Fresh revelations on the Rena grounding- who else is to blame?

"The cleats securing the hatch could be removed with a single finger"

The Associated Press has uncovered Australian inspection records that show that the Rena- the ship that grounded on the well charted Astrolabe reef off the coast of Tauranga and created the biggest ever maritime disaster in New Zealand's history- had major safety and other issues before the oil spill. The report details how the Rena was first detained at Freemantle in Australia, then released after assurances from the Liberian authorities and allowed to sail- something that has drawn howls of protests in New Zealand, raised questions about inspection regimes and prompted renewed calls for action against the Flag of Convenience system and what one newspaper calls the "dangerous culture of cost-cutting" in the maritime industry. Critics have pointed out that an inspection in Shenzhen, China- two weeks before the July inspection in Freemantle- had found 18 deficiencies on the Rena.

The Greek owned and Filipino crewed Rena spilled 400 tons of oil after the grounding that appears to be the result of a clear case of terrible navigation. Occurring just ten weeks after the Australian inspection, the resultant oil spill killed 2,000 sea birds and fouled the pristine environment. Almost ninety containers have fallen off the listing ship so far, some floating as far as a hundred miles before washing up on beaches.

Defects found by the Australian authorities before the grounding included faulty cargo-securing pins and hatch-securing cleats, outdated navigation manuals, a data recorder still unpacked and a tampered alarm. Cargo securing equipment was not original, appeared makeshift and not fit for purpose. "The cleats securing the hatch could be removed with a single finger," a report says.

The initial detention in Freemantle cited problems with the securing of the hatch, the shipping containers and an overall lack of maintenance. Emails from inspectors show that they were concerned that the cargo might not remain secure in rough weather; other records underline the condition of the rusted and improperly tensioned hatch cleats and ill-fitting cargo securing pins. In addition, in what appears to be a gross violation of MARPOL rules, an unauthorised delay mechanism was found wired into the bilge alarm.

The Associated Press report quotes inspection reports, emails and faxes to substantiate how Australia impounded the Rena, which was released a day later after Liberian maritime authorities intervened, essentially saying that the ship was safe to sail and the problems could be addressed subsequently. Although the safety violations found in Australia appear to have no direct link with the eventual grounding, "the records portray a hopeless image of an aging ship in poor repair amidst a dangerous culture of cost-cutting", a New Zealand newspaper says. The Australians gave the ship three months to demonstrate that its safety system was in compliance; she would run aground before that.

Inevitably, the disaster has brought maritime industry practices into focus. "They nickel-and-dime things, they don't do proper maintenance, they don't pay the crews to do repairs, and they don't have enough spare parts on board," said Harry Bolton, the director of marine programs at the California Maritime Academy, who assessed the records for Associated Press.

Somewhat shockingly, the Rena was inspected by multiple authorities after Freemantle and found fit to sail. The Liberian authorities conducted their own inspection later. Subsequent inspections were conducted in Melbourne and Sydney in Australia- and at Bluff in New Zealand in September, where 19 deficiencies were found. The Rena was not detained anywhere.

She grounded a month later. Today, the captain and a navigating officer face criminal charges of operating a ship in a dangerous or risky manner, polluting the environment and altering the ship's documents after the crash. Liberia says the grounding was the result of "gross navigational error." Costamare- the owners- imply fatigue may be an issue. The question is, who else- or what else- is to blame?

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A revival in shipmanagement?

A report by global maritime consulting firm Drewry says that shipmanagement companies may finally see some growth even after a year during which more shipowners have taken their vessel's 'in house' in an attempt to cut costs. 

"Shipmanagers, it seems, have failed to persuade the industry of the value of the services they offer," the report says, pointing out that attempts by shipmanagement companies to push their two major advantages- lower costs based on economies of scale and access to trained crews- have failed to enthuse shipowners in recent times. Less than a fourth of the world’s fleet is under third-party management control, Drewry says, adding that shipmanagement companies have been struggling against low management fee and market penetration issues for long. 

Many shipmanagement companies hoped that the recession would bring greater business to their doors as a greater number of banks and financiers foreclosed on struggling owners. Earlier recessions have had this effect when banks have found themselves stuck with ships and no clue as to how to operate them. This time round, however, it appears that banks have been hesitant to push shipowners too far too soon, fearing that a glut of vessel's on sale in the market would kill asset prices completely. 

That may be about to change. "With a renewed economic crisis unfolding over the summer, the patience of under-pressure banks is wearing thin, and this could open up more opportunities for third-party managers as the number of non-professional owners increases," Drewry says

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Few analysts believe that the road to growth in third-party management will be anything but bumpy. "For one, it is difficult to see management fees going north from here on in the present economic climate," one told us. Shipowners are struggling against the recession and the collapse in both freight rates and asset values, observers point out; many will be tempted to give shipmanagement a miss and to go it on their own to reduce costs.

Drewry feels, however, that a 'critical driver' may be access to trained crews. "The recent hysteria surrounding potential shortfalls of officers has subsided," the report says. "However, it has not entirely gone away. The rate of growth in the commercial fleet has slowed – but there is no evidence that it will decline in the medium to long term. Furthermore, in some regions, the senior officer cadre is ageing and looking at retirement. Elsewhere, there have been signs that officers want to come ashore at a much younger age than their predecessors". All of which, it says, may help shipmanagers push their advantages of crew recruitment, training and retention in the marketplace.  

"The critical question is, how crucial a bargaining chip could this become? Most managers have a mix of full technical and crew management contracts. Could a situation arise where being able to supply the crew enables managers to look to arrangements where crew might only be supplied if the owner commits to a full technical management contract?"

SCI buyback of shares- bad idea?

A report in the Hindu Business Line says that the cash strapped government may be looking at the Shipping Corporation of India to buyback some of its shares to help the country's declining fiscal situation. "SCI is reportedly among the public sector undertakings (PSUs) picked up by the Department of Disinvestment to help the Government bridge its revenue gap through a buyback of shares", the report says. "SCI had a cash surplus of over Rs 2,000 crore at the end of last fiscal; its turnover was around Rs 4,000 crore. This qualifies (under present norms) SCI for buyback of five per cent of its shares".

Financial and industry analysts say that while this practice is normal- in bad times, the government usually eyes cash rich PSUs to garner funds and, at the same time, indicate to the bourses that the stock price of the PSU is undervalued- a buyback of shares by SCI may not be a good idea for many reasons. For a start, they point out to the fact that SCI has been making losses in the last three quarters (Rs 140 crores in the quarter ending September 30) and that no turnaround is expected in the next year, given poor conditions in freight markets. 

This, combined with SCI's expansion plans- although these have been slowed down in the present scenario, as statements by SCI and the Ministry of Shipping indicate- means that the PSU will need a substantial part of its cash for capex and other reasons to do with covering losses and presenting a stronger balance sheet to potential lenders. As the Hindu points out, an outstanding debt of Rs 3500 crores " makes it all the more important to maintain a comfortable cash reserve to enable it to negotiate best rates in the international market. In the current scenario, the company has no alternative but to draw on its cash reserves to put up the equity".

"Taking all factors in account, it would be in the best interests of SCI for the Department of Disinvestment to exclude it from the buyback proposal," it concludes.

World's largest ore carrier develops cracks

"Shades of the Kowloon Bay and Derbyshire?"

 

One of the biggest ships in the world is in trouble after springing a leak soon after loading; reports at the time of writing say that the 400,000-tonne Vale Beijing has been moved from its pier at Ponta da Madeira Maritime terminal in Brazil and towed to an anchorage area for repairs.

The 361 metre Vale Beijing- a megaship ten times the size of the Titanic- is loaded with 384,300 tonnes of high grade ore mined by the giant mining company Vale; the cargo is worth 50 million dollars and was loaded bound for Rotterdam when cracks in two of the Beijing's ballast tanks appeared, indicating some sort of loading or structural problem.  

Fears that the Vale Beijing could sink alongside and block a terminal that handles a tenth of the world's iron ore undoubtedly prompted the authorities shifting the vessel to anchorage, but repairs will not be easy because there are no facilities to discharge ore at Ponta da Madeira and no suitable shipyards are available. The Vale Beijing is one of the first of nearly three dozen massive "Valemax" vessels that Vale has commissioned in an attempt to reduce transportation costs and exploit economies of scale, but the project has been beset with many problems even before the cracks appeared in the Vale Beijing's tanks. 3

The Vale Beijing is more than twice the size of normal large bulk carriers; with this incident, the questions raised earlier about the Valemax's structural strength are now resurfacing. "Everyone is waiting to see if the sea will beat these ships to death," says one industry expert. Another analyst says, talking about incidents in the 80's when large bulk carriers broke up at sea due to structural problems, "There is a difference between passing the risk test on a desktop and passing it in the open sea. Are we seeing shades of the Kowloon Bay and Derbyshire?"

The Vale Beijing has suffered from controversy ever since it entered service this year. Chinese ports - reportedly under pressure from Chinese companies and ship owner's associations who feared that Vale would control the market- refused the ship entry, causing the first lot of cargo to be sent to Italy instead. The problems for Vale were magnified because the VLOC's (Very Large Ore Carriers) like the Vale Beijing were built mainly for the China trade- the country is the world's largest ore importer- and so an unofficial ban on these megaships in China spelt commercial disaster for Vale. 

“They have had several setbacks now in less than half a year — all the issues with regards to whether they will be allowed into China,” says Intermodal's George Lazaridis in Greece. “They have not been able to compete on the main route they wanted, from Brazil to China.”

No doubt Chinese and other ports will be watching developments even more carefully now; the repercussions are likely to be severe should an enquiry reveal structural problems on the Vale Beijing. 

 No port will want to take unnecessary risk should that be the case. “There is an accumulation of pressure on Vale at the moment with different factors all happening at once,” says one shipping expert.

“If this turns out to be very serious, then everyone will have to go back to the drawing board"

European crisis creating downward spiral in asset prices, experts warn.

Shipping finance companies are saying that the industry is facing the worst conditions in a quarter of a century as the crisis in Europe puts severe pressure on European banks. It appears that funding issues at some of the best-known banks in Europe are prompting them to pressurise shipowners to sell off their assets. Unfortunately, the vicious circle that exists today- a combination of falling ship prices and tumbling freight markets-  leaves shipowners with nowhere to hide. 

There are also few buyers. Jessica Maitra, Partner at international law firm Eversheds says that these are difficult to find. “The comments of the shipping financiers come as no surprise in circumstances where decreased global demand for goods and an oversupply of vessels in the market have seen freight rates in certain sectors nosedive in recent months." she says. "The downward spiral in vessel values follows the same trend in earning potential and therefore cash flow. Falling values may be prompting the banks to pressurise owners to sell off further ships, but the question is, will potential buyers be prepared to take the risk of capital values and freight rates continuing to fall?"

By all accounts, the fall in asset prices has been steep. VesselsValue.com, a part of UK's Seasure Shipbrokers, claims that a typical five-year-old VLCC has fallen almost thirty percent in price since August this year, and is now available for just $58m. The value of a similar aged Panamax container vessel has fallen 32 per cent since summer. "Even in dry bulk shipping, where earnings have recovered after falling earlier in the year, a five-year-old Capesize – the largest class – has fallen 28 per cent from a year ago, to $39.4m," a report says.

Analysts fear that as the financial crisis in Europe deepens, greater pressure from banks on shipowners could force a new wave of shipping insolvencies. A Financial Times article claims that many well known shipping financiers privately have admitted that "liquidity problems are putting banks off financing potential purchases of ships that come up for sale, pushing down the values they achieve. That is prompting banks to worry about the value of similar ships pledged as collateral on their loans. A downward spiral in values is developing as falling values prompt banks to pressurise owners to sell off further ships".

Dagfinn Lunde, head of shipping at Germany’s DVB Bank, agrees with this analysis, adding that prices realised by vessels were falling fast, prompting more banks to push shipowners into selling ships. He says, “I don’t think we will have a normally functioning market for many years. In some markets, we will never have the equity returns we were used to.” Financiers say that funding issues are hitting demand even for ships that are in the market, resulting inevitably in pressure on asset values.

Shipping is facing testing times even without this financial crisis. The General Maritime bankruptcy, problems at Korea Lines, Torm and Frontline- and particular issues faced by the container industry beset by overcapacity- still have to be digested. Funding issues will make the situation that much worse. Harald Serck-Hanssen, head of shipping for Norway’s DNB, feels that things may well get worse. He expects more companies to go bankrupt. “There will absolutely be more bankruptcies,” he says. “That’s clear.”

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Vallarpadam's woes mount with Customs-SEZ standoff

Problems at the International Container Transhipment Terminal (ICTT) at Vallarpadam- that was supposed to make Kochi a preferred global transhipment terminal - seem never to end. To add to the old issue of Cabotage comes a new one- a spat between the Special Economic Zone (SEZ) and the Customs department at Kochi over the inspection of containers at the terminal.  The two are at loggerheads, with the SEZ administration saying that inspection by Customs of transhipped containers within the SEZ is unacceptable- the Customs department says that this is their statutory duty. The Customs wants to set up an office inside the ICTT, something that the SEZ authorities have refused to allow so far. 

News reports say today that the situation has become so serious that India Gateway Terminal Pvt Ltd IGTPL)- the ICTT operator- has approached the Kerala High Court against the Customs authorities move to withdraw its staff from the terminal gate. The company has also cited the Ministries of Shipping, Finance and Commerce for delay and inaction in this connection. IGTPL says that they will not allow Customs authorities to examine containers inside the ICTT because the entire premises were a processing zone under the SEZ Act, which did not permit such examination inside the facility. 

Transhipment containers coming in at Vallarpadam are manifested presently by the SEZ at the ICTT and a copy furnished to the Kochi Commissioner of Customs. However, the Customs department says that SEZ has no authority to inspect the containers. “Inspection of export-import cargo is the statutory duty of Customs. Even the SEZ Act does not allow the SEZ authorities to inspect and clear the cargo,” they claim.

Reports about a week ago said that Customs blocked transhipment of around 60 containers that had come in from Tuticorin, discharging them from the ‘Turungia Express’ which eventually sailed out much delayed without the containers on board. An angry Dubai Port World official- DP World operates the Vallarpadam ICTT- said after the incident, “Trade will be hit if these kinds of incidents are repeated. If this situation continues, our efforts to attract more mainline services to the ICTT will become futile.” 

Rumours are afloat that some mainline vessel operators are rethinking their Vallarpadam ICTT commitments already. One operator that had started a weekly European service is set to cancel Kochi and shift to Colombo instead, observers say, pointing out that transhipment containers that arrive in this manner would not be subjected to delays with repeated Customs formalities. Says an ICTT officer, "Repeated verifications will only delay the movement of containers and the whole objective of transhipping will be futile. If the cumbersome procedures continue, international shipping lines will definitely divert and continue to use Colombo as their transhipment hub.” 

Many agree that the Vallarpadam ICTT, commissioned in February this year, will continue to remain uncompetitive unless concerted and timely action is taken. The advantages of Kochi- an all weather natural port situated close to major sea routes- are being frittered away anyway with the old issue of a possible relaxation of Cabotage for the ICTT still to be resolved, they say. 

Some experts are of the opinion that a relaxation of Cabotage is not required, and that Vallarpadam can be supported instead by a more aggressive enforcement of Cabotage on the India- Sri Lanka route. Proponents of this course of action point out that by treating this route as coastal movement- and thereby invoking the Cabotage provisions in the Indian Merchant Shipping Act- the advantages mainline vessels enjoy by using Colombo for transhipment of goods into India will simply disappear.  Seen from this perspective, it would appear that India's Cabotage enforcement is too loose rather than too tough.

Canada- US spat as New York State's ballast water regulations threaten trade

The Canadian Minister of Transport has said that Canada will not let the state of New York dictate ballast water regulations that will have major ramifications on trade on the vital St. Laurence Seaway that connects the Atlantic to the Great Lakes. The Minister was talking on a teleconference on ballast water requirements on the Seaway.

Canada is said to be extremely concerned at the State of New York's proposed ballast water treatment standards that are, according to scientists, 100 times more stringent than the IMO's standards that are due to be ratified. Pierre Poilievre, Parliamentary Secretary to the Canadian Minister of Transport told reporters that New York's position could shut down Seaway traffic and trade, including trade with the United States. The two countries are set to hold a series of talks to try to sort out the matter.

The Canadian government says that New York's rules are so strict that the technology and testing capabilities to comply with them does not exist. Other major concerns include the fact that the New York regulations, if passed, would apply not only to ships entering that State's ports but even to those in transit- whether they plan to discharge ballast or not. With two locks at the entrance to the Lakes lying in New York waters, Canada says that this would effectively stop all traffic, including Canadian domestic ships plying on the Seaway.

Poilievre says that ship owners would not want to transit New York waters because of concerns over insurance cover. He is calling for "compatible regulations for all jurisdictions along the Seaway" as the way to solve the issue. 

Analysts say that the root of the problem is the absence of a federal standard on ballast regulation in the US. As a result, more than two dozen states have enacted their own laws, some so stringent that they have been called unachievable by scientists working on the problem of invasive species borne in ships' ballast.  A new Bill by the US House of Representatives may provide a glimmer of hope- it proposes to set a US national standard for ballast water regulation of vessels with benchmarks in line with those of the IMO. Observers say that with the New York regulations slated to take effect in 2013, the federal government will need to hasten this alternate process to avoid a souring of relations with their neighbours to the north- and severe commercial repercussions.

Amidst reports that New York may be softening its stand, New York senator Diane Savino said this week that she hopes to work with Canada to "advance achievable ballast water standards in New York State that will ensure environmental conservation while promoting jobs and the North American maritime economy." The President of the New York Shipping Association Joseph Curto has also backed the Canadian position. 

Meanwhile, ship owners are waiting on the sidelines before making expensive investment decisions. Even without the New York rules, scientists estimate that as many as 10,000 ships a year- and around 68,000 in total- will have to be fitted with expensive Ballast Water Treatment (BWT) equipment to comply with upcoming IMO benchmarks- at a cost of roughly USD $1 million per ship. A massive $68 billion will be spent in all. 

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