and mediator on his own account in the Asia Pacific region.

He can also be be contacted by e-mail at

ron.salter@ozemail.com.au.

Brian Parkinson has retired from the International Chamber of Shipping

David Shaer is leaving run off specialists Kwelm

Readers Write

From Jock Mawson:-

As mentioned the other day, CP Ships got a team through to the finals of the Industry Sailing Challenge; a 24 hour endurance event which takes place over the 7th and 8th July around the Isle of Wight.

(We wish them luck-ed)

http://www.sunsail.com/isc/index.html

AfterOfficeHours News

Among the new listings posted this week, two new pages stand out

ISS Marine Consultants (Dubai). This firm runs a network of operations in the Middle East and acts both as Lloyd's Agents and P&I Club Correspondents.
http://www.afterofficehours.com/d_page.php?id=103

Lawyers Quentin Bargate. The principal of this firm is also an enthusiastic photographer.
http://www.afterofficehours.com/d_page.php?id=102

Robert Gordon, the Managing Director of new subscribers SEASIA P&I Services Pte Ltd in Singapore, has just issued a circular to clients in respect of the implementation of mandatory P&I cover for vessels which enter into Taiwanese waters on or after 01JLY05. The full text of the circular is available on the AfterOfficeHours newspage:-

http://www.afterofficehours.com/news.php

AfterOfficeHours Subscription Rates

Basic Subscription £250
Silver Subscription £600
Private Directory £tba

There is a Free 3 Month Trial Period
Register at:-
http://www.afterofficehours.com

This week saw your editor take in the magnificent spectacle of the Fleet Review, an event which attempted, not altogether convincingly, to marry up the past and present. The coverage on TV hardly did the scale of thing justice with the commentaries all to often disclosing how the maritime world has moved to the margins of modern life. One grumpy doyen of our industry was even heard declaiming that the navy has become a part of the British heritage industry.

Enjoy.

2. The Month of June in Marine

Walter Mellert writes:-

Shipvalues, boxship earnings, the greenback, the price of crude oil and hopes for a good summer are up. The Euro, the Yen, most freight indices and general marine insurance rates are heading the other way. Whether up or down is good obviously depends on which side of the fence you hang your hammock.

Some of this month's highlights:

--> Norwegian hull insurer Bluewater's S&P BBB rating is upgraded from negative to positive outlook. $57 mio income in 2004, a 14% Norwegian market share and a combined ratio estimated to finally fall below 100% in 2005 did it.
--> World trade growth and lower demand for sour fuel used onshore might lead to a serious shortage (1 mio bblday) of low sulphur (< 4.5%) marine bunker fuel demanded by Marpol. Price increase is guaranteed.

--> Master and first officer of Cambodian flagged, 1970 built "Winner", caught carrying large amounts of cocaine from Cuba to Spain, receive 20 and 18 year jail sentences from a French court.

--> Quote of the month: "Ever wondered just about when companies,professing a progressively closer closeness to their closest clients, will achieve a complete pass through, coming out the other side?"

--> Saudi Arabia plans to double current 11.5 mio bbl max. daily crude production by 2025. Recoverable reserves using top recovery technology is set at 460 bio bbl enough for 110 yrs at current levels. Value at $50 bbl: $23 trillion!

--> $60 000 will get you a modern VLCC and $48 000 (both per day) a 170k dwt Capesize bulker, trend flattening / falling, whereas boxships continue to point north.

--> On the increase as taxes go up: Counterfeit cigarettes. A 40 ft container yields up to $3 mio in profits to smugglers. A £500 000 machine can do 7 mio fake cigarettes per day with a UK retail value of around £2 mio. Who says crime doesn't pay?

--> 79 built bulker "Everise Glory" sinks in the Singapore Strait shortly after colliding with Taiwanese boxship "Uni-Concord". One man missing.

--> Construction has started on Jiangnan Yard, at Chanxing Island near Shanghai, China's $3.6 bio investment to become the world's number one shipbuilding nation by 2020.

--> AIG, GenRe first "voluntary" guilty plea.

--> A clear weather collision between 660 TEU boxship "Jessica B" and 4485 dwt GCC Yamal again proves that the English Channel is a very busy place. Both ships managed to limp to safe ports.

--> US requests for voluntary disclosure of shipping details within a 2'000 nmiles zone is meeting quite some opposition . It is also in contradiction of UN 12 nmile territorial and 200 nmile special economic zones rules.

--> It took them awhile: 83 built boxship "Pacific Quest" is fined $140'000 for deliberately discharging oil, on xmas 2002, polluting the Great Barrier Reef with a 120 km2 slick.

--> Enesel, part of Lemos group sells her newly delivered 319k dwt VLCC "Spyros" for a record $140 mio. Falling freight rates obviously did not deter the deal.

--> Hull insurers at the final of many cross roads and turning points? We won't be able to continue "quality services to shipowners" a recent warning headline reads. Sounds serious!

--> US led naval forces are stepping up their profile in the Persian Gulf, in response to the recent piracy attacks in the Basra area. Yet another mounting headache!

--> Slow crude trade has VLCC earnings drop to about break even level of <$25'000 per day (Worldscale 50) for Middle to Far East shipments.

--> 6 yrs in a Malaysian prison and 7 strokes of the cane - the just reward for 7 Indonesian pirates caught redhanded. The cane is restricted to under 50 yr old pirates. Nice touch!

--> Ozone will probably be the killer of choice when it comes to unwelcome ballast water organisms. Costs: ca $1.5 mio per vsl based on 125k dwt prototype. Who: Nutech O3.

--> Overheard: A soft cycle usually starts when people profess undying loyalty to their new and improved game plan - at the same time denying that the earth has started to move beneath their feet.

--> "Hala", 1973 built, carrying copra, flying North Korean flag, engine problems, appalling condition attested by the Sri Lankan navy. She took option nr. 1 and sank, 2 crew missing.

--> Insufficient infrastructure - mostly landbased - puts a damper on increasing cargo volumes. 8 to 10% overall growth pa, starting at 280 mio TEU moves in 2003, transpacific up by 12% and traffic with Russia rising nearly 20% pa is substantial. No doubt cargo losses will show some (possibly disproportional) increases as well.

--> Users of high risk waterways (eg Malacca Strait) should pay to make them safer. Sounds like a very reasonable demand.

--> 91 blt "Tradewind Sunrise" suffers an explosion while undergoing engine repairs near Port of Spain, adding to the recently poor chemical tanker record. 4 yard workers are killed in the accident.

--> World wheat production is estimated to be about 20 mio tons lower than last year (650 mio) due to weather influence, including very wet springs in Canada

--> LA and Long Beach ports in an attempt to prevent another container jam in the coming pre x-mas peak season shortens free time on import / export boxes by 1 day each to 4 and 6 days. Nearly 7 mio TEU pa or more than 40% of all boxes entering the USA need tight coordination.

--> "ES Orcelle", a super environmentally friendly 10'000 units car carrier using zero emission sun, wind and water for propulsion has been designed
- experts believe however that it will never be built. $1 bio with distinct escalation possibility is rather daunting.

--> Crude jumps past the $60 per bbl mark, longterm climb to continue.

--> Famously punctual Swiss railroads fall victim to a countrywide power breakdown, leaving over 100 000 pax stranded for hours. Remembering equally famously reliable Swissair, Bob Dylan's "the times they are a-changin" rings quite true.

--> Recently increased piracy hostage taking has revealed a rather tragic catch-22. If you pay ransom to get the hostages freed your P&I club might
not follow suit. If you don't pay and the hostage is killed P&I will pay death compensation.

--> What goes up--All major freight indices--with the exception of boxships--are down some 50% from their all time highs a few months ago.

--> One Danish ferry company cracks down on crew drinking following a film aired on TV showing
merry after hour crew parties. Random breathalyzer tests and surprise inspections. That'll teach 'em.

--> Did you know that the South Pole is colder than the North Pole because it is at 9'000 ft elevation and has land underneath its ice cap rather than the (arctic) ocean?

--> Attempts to tow the stranded bulker "Kiperousa" off Durban back into the water only produced damage to the tugs. Spring tide didn't help either. Now,1900 heavy logs weighing up to 10 tons each will be
discharged to lighten the ship.

--> Haji-Ionnanu (EasyCruise) and Arsion (Carnival Corp) accuse one another of having "tacky" decor on their cruisers. Tacky is obviously in the eye of the beholder.
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. Book Review: The World is Flat by Thomas L Friedman

Charles de Trenck says the global economy is harder to understand than Friedman makes out.......

Before critiquing the book, I’d like to say it does have quite a few useful, interesting sections. I bought it after seeing a reference to it during recent Greenspan post-testimony Q &A. Some pages I marked up full of comments (mostly disagreement or queries for data support), while some I only glanced at.

Quick conclusion. Friedman has given us a good summation of trends in play over the last two or so decades, and shown us a few variations on where we have gone since the internet bubble (the sections on UPS and Wal-Mart are quite useful). But there’s a lot more work to be done understanding cause and effect chains in the global economy.

Ultimately, this book also reflects what is wrong in current popular thinking. We focus mostly on the positive developments of the global village, the economic rapprochements. And we forget the drag coming from economic blindspots: healthcare, education, legacy industries.

***

It occurred to me watching Greenspan repeat his mantra on improved US productivity and repeating his ‘invisible hand’ speech that there is an underlying assumption in these Greenspan-speak sessions between Greenspan, interlocutors and interpreters of these sessions that productivity growth (with Greenspan groupies guarding the gates of interpretation) is allegedly produced (I have to use more words and qualifiers to signify my distance and disagreement) by implementation of work styles described in such books such as The World is Flat.

Of course I agree with many of the topics and descriptions, especially since they have been reflected in trends I read about as far back as Megatrends (1982) and the ‘global village’ concept (1983) of Theodore Levitt (albeit with marketing strategies in mind).

My objection to this book is that these trends have been around in previous incarnations since at least the 1980s and the book does not really explore the downside of the productivity miracle. And when I see my family members get hit with hospital bills for $10,000 for one day at the hospital (not all days at this price but one day was enough) I also question how many steps we take back quietly at the same time as our forward steps are described so eloquently in books such as these.

The heart of arguments and stories supporting The World is Flat are from a part of transport called supply chain management (SCM). Since I have been a transport analyst for the last decade, I am interested in a book that tells us that a brighter future lies in a triple convergence (and 10 flattening agents) of events and technologies in a world operating an upgraded flattening program called Globalization 3.0 and expressed in leading companies such as UPS and Wal-Mart supply chains.

UPS, flattener #8, and Wal-Mart, flattener #7, sections were enlightening. Their flattening SCM technologies are undeniable. As are those operated by many other companies included and excluded from the book. Regarding UPS’ going deep into customer supply chains, even taking over their entire factory to customer journey, as an analyst seeking to understand the impact of improved productivity often cited by Greenspan, I have to ask for numbers (there aren’t many in the book at all). When did this business grow most rapidly? What are the returns on this part of the delivery business?

One of the companies I cover, APL now owned by NOL, most likely was one of the pioneers of the third-party logistics process amongst transport companies. I’m not sure this can be more than one business operation among countless others. And I have never been able to calculate the pure return on capital here, though I have no doubt that there are companies that have generated strong returns from this third-party logistics or 3PL (or even 4PL) business. It’s just that this business activity remains relatively small within the totality of global transport.

But one thing is true for the company using SCM properly, as seen through the Wal-Mart example. Effective management of the supply chain can be a key element in lowering costs and generating higher profits. This profit generation raises a host of other issues on the process of flattening by outsourcing, sourcing, comparative advantage and trade in goods and services. I know more about China than India. So I prefer to compare notes on China rather than India.

Wal-Mart’s success undoubtedly is generated to a great extent from cheap sourcing in China. Friedman cites US$18bn of goods in 2004 sourced from China by Wal-Mart.

Other statistics talk of about 10% of all container boxes coming into the North American West Coast from China brought in by Wal-Mart.

My research has shown that the total when including all Wal-Mart suppliers could be closer to 25% of total China outbound. What is clear is that demand for products sold through Wal-Mart stores have proven a key driver for average trade growth by volume from China to the US to run at about 2-3x long-term global container trade volumes China’s container trade volume growth rate multiple falls to 1-2x global averages if the base is enlarged to include Hong Kong and Taiwan.

This Wal-Mart effect related growth also tended to accelerate after the Asia crisis and internet bubble. My studies have looked at correlations between US consumer demand driven by low interest rates rather than
productivity growth. For Greenspan productivity growth appears to be linked to the current low interest rate environment. For Friedman, global flattening appears to a higher quality of life and higher productivity. All I see is low interest rates leading to stronger consumer demand post internet bubble.

I also don’t understand how the conclusions on higher US productivity (which I suspect are influenced by cheaply supplied goods pumped through a higher priced supply chain as well as by redefinition of unit costs for better quality TVs, cars and other manufactured goods) lead many commentators using Greenspan or Friedman arguments not to re-balance their thinking with other un-flattening factors such higher education and health care costs over the last decades. Productivity growth from goods made outside the US have contributed to lower inflation rates, which have contributed to lower interest rates, which have contributed to in the end the same conclusions found in global flattening.

To put it another way, I do agree that cheap goods flowing through the higher priced supply chain of services (ie, once the goods hit the US part of the supply chain and its higher salaries) have flattened US costs relative to what they would be without cheap China production. If I watched the same TV I did in the 1980s I’d have to agree that its cost would have gone down dramatically. But I don’t. I’m now spending the same portion of my disposable income, or perhaps more, on a better TV, right? So how is that accounted for in inflation gauges. I was floored when I learned that only housing rentals and not housing prices are included in US inflation. What I also know is that my father is currently spending much of his disposal income on health care related industries--even with private and public health care support. And much of these health care costs have continued to rise. My university costs about 3-4x more than it did about 20 years ago, which works out to at least a 7% average annual cost increases since the mid-80s.

Friedman described some flattening trends in education research through access to outsourcing opportunities. No doubt there are some similar opportunities in health care. But I suspect they are marginal at this stage. Perhaps this is the next frontier: lowering education and health care costs in the US through global flattening. But Friedman did not explore this side of the US and global economies. Neither did I see a discussion of the impact of Sarbanes-Oxley on productivity growth. From my side of the fence, post internet-bubble I have seen negative productivity growth in many aspects of financial services, which I won’t go into in detail. But imagine departments seeing their major growth coming from back-end functions and business generation coming from people with one-arm tied behind their backs. I suspect we are reaching the peak of growth in this non-productive direction (if not then watch out). But was negative productivity counted here and adjusted against the cheaper TV sets?

A last parenthetical would be legacy costs. Airlines and auto manufacturing have recently been in the news. Friedman gave us examples of improved productivity from e-ticketing and quick snapshots of successful airlines such as Southwest and Jet Blue. He didn’t look into US labor force issues, a US transport gridlock, or even potential new flatteners in these industries.

Imagine new flatteners at work in the airlines, auto, health care and education industries. Certainly they would have to take on a different shape than a quick outsourcing solution. But what would they imply for the US economy? More topline deflation?

Contact Charles at:-

charles.detrenck@citigroup.com

4. PC Trafalgar 2005

Phil Baker of Walsham Bros was the latest to send in this much circulated meditation on the times in which we live....

'Order the signal, Hardy.'

'Aye, aye sir.'

'Hold on, that's not what I dictated to the signal officer. What's the meaning of this?'

'Sorry, sir?'

'"England expects every person to do his duty, regardless of race, gender, sexual orientation, religious persuasion or disability." What gobbledygook is this?'

'Admiralty policy, I'm afraid, sir. We're an equal opportunities employer now. We had the devil's own job getting 'England' past the censors, lest it be considered racist.'

'Gadzooks, Hardy. Hand me my pipe and tobacco.'

'Sorry sir. All naval vessels have been designated smoke- free working environments.'

'In that case, break open the rum ration. Let us splice the mainbrace to steel the men before battle.'

'The rum ration has been abolished, Admiral. It's part of the Government's policy on binge drinking.'

'Good heavens, Hardy. I suppose we'd better get on with it. Full speed ahead.'

'I think you'll find that there's a 4 knot speed limit in this stretch of water.'

'Damn it man! We are on the eve of the greatest sea battle in history. We must advance with all dispatch. Report from the crow's nest, please.'

'That won't be possible, sir.'

'What?'

'Health and safety have closed the crow's nest, sir. No harness. And they said that rope ladder doesn't meet regulations. They won't let anyone up there until a proper scaffolding can be erected.'

'Then get me the ship's carpenter without delay, Hardy.'

'He's busy knocking up a wheelchair access to the fo'c'sle Admiral.'

'Wheelchair access? I've never heard anything so absurd.'

'Health and safety again, sir. We have to provide a barrier-free environment for the differently abled.'

'Differently abled? I've only one arm and one eye and I refuse even to hear mention of the word. I didn't rise to the rank of Admiral by playing the disability card.'

'Actually, sir, you did. The Royal Navy is under-represented in the areas of visual impairment and limb deficiency.'

'Whatever next? Give me full sail. The salt spray beckons.'

'A couple of problems there too, sir. Health and safety won't let the crew up the rigging without crash helmets. And they don't want anyone breathing in too much salt - haven't you seen the adverts?'

'I've never heard such infamy. Break out the cannon and tell the men to stand by to engage the enemy.'

'The men are a bit worried about shooting at anyone, Admiral.'

'What? This is mutiny.'

'It's not that, sir. It's just that they're afraid of being charged with murder if they actually kill anyone. There's a couple of legal aid lawyers on board, watching everyone like hawks.'

'Then how are we to sink the Frenchies and the Spanish?'

'Actually, sir, we're not.'

'We're not?'

'No, sir. The Frenchies and the Spanish are our European partners now. According to the Common Fisheries Policy, we shouldn't even be in this stretch of water. We could get hit with a claim for compensation.'

'But you must hate a Frenchman as you hate the devil.'

'I wouldn't let the ship's diversity co-coordinator hear you saying that sir. You'll be up on disciplinary.'

'You must consider every man an enemy who speaks ill of your King.'

'Not any more, sir. We must be inclusive in this multicultural age. Now put on your Kevlar vest; it's the rules.'

'Don't tell me - health and safety. Whatever happened to rum, sodomy and the lash?'

'As I explained, sir, rum is off the menu. And there's a ban on corporal punishment.'

'What about sodomy?'

'I believe it's to be encouraged, sir'

'In that case, kiss me, Hardy.'

5. Tour Pour La Mer

It is from Mark Stokes over at V.Ships that we first hear of this well-organised effort to set up an independent bike ride to raise money for the Missions to Seafarers and The Sea Alarm Foundation and to raise awareness of maritime issues.

The first ride (due to take place 12-14 May, 2006 will involve several hundred riders from the maritime industry on a 200 km tour starting from Greenwich via Dover, Calais and Le Touquet

The organisers say that all you need to enter is a decent bike, some willpower and the ability to raise at least £500 in sponsorship people and companies willing to support the cause. They are aiming to enlist 75 teams of four riders. Sounds like a lot of fun, marrying good planning with maritime affairs and cross channel accord. An unusual mixture to say the least.

Find out more at:-

http://tourpourlamer.com

6. And Finally...

Many thanks to David Frugtniet for these anagrams:- We wouldn't like to take him on at Scrabble.....

DORMITORY: DIRTY ROOM

PRESBYTERIAN: BEST IN PRAYER

ASTRONOMER: MOON STARER

DESPERATION: A ROPE ENDS IT

THE EYES: THEY SEE

GEORGE BUSH: HE BUGS GORE

THE MORSE CODE: HERE COME DOTS

SLOT MACHINES: CASH LOST IN ME

ANIMOSITY: IS NO AMITY

ELECTION RESULTS: LIES - LET'S RECOUNT

MOTHER-IN-LAW: WOMAN HITLER

SNOOZE ALARMS: ALAS! NO MORE Z'S

A DECIMAL POINT: IM A DOT IN PLACE

THE EARTHQUAKES: THAT QUEER SHAKE

ELEVEN PLUS TWO: TWELVE PLUS ONE

PS from Frazer Hunt another addition to a proud tradition:-

A young man excitedly tells his mother he's fallen in love and is going to get married. He says, "Just for fun, Ma, I'm going to bring over 2 other female friends in addition to my fiancee and you try and guess which one I'm going to marry".

The next day, he brings three beautiful women into the house and sits them down on the couch and they chat for a while. He then says, "Okay, Ma. Guess which one I'm going to marry." She immediately replies, "The red-head in the middle." "That's amazing, Ma. You're right, how did you know?"
"I don't like her."

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