INTERNATIONAL SHIPPING:GLOBAL REGULATION FOR A GLOBAL INDUSTRYSource:1Krishna Prasad,Changing Role of Ship-Brokers,Journal of Information Technology,20042European Community,Overview of the International Commercial Shipbuilding Industry,First Marine International Limited.2003 3ICS,IMO,International shipping:Global Regulation For a Global Industry,International Chamber of Shipping,2007Conclusions from Modal Workshop 4at the 2009 International Transport ForumStatement by the International Chamber of Shipping (ICS) and theInternational Maritime Organization (IMO)The following statement reflects the discussion during Modal Workshop 4,International Shipping: Global Regulation for a Global Industry, which took place at the 2009 International Transport Forum in Leipzig, Germany, on 27 May 2009.Following several years of incredibly buoyant shipping markets, for many trades the best in living memory, much of the international shipping industry has fallen prey to the worldwide economic downturn. Shipping is inherently the servant of the economy, so the contraction in trade, following the beginning of the credit crunch in late 2008, has translated into a dramatic and abrupt reduction in demand for shipping.Initially worst hurt were the containership trades. By the spring of 2009 some10% of the fleet was already laid up, much of it too modern and expensive to go to recycling yards. However, the dry bulk trades have also been severelyaffected, particularly by the reduction in demand for raw materials from China,with spot market freight rates for some bulk carriers being a fraction of the peak prices achieved in 2008. By April 2009, rates for crude, product and chemical tankers had also fallen very sharply. In general most shipping markets present a rather bleak picture.A major concern of ICS national shipowners associations therefore is todiscourage governments from responding to the crisis with protectionistmeasures, which will only damage world trade further. More particularly,governments must avoid measures that restrict fair and open access to shipping markets. Although most shipping today enjoys relatively liberalised trading conditions compared to the days of national cargo reservation in the 1980s,shipping is unusual in that it is one of the few major industries not yet covered by a global multilateral trade agreement. However, the prospect of a new agreement under the auspices of the World Trade Organization (WTO) looks increasingly uncertain. The industry must therefore be extremely vigilant inreacting to any moves towards protectionism in maritime trades, especially those using safety and security as a pretext.The shipping industry does not expect special treatment, or the billions of dollars of support being granted by some governments to the likes of the banking and automobile industries. However, to operate competitively and efficiently in very difficult circumstances, shipping requires the maintenance of a regulatory level playing field, and continuation of the certainty now provided by the tonnage tax regimes that apply to shipowners in many countries.Shipping is notoriously volatile, and its more experienced practitioners are familiar with the cyclical boom and bust nature of maritime freight rates.However, the contraction resulting from the general global downturn could well be exacerbated by the large number of new buildings due to come into service during the next few years, notwithstanding efforts by many shipowners to cancel or renegotiate contracts. Many of these ships were ordered at high prices at the top of the market.In the face of this two-way pressure, there is likely to be a considerable increase in the number of older vessels that will be sent for dismantling and recycling. In view of the adoption, in May 2009, of a new IMO Convention to address concerns about working and environmental conditions in ship recycling yards, the need for governments to identify facilities that are acceptable for use will become all the more pressing.As the IMO Secretary-General has forcefully identified, financial pressures on the industry must not be allowed to result in any reduction in standards. Much has been achieved in the last 20 years with regard to safety and environmental performance, and no one is suggesting a moratorium on new regulations that genuinely improve safety, which is always the industrys overriding priority. However, governments need to understand that any immediate regulatory and policy decisions they take must avoid impacting negatively on shipping as it struggles to deal with the current economic situation.Notwithstanding the current gloom and doom, the longer term outlook for the industry remains very good. The worlds population continues to expand, and emerging economies will continue to increase their requirements for the goods and raw materials that shipping transports so safely and efficiently. In the longer term, provided the politicians make sensible decisions, the fact that shipping is the most fuel efficient and carbon friendly form of commercial transport should work in favour of an even greater proportion of world trade being carried by sea.It is to be hoped that Ministers at the International Transport Forum willdeliver a strong statement in support of the maintenance of open shippingmarkets, and, more generally, promote an early conclusion of the WTOnegotiations for a new global trade agreement.China has seen order intake rise steadily over the past five years, achieving a share of 13% by 2002. This has been in line with the plans of central government to develop the industry, with major investment in recent years. However, in terms of market share the industry is still well behind the two leaders in Japan and South Korea. Chinese builders focus in particular on tankers and bulk carriers to gain volume but participate in most market sectors apart from the LNG market. China expects to achieve the capability to build LNG carriers in the near future. It is also only recently that China has developed the capability to build large tankers (aframax and above) and the construction of a greater share of the VLCC market is an aim of the industry. A greater share of the container sector, in particular the large ship sector, is also a goal of the industry. To date container ship construction has been restricted to smaller ships only.The EU industry has seen order intake fall significantly in recent years, in particular due to a downturn in the ordering of cruise ships and loss of share of the container market. Market share in the EU industry is now down to 7%. EU shipyards have lost almost all share of the bulk carrier sector and most of the tanker sector. Container ship market share, the last volume sector in which EU yards have a foothold, has also fallen over the past five years. Increasing reliance has been placed on the passenger and specialised sectors, with shipyards taking a 54% share of ferry orders in 2002 and almost all cruise ship orders. Having said this, order volume for passenger ships was relatively low in 2002 and order intake into EU shipyards was correspondingly low.In effect the industry in the EU has had to retrench into a small number of market niches in recen years, predominantly small ships, passenger ships and specialised ships. The cruise market maintained some volume up to 2001 but with a sharp fall in order intake in that sector the industry as a whole has seen order intake and market share plummet.Japan has seen a steady order intake in recent years, with the market lead alternating with South Korea according to shifts in market and economic conditions. Japan had a very strong market lead in 2002. Japanese shipbuildings main product is bulk carriers for the home market, making up almost 40% of all orders taken in 2002. Oil and chemical tankers and gas carriers also make up a significant portion of the industrys business. Japanese shipbuilding has lost a considerable share of the container ship market to South Korea.South Korea experienced a significant peak of order intake in 2000 and a relatively steady level in other years. South Korean shipyards took over 50% of the container ship market in 2002, over 40% of the oil tanker market and significant shares of the gas and chemical tanker markets. The industry has tried to exit the bulk carrier sector because of low value, although it has been forced to take orders recently to maintain production volume.South Korean builders have been trying to pursue a strategy to address the higher value sectors to maximise profitability, in particular the market for LNG carriers. The scope to do this is limited in relation to the volume of work needed to keep the industry in South Korea busy. The product focus tables included in appendix 3 to this report indicate that whilst there was a significant intake of LNG carriers in 2001, ordinarily this sector makes up less than 10% of the total order intake into South Korea. Korean builders have yet to penetrate the passenger ship sector to any significant degree, this being the other high added value sector that the yards may try to pursue. In a typical year up to around 80% of orders will be from the main bulk cargo sectors, tankers, bulk carriers and container ships.Shipbrokers are intermediaries between the two parties to a contract, whether they are Shipowners and Charterers or buyers and sellers. They may act for one principal and occasionally as the sole broker between the two contracting parties.They will be involved in most aspects of a contract, including circulation of tonnage and business to potential clients, negotiating the main terms of the fixture or sale, finalising the details of the contract and following the contract through to its conclusion. With few exceptions, virtually all second-hand ship purchases are conducted through a Shipbroker. The decision to buy or sell a vessel can have far reaching consequences for an owner in terms of profitability and market position. Shipbrokers are uniquely positioned to offer clients information on market activity that might not otherwise be available. Whilst such information is free to clients, Shipbrokers must earn their living by concluding sales or fixtures. The matter of trust between Shipbrokers and their clients is absolutely paramount and most Owners and Charterers have good relationships with their Brokers which have taken a considerable time to develop. Through their worldwide network of contacts Shipbrokers have a vast pool of information that is available to their clients on a confidential and competent basis.Ship brokering, as a profession, has been in vogue since the early days of commercial shipping. Initially the owner of the ship was also the trader or in other words, the trader was the owner of the ship. He bought goods in one place, carried the goods in his ship to another place and sold it there. As the trade evolved, the trading activity and the shipping activity were separated; the ship owner merely carried cargo from the trader or various traders in one location to another location and handed it over to the buyers. With the evolution in trade specialization in shipping, the role of ship-brokers became more pronounced. The shipbroker was the intermediary who would find ships for the merchants; and cargoes for the ship owners who often traveled with the ship.The modern day shipping market comprises of, on one side, ship-owners with varying fleet sizes and operators, who though do not own ships but never the less control the commercial operations of ships and on the other side,charterers of varying sizes who control different cargoes large and small lots; the ship-broker as an intermediary between the owners and the Charterers. The primary role of the shipbroker remains to befinding ships for cargoes and cargoes for ships but modern day communication and computing tools are redefining the finer aspects of Shipbroking.This Paper looks at the role of the shipbrokers in the past, the impact of technology in the profession of ship brokering and the changing role of shipbrokers. The dry-cargo market is taken for analysis as it is the least standardized shipping market and perhaps one of the most complicated in terms of practices and commercial operations.This Paper looks at the role of the shipbrokers in the past, the impact of technology in the profession of ship brokering and the changing role of shipbrokers. The dry-cargo market is taken for analysis as it is the least standardized shipping market and perhaps one of the most complicated in terms of practices and commercial operations.SHIPBROKINGShipping is an international business. A person dealing with ship-chartering has to work with the conditions prevailing day by day in the international freight market. A large number of customs and rules of the trade have been established through the years all over the world. These rules and ethics are scrupulously followed by the practitioners worldwide else it is not possible to do business worth millions of dollars with parties across the world at short notice.Chartering work is essentially a form of exchange of information. It is a business where the right information at the right moment is essential to be successful. Everyone involved in chartering acts, to a large extent, as a collector, judge and distributor of information. Ship broking can be seen as an information network; a network of people as well as technology that facilitates information exchanges. A great deal of the flow of information consists of details on fixtures all over the world. "Making a fixture" means that the parties interested in a specific sea transport contract reach an agreement through negotiations.The parties involved in a chartering deal are, on the one hand, someone who owns, controls or operates a ship (as an owner, time chartered owner or disponent owner).We shall call him Owner for simplicity. On the other hand, there are persons who require some cargo to be carried by sea transport between two destinations. Normally (but not always) he is the cargo owner. Let us call him charterer. Charterer can act as an owner when he controls the tonnage. There can be various aspects as roles get redefined or can get complex.Ship-brokers normally specialize in a specific segment of the market; be it dry cargo, chemical, passenger vessels, RORO vessels etc. The various market segments have their own peculiarities and the market behavior is also varied forcing the practitioners to adopt specializations.Ship-broking, particularly that of a competitive broker is an opportunity based business. As and when opportunities for new business crop up, the broker has to be on his toes to help conclude the deal. The importance of time is all the more important these days when certain segments of the market see highly volatile fluctuations.The charterers value the brokers information, knowledge, skills for negotiation as well as his perception of the market. As in other businesses, value added services generate goodwill and brokers who offer such services stand out among other ordinary ones.Chartering MethodologyThe chartering methodology is in the process of transformation as a result of the revolutionizing changes brought in by digital communication and computing power. Instead of a short list of close contacts, every broker now has hundreds of contacts. Each and every business is flashed to these contacts many times sometimes more than once a day. This is in contrast to the olden days when, due the high cost of telex communication, businesses were given only to a few contacts.Even after commencement of the negotiation, it is not uncommon for owners (or Charterers) to look at other businesses. They may leave a negotiation half way through and choose to work another business. In the past, once the owner (or charterer) chose a particular business and started negotiations they tried to conclude it. Only if the chosen business fails do they go for another. One could say that the negotiations are no longer focused.The primary function of a shipbroker representing a ship-owner is to findemployment for the ships under the control of his principal (the ship-owner or shipoperator).In the case of a ship broker representing a cargo interest, the ship-brokers role is to find suitable ships for the cargo which his principal (the charterer) wants to transport. This function requires an in depth knowledge of ship and cargoes, information about Ports, methods of loading and discharging of various cargoes, weather patterns,demand and supply of ships and so forth.With the advent of digital communication and powerful computing techniquesship- brokers network has grown far and wide. Each ship broker gets cargo and ship position from a hundred sources or so over a thousand emails a day. Each broker circulates his prospective businesses ships looking for cargoes or cargoes looking for suitable ships- to his contacts. Some of these are re-circulated again and again.Managing the vast number of email messages received by a ship broker everyday is a challenge in itself. It may appear that simple solutions like filters, rules etc can be used to minimize the inflow of messages. But this may not an easy task considering the fact that almost every message with cargo and ship information is a source of information for the shipbroker. It shows the state of the market in terms of demand and supply of ship. Activating filters often sends many of the wanted messages to the junk folder.In the olden times the shipbroker had rather limited reach. Each broker had a few contacts with whom he had interacted regularly using telex as the primary mode ofcommunication. Telex being expensive and less user friendly (relatively), the interaction was limited to bare essentials. Telephone, the other communication method available those days was prohibitively expensive and unreliable when used for long distance contacts. Urgent and Lightning calls were not connected for hours and hours. As said earlier, shipbrokers track the market activity closely. It is this information that is used by many owners and Charterers to formulate their business strategies.Large ship brokering houses have set up elaborate research outfits. These research units constantly collect data on a wide range of parameters and analyze them. Analytical reports are given to their clients and associates on a regular basis. The Baltic Exchange and some leading ship brokers publishes information on fixtures (contracts) concluded. They also publish indices on various segments of the market.The broker is also expected to advise on the possible trends of rates or availability of cargoes or ships etc. For example, if demand for iron ore increases, the ships available for carriage of grain may drop and so much so, the grain freight rates may shoot up. Is it better to go in for long term time charter or prefer spot market for our requirement of space for next 12 months? An experienced broker can give sound advise in such matters.Disputes are unavoidable in any business deal particularly when it is carried out across different cultures and under conditions which are dynamic and unpredictable. Although every contract provides a dispute resolution mechanism, the parties to the contract look forward to the intermediaries to anticipate potential dispute areas and take corrective actions. They also look forward to the ship-broker to help resolve any disputes that may come up in spite of the precautions. Ship-brokers, having built up a close rapport with the owner and the charterer are in a position to forge out formulas to find solutions to complicated problems. Commercial prudence can realize that legal disputes