IMIF POSITION STATEMENT

The Old Problems Still Exist

IMIF is concerned at dangerous indications that the actions that created the Crisis in the tanker industry in particular and replicated in the dry markets in the 1970's are about to be repeated.

1.	The oversupply of ships particularly of Tankers, persists and yet there are signs that an increase in shipbuilding capacity together with a reversion to subsidies and special credit schemes is starting. IMIF is concerned at the serious possibility that the actions that created the crisis in the tanker industry in the 1970's are about to be repeated . If so, the industry, being in danger of not learning from the past, will repeat the over~supply situation, leading to low freight rates, poor quality and lack of safety.
2.	An examination of the VLCC position, an important sector of the market, reveals the following: It has been confidently predicted over the last 5 years that the need to replace the VLCC's built in the period 70-78 will cause a return to the halcyon days for shipbuilders. Some yard capacity has been increased in anticipation and further increases are contemplated. Since 1987 when these predictions first gained credibility we have seen:
	-		125 VLCC's delivered. The peak was 40 plus in 1993.
	-		only 60 VLCC's scrapped.
	-		newbuilding prices rising from $50m (single hull) in 1987 to more than $100m before failing back to $85m (double bull) at end 1993.
	Of the 700 VLCC's built in the period 1970-1978, 300 remain in service. Assuming a maximum life of 25 years, these ships will have to be replaced in the next 7/8 years, at an average of 40 ships per annum. There are currently 15 shipyards capable of building VLCC's with a combined capacity of 60 ships per annum. A shortage of yard capacity and hence a shipbuilding boom will occur only if:
	-		demand for VLCC's increases. Over the past 3 years VLCC demand has increased only marginally, reflecting recession in the USA and European markets. Proportionally more crude has therefore been moved on the short haul AG/East trade than was the case in the 80's. The result is that in 1993 VLCC demand fell despite an increase in AG production.
	-		there is heavy demand for other ship types competing for the same building docks, mainly LNG carriers and Capesize bulkers. There will be significant demand, particularly for the latter, but it is likely that this demand can be accommodated within existing yard capacity.
	-		the time frame in which the ships are to be replaced is compressed. Evidence of the past 5 years is that even in a moderate market, ordering will continue at a rate of 25 ships per annum. While this is insufficient to replace all the older ships in the 8 years available it would result in only 20-25 % of the VLCC fleet being elderly by 2002.
	-		A building boom in respect of tankers, the largest single element, is therefore dependent on most ships being unable to trade to 25 years and/or new legislation and/or demand resulting from a boom in the shipping market caused by unforeseeable events.
	Only in the most exceptional circumstances will additional yard capacity be required. In all other circumstances it will only result in prolonging depressed newbuilding prices and freight rates and in increasing the risk of a subsidy war.
3.	IMIF strongly supported OECD Working Party 6 efforts to abolish all forms of shipbuilding subsidies.
4.	The worst possible scenario for the maritime industries of the world would be a continuation of the surplus of ships caused by an upsurge in delivery of newbuildings combined with a very slow phasing-out of the old ships.
5.	Maritime safety is a topic of increasing attention and concerns and yet Freight Rates continue at such a low level that Best Practice in ship maintenance, management and crewing is affordable only at a loss. On grounds of safety alone it is essential that Freight Rates should be greatly improved.
6.	Improved Freight Rates will be hard to achieve without a significant reduction in the over-supply of ships. For many years IMIF has been promoting scrapping through various schemes. The need remains.
Thus the World situation on tonnage supply remains as bad as ever, with a strong possibility of being exacerbated by a repetition of the mistakes of the 70's. IMIF's suggestions are:
	a)	Governments to:
		-	recognise that subsidies are bad news and stop them!
		-	utilise the international and national legislative framework to attack existing low standards; to 'level the playing field', to 'marginalise' poor quality owners and ships; and to raise entry barriers.
	b)	Owners to:
		-	avoid being once again seduced by unwarranted optimism and confine themselves to building new vessels only to meet a recognised factual need (by the same token shipyards must not enter into speculative newbuildings for their own account).
	c)	Charterers to:
		-	double their efforts to ensure that only top quality well managed tonnage is hired to meet their needs and thereby significantly contribute to the marginalising of poor quality and unsafe ships;
	d)	Financiers to:
		-	avoid repeating the mistakes of yesteryear. Only finance commercially sound ventures, never speculative ones;
	e)	Insurers (Hull & Cargo) to:
		-	recognise their responsibilities in all the above. They have a key active role and not the passive one adopted in the past;
	f)	Classification Societies to:
		-	keep classification standards under constant review, paying particular attention to potentially sub-standard ships and especially those that are overage. Consideration to be given, eg through IACS, whether:
		-	some system of monitoring is required to ensure that surveys are carried out to a uniformly high standard in the many different countries where they are conducted
		-	there is a need for a more searching examination of ships approaching 20 years of age.

This may sound like an old gramophone record, booming all the old tunes. The fact is however that nothing really has changed and we must try to learn the lessons of the past. Unless the actions and restraint that IMIF has so long been urging are exercised we shall just set off on another decade or more of wretched depression in all the Maritime Industries. Freight rates must he increased. I am also tempted to quote from a UK Shipping Chairman's annual statement:

"Our interests are diversified. Businesses have become more comprehensive. Mere shipowning of itself, running boats for casual freights, is giving place to well-established lines, which leads me to observe that a considerable reduction of orders for the building of so-called tramps would not be an unmitigated evil and I look for a general diminution in the shipyards of orders for this class of steamer. The haphazard launching of boats regardless of cargo obtainable merely gluts the market, reduces freights to an unremunerative figure, leaves no profit for shareholders and produces general discontent."

That was written in 1906 by someone who was both a shipowner and a shipbuilder. He was Sir Christopher Furness, the first chairman of Furness Withy. How little things change !