Profitability Of Bulk Shipping Dependent On Safety

Friday, December 10, 1999
Bulk shipping has been under the international microscope of late, with spectacular structural failures resulting in sudden loss of lives and ships, vexing designers, builders and owners alike as to the solution to structural and operational problems. Last week industry experts discussed another matter near and dear to bulk shipper's hearts, the future profitability of the depressed bulk shipping business. The overriding message: bulk shipping profitability is inextricably linked to safety and environmental controls. Removing poor quality operators through strict enforcement of international regulations could reduce the capacity oversupply that has caused low freight rates in the tanker and bulk shipping sectors, they said at a London Conference organized by the City University. "The only way to strip out the unfair advantage for substandard operators is through rigorous Compliance to international standards. There must be nowhere to hide," said Tim Jones, chief executive of Lloyd's Register, the shipping standards organization. Substandard operators enjoyed a 14 percent cost advantage over companies that complied with international standards, said William O'Neil, secretary general of the International Maritime Organization (IMO), the U.N. marine agency. "This is an unacceptable position. It must not be allowed to continue...Quality must be rewarded in a tangible way otherwise our efforts will be in vain," he said. Growth in the world fleet had outstripped demand due to low levels of ship scrapping, Jones said. Old ships survived to trade at low rates and drag down prices for better operators. In the last few years ship Completions have averaged 25 million gt, while scrapping has been around 11 million gt. International Maritime Industries Forum (IMIF) chairman Jim Davis proposed a ship scrapping tax similar to one used in the Netherlands for cars. A one percent ship scrapping tax levied on the price of new vessels could create an environmentally friendly scrapping scheme and reduce chronic oversupply which had existed since the late 1970s, he said. Michael Everard, chairman of U.K. shortsea tanker operator F.T Everard & Sons Ltd., welcomed regulations and inspections that ensured better standards. "We, the shipowners, have been guilty of looking too much at the supply side rather than demand," he said. Bulk market demand would always be cyclical. Ship casualty rates have improved to a current two ships per 1,000 from 4.5 in 1980 despite the average age of the fleet rising to 20 years from 13 as a result of improved standards. "But improvements in safety cannot go on if we continue to put the entire burden on shipowners," Davis said. However, Jones said international trade, which is 98 percent carried by ships, was growing by four percent a year. Cargo volumes of 5.5 billion tons a year would double by 2010, according to World Bank figures. "Ship owners who can manage environmental and safety risks Cost effectively will benefit disproportionately from the forecast growth in world trade," he said. Putting an economic value on social and environmental requirements was necessary, said Basil Papachristidis, chairman of Papachristidis Holdings and owner of a tanker fleet of two million dwt. "Bulk shipping markets are no longer perfectly Competitive, and shipowners Could profit from abandoning the pretence that they are. Charterers certainly have," he said. Consolidation of the industry would provide greater efficiency and better returns allowing easier access to capital markets and more orderly renewal of shipping capacity. But ships and freight were more than just commodities, he said. Transport has to be seen as a service for industry striking a balance between the economic good of cheap transport and the social good of clean seas while providing a sufficient return on investment. "Until we recognize this, the industry will tread a precarious path," he said. - (Paul Berrill, Reuters)

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