Brexit casts long shadow over UK's £40bn maritime industries

Britain's maritime industries face considerable uncertainty because of Brexit, dampening growth prospects in the coming years.

That is the central conclusion of a new study produced for the lobby group Maritime UK, and comes at a time when government ministers have been working hard to reassure the business leaders that there are plenty of opportunities outside the European Union.

Nevertheless, the report on the contribution of shipping, ports, ship and boat building, professional services, maritime training, and related maritime activities to the UK economy spells out the risks to the industry of leaving the EU.

More immediately, the lack of clarity on government policy during the Brexit negotiations is another concern overshadowing an otherwise vibrant sector of the economy, the Centre for Economics and Business Research says in the analysis that was published on Wednesday in the middle of London International Shipping Week.

Because of the many unknowns associated with the UK's withdrawal from the EU, the Cebr says it expects the sector "to experience sluggish growth over the next five years", with industry turnover and gross value added to remain flat until 2019. After that, a slow recovery is forecast, such that by 2022, GVA and turnover are predicted to be around 15% and 13% higher respectively than in 2015. However, that is a nominal number, with much more modest growth of nearer 3% to 5% when allowing for inflation.

The 41-page report was commissioned by Maritime UK on behalf of 15 industry associations and organisations including the Baltic Exchange, UK Chamber of Shipping, UK Major Ports Group, and Maritime London, in order to quantify the true size of the sector and its importance in terms of scale, jobs, exports, tax revenues and other metrics.

The ability to provide hard facts and figures has helped the industry gain the ear of government in recent years, but right now it is seen as more important than ever to have access to policymakers during negotiations with Brussels over the terms of Britain's departure from the EU. A meeting between government ministers and key industry figures at Downing Street on Monday is seen as a step in the right direction. Even so, there is serious concern about the harm that would be done to the UK economy if the country left the EU without a satisfactory trade deal in place.
 
There are already calls for a lengthy transition period, while the maritime industry is being urged to work closely with other transport modes when lobbying Westminster or Brussels.

Brexit now threatens to damage an industry that had been doing well, although the report acknowledges that there could be considerable upside potential as well as downside risks, given that so little is known at the moment about exit terms. Because of that, the Cebr says its forecasts may have to be adjusted, in either direction, as more clarity emerges.

The study shows that the maritime sector makes a substantial contribution to the UK economy, with business turnover estimated at around ú40bn, and the number of jobs put at 185,700, up from 179,000 five years earlier.

In 2015, the latest year of analysis, the sector also exceeded aerospace, which had turnover of £31bn in 2015, and defence with ú24bn, although it lagged behind motor manufacturing.

The Cebr says that the maritime sector raises billions of pounds each year for the Exchequer, with tax revenues of almost £4.7bn, or 0.7% of the UK total, in 2015. Exports associated with the maritime cluster were estimated at £12bn of goods and services in the same year, or around 2.3% of the total. This figure has fallen from more than £15bn in 2010, or 3.4%, the decline largely reflecting a drop in the export of shipping services.

The Brexit negotiations and eventual deal affect the UK's "heavily trade-exposed" maritime sector in many ways, the report states. Both the slowing UK economy and weakness of sterling will have an impact. So will the final decision on whether the UK stays in the customs union, and restrictions on the free movement of people.

The £40bn turnover in 2015 compares with £35bn in 2010, with London accounting for almost £12bn of the total, and England close to £29bn.

The report also shows that Britain's maritime industries make good money. For each £1 turnover, an estimated 23 pence was generated in gross profit in 2015. Of the various activities, shipping was the most profitable with a 31% return, followed by ports at 26% and the marine sector at just under 17%.

Top stories:

Speak truth to power on Brexit

High-level ministerial support for London International Shipping Week, welcome though it has been, paradoxically disguises the also-ran status of Britain's perennial Cinderella industry.

The Downing Street meet-and-greet on Monday, not in the end graced by the prime minister herself, is newsworthy largely because it was so exceptional. Shipping rarely gets the vital top level access to make sure its voice is heard.
Brexit - the issue that will dominate British politics until 2019, and probably for a generation - is a case in point.

Shipping is at the sharp end of the decision to leave the European Union; its concerns should logically be central to any debate on how the UK handles the consequences of the fateful outcome in last year's referendum.

The sad thing is, few denizens of the corridors of power seem even to be taking notice.

And we in the shipping sector are not doing ourselves any favours by being so mealy-mouthed in telling the government what we want, and what we need.
The brute fact is, unless the UK gets this right, we are heading for multicar pile-up. And little of what can be gleaned from the deliberations of Messrs Davis and Barnier inspires confidence that this outcome can be avoided.

Seventeen-mile tailbacks in Dover, or major container facilities relegated to the status of transhipment ports, would be economically crippling.

Yet statements on Brexit from shipping players are frequently a laughable parody of British politesse. Let us not talk falsely now, the hour is getting late.
British shipping's very future hinges on single market access and customs union membership, or something near as damn it.

If political imperatives dictate that the deal has to be dressed up in some face-saving manner, so be it. But that is the bottom line, and it is time to say so in plain, unvarnished English.

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No point supporting doomed companies, says new KDB chairman

The newly-appointed chairman of Korea Development Bank said the state-owned policy bank would try its best to help struggling firms to restructure, with concrete, strict and transparent guidelines.

However, speaking to reporters at his inauguration ceremony in Seoul, Lee Dong-geol added: "There is no point supporting companies with no hope, which will disappear in a year, no matter how much securing jobs is important."

A Seoul-based spokesperson at KDB told Lloyd's List that Mr Lee's comments were his personal opinion rather than the bank's official stance, but some analysts believe that his harsh remarks have significant meaning for the companies that are receiving financial support from the bank.

KDB is the largest shareholder in Daewoo Shipbuilding & Marine Engineering, STX Offshore & Shipbuilding and Hyundai Merchant Marine.

South Korea's policy bank saw a net loss of about Won3.6trn in the 2016 fiscal year due to restructuring expenses it incurred from bailing out a number of shipbuilders and shipping lines. The loss was the bank's largest since 1998.

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Korean civil groups are calling for a government investigation into Hanjin's collapse

Four Busan-based civil groups in South Korea have called on the government to conduct an investigation into the collapse of Hanjn Shipping to find out the exact cause as well as to prevent similar incidents happening in the future.

The groups are also demanding that the government lay out realistic plans to bolster South Korea's shipping and shipbuilding industries as well as concrete policies to help people who lost their jobs after the bankruptcy of Hanjin Shipping.

A recent report from Korea Maritime Institute estimated that the collapse of the former flagship carrier had cost about Won3trn ($2.64bn) to South Korea's shipping industry and the country's overall economy. In addition, about 300,000 teu in container cargoes that had been handled by Hanjin Shipping have been taken up by global competitors, while about 1,000 people in the country lost their jobs, according to the report.

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Latest from London Shipping Week

Who will fund the Belt and Road Initiative?

Chinese policy banks, state-owned commercial lenders and multinationals are financing the estimated $27trn required to fund President Xi Jinping's Belt and Road Initiative in areas including ports, aviation, railways, pipelines and shipbuilding. 

But according to industry officials speaking at a London International Shipping Week debate, lenders and investors should be carefully assessing the risks and potential returns from involvement in BRI projects.

The Chinese government is facing geopolitical obstacles, regional unrest and individual national risks when promoting the BRI abroad, White & Case's head of EMEA China desk Peter Lu said. "More communication [between Beijing and BRI stakeholders] needs to be done," he said.

Bank of China's deputy general manager and chief risk officer in London Wei Shi, and HSBC's head of China and yuan business development Rongrong Huo, also emphasised that the quality of loans for BRI projects were important when banks are considering lending, with many projects located in higher-risk countries.

Even though Beijing would not assess BRI projects simply based on financial returns, "China must avoid gambling" on those projects, said Bank of China research analyst Fred Chen at a separate event, stressing that prudence was required among all involved parties.

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London and Hong Kong want to strengthen maritime ties

Maritime London has signed a memorandum of understanding with the Hong Kong Maritime and Port Board to co-operate in promotional activities, training, and sharing of best practice for maritime services.

The agreement, which aims to forge a closer working relationship between both cities, was signed by Hong Kong's secretary for transport and housing Frank Chan and Maritime London chairman Lord Mountevans at the Foreign Office during London International Shipping Week.

"Both the UK and Hong Kong look beyond their borders and provide world-beating maritime expertise to global shipowners, traders and charterers," Lord Mountevans said.

"This agreement is designed to help both London and Hong Kong businesses collaborate and prosper with the support of their respective representative bodies."

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Shipping should overcome branding scepticism, Poulsson urges

Shipping companies could gain real benefits by overcoming their traditional neglect of branding, the chairman of the International Chamber of Shipping has urged.

Esben Poulsson was speaking to Lloyd's List on the sidelines of the ICS's annual conference in London, which was held at the British Library today as part of London International Shipping Week.

The trade association formally unveiled its new brand identity, which has been developed by the consultancy Brand Union, on Wednesday.

Out goes the iconic silhouette of a sailing ship that the organisation has used as a logo for almost a century, in favour of a design combining the hull of a modern cargo vessel with the iconic sails of a traditional merchant ship.

The orientation has been rotated from profile to portrait, making it "stronger, prouder and more contemporary", according to the ICS.

In terms of colour, it breaks with the blue tones in widespread industry use, instead making use of "a refreshed vibrant colour palette", based on "a bold graphic style inspired by the language of shipping".

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China will remain a key demand driver for crude tankers

China's demand for crude tankers has yet to reach its full potential with still-low oil consumption per capita and continued refinery expansion, according to a Peninsula Petroleum analyst, indicating that the world's top seaborne crude importing nation will continue to be a key market driver.

In a presentation to a Chinese Shipping Association of London forum, held in the Baltic Exchange building, Peninsula's market analysis manager Selena Yan said China's oil demand was still low when compared with the global average and thus the potential for further growth is large.

Based on data from the US Energy Information Administration, Ms Yan estimates that China consumed 530 litres per capita in 2016, which would need to grow by 50% to reach the global average.

As for seaborne trades, Clarksons estimated Chinese imports grew 15% to 353m tonnes in 2016, and comprised 18.1% of the world's total volume.
While a significant portion of Chinese imports has gone into commercial and strategic petroleum reserves after oil prices collapsed in mid-2014, the demand driver in the coming years could be China's refinery expansion.

China will be responsible for 44% of global refining projects over 2017-2020, as global refinery expansion efforts remain concentrated in the Asia-Pacific region, Ms Yan said.

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The UK government has 50 shipowners in its sights, including John Fredriksen

The British government has a target list of 50 specific shipowning companies it is trying to lure into the UK Ship Register as part of its bid to double the size of the flag over the next few years. 

Ministers from across government departments have been on hand to meet senior industry figures during London International Shipping Week, which is being used as an opportunity to hold formal and informal discussions with several major owners.

A major name understood to be on the target list is tanker operator John Fredriksen, who was one of several hundred senior industry players in attendance at a government reception on Tuesday evening where Secretary of State for Transport Chris Grayling and Maritime UK chairman David Dingle once again set out a bullish post-Brexit agenda that, they argued, would benefit maritime businesses choosing to locate in the UK.

Speaking to Lloyd's List, Mr Fredriksen confirmed a move to the UK was "certainly possible". However, a switch to the UK flag has been under review for at least eight years now.

Britain's withdrawal from the European Union has made some shipowners, understood to be on the target list, nervous.

Italian shipowner Emanuele Grimaldi, who joined the delegation to Downing Street on Monday to meet Mr Grayling and other government ministers, is unsure about whether to register more ships in the UK, given the uncertainties of Brexit.

Mr Grimaldi, who is managing director of the family-controlled, Naples-headquartered car carrier, ro-ro and ferry specialist, told Lloyd's List during the Lancaster House reception hosted by the government that he would wait and see how negotiations on Britain's withdrawal from the EU progressed before deciding whether to place more ships on the UK Ship Register.

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Sulphur regulations offer owners bad set of options

The shipping industry has two years to choose from a bad set of options ahead of the introduction of new International Maritime Organization caps on the sulphur content of bunker fuel.

Speaking at a presentation during London International Shipping Week, Platts bunker analyst Jack Jordan said that while low-sulphur fuel oil had not come as a surprise to the bunkering industry, the shipping industry had little time left to decide how it would respond to the new limits.

Most shipowners would shift to using low-sulphur fuel as soon as the new regulations came into force as this was the path of least resistance. Mr Jordan said he expected up to 233m tonnes of low-sulphur distillate would be available by 2020.

"There is no need to change anything," Mr Jordan said. "Low-sulphur fuel will be widespread by 2020. Also, there is no capital commitment. The same ships can be used as are being used now but if you want to change to LNG you can do that later with new orders."

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Digitalisation should be a strategy issue, not an IT project

Major IT projects are not what digitalisation is about, according to Inmarsat president Ronald Spithout, backed up by a panel of experts who argued that internal company dynamics complicate the industry's appetite to embrace digital tools.

"Digital" does not equate to an IT project, Mr Spithout remarked at a panel discussion during London International Shipping Week.

A lot of the initiatives that Inmarsat has been launching are at the front end of their businesses, where commercial operations take place, he said. "If you start by developing some large IT project you are by definition too slow to react to where it is needed. So, do not make that mistake..."

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Wallem shuns consolidation in favour of quality

There will be no rush to scale for Wallem ship management, which has shunned the consolidation seen by market competitors including V.Ships and the newly created Columbia Marlow.

The Singapore-based ship manager was categorically not up for sale, nor interested in snapping up a smaller rival, Wallem director, sales & marketing, Nigel Moore told Lloyd's List. Instead it would continue to look for "quality" owners and vessels to work with across its broad base of vessel types which include all sectors other than liquefied natural gas, which it "missed the market for".

Mr Moore said Wallem was not interested in working with owners looking to arbitrarily cut hundreds of dollars per day from operating costs, as such cuts often came at the expense of safety and crew quality. Wallem currently has approximately 300 vessels under management, including both technical and crew management.

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Markets

Liquefied natural gas carrier spot rates are expected to surge

Liquefied natural gas carrier spot rates are expected to surge in coming weeks as an overhang from US hurricanes Harvey and Irma continued to disrupt gas trades, alongside a lack of vessel availability.

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Owners of panamax bulkers felt a little richer this week

Owners of panamax bulkers felt a little richer this week with earnings tracking upwards on improved demand and tighter tonnage. Weather-related delays continued to restrict availability while steady shipments of grains from east coast South America were propping up rates. 

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However, dry bulk owners were urged to exercise restraint in ordering

However, dry bulk owners were urged to exercise restraint in ordering, to avoid volatility going forward. Weakness may set in if ordering picks up again, said Golden Ocean chief executive Birgitte Vartdal.

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Crude tanker owners will have to wait another two years for an earnings boost

Crude tanker owners will have to wait another two years for an earnings boost, which relies on more US exports heading to markets in China and India.

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Tanker rates in the Atlantic Basin have lost steam

Tanker rates in the Atlantic Basin have lost steam as expected US fuel shortages failed to emerge post hurricanes Irma and Harvey.  

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In Brief

Seadrill files for Chapter 11 while Ship Finance takes a haircut

John Fredriksen-linked Seadrill finally filed for Chapter 11 restructuring on Tuesday, ending a 12-month period of negotiations with backers against a backdrop of a prolonged and painful offshore oil and gas downturn. The deal has the backing of 97% of its secured bank lenders, about 40% of its bondholders and a consortium of investors led by its largest shareholder, Mr Fredriksen's Hemen Holding.

Seadrill said the agreement delivers $1.06bn of new capital comprised of $860m of secured notes and $200m of equity. In addition its secured lending banks have agreed to defer maturities of all secured credit facilities totalling $5.7bn for the next five years.

Meanwhile, John Fredriksen's Ship Finance International agreed to take a 30% haircut on rates for three drilling rigs it has chartered out to Seadrill in the wake of the bankruptcy protection move.

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The full story behind the El Faro tragedy should be revealed in December

The US National Transportation Safety Board has scheduled a meeting for December 12 this year in Washington to decide on a probable cause for the sinking of the bulk carrier El Faro in the Atlantic Ocean at the end of September 2015. All 33 of El Faro's crew were killed in the incident.

In addition to confirming a likely cause for the sinking and other factors that may have led to it, the board will also vote on recommendations related to safety issues discovered during its investigation of the incident.

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Dryships has inked a five-year time charter deal with an oil major

Nasdaq-listed Dryships has announced it has secured employment for its second very large gas carrier with an unnamed oil major. With the five-year charter and options extension, the total gross backlog for the vessel employment is expected to reach $92.7m.

The George Economou-led vessel owner is facing some regulatory scrutiny, with the US Securities and Exchange Commission opening a formal inquiry into DryShip's stock purchase agreements with Kalani Investments.

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Danish investors are suing the banks behind OW Bunker's IPO

A consortium of 24 Danish institutional investors have decided to sue Morgan Stanley and Carnegie - the issuing banks for OW Bunker's initial public offer - for prospectus liability. The investors allege they suffered a loss of DKr767m ($123.5m) following their investment in the shares of marine fuel supplier OW Bunker, which subsequently went bankrupt, on the basis of a prospectus which was insufficient in material aspects.

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Vale is sticking with Polaris Shipping in the wake of Stellar Daisy

Vale has renewed trade agreements with Polaris Shipping despite the fact that an explanation for the sinking of the very large ore carrier Stellar Daisy is yet to emerge. According to brokers, Vale is reactivating charters for three converted Polaris vessels that have been laid up or had been undergoing repairs for a while.

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Support is still slowly trickling in for the Ballast Water Convention

Jamaica and Malta are the latest countries to have signed the Ballast Water Management Convention, raising the official support for the regulation to more than 73.92% of the world's merchant fleet tonnage.

Although the convention had already come into effect on September 8 this year, under the latest amendments signed in July by the Marine Environment Protection Committee 71, vessels already built before the aforementioned date will only need to install a BWM system by their first International Oil Pollution Prevention renewal survey after September 8, 2019.

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Cargo interests call for safer container packing 

A coalition of shippers, cargo interests and container line representatives has called for greater government intervention to enforce the Code of Practice for Packing of Cargo Transport Units, known more commonly as the CTU code. 

Speaking at an event during London International Shipping Week held at the International Maritime Organization building, the World Shipping Council, which represents the major container lines, the Global Shippers' Forum, the International Cargo Handling Co-ordination Association and cargo insurer the TT Club made a joint plea for further enforcement of the rules that govern the packing of container units, whether at sea or carried by truck or rail.

The code, which was developed in 2014, prescribes best practice for the loading and securing of cargo in containers. But while it was adopted at MSC 96, the CTU code remains advisory only.

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