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This prompted a quick re-write, however I am delighted that the invitation has been extended to a wider audience, and my first two plugs of the evening are that for anyone who is here and involved in the commercial side of shipping and who is not a member of the Institute, I would strongly recommend obtaining the globally recognised qualification that membership of the Institute brings. For those who are not members of the Hong Kong Shipowners Association, I strongly recommend you join Hong Kong's leading shipping organisation which plays a pivotal role in representing and promoting Hong Kong's owners and shipping services companies throughout the world. These are two of the best investments you can make in shipping and you don't have to be either a shipbroker or shipowner to join either of them. I have been asked to speak on the prospects for shipping and the role of the shipbroker in Hong Kong. These are two very distinct topics and those of you who recently attended the Hong Kong Shipowners Association analysts lunch where Martin Stopford gave a market forecast will know which direction I am coming from. We are currently in one of those all too rare golden moments of shipping, when both the dry bulk and tanker sectors are enjoying good markets. Even better news is that Asia is the centre of the growth in maritime trade, with China in particular being the driving force in the surge in bulk trades which has generated the current upturn. I know I shouldn't spoil this positive tone but we do now have all the elements in place for a headlong rush to shipyards to invest in new tonnage and precipitate a drop in freight rates and a return to depression, but I will come to that later. Despite Hong Kong itself being in a slump, the world's industrial economy, the driving force of the shipping industry, is in pretty good shape and political concerns aside, this should be maintained for the balance of this year. Industrial production in the Pacific should grow by around 6 per cent this year, whilst the Atlantic economies were showing around 2 per cent growth at the end of last year. The growth in the Pacific may begin to level out at the end of this year, if so, it will hopefully at the same time as there is a pick-up in the Atlantic which will support trade into 2004. History shows that trends are never maintained, and the pattern of business cycles suggests that there could be some tailing off in the business cycle next year. Whilst every one of us who visits China marvels at the rapid rate of development in the major cities, the question has to be asked how long can such growth be maintained. As an aside, the fact that shipping is enjoying a period of prosperity whilst our own domestic economy in Hong Kong is in a slump has to be seen as positive. The shipping industry and Hong Kong's economy have few, if any, direct links and the fact that the cost of doing business here is becoming more competitive with other centres, albeit it is still on the expensive side, whilst our own industry is thriving has to be good for the shipowning and shipping related companies located here. Whilst cost alone is never a good enough reason to re-locate, if Hong Kong can maintain it's renowned shipping infrastructure and be more competitive, then there has to be hope that we can attract more owners and charterers to locate their commercial headquarters here, to the benefit of our shipping services industry. Returning to the prospects for shipping, the dry bulk market, particularly in the capesize and panamax sector, has been largely driven by the growth in China. China has become the dominant importer of iron ore, with a further 29 per cent increase in exports expected this year, taking the figure to over 140 million tons.This will take China ahead of Japan in terms of iron ore imports for the first time and with Japan itself showing a projected small increase to 132 million tons and other Asian importers such as Korea also showing increases, the total iron ore imports to Asia will jump by 20 per cent this year. With other major bulk commodity imports to Asia of steam coal rising to 232 million coals and coking coal to 104 million tons, combined with a manageable newbuilding delivery schedule of twenty nine capesize vessels and thirty panamaxes, there is every reason to be optimistic. The tanker market is often considered as the glamour end of shipping, as this was where the likes of Onassis, Pao, Tung and Niarchos made their fortunes . It has also been the graveyard of many a shipping fortune . During the 1990s, tanker demand grew by around 1.2 million barrels per day, but then ground to a halt in 2001-2002, so it was no surprise that the market collapsed just as a huge influx of newbuildings contracted in the boom years of 2000 came on-stream. This year, demand will increase by around one million barrels per day and the current boom can be attributed partly to this trade growth- again China is a leading player with estimated growth in imports this year of seven per cent to 1.3 million barrels per day- but also to a number of other major factors. These include the historic low stocks in the United States, which with war looming is a priority to boost, the strike in Venezuela which has meant that around 14 per cent of U.S. imports have had to come from longer haul destinations, hence tightening tanker demand and the PRESTIGE factor, which has seen a significant reluctance on the part of European charterers to take older single hull tankers, thus tightening the market for modern tonnage. Another significant factor which has helped boost rates has been the tightening of control of tonnage through the consolidation of owners in pooling agreements and the merging of some major players into giant owners such as Frontline. Pool agreements can do little to keep the market up when it is in decline- if there is not enough cargo, rates drop no matter how hard you try and hide actual tonnage availability. In a rising market, the manipulation of tonnage supply by pools can help force faster rises and this has certainly been evident in the VLCC and the capesize market where there has been a high concentration of modern tonnage into a smaller number of operating groups. So how long can this buoyant tanker market last ? Let's not forget that it is only a year ago that VLCCs were earning around US$ 10,000 per day and Owners were considering switching tanker newbuilding berths to bulkcarriers or cancelling them altogether. Even in September, we were deeply concerned about the aframax orderbook, but the PRESTIGE incident appeared to vindicate all those who had taken the risk of ordering new tonnage. Certainly, anyone with a tanker coming into the market right now is looking good, but down the line, things are not perhaps so rosy. The business cycle suggests that there will be a slowdown in tanker demand in 2004 or 2005. We currently have 61.9 mill dwt of tankers on order, all of which will be delivered before the end of 2005. The phase out of single hull tankers as required by IMO regulation 13G will not be completed until 2007, and even with this phase out, the total number of pre-MARPOL ships to be phased out is only 53 million deadweight, so we have already more than replaced that tonnage with the current orderbook.. Even with possible legislation in Europe forcing single hull tankers out of that market, it looks like we have the elements in place for a tanker surplus in 2005. Of course forecasts can be notoriously wrong. At the end of the eighties, there was a fear that the world could face a shortage of shipbuilding capacity- we all got that pretty wrong. World-wide shipbuilding capacity in 1988 was 14.8 mill dwt, but by 2000, this had grown to 44 mill dwt. With shipyards putting up 'fully booked until 2006' signs on account of the high level of tanker and containership ordering we have seen in the past few months, this might appear to be a rather pessimistic view, but I maintain that excess shipbuilding capacity remains the biggest threat to the continued prosperity of the shipping industry in the next decade. With tanker demand forecasts for five years time suggesting an annual requirement of no more than 10-16 million deadweight, there is every possibility of shipyards being hard pressed to secure orders, although continued growth in container trades will be mean a steady supply from this sector. This potential decline in demand is combined with continued expansion of shipbuilding capacity in China, not only in the development of several new mega-shipyards, but also significant improvements in productivity at existing yards. A prime example of this is the Waigaoqiao Shipyard near Shanghai. This yard occupies the same acreage, has the same available dock space and approximately the same workforce as Samho Shipyard in Korea. At present Waigaoqiao delivers four ships per year compared to Samho's twenty five. If the efficiency of Chinese shipyards grows to even fifty per cent of the current efficiency of the Korean shipyards, which it could quite easily do, that is a major expansion of capacity even without building any new facilities. The problem with shipbuilding is that it is a great business for earning hard currency and there is also a strong element of national pride amongst the Asian builders to be major players in this sector. If the shipbuilding industry were to be focussed on long term profitability rather than turnover and volume, it would be to the benefit of all sectors of the industry. The question I am asked on an almost daily basis at the moment is what is going to be the impact of what appears to be the increasingly inevitable war in Iraq. None of us know what this holds, the only things that are certain are that an expensive conflict would be debilitating for the U.S. company, whilst a period of high oil prices spells recession, and if we enter into a recession, it will have a profound effect on world trade and consequently shipping. So where does this leave Hong Kong's shipbrokers ? Hong Kong has been home to a healthy shipbroking industry for around fifty years, enduring good times and bad, and the fact that several of the largest global players in the shipbroking industry choose to base their Asian operations in Hong Kong is testament to the importance of Hong Kong as a shipbroking centre. Since the mid-80's, the number of Hong Kong based shipowners has declined, and hence a significant portion of the locally based business has disappeared, but the rise of Hong Kong as a major chartering centre, particularly for China, plus the ability of Hong Kong's shipbrokers to develop a broad base of business outside of Hong Kong, emphasising Hong Kong's role as a major cross-trading centre for business, has allowed Hong Kong to retain a vibrant shipbroking community- a core component in the fabric of any city which aspires to be an international maritime centre. A couple of years ago, there seemed to be a notable drop-off in the number of shipping people who visited Hong Kong. Previously, a trip to Hong Kong was essential for anyone from Europe travelling to the Far East, but suddenly, direct flights to Shanghai saw many people decide to go straight to China and inevitably there were fears that Hong Kong's position would be eroded. I am a firm believer in the future of Hong Kong not only as a shipbroking centre but as Asia's premier maritime centre, but the continued prosperity of Hong Kong's maritime services, not just in shipbroking, is dependent on Hong Kong continuing to offer high standards of service and continuing to receive the backing of the local shipping community. Communications, both in their speed and lower cost, now allow anyone in the world to talk to anyone. The result is that a principal, whether Owner or Charterer can end up being inundated with a wealth of information from dozens of shipbrokers around the world. So why should customers use shipbrokers in Hong Kong ? Firstly, the very fact that a shipbroker is living and working in Hong Kong means that he is committed to Hong Kong business. The Hong Kong shipbroker is not someone who will pay attention to the local community only when his prime Greek or Norwegian clients are quiet. Whilst the smaller owning market mentioned earlier means that it is difficult to survive on Hong Kong business alone, the local shipbroking community is here first and foremost to serve the local shipping community. I am certainly not imploring that Hong Kong's owners and charterers should only use local brokers, a shipbroker will hopefully get a client's business only if he is offering the best service to that client and in that respect, I believe that Hong Kong has a depth of talent both amongst our local and ex-patriate shipbrokers to provide as good a service as is available anywhere. In addition, we have the added advantage of being on the spot, committed to the Hong Kong market and more capable of being able to fully understand the clients requirements by virtue of having a more regular contact and a more hands-on knowledge of the intricacies of the Asian market. Two years ago, shipbroking as an industry was being written off in some quarters as almost certain to fall prey to the miracle of the internet. In November 2001, I made a speech at a conference organised by the Hong Kong branch of the Nautical Institute, another body of which Hong Kong can be justifiably proud. At that time I said that there was a better chance of the world's iron ore and coal being transported by air freight than there was of a wholesale shift of shipbroking to the internet and on-line chartering. For once, I seemed to have made a correct call. The reasons for the failure of on-line shipbroking are numerous- it was actually slower to fix a ship on the internet than it was to do it in a conventional way, whilst there appeared to be a fundamental lack of understanding, not to say arrogance, on the part of the promoters of many e-chartering sites of exactly how the bulk shipping industry goes about it's business. No matter how much can be done electronically, there will not be a replacement for the personal relationship between principals and brokers and the need for private information and the inside track- which is how all the best deals are done- is going to continue to exist and you are not going to get that off the internet. Any fool can post the position of a ship on a website or the availability of a cargo- although compiling comprehensive and accurate position lists and cargo availability is actually an important part of the broker's job , but it is the 'soft' information which is where the real value lies, which can range from the fact that there is actually a programme of five cargoes as opposed to only the one cargo which has been placed on the market or the fact that an owner has to fix in the next couple of hours because he is then heading to the airport and will be uncontactable. Shipping is always going to need shipbrokers who will ferret around discreetly in the twilight zone of our unique industry, thus allowing customers to make their move with maximum effect, whether it be the charterer securing the cheapest ship, or the owner fixing a period deal or selling a ship at the best possible rate or price. Likewise, for anyone who has ever experienced a bill of lading dispute or needed to get a Letter of Indemnity from a charterer in the middle of the night, or had to settle the inevitable problems of bunker prices at the time of a secondhand vessel closing or any of the other numerous problems which come as part of the territory in chartering, buying or selling a ship, there is always going to be a need for personal intervention. What is critically important for the shipbroking industry as a whole is that high standards are maintained. There are numerous cases of brokers who have tried to secure a channel on business through making up indications on behalf of charterers or as we call it 'spoofing'- and sadly this is prevalent in some quarters in Hong Kong. Acting in such a manner is to my mind inexcusable, and in Clarksons Hong Kong, we have a strict policy which involves the dismissal of any broker who is found to be doing such a thing. The Institute of Chartered Shipbrokers sets standards for the industry which its members abide by, however it is ultimately down to the principals in the shipping industry to weed out any unprofessional conduct by ensuring that they do not do business with such shipbrokers. Maintaining high standards in the shipbroking profession is not just down to the shipbroking companies themselves, it is ultimately in the hands of the clients who use shipbrokers and who therefore have the ability to raise standards by forcing out the sub-standard. One of Hong Kong's prominent owners has the advertising slogan 'Ships and Relationships', and the reason that we are all here is not really to sit and listen to me, it's to meet the other people who are here and have the personal contact that is such an important part of our industry and why internet shipbroking doesn't work. When you can download from the internet a cold beer and the company of the characters who go to make up Hong Kong's great shipping industry, that is when I will get out of it. Thank you. |