SHIPOWNERS should think twice on arbitration cases below $1m, as the cost in legal fees and management time could easily top that, an industry audience has been told.
David Pitlarge, a partner at shipping law firm Hill Dickinson, was speaking at the Shipping and the Law conference in Naples on Friday morning.
In many instances, it might be smarter to seek a mediator, or even simply sit down and have a grown-up talk about the issues at hand, he opined.
Ironically, the entire idea of arbitration rather than litigation is to settle commercial disputes in an inexpensive fashion.
Received wisdom in legal circles suggests that there are fewer shipping cases flowing through UK courts, particularly over the past 12 months, suggesting that more cases are being settled extrajudicially through arbitration. Arbitration cases, however, have only increased 18% in the past decade, according to figures from the LMAA.
The cost of arbitration has risen sharply in recent decades, even within the career span of current senior shipping lawyers.
Part of that is down to the hourly rates that lawyers are now charging, with shipping law firms transformed from old school niche players with 20 partners to modern corporate law firms with perhaps 150 or more partners.
"The whole business of the hourly rate, the elasticity, is going to change," said Mr Pitlarge.
In particular, P&I clubs and freight, demurrage and defence providers, who traditionally provide funding for legal actions, are starting to kick up. Capped fees could be one alternative.
Some litigants have had no choice but to turn to third party funding, which can result in a mark-up on legal fees of up to 300%.
Indeed, some of Mr Pitlarge's fellow panellists mused - perhaps semi-seriously - on the virtues of what used to be known colloquially as the liquid lunch.
Lawyers regularly used to get together over a bottle of agreeable wine and come to a mutually-acceptable settlement, and that may have been to their clients' advantage, they pointed out.
Not everyone, however, is ready to rule out arbitration and many believe that it is simply a question of getting the balance right.
"I have nothing against liquid lunches but surely there is a place in the market for $1m or less valuable disputes," Andrew Hutcheon, partner, dispute resolution, at Watson Farley & Williams told Lloyd's List.
"The problem with arbitration is the amount of discretion arbitrators have to deal with costs, coupled with the inability or impracticality of appealing where scrutiny and costs management are not what they should be. The courts have far more constraints and are developing further constraints for limited value claims in the way of fixed cost regimes. My colleagues in construction regularly handle complex disputes through adjudications on fixed fees. Clearly there are ways," said Mr Hutcheon.
Speaking to Lloyd's List after his presentation, Mr Pitlarge stressed that he was not claiming that lower-value arbitrations were never worthwhile. But parties should not think in terms of 'what is the law?', but rather in terms of things are likely to pan out.
"You might think $1m is a lot of money, but when you add up the costs of arbitration, the costs might well exceed that sum," he said. "You have got to take a view early on, on how much you think it is going to cost. What you should not think is, 'See you in court'. Put the numbers on it."
Nick Austin, a partner in the marine team at Clyde & Co in London, agreed with the sentiment. "There is no doubt that clients are increasingly focusing on costs at the front end of shipping arbitrations. They are asking lawyers to agree alternative billing arrangements right from the outset. But the best lawyers in this field can still deliver excellent value if the right result can be achieved for the client, even in lower value cases," he said.
HALF of all ballast water systems manufacturers could be bankrupt within the next five years thanks to the IMO's delayed implementation of environmental rules. That's according to the chief executive of Coldharbour Marine, one of the many BWM systems suppliers currently navigating a difficult market that has already seen one major casualty this month.
OceanSaver, the Norwegian manufacturer of US type-approved ballast water management systems, filed for bankruptcy and closed last month after losing an arbitration fight against a supplier over claims of defective parts.
It is no coincidence that OceanSaver's demise came only three months after the IMO capitulated on the enforcement of ballast water rules.
While the ballast water management regulation came into force last month, the IMO delayed implementation of the treaty on existing vessels until September 2019, to the relief of shipowners but the frustration of system manufacturers who were hoping to cash in on the spike in demand from owners who need them to meet the regulation's requirements.
According to BWM system manufacturer Coldharbour Marine chief executive Andrew Marshall, OceanSaver will be the first of many casualties in the wake of that decision.
Mr Marshall anticipates that out of the roughly 90 suppliers that exist right now in the market, at least 50% will go under in the next 5 years.
The risk to shipowners in this scenario is not simply one of dealing with a lack of after-sales support.
Mr Marshall suggests that more bankruptcies will result in expensive retrofits to previously retrofitted vessels, as a result of a USCG ruling that dictates that if a manufacturer goes bankrupt and the part supplier is not there to claim responsibility for the system, it needs to be replaced.
LINER company representatives at this week's TPM Asia conference in Shenzhen were overwhelmingly upbeat over the future of their sector, but their shipper customers think the optimism may be premature.
Speaking in a panel discussion on the industry outlook, Ocean Network Express global chief executive Jeremy Nixon and APL chief executive Nicolas Sartini both took a "positive" view.
Maersk Line's Asia Pacific chief executive Robbert van Trooijen also flagged up the bright prospects. "I've been to this and many other conferences over the years, [when] we always had this tendency to talk ourselves down to stay out of the pressure, and I think it's certainly unwarranted this time around."
Their confidence has largely derived from the demand side, with the global economy showing its strongest momentum since the recession triggered by the financial crisis.
But not everyone is convinced, especially as the recovery in cargo volumes seems to have again led to jostling for market share and lower freight rates.
The seasonal rates rally during the third quarter ended in August on Asia-Europe trades, a month earlier than the past few years, according to the Shanghai Containerised Freight Index.
Rates on transpacific trades started to fall in September, despite US ports experiencing record traffic volume.
"Demand is nice, but I see tremendous rate pressure coming." said Techtronic Industries group logistics director Alan Mctaggart, who books 65,000 teu of containers annually, of which 50,000 teu are destined for North America.
IT WAS only a month ago that we were celebrating what looked like the beginning of a turnaround for container shipping.
Rates, while not rising rapidly, were at least stable, and this had begun to show through in the carriers' financial performance. Second-quarter results were, on the whole, positive.
It looked, for a brief moment, as if box shipping had managed to resolve the existential crisis that had been haunting it for the past few years.
That crisis had been caused by the massive imbalance between supply and demand that had driven rates to unsustainable levels. And that imbalance had been caused by the huge over-ordering that took place five years ago and led to a glut of capacity that could not be utilised.
A month ago, it appeared that the consolidation that had taken place in the sector over the past two years, combined with a disciplined orderbook that had seen no new orders for large ships in over a year, had helped improve conditions for liner companies.
But as in politics, a month is a long time in box shipping.
In the past few weeks, orders for up to 440,000 teu of new capacity have been confirmed by CMA CGM and Mediterranean Shipping Co, as the two European carriers fight to maintain their positions at the top of the pile.
The move to increase the size of their respective fleets makes complete sense when seen from the perspective of the lines. They need to grow their capacity to maintain their market share and see of the competitive threat from an increasingly powerful Cosco.
But what may work for the individual lines may not work for the sector as a whole. Industry commentators remain divided on whether the market can accommodate so much new capacity. And if it cannot, we could be looking at another bout of capacity-driven carnage in a few years' time.
So while we may be seeing the green shoots of a recovery, do not be surprised if carriers are also sowing the seeds of destruction at the same time. Time will tell.
ACCIDENTS happen; they always will. Ship operators respond in two ways. They either address the obvious cause or, when the damage becomes reputational, they seek to understand the deeper causes and address those. After a collision involving a gas carrier in October 2015, Japan's K Line LNG took the latter option. It proved to be a far-from-comfortable experience, yet with professional help the outcome has been positive.
The report that followed the investigation into the collision between the LNG carrier Al Oraiq and the general cargo vessel Flinterstar off the port of Zeebrugge concluded that the incident occurred because the bridge team on the gas carrier wrongly assessed the traffic situation and the vessel's speed and distance from a buoy.
But behind that bald statement was a series of observations that revealed a worrying disregard for best practice procedures.
SPOT rates for very large gas carriers have firmed up this week as the long-awaited winter demand up-tick finally kicks in, even as oversupply concerns persist with continued newbuilding deliveries.
Arctic Securities estimated the time charter equivalent earnings of VLGCs at $13,441 per day on Friday, up 16% on week, as owners continue to get the upper hand against charterers in the main exporting regions. Having stayed flattish for nearly three weeks, VLGC rates for shipping liquefied petroleum gas from the Middle East to Japan rose to $28.29 per tonne on Thursday from $26.39 last Friday, according to the Baltic Exchange.
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US WEST coast ports are reporting a bumper peak season for transpacific trade, despite their carrier customers' inability to profit from the increased volumes moving from Asia to the US.
Long Beach this week reported that September volumes rose 28% to 701,600 teu, helping the port record its best-ever quarter. Between July and September, the port's terminals handled over 2.1m teu, up 16% on last year. The port said that the huge rise in cargo handling was only partly due to the comparative slowdown in the same period last year caused by the collapse of Hanjin Shipping.
July was the port's busiest month on record, and September was the third-busiest. For the calendar year, container volumes have surged 9%.
Volumes at neighbouring Los Angeles also rose, but not as dramatically as at Long Beach.
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FLEETSCAPE Capital Holdings has secured $400m in its first capital raising drive as it seeks to plug the gap in shipping finance left by commercial banks. The shipping debt vehicle was launched in 2016 by private equity group Oaktree Capital Management, which is a stalwart of the shipping finance world in New York.
Fleetscape said that the strong investor appetite was a clear indication that access to capital in the maritime space had changed fundamentally over the past several years, with alternative structured capital providers coming in to provide shipowners with funding solutions such as leasing models, loans and preferred equity.
INTERCARGO, the dry bulk shipowners' body, has called for a prompt investigation into the latest tragic bulker loss that is being linked with cargo liquefaction after supramax Emerald Star laden with ore sank in the Philippines Sea on Friday. It is thought up to 14 seafarers could be missing.
Forget the Oscars — the real action is to be found at the awards dinner celebrating the annual ranking of the shipping equity analysts, an overworked and underappreciated bunch of Wall Street geeks. So, who claimed this year's awards and what are their current picks? Find out here.
THE Association of Southeast Asian Nations is seeking to further integrate the transport sector within its member nations be it by air, sea or land-based networks.
Member nations last year ratified the Asean open skies agreement and has made efforts to form new shipping routes, such as the ro-ro service unveiled in April between the Philippines and Indonesia. The regional bloc now intends to move forward with the Asean Single Aviation and Shipping Markets initiative which, from the maritime perspective, aims to boost capacity at 47 designated ports, including those in Singapore and Malaysia, to cut costs by up to 30%-40% to facilitate further intra-Asean shipping and regional trade.
SOUTH Korea's Daewoo Shipbuilding & Marine Engineering has been criticised by a local lawmaker for screening job candidates based on the universities they graduated from and not considering other qualifications. The shipbuilder has been excluding people during the rÇsumÇ screening process from specific departments based on the groupings, with certain groups preferred in a number of departments, according to Kim Hae-young, a Seoul-based lawmaker, who believes such practices are outdated and discriminatory.
INLAND Waterways Authority of India has secured Rs6.6bn ($101.7m) in proceeds from a Government of India bond offering. The proceeds raised from the fully serviced bonds will complement the funds budgeted by the Indian government for inland waterways infrastructure projects under the 2016 National Waterway Act over the 2017-2018 fiscal year.
The Indian authorities have embarked on the inland waterways infrastructure development project to try to alleviate congestion on the roads caused by trucks transporting cargoes as well as to reduce pollution on land.
GEORGIA Ports Authority has unveiled an extensive rail expansion project to increase its cargo volumes carried to inland markets.
Under the $128m infrastructure initiative, the port authority will add more tracks at its Savannah terminal to handle longer 10,000 ft trains and thus more cargo that can be transported to inland markets ranging from Atlanta to Memphis, St Louis, Chicago and the Ohio Valley. Track work is scheduled to start in the first quarter of 2018 and be completed by end-2020.
The rail project is one of several infrastructure upgrades including 10 new super post-panamax ship-to-shore cranes and an inland rail yard for the Appalachian Regional Port in Chatsworth, Georgia.