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Tanker Shipping & Trade

Tanker Shipping & Trade

What are the big legal themes facing tanker owners?

Fri 20 Oct 2017

What are the big legal themes facing tanker owners?
Roberto D’Alimonte: (LUISS Guido Carli) shared pointed commentary on globalisation

The rise of China, climate change, protectionism and free trade: the eighth edition of Shipping and the Law, hosted by Studearnio Legale Lauro, considered shipping’s big themes

The morning of the first day of the eighth edition of Shipping and the Law, hosted by Studearnio Legale Lauro set the tone for much of what followed: a combative discussion about the threats that confront the industry and whether they can be considered opportunities.

The first session, moderated by former Guardian environment correspondent Terry Macalister, considered how China’s role as a demand driver sat alongside its broader global ambitions.

Mr Macalister described China as “a buzzing hum constantly in the background of any shipping conversation, and so far the noise has been positive.” China is projecting shipowning and shipbuilding capacity unlike anything the West has ever seen, but its acquisitive appetite is concerning ports and regulators in particular.

As ECSA president-elect Panos Laskaridis noted, a recent brainstorming exercise with the EU on changes in the next 20-30 years included how to respond to China’s aggressive expansion. “We shouldn’t sit back and watch China buy things up, then decide it’s a threat. We should look at it as a tremendous opportunity to work with them, and we would like to see easier access to China in return for investments in Europe.”

He pointed out that despite predictions that China would overtake Japan and Greece in fleet ownership rankings, China had not done so in a decade: “In capacity terms, the distance has widened – you cannot develop in 10 years what takes 2,000 years to learn.”

For Confitarma president-elect Mario Mattioli, the potential of One Belt, One Road at 12 times the size of the Marshall Plan is challenging and scary as well. Italy must look at it as an opportunity, despite being at the end of the belt. “Our strategy should be to act as a logistics platform, but we are at risk from real-world events. We need to create political consensus on the sea – not a ministry of merchant marine, but a ministry of the sea,” he said.

ICS chairman Esben Poulsson was more optimistic that the progress that China has achieved can be managed in a way that is beneficial and good business for both sides. “Certainly the progress has been dramatic and the spin-off benefits tremendous, especially for the wet and dry bulk markets. From a regulatory point of view, China has proven itself to be committed to the WTO and we have engaged as shipowners in company-to-company dialogue at a high level,” he said.

As the sole regulator in the room, EU director of waterborne transport Magda Kopczynska said that the EU needed to take defending European interests more seriously in future: “We are certainly looking more closely at third-country investment in Europe. We need to be attentive to get fair and similar deals when European companies go to China.”

The dialogue that shapes the current maritime landscape is 12 years old, and she said the EU attached growing importance to the maritime dimension of trade and China’s role within it. “China has potential as a connectivity platform provided investments are made with transparency. We don’t doubt China must be taken seriously, but discussions on an industry level are not enough. Negotiations are more powerful on a government level than on an individual basis,” she asserted.

But would the EU actually intervene if China moved to buy any more EU port resources? That was not for the Commission to say, but there is a need to set ground rules in discussion with port authorities and national governments, she said.

There was some consensus on the issue of climate change, though still plenty of room to dance. Admitting she was “an optimist by nature,” Ms Kopczynska noted a change in attitudes in the industry, with a “clear indication and commitment that shipping is willing to take the challenges seriously.. She officially acknowledged and applauded the industry for the ICS submission to MEPC 71, and said that “by the end it was clear both industry and green NGOs were equally frustrated by the slow pace of progress. I hope what we will get from the next intercessional is a vision on what elements need to be agreed.”

Mr Poulsson agreed the industry had been slow off the mark, but it remained “responsible, adaptable to change and ready to understand our role. There is a strong incentive to reduce fuel costs, and optimism around positive dialogue.”

Mr Laskaridis suggested a more novel approach, though not one that is policy so far. “Despite not being in the Paris Accord, we realise we have to contribute in a fair, proportionate and equitable way. We will have to pay to reduce impact carbon by operational measures such as regulating slow steaming. If you go faster, you will have to pay.”

While the impact of regulation on markets is becoming easier to identify, there is far less certainty about how the shift toward protectionism and populism will impact shipping. This could be because the effects have not yet been felt, or because the risk has been overstated.

Explaining the current situation, Roberto D’Alimonte, chair of the political science department at LUISS Guido Carli, put it indelicately: “A lot of people frustrated by Globalisation may have given us a greater degree of equality at a global level, but at a country level inequality has grown”.

As globalisation’s servant, shipping and ports stand to suffer from a reversal, but Antwerp Port Authority president Marc Van Peel noted – for his port at least – no effects of the Trump trade policy. But “Brexit will be a major issue for European ports, and there will be winners and losers. North continent ports could take traffic from Dover, Southampton and Felixstowe. What we fear most is the lack of a sensible agreement.”

Like many people in the industry former ECSA president Thomas Rehder was simply bemused as to why the UK would turn its back on the world’s biggest single market, but he had a different target in mind: the US Jones Act. He called it “an extreme protectionist policy that has created a maritime museum, stifled innovation and resulted in an outdated fleet. It exists at a great cost for the environment and consumers, and it doesn’t help shipbuilding or create employment.”

Neapolitan shipowners have had some of the worst of a terrible decade, and in some cases have been ill-prepared for the changes that have hit the industry. Often small, family owned and used to traditional banking relationships, these owners are now led by a younger generation – and the changes are taking hold.

In the ‘Past and Future’ session, former Young Confitarma president Andrea Garola pointed out the difficulty of reconciling more capital intensive and technical vessel operations with the ability of a family company to take a final investment decision. He said: “New niche solutions such as LNG as fuel are even more expensive and more technical. They completely change the financial structure for us. New sources of finance can bring new vessels into market, but it’s up to us to decide whether this presence is enemy or friend.”

He added that he would be in favour if not of consolidation, then at least of pooling or sharing ownership in place of the 100% model, and in favour of far more co-operation on services (such as purchasing) that allowed local owners to work together.

As Mariella Bottiglieri observed, when everything changes, a Darwinian approach applies. Trades, ships and the legal framework have changed, so the sector’s approach to finance has to change too. She explained: “Shipping needed an alternative, and the only reason private equity funds are fashionable is because the banks are not there. The banks used to be the perfect guy forever, but they disappeared. A PE fund is not going to be there for life, so it’s important to find a timeline that suits both parties.”

Young Confitarma president elect Giacomo Gavarone added that the challenge was not necessarily about finance, but rather about finding the right partners with whom to manage the business. “It means looking outside your family in new markets to find the right partners to share risk in international joint ventures. Sometimes we compete, sometimes we co-operate,” he said.

In his keynote on day two of the conference, former IOPC Funds chairman Mans Jacobsen considered moves by the fund to amend its policy on pure economic loss in the case of oil spills. In such a situation, a fisherman might suffer consequential loss because he cannot trade, but a hotel that has to close as a result suffers a pure economic loss. The Fund’s policy after large spills has come under criticism from employees of such businesses whose claims have been rejected.

But because these claims have been accepted by some courts, the Fund will re-consider its policy in a meeting at the end of October – including terms of compensation payable to employees laid off as a result of spills. Mr Jacobsen warned that an incident that affected tens of thousands of employees could result in enormous compensation that might exceed the Fund’s resources.

“Different nations have been able to agree on claims on the basis of pure economic loss, and the system works well. The law is not static and must develop to reflect political and economic changes, and national and international treaties,” he said. “It is important to reconsider positions taken by the Fund, but stability and consistency over time has always been its strategy. It will be interesting to see what will happen if new criteria are agreed for claimants laid off as a result of spills.”

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