Blog Archives

WFW advises ABN on US$220m loan facility

Watson Farley & Williams (“WFW”) has advised ABN AMRO Capital USA LLC (“ABN”) in relation to a US$220m loan facility for Team Tankers. The loan facility refinanced certain existing indebtedness and assisted Team Tankers in financing the acquisition of Laurin Shipping AB and Anglo-Atlantic Steamship Company Ltd, and increases Team Tanker’s overall fleet from 37 to 52 vessels. The facility is secured by mortgages over 34 vessels registered on Bermuda, Maltese and Liberian flag. Mandated lead arrangers are ABN, Danish Ship Finance A/S, NIBC Bank N.V., and Skandinaviska Enskilda Banken AB (publ). A multi-jurisdictional WFW team was led by London Maritime Partner Michael O’Donnell, assisted by Associates Nigel Willis, Charlotte Knight and Tanpreet Rooprai. New York Finance Partner Daniel Rodgers dealt with the Liberian and New York aspects of the deal, assisted by Associate Brett Rieders. Michael commented: “We are very pleased to have acted for ABN on this headline loan facility for Team Tankers which raises its presence in the medium range sector and is further evidence of consolidation in the chemical tanker industry”. Mohammed added: “Real estate is one of WFW’s core industry specialisations and a key sector for major businesses operating in the Middle East region. The combination of a real estate practice together with the firm’s existing capabilities will significantly enhance the service we can offer to our clients particularly within the real estate finance space. I very much looking forward to working with my colleagues in Dubai and across WFW’s global network in supporting our clients both locally and internationally”. Source: Watson, Farley & Williams

Beast from the East

The difficult ice conditions have forced many shipowners and charterers to carefully review insurance contracts and charterparty ice clauses. In this Insight, we take the opportunity to review the treatment of ice under Hull and Machinery terms and charterer’s liability policies.

Hull and Machinery insurance has always paid attention to the hazards of ice and underwriters have regulated their exposure through different ice related warranties and exclusions. There are permanently excluded areas, such as Arctic and Antarctic areas, where ice and navigational risks are very high due to such factors as multi-year ice, remoteness, inadequacy of charts, limited emergency response and extreme weather variations. There are also “conditional area” such as Gulf of St. Lawrence, Alaska, Sakhalin area and Baltic Sea, including Gulf of Bothnia and Gulf of Finland, where policy terms allow trading on terms agreed by the underwriter. Below, we will be looking at the treatment of conditional areas. For more information about operating in the Arctic region see Gard’s article about the Polar Code.

Still waters at Ennore terminal rock Adani’s boat

Last year, when the Adani group invested ₹800 crore to set up a container terminal at the Kamarajar Port (KPL) in Ennore, it would never have visualised a predicament in which the terminal would be idle.

Although it is located just 30 km from the bustling Chennai port (ChPT), which has two busy container terminals run by DP World and PSA Singapore, demand for cargo was never expected to be an issue. Both ports tap into the vast hinterland, which spans parts of Andhra Pradesh, Karnataka and southern Tamil Nadu.

But today, the Adani Ennore Container Terminal (AECT), which can handle 1.4 million 20-foot equivalent units (TEUs) annually, sees virtually no activity as most shipping lines prefer to give it a miss.

That inactivity has arisen because of vessel-related charges. Kamarajar Port’s charges on shipping lines are far higher than those levied by Chennai port. The difference is as much as $23,000 (₹15.30 lakh) per call.

While both ports have a similar base tariff, what tilts the balance in favour of the Chennai port is the additional 40 per cent discount Chennai Port Trust offers mainline vessels over the 15 per cent cut most ports offer.

The Adani Group’s efforts to seek a similar additional discount from Kamarajar Port Ltd have not fructified. Even worse, the 15 per cent discount that KPL allowed as a promotional offer is set to end soon.

“KPL is unwilling to match ChPT’s discounted tariff, making it unviable for shipping lines to call on AECT,” said Ennarasu Karunesan, CEO, Southern Ports, Adani Ports and SEZ.

Wide berth

“Shipping lines across the world are struggling financially due to over-capacity. They prefer a port where charges are minimal, attractive and commercially viable,” he told BusinessLine.

Since October 2017, only six container vessel have called on Kamarajar port. But the port officials are unmoved. In April, they told AECT that the port is not obligated to match the concession offered by ChPT. They put the onus on AECT to offer discounts, if required.

“A terminal operator cannot offer discounts on vessel-related charges,” countered Karunesan.

Interestingly, in the adjoining Katupalli minor port, where Adani operates another container terminal, it has been able to match ChPT’s tariffs. Ships call on the port regularly.

The difference in tariff is puzzling, given that both the ports are under the Shipping Ministry. Chennai Port Trust, in fact, has a 33 per cent stake in the Kamarajar Port.

“Shipping lines have made it clear that we should match vessel-related charges at Kamarajar port in line with Chennai port, saying they will not be in a position to absorb additional charges to carry cargo from the same hinterland. There has to be a fair-trade practice and a level playing field to induce business to Kamarajar port and we should be extended the required support,” said Karunesan.

Left with little option, Adani group has now approached the Shipping Ministry, seeking that level playing field. If the issue is not resolved quickly and AECT continues to remain idle, the project could become unviable and end up as a non-performing asset, warn experts.
Source: The Hindu Business Line

Baltic Exchange launches Escrow Service for vessel sales

The Baltic Exchange will be launching an Escrow Service for its members to hold deposits for ship sale transactions. The move will allow Baltic Exchange members to take advantage of the Exchange’s trusted position in the marketplace when undertaking the sale or purchase of a vessel. Announcing the initiative today (25 April) at its Freight & Commodities Forum during Singapore Maritime Week, the paid-for service will be available for use in transactions where the buyer of the vessel is a Baltic Exchange member. The service is likely to be extended to disputes related payments. The Escrow Service will be run by the Baltic Exchange’s Asia office in Singapore and will be subject to the Singapore Exchange’s (SGX) detailed compliance and money laundering procedures. OCBC Bank will be providing the joint deposit account. Headed up by the Baltic Exchange’s Head of Asia-Pacific, Chris Jones, a sale & purchase broker with over 40 years of experience, the service will initially be offered from Singapore with a view to further expansion to other Asian shipping centres. Chris Jones said: “Having the Baltic Exchange provide this service solves the problem as to where the deposit should be held in a vessel transaction. Buyer and seller alike can be certain that the Baltic Exchange will apply its high standards of compliance as well as have a full understanding of the complexities of any maritime transaction.” He added: “This service will add real value to the many sale & purchase brokers who are Baltic members and are currently expected to provide this service to clients. It will allow them to undertake the highest level of due diligence and compliance checks, reduce the administrative burden of organising a client escrow account and allow them to focus on adding value to the transaction.” The service will go live in May 2018 and will cost US$ 5,000 per side. Source: Baltic Exchange

Job losses from restructuring hit shipyard cities

Shipyard cities and surrounding areas suffered steep job losses over a one-year period from ongoing restructuring efforts, state data indicated. Employment and job sector figures from Statistics Korea showed the number of workers in Geoje, a city in the southeastern South Gyeongsang Province that is home to major shipbuilding facilities, dropped 12,900 to 123,400 as of October 2017 from a year before. The number of workers in mining and manufacturing sectors was down 6,900 to 58,000. Areas nearby that had relied on the shipyards for local business also suffered, according to the data. In Tongyeong, the number of people employed fell 4,400 to 61,800 over the period, 1,900 of them in mining and manufacturing. In the case of southwestern North Jeolla Province city of Gunsan, where Hyundai Heavy Industries Co. closed its shipyard in July 2017, the number of workers was trimmed by 6,400, 3,700 of them in mining and manufacturing. The city is bracing for even harder times after US-based automaker General Motors shuts down its plant in May. Job losses were also stark in Jeju, an island at South Korea’s southern tip popular especially with Chinese tourists. A diplomatic row over South Korea’s deployment of a US anti-missile system on its soil led to retaliations by China. Beijing had discouraged its travel agencies from offering group tours to the neighboring country. Data showed that Jeju had 2,600 fewer workers in the retail, wholesale and accommodations industries vis-a-vis the year before. Source: Yonhap

Hyundai Mipo bags 179 bln won deal to build 4 carriers

Hyundai Mipo Dockyard Co., a local shipbuilder, said Wednesday that it has received a 179 billion won (US$165 million) order to build four carriers of petrochemical products for an unidentified company in the Middle East.

In a regulatory filing, the South Korean shipyard said it will deliver the vessels by May 2020. The shipbuilder did not identify the buyer.

Hyundai Mipo is an affiliate of Hyundai Heavy Industries Co., the world’s largest shipbuilder by sales.
Source: Yonhap

DSME to cut 12,000 Jobs

South Korea’s Daewoo Shipbuilding & Marine Engineering will cut 12,000 jobs from its workforce by 2019 as it tries to revive its business following a crash in oil prices and severe downturn in the offshore oil and gas sector.

“We are planning to reduce the number of employees to a similar level to 2009 and 2010 when management efficiency was the highest,” DSME CEO Jung Sung-leep said in a press conference at the firm’s headquarters in Seoul, the Korean Herald reports.

DSME’s current workforce is about 42,000.

The shipbuilder said the job cuts will occur gradually over the next few years, versus a radical slash in headcount, the Herald reported.

Earlier this week DSME, the world’s second-biggest shipbuilder, posted a record loss totaling $4.3 billion in 2015 as it wrote down more charges from offshore projects under construction.

A crash in oil prices over the past 18 months has caused DSME customers particularly within the offshore oil and gas sector to cancel or postpone orders.

SHI close to winning 1.6 billion LNG ship order from GAIL

Samsung Heavy Industries Co. is close to winning a $1.6 billion liquefied natural gas (LNG) carrier order in India as it will sign a memorandum of understanding with India’s state-owned Cochin Shipyard Ltd. to form technology partnership on Thursday.

Under the MOU term, once Samsung Heavy Industries wins the order from India’s state-owned Gas Authority of India Limited (GAIL) to build nine LNG carriers, it should construct one third of ships at Cochin’s shipyard in southern India and the rest in its dockyards in Korea.

If Samsung Heavy Industries constructs three carriers at Cochin’s shipyard, the Korean shipbuilder would receive $400 million from the Indian shipyard company. And the company would gain additional $1.2 billion if it builds the remaining six tankers at its Geoje dockyard in Korea, mounting up the total revenue from the deal to $1.6 billion.

GAIL announced in 2014 that it will construct nine LNG tank ships to transport gas from the Unites States between the years from 2017 until 2036.

But Samsung Heavy Industries remains cautious about winning the order although it is the sole bidder. GAIL has not determined the total order volume yet, said an unnamed official at Samsung Heavy Industries.

Korean shipyards’ order backlog hits 12-year low in March

SEOUL, April 6 (Yonhap) — The order backlog held by South Korean shipbuilders has dropped to the lowest level in 12 years amid the slumping global economy, industry data showed Thursday.

According to the data by global researcher Clarkson Research Services, South Korean shipbuilders had an order backlog totaling 27.59 million compensated gross tons (CGTs) as of end-March, the lowest since March 2004, when the comparable figure was 27.52 million CGTs.

Experts say that the order backlog held by shipyards here will keep them busy for just one or two years.

China came in first with 37.56 million CGTs with Japan ranking third with 21.44 CGTs.

South Korea secured shipbuilding orders to build eight vessels, or 171,000 CGTs, in the first quarter, also marking the lowest since the fourth quarter of 2001, when the comparable figure was 165,000 CGTs.

Daewoo Shipbuilding & Marine Engineering Co. and Samsung Heavy Industries Co. have failed to clinch any deals in the January-March period. Hyundai Heavy Industries Co. clinched just one order to build petrochemicals-carrying vessels.

Major South Korean shipbuilders have been pushing for restructuring since last year to get over unfavorable business conditions caused by falling demand and ship prices in line with the slowing world economy.

Hit by a protracted slump in oil prices and increased costs, the three shipbuilders racked up a combined loss of 7.7 trillion won (US$6.65 billion) last year, marking the first time for all three of the nation’s largest industry players to register losses.

Market watchers expect their business slump to continue this year as the global shipbuilding industry is unlikely to turn around any time soon.