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From the Newsdesk – five things to look out for this week

Our regular inside track on the stories shaping shipping this week

Lloyd’s List Editor Richard Meade considers the key take-aways from MEPC, consolidation in the legal space, rising opcosts and whether the latest set-backs on LNG demand might affect the current bull run

Pragmatic politics will be required now that MEPC is over

Last week’s Marine Environment Protection Committee meeting at the IMO played out pretty much as we had anticipated.

The proposed ‘experience building phase’ was dealt with diplomatically, EEDI updates were kicked into the next meeting while the carriage ban of non-compliant fuel was approved for March 2020. Concern over the safety and availability of new bunker fuels was met with an invitation for yet more proposals to bolster data gathering on fuel availability and quality… and so the cycle of meetings continue with some progress, but little in the way of headline conclusions.

That’s not a criticism — that’s how consensus politics works. Meanwhile, the market responds to the shifting dynamics as best it can, but it’s interesting to note how the various post-match MEPC analyses are playing out in the public arena. Greek shipowners are looking for a pragmatic transition that “will not burden the ships and their crews with unrealistic and disproportionate responsibility and liability”.

The scrubber lobby (and they are very much now a lobby group) are seeking to ‘educate’ those commentators who haven’t quite understood their way of thinking yet.

Those unconvinced by scrubbers continue to cite concerns over the questionable payback period, play up pollution and regulatory risk questions and more realistically cite concerns over inconsistent enforcement/implementation. In short, however sparky the politics were during MEPC, the market will continue to debate the practicalities into 2020 and beyond.

Probably the most focused post-MEPC comments came from International Chamber chair Esben Poulsson who confirmed his commitment to 2020, but quickly turned to the most pressing issue of the 2020s, “indeed the biggest challenge of our age” — how the industry reduces its CO2 emissions as a precursor to phasing them out completely. As we have noted before — that will make 2020 look like a minor administrative exercise. 

A quick side note on this — we will be out in Copenhagen later this week with the International Bunker Industry Association, where we will focus on the challenges for the bunker industry. Panels and discussion will focus on the 2020 sulphur cap, preparations around it, contracts and the use of scrubbers, including perspectives from bunker suppliers, shipowners, ports and law experts. Aside from just 2020, IBIA will explore blockchain in reducing fuel contamination and lowering credit risk, as well as the role of digital technology in the industry. 

Ince-Dadds deal just proves that size matters

The legal market as a whole is going through a period of consolidation and shipping specialist Ince had been looking for some time to strengthen its position with a merger.

An initial courtship with Hill Dickinson looked promising, but ultimately didn’t pan out and numerous other reported conversations were either just rumour or didn’t amount to much.

So this week’s news that legal services group Gordon Dadds will “bring Ince into the modern era” with a £43m tie-up looks like a sensible move all round. Ince has had its share of issues to deal with, from the exit of senior partners to rapidly growing competition outpacing their moves to restructure and modernise. But Ince still enjoys a solid brand heritage within shipping and insurance circles and if it can successfully retain those core values but embrace the ‘New Law’ mindset and scale of AIM-listed Dadds it could be a fruitful partnership.

Much like rest of the shipping market, law firms have to grow, not least because basic infrastructure costs are growing all the time and the demand from clients requires the widest possible range of services. Also, much like its shipping clients, it would not have been sensible to remain stuck in the middle as a specialist firm.

Shipping operations are getting more expensive, but the smart money is on finding value

News that operating costs in the shipping industry are expected to rise, by 2.7% in 2018 and by 3.1% in 2019 according to the latest Moore Stephen survey, should come as little surprise to anyone.

Regulation was inevitably cited as an area for increased costs, but finance is also higher on the list than in previous polls. The industry has endured much larger increases during the past decade, but it rather sharpens the mind when it comes to purchasing decisions for many. With greater data-led insights and more sophisticated tools, the traditional role of procurement in marine businesses is evolving.

Suppliers are rapidly becoming partners in a process that help businesses improve quality control, transform reliability, improve productivity and cut costs. Understanding the complexities of compliance costs, reacting to rapidly changing regulatory requirements and managing legal risk is increasingly a process of collaboration with trusted expert partners rather than a traditional in-house affair.

The acid test for any smart shipping investment is whether it can deliver lower unit costs, or add value by providing better service for the same price. But for companies to effectively address the issues of efficiency, safety and personnel management which they face today, cost is secondary to value and sustainability. For more on this, we recommend you take a look at the results of our recent round table discussion exploring the total cost of vessel operations.

LNG optimism is well founded, but clouds are forming on the horizon

Rates for LNG carriers are hitting new heights right now as the supply of tonnage for winter loadings have all but dried up, and most analysts are sounding pretty bullish in their view to the end of 2020.

That was certainly the position taken by Wells Fargo’s Michael Webber when he spoke to us on this week’s Lloyd’s List podcast. Mostly that’s the supply situation — even with strong recovery in newbuilding orders this year, there’s fewer than 20 LNG tankers due for delivery from 2021 onwards, dwarfed by a forecast expansion of trade.

However, there are clouds forming on the horizon. Australia’s LNG Ltd has delayed a planned decision on whether to build its Louisiana-based Magnolia LNG plant due to problems lining up Chinese customers. That comes as bankers and analysts were already questioning whether the next wave of projects in the pipeline would pass muster with investors.

Right now, this should be considered a minor setback, but the fears that the US trade battle with China could yet sour the mid-term picture are being taken seriously. 

Iran’s oil exports are back under the spotlight

Iranian sanctions are really biting, according to Euronav chief executive Paddy Rodgers, who views this as a good news story.

US exports are increasing and that is really good for driving the distances over which his tankers sail and therefore earnings. But as we await the kick off of US sanctions vs Iran next week as well as the mid-term elections, the precise nature of just how much oil Iran is managing to export will likely become a very hot topic indeed.

Washington has made it clear to Tehran’s customers that it expects them to stop buying any Iranian crude oil from November 4, but with Iran looking to find ways to sell its crude, its oil tankers have reportedly been switching off their AIS transponders so as to ‘disappear’ making it tricky to track the country’s crude exports. Lack of export clarity adds to the challenge for other OPEC members, chiefly top crude supplier Saudi Arabia, to make up for falling Iranian shipments. Watch this space!





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