MER ET MARINE : Following a detailed BIMCO* report on maritime freight rates published in June 2016, the association has released a critical analysis of the current situation and outlook for global dry bulk transport. Why publish a document like this now?
* BIMCO — the Baltic and International Maritime Council — is the largest international shipping association.
PHILIPPE LOUIS-DREYFUS: Because I think it’s important to step back and take a thoughtful look at this complex market which is going though an unprecedented crisis right now. To better understand and anticipate trends, we need to distance ourselves from pure statistical and quantitative analyses. There are plenty of reports in circulation at the moment from the public and private sector and the industry’s social partners. We have read a pile of reports on freight rates, labour, environmental and technical regulations, and maritime security. BIMCO’s own study of projected freight rates, issued in June, estimated that in the best case scenario prices are unlikely to recover until 2019.
But until now, none of these publications has included qualitative commentary or sociological considerations concerning the different maritime sectors and stakeholders. I refer to shipowners, shipyards, brokers, insurers, and so on. It seemed to me that it was important to examine these issues in greater depth. So that was the brief I gave BIMCO and which led to this report.
The report contains a fairly explicit overview of the dry bulk market. It points out (a) that consumption in the West and Japan is unlikely to return to the peaks observed in 2007, (b) that the emerging economies in Asia dictate market conditions, and (c) that the outlook is blurred to say the least. It also highlights significant fleet overcapacity and a fragmented shipping network that’s susceptible to speculation and the lure of short-term profits. Can we really envisage any improvements in the market under these conditions?
The older vessels have to go — those over 15 or 20 years old should be scrapped. For a number of reasons, this is the first — absolutely essential — move. One reason is safety; first crew safety, which is paramount, but also the ‘safety’ or protection of the environment. Recently built ships are safer, less polluting, and comply with the latest international environmental standards.
The scrapping of older ships would also help to rationalise the market. For that to happen, however, everyone would have to play fair. We should begin by getting rid of older ships with crews working under less than favourable conditions as they are a danger to the environment. Older ships plus underpaid crews result in prices that defy competition — for obvious reasons. No new vessel with a crew receiving proper pay can compete.
It is, of course, extremely difficult to achieve consensus on issues like this. Currently, two trends are emerging. On the one hand, shipowners who are aware that they need to cut their losses, rationalise their fleets and help put the market get back on its feet to improve the medium- and long-term outlook. On the other hand, there are those who do not understand this message at all, among them, more often than not, small companies with three to five vessels — fully depreciated ages ago, hence with little book value — who do not want to, or cannot, part with their assets.
In any case, the current crisis — which is far worse than in 2008 — has already affected the sector and will continue to do so. Mergers and restructuring will continue, as will the pressure of regulatory changes. Basel III will increase interest rates for infrastructure projects while banks — which are playing a steadily smaller role — appear set to invest less than they did. Only players who are part of a large group will be able to borrow to rebuild.
You touched on environmental issues. The coming into force of numerous international regulations concerning ballast water and emissions will inevitably lead to the retirement of some vessels, hence to a degree of rationalisation of the bulk carrier fleet.
Basically, yes. I’m saddened, even aggrieved, to note that it is the enforcement of new standards that will finally force shipowners to comply with certain environmental standards. We should have agreed and taken this issue in hand ourselves long before it was done by way of third-party documents produced by people who are not all that familiar with our everyday realities.
We should have taken the bull by the horns instead of dragging our feet. But we didn’t. So now, it’s in the politicians’ hands. And they’re the ones who will decide how we run our businesses, whereas this could have been done by the sector’s own professionals.
Given this situation and the anticipated ‘uberisation’ of the seas, what developments are in store for shipowners? Is there still room for them, between bankers and shippers?
It isn’t easy to stand one’s ground between listed companies, whose interests are financial and who want an immediate return, and the now unavoidable, all-powerful multinational buyers whose overriding interest is not merely cost-cutting, but cost-killing, rather than stable long-term partnerships.
The 2008 crash highlighted a lesson that has yet to be learned, namely what can happen when financial markets are given carte blanche. Increasingly, it is investment analysts, rather than industry leaders, who are calling the shots.
But I think that some things are going to change. Not everything is cut and dried, and at least some in the sector will realise the need to return to quality and long-term relationships. There is still a place for family businesses in the maritime sector, and perhaps more particularly in transport. Wherever there is real demand for in-depth understanding of the sea, there will always be a place for these companies — and for partnerships based on face-to-face contact, rather than screens.
Interview by Caroline Britz, Mer et Marine