Tim Huxley

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, while the Atlantic economies showed around two 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 and, if so, it will hopefully be at the same time as 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. While 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?

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. With Japan itself showing a small projected increase to 132 million tons and other Asian importers, such as Korea, also showing increases, total iron ore imports to Asia will jump by 20 per cent this year.

With Asian imports of steam coal rising to 232 million and coking coal to 104 million tons, combined with a manageable newbuilding delivery schedule of 29 capesize vessels and 30 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 milion 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 onstream.

The business cycle suggests that there will be a slowdown in tanker demand in 2004 or 2005. We currently have 70.5 million dwt of tankers on order, 25.7 million dwt of which will be delivered in 2004. The phase-out of single-hull tankers as required by International Maritime Organisation 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 dwt, 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 ’80s, there was a fear that the world could face a shortage of shipbuilding capacity — we all got that pretty wrong.

Worldwide shipbuilding capacity in 1988 was 14.8 million dwt, but by 2000, this had grown to 44 million 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 dwt, there is every possibility of shipyards being hard pressed to secure orders, although continued growth in container trades will 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 megashipyards, but also significant improvements in productivity at existing yards.

So where does this leave Hong Kong’s shipbrokers? Hong Kong has been home to a healthy shipbroking industry for around 50 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 ’80s, the number of Hong Kongbased 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.

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. While 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 among 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.

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.

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 substandard.

These are extracts from a presentation given by Tim Huxley, Managing Director of Clarkson Asia, at an Institute of Chartered Shipbrokers function at the Foreign Correspondents Club, Hong Kong.
For the full paper go to www.ics.org.hk/talks.htm.

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