Koo calls for stricter standards to be applied
May 24, 2013Commoditisation of shipping leading to lower standards in the industry
Mr. Kenneth Koo, Group Chairman and Chief Executive Officer
The nature of the bulk markets has changed dramatically in recent years, becoming more commoditised with the entry of private equity funds and other less established players, according to TCC Group Chairman and CEO Kenneth Koo.
He laments the fact that this commoditisation of shipping has led to not only lower barriers of entry but also lower standards in the industry.
The solution to this problem before it got out of control should have come from the class societies, he maintains. “A lot of it has to do with the way the ISM is carried out,” Koo told Seatrade Asia Week.
With the ISM code binding on ship managers rather than beneficial shipowners, there is little incentive for them to run their ships well, instead devolving that responsibility to the managers while they view it as an asset play. “It means that as long as you don’t manage your own vessel you can always invest in one, that’s why the barriers to entry are low,” he said. This could have been forestalled if class had imposed minimum requirements for shipowners for example, Koo pointed out.
The problem extends to yards, where many of the greenfield yards were only able to start business because the class societies were not stringent enough about their standards, he said. “The gatekeeper to ensure that the shipping industry maintains a fleet of vessels that are responsibly and reliably managed and owned must be class,” Koo reiterated. Since they are involved with so much regulation, the entry barriers must be protected so that owners are able to address and cope with the risks of shipping. What the new owners may not realise is that ultimate liability comes back to the beneficial owner and with new regulations such as the Rotterdam rules coming up, this may yet come back to haunt them.
The impact of these new players has been felt on the market, he said. With a plethora of different types of owners putting tonnage on the market and rates at record lows, charterers feel there is less of a need to lock themselves into with less emphasis on contracts of affreightment as charterers take a shorter term view on taking in period tonnage. “There will always be a niche for long term time charters,” he said.
Source: Seatrade Asia Week Issue 153, April 2013