August 2001

The fact that one is getting older is something that I try determinedly to ignore but the state of the Market at the present gives me a sense of 'déjà vu' so acute that it confirms that I just have to admit that I really have been around in shipping for a long time. This sense of déjà vu applies not just to me in my fiftieth year in the Industry but to the comparatively youthful 26 year old IMIF also.

Last year everything seemed so good. Tanker rates at times reached an unprecedented level, the great Container Lines were predicting steady hard to believe growth in World Trade (requiring not only the building of numbers of Post Panamax container vessels but also substantial Port and infrastructure investment).

The cruise Industry had a vast order book of mega vessels while dry bulkers of all sizes were coming out of the shipyards one after another, likewise fast ferries.

God really was in His Heaven and all seemed right with the World.

Why therefore was IMIF still preaching prudence when there was so much optimism around and so much money to be made?

In 2001 as we all know things look rather different. The oil price and oil production have changed. Despite the Draconian measures against Single Hull tankers and their removal from certain trades, the deliveries of Double-Hull ships have more than met demand and rates have collapsed from their euphoric heights. Indeed 1970's built VLCC's now represent only 26% of available tonnage. More than 70 VLCC's have been scrapped over the last two years and in June this year for the first time since VLCC's were built the number of modern newly built double - hull VLCC's outstripped the number of 70's built ships. So obsolescence is only partly going to assist in bringing supply : demand into balance.

It is hard to know what is really happening in the container trades. The gloom -mongers' talk of World recession has certainly had some effect though curiously and so far not conspicuously on the domestic consumer in the UK or the US. However increased capacity combined with a modest drop in carryings has produced something of a crisis in the main trades, Europe/Far East , Trans Pacific and Trans Atlantic.

Comment on the Dry Bulk and the Reefer trades is superfluous and really almost too sad for this introduction…..

As one example in the Dry Cargo area, the collapse in demand for iron ore has been dramatic. World steel production has been an early victim of global economic slowdown and in Cape- size, the most affected class of vessels, rates have dived from around $24, 000 a day last Autumn to around $8 000 a day today.

The traditional reefer owners are busily rationalising and forming pools, but it is probably already too late to save them from the incursion of the container lines.

It is too easy to blame global recession for current woes. The real culprit is the oversupply of vessels. So logically ones mind immediately turns to the question of disposal of older ships i.e. scrapping, (or recycling as it is more euphemistically described these days.)

Scrapping has been much in the news with Greenpeace and other Human Rights organisations denouncing current practices in the major breaking Countries of India and Bangladesh in particular as being disastrous to both the planet and the human beings who earn their bread from doing this disagreeable task. The move is on to insist that all noxious substances should be removed before a ship is offered for sale as scrap. The Industry has responded by the international Chamber of Shipping producing a Scrapping Code endorsed by a wide collection of Maritime organisations. The 'code' will undoubtedly take as long as 10 years to become even partially enforceable but it is a step in the right direction. Longer term objectives are that Owners and Builders should cooperate in developing more recyclable ship designs and components. A shorter-term objective is to list for both buyer and seller an inventory of hazardous or toxic materials which tend to exist in any scrap-destined vessel. (Asbestos, paint, plastics, refrigerants, chemicals, oils, sludge etc. etc.)

However the area that is not covered as far so I can see is that of cost. Members will recall a Government sponsored scheme in operation in Holland whereby there is a small fee added to the cost of a new car (about 2%) which is put toward a state-of-the-art scrapping scheme. Certainly as a result there are fewer cars abandoned road-side in Holland than we suffer in the UK.

At this year's scrapping conference in Rotterdam in June I once again suggested that human ingenuity should be able to formulate a similar scheme for ships. The idea was greeted with a predictable chorus of rejection on the grounds that the shipping Industry as a whole simply could not support any further cost increase. I find it hard to see, however, how the ship scrap (sorry recycling) Industry can be elevated to a more acceptable level without some form of subsidy or injection of modern techniques including maybe robotics. The margins in the scrap market are so small that the industry could die out completely if it has to conform to the new code without some form of tangible financial help. Codes of Practice, admirable as they are, implicitly involve extra cost.

I also should mention mine and other of our Members participation in the excellently run BIMCO AGM in Beijing in May.

As annexe to this Newsletter you will see the recent activities of IMIF. The series of Working Lunches have been very popular and we have covered many topics. Their success is totally due to the quality of speakers we have had plus the great generosity of certain of our members who "host" these lunches.

I have recently called a meeting of our Deputy Chairmen to consider IMIF's present and future.

Factors are:

1. IMIF's unique position as an unaligned Forum to discuss and comment on the recurring problems of the Maritime Industries is unchallenged. Our "lobbying" activities, where appropriate, continue but are restricted by economic considerations. Travel has similarly been restricted. It is nearly 5 years since I last led our once-annual tour of the Far East.
2. IMIF has a total income of - £70 000. Membership fees have remained unchanged for 20 years and there is a "pinch" because expenses inevitably increase. The latest is a request from our excellent landlords, the Baltic Exchange for a 50% increase in our rent (equivalent please note to about 8 full Members subscriptions). To survive we ought to therefore increase the full Annual fee from £950 to, say, £1250 or, increase membership or, ideally, both. I personally feel that we are one of the most cost effective organisations that exist, certainly in the Maritime World.
3. We must continually review our various activities. What are the priorities? (i.e. over and above our regular informative work.)

I look forward to seeing as many of you our members as possible at our next 26th Dinner on 7th November.