Friday, 26 December 2008

Industry Snapshots

UN empowers land operations against Somali pirates. The United Nations Security Council has unanimously passed a resolution authorising international land action against Somali pirates. Secretary of State Condoleeza Rice, who said that there was need to send a “strong signal to combat the scourge of piracy and end the impunity of Somali pirates”, hailed the US initiated plan. Resolution 1851 authorises states to "take all necessary measures that are appropriate in Somalia against acts of piracy and armed robbery at sea.” Concern about the pirates expanding their operations southward are said to have promoted this move. The US has also proposed the setting up of a contact group on Somali piracy. Meanwhile, the Pentagon has warned of problems with military operations inside Somalia; analysts feel that the US will think twice before it risks a repeat of the famous ‘Black Hawk Down’ incident of 1993 in which 18 American soldiers lost their lives. Ms. Rice told the UN session that it was “time to authorize a UN peacekeeping operation" in Somalia. This is the first UN resolution authorising use of force on land in Somalia in response to piracy.

Entire Indian coastline to the covered by Radar and additional Coast Guard stations in the aftermath of the Mumbai terror attack. The Central Government has cleared up to nine additional Cost Guard stations, radar installations and speedboats in an attempt to shore the country’s maritime security. Defence Minister Antony has also stressed the need for better coordination between the intelligence agencies, the Indian Navy and the Coast Guard. Intelligence sources say that the government seems to have realised the urgency needed to take these measures on a war footing. It has been pointed out that Indian nuclear installations are situated along the coastline, and a terrorist strike there would be catastrophic. Indian Navy hands over 12 Somali pirates and 12 Yemeni fishermen to the Yemeni Coastguard at Aden. Analysts are relieved that the initial reports saying that the Yemeni’s were pirates have now turned out to be false. It turns out now that the fishermen’s’ boats had been attacked by pirates and they were held hostage while their boats were being used to hit merchant ships. The government in Sana’a had officially requested India to hand over the pirates to Yemen so that action could be taken against them. The legal issues in connection with captured suspected pirates are murky, and coalition navies have been grappling with ways to deal with these. Yemen claims it has the right to try Somali pirates because their arrest took place inside Yemeni waters.

Cosco hit by $577 million derivative loss. The Chinese company is said to have been hit hard by mistimed freight forward agreement calls. FFA agreements made as hedging tools have been widely used in the industry, although many operators indulged in heavy speculation amidst soaring freight indices in last year’s boom. The sudden and vicious fall in freight markets in the last six months caught many wrong footed. Cosco said that losses of up to 5.38 billion Yuan on freight forward agreements were partly offset by gains of 1.43 billion Yuan on discharged agreements. To add to its woes, the logistics and shipping company’s container arm has been hit hard by falling demand. Others like Air China Ltd. and Citic Pacific Ltd. have also suffered huge losses on derivatives; ironic, when one considers that FFA agreements were actually meant to guard against volatility.

Indian shipping companies ask government for a bailout, reports Livemint, saying that the Indian maritime industry has asked Prime Minister Manmohan Singh, who is also in charge of the finance ministry, for a slew of sops for the beleaguered industry, including easy credit, export incentives and lower taxes. “We are seeking a stimulus package from the government to maintain the current share of Indian vessels carrying international cargo of around 12/15%,” Livemint quotes Atul Agarwal of Mercator Lines as saying. INSA has reportedly sent a letter to Mr. Singh underlining the need for the government to take speedy action. The move comes as the industry struggles with funding for its expansion plans and replacement requirements to modernise its aging fleet. Indian ship owners have also demanded lower taxes in line with international norms to help them compete against foreign shipowners. Meanwhile, financial newspapers report that Indian shipping companies have put their expansion plans on hold. SS Kulkarni, secretary of INSA has admitted that there is a possibility of cancellation of orders unless the situation improves. At least SCI and Great Eastern have denied these reports, saying that they have no such plans at present. Indian firms have placed orders for 1.3 Billion dollars in the last two years; observers say that unless commodity prices improve, absorbing this additional capacity will be very difficult.

First cargo ship runs (only partly) on solar energy. Japanese Nippon Yusen KK and Nippon Oil Corporation have launched a merchant vessel that runs partly on power from the sun. The solar panels on board, reported to cost almost 1.7 million dollars, provide just 0.2 percent of the propulsion energy required. Engineers say that this is an excellent start for an industry that is responsible for up to 3 percent of greenhouse gas emissions globally. The move comes as the IMO plans to reduce sulphur emissions in a phased manner by 2025, and as States in the US, notably California, tighten up further on the use of bunkers in port and along the coast. A renewable source of energy would be a path breaking alternative.


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