This year, many of our clients have faced claims arising out of the delivery of cargo without production of the original bills of lading and against letters of indemnity (“LOIs”).

This scenario has become increasingly common in the PRC, particularly in the iron ore trade where banks are looking to enforce their rights in view of the deteriorating financial health of local steel mills and traders. In many cases, the original bills of lading have not passed through the banking chain to the ultimate receivers and cargo is discharged against an LOI and released to a party who has not paid for the goods. This results in a claim against the carrier by the bank for misdelivery and, ultimately, a claim under the LOI by the carrier.

The delivery of cargo without production of the original bills of lading and against an LOI has become widespread and accepted. However, parties often issue LOIs without a full appreciation of the risks involved.

If a party is considering providing an LOI, careful scrutiny of the security for payment under the sale contract and of the risk of the bills of lading being stuck in the chain should be conducted first.

If a party issues an LOI then it should always obtain an LOI from its charterer/buyer down the chain. The indemnity should be on materially identical terms to the LOI provided. Parties should remember that security is only as sound as the solvency of the party providing it and so, ideally, the indemnity should be backed by a guarantee from a first class international bank or, at the very least, a parent company of substance.

In the PRC, the importance of the delivery order and the lack of physical control of the cargo are leading to significant exposures. Parties should try to insert provisions into their contracts which ensure that delivery orders are only exchanged in return for original bills of lading and find ways of asserting greater control over local agents.

Another option which should be explored is increasing the usage of independently owned or leased warehouses or bonded warehouses into which cargo can be discharged. Whether this is viable would largely depend on the facilities at the relevant port and the point at which import duty will become payable.

This was an appeal from an LMAA arbitration award, considering the true construction of clause 8(d) of the Inter-Club Agreement 1996 (“ICA”); specifically, whether the meaning of the term “act” in the phrase “act or neglect” should be restricted to a culpable act.

The dispute concerned a trip time charter where the charterers (also the shippers) had, for their own purposes, ordered the ship to wait off the discharge port for over four months before discharging the cargo. During this time part of the cargo was damaged due to overheating, which was found by the Tribunal to have been caused by a combination of the prolonged delay at the discharge port and the inherent nature of the cargo.

The owners, as carrier, settled the receivers’ claims under the bills of lading and then sought to recover their losses (including hire) from the charterers.

The ICA had been incorporated into the time charterparty and it was common ground that liability was to be settled in accordance with it terms and that Clause 8(d) was the relevant part.

For the purposes of clause 8 of the ICA, sub-clause (d) is the sweep-up provision and provides that:

“All other cargo claims whatsoever (including claims for delay to cargo):
50% Charterers
50% Owners

unless there is clear and irrefutable evidence that the claim arose out of the act or neglect of the one or the other (including their servants or sub-contractors) in which case that party shall then bear 100% of the claim.”

The Tribunal found that the charterers whilst not in “neglect” had, by their decisions to load the cargo and delay discharge (“to not only protect their position but we sense actually profit from it”), performed an “act” for the purposes of clause 8(d). Accordingly, the charterers were 100% liable under the provision.

The charterers argued on appeal that this decision was wrong as a matter of law, on the basis that, for these purposes, the word “act” must take its “colour” from its combination with “neglect” and thus be limited to a “culpable act”; and there was nothing culpable in the charterers’ “decision”.

However, the learned Admiralty Judge, Teare J, found that the meaning of the word “act” was not to be coloured by its association with “neglect” and upheld the broader, non-culpable, interpretation at which the Tribunal had arrived.

In the judgment, the origin of the ICA (as a blunt tool by which P&I insurers might circumvent perceived uncertainties associated with Clause 8 of the NYPE ’46 form), and its subsequent incorporation into NYPE based time charters, is rehearsed for the sake of finding the colour behind the word “act”.

Ultimately the learned judge found that the meaning of the word can only be determined in the context of the ICA and that other constructions surrounding the phrase in other contexts (with or without the additional word “fault”) were not of assistance.

As such the judgment means that the word “act” in Clause 8(d) of the ICA must now include any positive conduct of the parties (or their servants and sub-contractors).

Although the decision is robust in its assertion that the ICA provision is a “more or less” or “broadly” mechanical process, for the charterers, the Tribunal’s view as to the benefit of their decision might seem to have offered its own colour to the outcome.

The learned judge gave permission to appeal and it would seem surprising if this opportunity were not taken up. Whatever the outcome though, the judgment prompts further thought as to the role of the ICA within time charters.

IHS Fairplay sat down with Robert Bugbee, president of Scorpio Bulkers and Scorpio Tankers, in the latest of a series of interviews on lessons learned from the shipping cycles of the past decade.

Bugbee began his shipping career at Gotaas-Larsen, then went on to serve as an executive under Craig Stevenson at OMI Corp. OMI sold out at the top of the cycle, in 2007, for USD2.2 billion. Bugbee came aboard at Scorpio after his non-compete agreement expired,  taking the group’s product tanker company public in New York in 2010 and its dry bulk company public in 2013.

The following interview was conducted in Scorpio’s Manhattan office on 13 December:

Greg Miller: Let’s begin with what shipping did right during the highs and lows of the past decade, the kind of actions that can be used as a guide for future industry strategy. What worked at the companies you were involved with?

Robert Bugbee: “It was a really right thing to sell OMI. It was a really right thing for Scorpio Tankers to trade its VLCC position, buying them in the 80s and selling them at 105 [thousand]. It was the right thing for Scorpio Tankers to trade out of its Dorian LPG position. And the thesis of Scorpio Tankers was the right thing, in terms of the development of the product tanker market from the demand side, as a result of the change in demographics of refinery capacity and environmental changes in countries like Australia, where they decided to import refined products rather than import crude and refine their own products.”

I’ve seen two conflicting theories on refinery developments and what they mean to product tanker demand. Several analysts, including Drewry, have said that refineries are being built closer to crude production, which is bad for crude tankers and good for product tankers. But OPEC  recently published a forecast claiming the opposite, that refineries are being developed closer to consumers, in China in particular, which is good for crude tankers and bad for product tankers.

“Well, one of the major contributors to OPEC, probably the most important, Saudi Arabia, has also come out and said that it is doubling its own refinery capacity, which would be contrary to that [OPEC forecast]. I also think China’s development of its refinery capacity is a good thing for the product tanker market, in the same sense that the development of the US and European refinery areas were. It will allow for more intraregional transportation. There will be more products shipped, whether it’s locally or across the ocean, so that’s fine.”

To go back to what you said about selling OMI, one of the criticisms of public companies is that management is averse to selling at the top of the cycle, because by doing so, management is out of a job. The OMI deal is a perfect counter-example, but in general, what do you think of this theory that there’s a managerial aversion to cashing out on the public side?

“I think that shipping is one of those industries where it’s much more fun to collect ships and to have bigger organisations, so it’s an industry that is prone to having better buyers than sellers. I don’t think there’s a natural tendency for any particular [shipping] management to give up its toys, whether the company is public or private.

“It’s a hard thing to do [to sell out] and it comes with a lot of social cost [to employees]. Fortunately, I’ve come from a background at Gotaas-Larsen, which was sold twice, and OMI, where the boards of those companies made sure that not just management but also staff were compensated for doing the correct thing for the shareholders. It doesn’t do any good to say to public companies, ‘You should always sell and consolidate’ if at the same time, you do not have the incentives alignment for the management and the staff to do that. When it comes to private companies, it’s their own money, so they can do whatever they want.”

Let’s move on to how the banking industry has behaved over the past 10 years. There was a tremendous amount of low-cost debt provided during the shipping boom through 2008, then we had the ‘extend and pretend’ and ‘kick the can’ practices in 2010–13, and then in 2016, we really saw a much sterner tone from lenders and we saw banks pressing borrowers to raise new equity. Where do you think we stand with the banks?

“We’ve now got some tremendously encouraging things going on for the shipping industry. I see five things that are encouraging. First, the banks are now allocating capital rationally. They’re no longer extending and pretending. They’re really dealing with their issues. There’s far more willingness to be discriminatory. If they are willing to lend to the top of the food chain in each of the shipping sectors, they are really being tough where the balance sheets aren’t there – and that’s a good thing.

“The second encouraging thing I see is that equity today is being more disciplined. We’ve got the re-emergence of the really good long-only value funds. Many of the people who are buying stock in Scorpio Tankers or Scorpio Bulkers today are people who bought into OMI but had not bought in during this last four- to five-year period because they were scared off by the free capital [coming into shipping] that was basically provided by private equity or quantitative easing, whichever way you look at it.

“The third element is something I’m seeing for the first time in my career: we now have a meaningful reduction in shipyard capacity. We haven’t had that discipline before. Just as we saw ‘extend and pretend’ from lenders, we saw governments prop up shipyards with no view towards revenue and costs. Now, they’re getting more disciplined.

“The fourth element is that we continue to ratchet up the environmental and safety compliance on vessels. And the fifth thing is that we’re actually getting benefits of scale not only through the capital markets, but through technology and software, whether it’s through electronically managing vessels, getting empirical data, the ability to follow customers, or accounting software. The larger companies with the larger access to capital will be able to afford more, programme more and keep more on the cutting edge of software and technology.

“At Scorpio, we effectively have all sister ships with sister engines monitored electronically, so we’re able to really know what’s wrong with the ship. It’s not a guess. And if an adjustment has to be made to one engine, it can be translated across the rest of the fleet within seconds. You also have much better degrees of control on your inventories, your wear and tear on parts, your records of crew going through different things, etc.”

When I listen to you talk about technology, it brings to mind the so-called ‘Smart Shipping’ paradigm, the concept of ultra-high-tech satellite-linked purpose-built fleets working as unified factory units for the manufacture of transport. I’ve never understood how we’ll make the transition to this model, given that the huge investment required and the integrated logistics would seem to necessitate a reversion to more industrial-style shipping and more long-term relationships with commodity shippers, versus the current spot model. But what I hear you saying is that we’re already seeing some of the benefits associated with Smart Shipping.

“I don’t think that has ever been a problem for the industry [affording new technology in a spot market environment]. I think our job in bulk shipping, if we really look ourselves in the mirror, is to provide safe bulk transportation that over time is really cheap, and we do that by this wonderful dynamic whereby supply is more inelastic than demand and every now and again we get these wonderful surges in the market where there are extraordinary returns that ultimately lead to tremendous overbuilding on the supply side.

“As the famous economic quote goes: ‘The cure for high prices is high prices’. Shipping is doing a great job of that and it has always managed to somehow afford whatever technical advancement there is.”

We talked before about what the companies you were involved with did right over the past decade. What about other examples involving companies you were not involved with?

“So many people got things right. There were the so-called ‘gods of shipping’ – the Ofers, the Paos, the Angelicoussises, the Fredriksens. These people were very clever in seeing this wall of money that came in from Wall Street three or four years ago, and this massive ordering of vessels, and they did the right thing and passed. They basically, as a group, said, ‘This is ridiculous.’ And they waited, and the market crashed, and they were able to scoop up a bunch of ships and assets. That’s one example of people who got things right.

“Another example is Golar LNG, in terms of technical innovation and complexity and taking things forwards in an industry that is massively changing. Remember, it was only a few years ago that we were building these LNG import terminals in the US [which has since switched to exports]. Golar is in an industry that’s much more complex than a normal bulk business, with huge changes, and they’ve just kept to their knitting – and I expect them to be rewarded for it.”

There are also lessons to be learned from the mistakes that have been made. Can you give me a few examples of what your companies have done wrong over the past decade?

“At Scorpio Tankers, I think we got the demand thesis correct, and we got the type of ships we were ordering correct. What surprised us, what I think we got wrong, was that we didn’t expect a whole load of people, including some of our own shareholders, to go out and give a whole lot of money to a whole bunch of other people to go out and order the exact same thing. We had shareholders with big positions in Scorpio Tankers who were funding start-ups ordering the very same ships they were investing in with Scorpio Tankers, for their own reasons. We didn’t expect that.

“I can tell you what we got wrong at Scorpio Bulkers. We didn’t expect the slowdown of China and the capital market change and the real deflationary environment surrounding commodities. Those things were surprising.

“At the same time, the wonderful thing about shipping is that if you stay humble for long enough, you’ll get some upside surprises too. So we’re now pleasantly surprised with dry cargo.”

Like what’s going on today with coal…

“Yeah, people were saying we were never going to need coal anymore – but coal is moving again. And China seems to be doing OK. And Trump [US president-elect Donald Trump] has come along and stimulated the US equity markets. The bane of all shipping is deflation and we’re seeing some tendencies now where you could have inflation, which is good.”

You’ve been in this business for decades and through many cycles. Do you think the tumultuous events of the past decade will actually change the way the industry behaves in the future, or will any lessons learned not sink in?

“Oh I hope not. I hope they don’t. The great thing about shipping – and the tragic thing – is that the lessons are always shown, they’re always the same lessons, it’s always the same syllabus, and yet the participants and capital providers just won’t learn. I’ve gotten even more cynical as time goes by. Ten years ago, I thought that Wall Street had at least some memory. Now, I know it has none at all.

“Only six months ago, they were saying that people were never going to invest in dry cargo again and it will be years before anybody will do a public offering or secondary offering. Well, a few companies are doing that as we speak.”

While we’re on the subject of Wall Street, where do you think we are on the spectrum of capital access and how does this affect your views on shipping prospects?

“I think capital at this moment in time is more disciplined and it’s clearly looking for value. It’s actually great capital. We’ve got really good value funds, really good long-only funds, good private people buying. It’s good ‘sticky’ money. If you combine that with lending discipline, we’re at a great point.

“But I still believe that the lesson isn’t learned, so the moment that the environment is great and the market is great, we’ll move into growth and ultimately we’ll move into momentum and we will become overcapitalised in a fraction of the time, again.

“I think the real lesson learned, if we are to learn a lesson and try to follow it, is that a company should use this next position [in the cycle] to become more self-reliant. I think that high leverage, either by will or by force, is now gone. That will be the difference from the beginning of the cycle. I don’t think banks are going back to 80% financing. I think all of the balance sheets will have to be stronger. I think investors are crying out for properly constructed balance sheets with some kind of gravity, some kind of capital size. So for the first time in my career, I do think we are laying the foundations now for proper consolidations.”

That would certainly be a positive development. OK, last question. What are the bellwethers you focus on? What are the indicators you follow to shape your views on where the market is headed?

“The very big bellwether is that the big long-only funds are taking in more money and they are swapping from risk-off to risk-on positions, and they’re more willing to invest in industrials. We would expect investible stocks to be much broader going forward. For the last year and a half or so, unless you owned six technology stocks including Google and Facebook, you just weren’t going to do very well as a fund manager. Now, we’re facing a situation where the bond market is being sold and money will be transferred into more industrials, which is good for building infrastructure and good for shipping in general. At a very high level, that’s what we’re looking at.

“At the lower level, what we’re seeing is that the world economy isn’t in bad shape right now and there is more movement [of cargo]. Despite the fact that the dry bulk market is still weak – it has just moved from terrible to not so terrible – the actual amount of cargo being moved has gone up, whether it’s cement, aluminium, wood chips, or logs. Everyone sees the big headlines – coal and iron ore – but underneath these, there is a market we’re not involved in, the Handysize bulker market, that is really ticking along quite nicely. And that’s a good indicator of the future of the world economy.

“It would not surprise me if we’re at the beginning of another super-cycle.”

Really? As in the 2004–08 super-cycle? People have repeatedly insisted that a boom like that will never happen again.

“This could be one of those that goes up very hard and then crashes very hard. Normally in shipping when anybody says that we’re never going to see something, we’re usually a short time from seeing it. You’ve got so much forced discipline right now. You’ve got this forced position across all shipping markets where capital is not willing to invest in newbuildings and shipyard capacity is going down. We haven’t had this before, this forced period for a while in a world that is growing.

“It’s almost never wrong to sell something when the market and all the analysts are saying that everything will carry on and be great forever. And it’s almost never wrong to buy something when it’s a mess. So it’s going to be a fun year [2017] for the industry, because with these dynamics, sometime in the next year or two, either we are going into an economic abyss or if the world economy keeps going, there will be a point where shipping literally just melts upward, because people haven’t been ordering ships for a while.”

I have to admit, I haven’t heard this one before, that there could be another shipping super-cycle anytime soon. But hey, you never know. If the consensus is usually wrong, as you say, maybe the contrarian view will come true…

“As Wilbur knows [shipowner Wilbur Ross, who backed underdog Trump during the election  and has been named US commerce secretary-designate], contrarian views have paid off well.”

The worst is over for the dry bulk shipping sector, after years when too many ships chased too little cargo, yet the extent of the lost business means a full recovery is still some way off, leading ship owners said on Wednesday.

Dry bulk shipping, which transports commodities including coal, iron ore and grain, has been among the worst performing shipping segments in recent years, partly due to worries over the health of top industrial goods importer China.

Some companies have gone to the wall – and the collapse of South Korean container shipping group Hanjin in August was partly due to its additional exposure to dry bulk.

In recent weeks, sentiment has improved as the number of ships set to hit the water next year is projected to fall and industrial demand improves.

“Nobody is saying we are going to have a fantastic booming market, but we are past the worst and we are into a more fundamentally balanced situation,” Mats Berglund, chief executive of Pacific Basin, told a Nordea Markets shipping seminar in London.

Last month, the Baltic Exchange’s benchmark main sea freight index, which gauges the cost of shipping dry bulk cargoes, rose to its highest in nearly two years.

“We are finally starting to see the light at the end of the tunnel. We have been talking about it for years. We are now getting to a point of probably more normalised demand growth,” John Wobensmith, president of Genco Shipping, told the seminar, adding that the recovery would not be “a straight line”.

Ioannis Zafirakis, chief operating officer with Diana Shipping, said the market still needed at least eight months to a year of higher rates to gauge whether current conditions would make “a real change in the charter rates”.

Dry bulk shipping turned down in 2008, after the onset of the financial crisis, and has remained volatile since then. Earlier this year, dry bulk rates slumped to their lowest recorded levels.

Ship owners cautioned that there was still a risk of speculative new ordering if rates stayed firm.

Gary Vogel, chief executive of Eagle Bulk Shipping, urged industry restraint, saying “the world does not need more dry bulk ships”.

Genco’s Wobensmith added: “We will have a recovery and once again somewhere down the road we collectively as an industry will overbuild again, unfortunately.”

Reuters (Editing by Ruth Pitchford)

Refineries may struggle to produce enough fuel oil compliant with the 0.5% sulphur cap the International Maritime Organization will enforce from 1 January 2020.

Some studies have suggested refining capacity could be inadequate in 2020, with an estimated 60–70% additional sulphur plant capacity required by then. They also expect at least half of compliant-fuel demand to be met by marine gas oil, rather than consultancy CE Delft’s assumption of fuel blends.

Citing a study from EnSys Energy and Navigistics Consulting, Italian shipbroker Banchero Costa noted that worldwide refinery capacity is expected to grow from 97.7 million barrels per day (bpd) to 101.7 million bpd.

Refinery projects for 2016–19 are expected to add 5.6 million bpd of new distillation capacity, although potential refinery closures could take 2 million bpd out of the market.

With the sulphur cap in place by 2020, complex refineries able to produce compliant fuels may find themselves in a better position with improved margins. But simple refineries producing a larger portion of HSFO face hefty costs to adapt to the demand change.

To comply with the sulphur cap, shipowners can install approved scrubbers to continue using fuel types that exceed the 0.5% sulphur limit, or otherwise either use compliant fuels such as MGO or retrofit the vessel to handle alternative fuels such as LNG. However, each option presents its own challenges and costs.

Installing scrubbers on existing ships requires setting aside space, which may eat into cargo space and affect the stability of the vessel.

Smaller vessels may also have inadequate power-generation capacity to support scrubbers. Retrofitting vessels with smaller engines may not be cost-effective. A study by CE Delft, assuming a price difference of USD129/tonne between conventional fuels and low-sulphur fuels, found that for engines up to about 5 MW, retrofitted scrubbers are rarely cost-effective.

Cost-effectiveness improves for engines between 5 and 20 MW, while for most ships with over 20 MW of engine power, scrubbers are a cost-effective option to comply with the sulphur limit.

“For shipowners to arrive at a decision on how to address the new sulphur cap regulation, various factors may need to be considered, such as the operating life of their vessel, trading areas, and their view on the spread between HSFO and compliant-fuel options. There is also the issue of split incentives between the shipowner and charterer, which may discourage shipowners from making the necessary investment to comply with the sulphur cap,” said Banchero Costa.

“The shipping industry appears likely to take a wait-and-see attitude for now, with both the IEA and CE Delft expecting scrubber installations to pick up closer to 2020, when market signals relating to spread between compliant and non-compliant fuel options are clearer. Questions also remain as to whether the sulphur cap will be enforced effectively, as legal frameworks and detection methods remain inadequate, and fines and sanctions are currently up to individual parties to MARPOL to enforce.”

The availability of a US-type approved ballast water management system (BWMS) means vessel operators must be more diligent in proving that they’re still unable to comply with US ballast water regulations.

After years of overseeing rigorous testing protocols, the US Coast Guard (USCG) on 2 December issued its first BWMS type-approval to Optimarin, a Norwegian equipment manufacturer.

As reported by IHS Fairplay, the USCG made public in November its intention to issue new protocols for shipowners seeking more time to comply with US ballast water regulations, which went into effect in June 2012, once the agency type-approved its first BWMS.

With that system now available, “any owner [or] operator requesting an extension must provide the Coast Guard with an explicit statement supported by documentary evidence [a delay in commercial availability, for example] that installation of the type approved system is not possible for purposes of compliance with the regulatory implementation schedule,” the US Coast Guard stated in its 2 December bulletin.

“While this is a significant milestone, it is the first of multiple system approvals that are needed to mitigate the threat of harmful aquatic invasive species,” commented Paul Thomas, the USCG’s assistant commandant for prevention policy.

“One size does not fit all, so we will continue to evaluate other systems submitted by multiple manufacturers with the intent to provide options that meet shipping’s varying needs,” he said. The Coast Guard is currently reviewing applications by ballast water manufacturers Alfa Laval and Oceansaver for type-approval certification.

US and international ballast water regulations aim to prevent invasive species from moving into a region through a ship’s ballast water. While there are five ways that shipowners trading in the United States can manage ballast water, only two are considered practical by large commercial carriers: using a US-type approved system, or temporarily using a foreign type-approved system deemed acceptable by the USCG for vessels trading in the United States.

The US Coast Guard confirmed in its 2 December bulletin that while it would continue to grant compliance date extensions for shipowners, the length of the extension will be only “for the minimum time needed” and on a case-by-case basis.

Examples of additional documentation in support of extension requests include written correspondence between the vessel operator and the BWMS manufacturer, confirming that the BWMS is not available for installation on that particular vessel or class of vessels until after the previously extended compliance date.

The US Coast Guard said it would also consider vessel design limitations, safety concerns related to installing type-approved systems, and “any other situation that may preclude a vessel from being fitted with a type-approved system”.

SHIPOWNERS and operators have a tough set of choices ahead of them to adapt to new marine fuel regulations and many complex commercial and practical issues will influence their decision making in coming months, Bernhard Schulte Shipmanagement Singapore’s managing director Bob Maxwell said.

Considerations include the geographies within which the ships operate, where the ships are trading or bunkering, the age of the vessels, the operating profile of the ships, and the owner’s finances. External factors to consider will range from oil prices and market conditions to technological advancements.

The International Maritime Organization’s decision to implement a global 0.5% sulphur cap on marine fuel from 2020 has brought certainty with respect to deadlines for implementation.
But owners are now tasked with adopting the right strategy, as the cost implications can be tremendous in the current market environment.

Mr Maxwell said that there was no single answer for owners and what worked for one ship might not work for another.

“It’s a case of looking at each ship, or certainly each small group of ships, and assessing what’s right for them. Some owners will sell, some will scrap and some will be in a position where they can invest and make the most of it.”

The simplest option for shipowners is to just burn low-sulphur fuels, depending on what is available from refiners in a given location, and hope that the right fuels are available and the fuel cost is not prohibitive.

This is likely to be the case for the vast majority of the existing fleet because of the costs and impracticalities of installing scrubbers or exhaust gas cleaning systems, and a low earnings outlook. The financial condition of owners will make a big difference.

“There will be some ships that will go for scrubber technology. I do not see a big uptake on scrubbers in the retrofits, but for newbuilds it may be quite interesting because they can be fully integrated into the ship’s systems,” Mr Maxwell said.

He said that not only were the retrofits quite expensive, but also they were quite difficult to fit onto vessels and a lot of ships were seriously challenged in the amount of space that was available, which would tend to put people off.

The issue of retrofits had been exacerbated by other regulations such as the Ballast Water Management Convention, and for many vessels there was not enough space to accommodate new equipment. There were also constraints in generating enough power for all the new equipment.

“Retrofitting is a lot more than just deciding it is going to go on board,” Mr Maxwell said.

He said more equipment meant more maintenance, and while some traditional maintenance costs were going down due to better equipment, overall costs would increase.

For newbuildings, however, owners and yards had a wider range of options, from the installation of scrubbers to new technologies such as liquefied natural gas-powered engines.

“There is definitely a different answer in newbuilds than there is for existing ships,” said Mr Maxwell. “Advanced technology is much easier to fit and much more cost effective on a newbuild than on a retrofit. I think for rebuilds there will be an uptake on alternative fuels. We see a lot of interest in that in Asia.”

Some vessels in regions such as Europe where coastal emission rules were in place, already had scrubbers installed and most short haul and long haul vessels had the capability to burn low-sulphur fuels. Owners would be looking to time retrofits with drydocking where possible.

“The industry is good at handling changes when we know that the change is required,” Mr Maxwell said. “It was blatantly obvious it was going to happen. Anybody who thought it was going to be 2025 was living in a dream world.”

A UK court has rejected an appeal by Star Bulk Carriers over whether Hyundai Heavy Industries & Construction’s Philippines should pay for more than the physical damage to a capesize that suffered an engine failure.

High Court Justice Jeremy Cooke that the newbuilding contract between the New York-listed bulker owner and HHIC-Phil does not allow any claim against the shipyard group for lost revenue and lower vessel value as a result of the problems on the 180,000-dwt Star Polaris (built 2011).

In 2012, the Star Polaris (pictured below) was towed to STX Shipbuilding & Offshore’s Gosung yard in South Korea for repairs after the engine problems, and Star Bulk took an earnings hit from the lost charter revenue.

But HHIC denied liability for the incident, leading Greek shipowner to launch arbitration to recover repair costs, towage fees and the lost profit. Star Bulk, which is led by Petros Pappas, has also been planning to file a claim for the ship’s drop in value as a result of the incident.

A three-member London arbitration tribunal decided in November 2015 that HHIC-Phil breached its warranty for the vessel. But the arbitrators also found that the ship’s chief engineer was negligent because he did not react soon enough to various alarms, since slowing or stopping the ship earlier could have prevented some of the damage.

The tribunal has yet to quantify how much Star Bulk will receive as a result of the problems.

The appeal centres on how to interpret the shipbuilding contract’s provisions for damages in such situations, and whether they cover a drop in value.

Cooke agreed with the arbitrators that the contract language does not allow for a claim for damages above and beyond the cost of repairing physical damage to the ship.

“The reality is that there is no express provision that the buyer can point to which gives rise to a claim for financial loss, lost profit or diminution of value,” the judge wrote.

Star Bulk executives declined to comment for this story.

The shipowner is represented in the case by barrister Christopher Hancock and Socrates Papadopoulos of 20 Essex Street and solicitors at Ince & Co. HHIC-Phil is represented by barristers Luke Parsons and Gemma Morgan of Quandrant Chambers and solicitors at Clyde & Co.

Genco Shipping & Trading has finally sealed $525m in new financing that is aimed at repositioning the New York bulker owner to outlast a gloomy market and take advantage of an eventual upturn.

The company said it closed on a $400m credit facility, which will refinance much of Genco’s existing debt, and completed the sale of $125m in preferred shares. The agreement also brings amendments to a $98m existing loan and a credit facility with ABN Amro.

“Genco’s recent steps to strengthen its balance sheet represent a significant milestone for the company,” said Wobensmith.

“We have significantly enhanced our financial flexibility and bolstered our ability to manage the current market downturn. Importantly, we have also repositioned Genco to thrive in a recovery and capitalise on the company’s leading dry-bulk platform.”

New York-listed Genco says the new facility brings improved terms compared with the loans it replaces, including no significant fixed amortisation payments until 2019 and the elimination of collateral maintenance and maximum leverage covenants.

And the equity injection helps improve its balance sheet and its liquidity, said Genco, which owns 59 ships.

The new loan has a rate of 3.75% above Libor and it matures in November 2021, though some of the interest rate can be converted into principal through the end of 2018.

The syndicate of banks providing the facility is made up of Nordea Bank, Skandinaviska Enskilda Banken, DVB Bank, ABN Amro, Credit Agricole, Deutsche Bank, Credit Industriel et Commercial and BNP Paribas.

As TradeWinds has previously reported, the $125m in preferred shares were mostly sold to Genco’s three largest shareholders: financial firms Centerbridge Partners, Strategic Value Partners & Apollo Global Management.

“We appreciate the strong and continued support we have received from our investors and our banking group, which we believe underscores the company’s industry leadership and strong future prospects,” said Wobensmith.

The dry bulk market is ready to rebound. “Looking at the historical trend of the asset values and freight rates in the last four decades, I think there will be opportunities arising in the dry bulk market from now onwards,” said Lorenzo Banchero, chairman of the broking house Banchero Costa speaking at a recent conference held in Genoa. Looking at the figures he thinks that the downturn may be at the final stage and therefore this may be the right moment to be in a buying mood.

The seasoned Italian shipbroker said: “Italian shipowners were not particularly active in dry and liquid bulk shipping in the recent past.” He remembered when “in Genoa there were 46 shipping companies while today you can count them on the fingers of one hand”.

Generally speaking and commenting on how the Italian ship owners acted in the last decade on the market, Banchero said: “Any investor should not forget to sell the ship when the asset value is high because also a long time charter may not be a good choice sometime. I remember when I was young and a charterer, after failing to respect the terms of the agreement, told me: a contract is just a base for further negotiations.”

Concluding Banchero invited young investors to be proactive and dynamic because “the money is available: you just need to look for them.”