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Indonesian Smeltdown

February 2, 2014

Full Ahead ... and damn the torpedoes!

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Dear Jenn,

Welcome to the New Year’s edition of SEA Watch with more updates and commentary on what’s happening in the world of shipping and marine insurance.

First on offer is our take on the Indonesian government’s recent decision to enforce its 2009 law on the export ban of mineral ore. Strange stuff in a scenario where Indonesia’s balance of payments record is worsening and the Rupiah continues to fall in value. So does President Yudhoyono think that his nationalistic “let’s build our own smelters” ban on ore exports is going to save his party from defeat at the forthcoming elections? If so, then based on Australia’s happy financial experience with digging large holes in the outback and shipping the unprocessed contents to China, he could be in for a nasty shock.

Next we’d like to tell you about the upcoming courses being run in March by SEAsia’s sister company, SeaProf, and their academic partner, the BI Norwegian Business School. The 8th run of Key Elements of Shipping, scheduled for 24-26 March (always sold out) and a new course Key Elements of Chartering, scheduled for 27-28 March, are now being processed for MCF rebate approval. The courses can be taken together (with a further discount) or separately. So have read and mark your calendar for some training designed to take you to the top of your game.

Our third article was prepared by our new GM, Capt Kunal, on his recent visit to Kuala Lumpur to speak at a Willis organized marine insurance seminar. Kunal’s topic was loss prevention and its critical role in keeping crew’s and their ships safe from harm and their owner’s loss ratio down. Reportedly an useful and informative event and good time was obviously enjoyed by all at the post seminar drinks reception. Indeed, Kunal sheepishly reported that he had missed his flight home. Your editor wonders what Mrs Kunal had to say?

Our fourth slot contains an article from our Senior Claims Exec, Oliver Rentzow. Oliver’s focus this month is on the dangers to freight forwarders and NVOC’s if asked to deliver up cargo to consignees in circumstances where the B/L is not available for presentation. If left uncontrolled, the results can be a nightmare so this is a critical subject which needs to be understood by everyone in both the marine and logistics industries.

Last but certainly not least, we are pleased to provide our update on the SEAsia network team in the Philippines which, under its parent company’s name of Thomas Holdings Group (now headed by Lorna Thomas), has been operating in the Philippines since 1990. SEAsia Philippines can provide assistance at virtually every port in the Philippine archipelago as well as far into the Pacific and they are standing by to assist you.

Finally, well it’s yet another Chinese New Year with a holiday, too much food, dragon dancers and red packets to mark the occasion. All of us at SEA Watch and SEAsia hope that all of our readers and their families will enjoy a prosperous and happy time in the Year of the Horse. So take care and read on.

We would like to hear from you as well. Is there a marine industry issue out there that’s puzzling or annoying you? Tell us about it by sending a note to robert@seasia-group.com

Ancient Mariner

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Indonesia's mining industry

Indonesia’s “Smeltdown”: new industry creation opportunity or financial disaster?

Indonesia, a global leader in the export of mineral resources, has banned its mining companies from selling raw ore abroad. The new law, which came into force on 12 Jan 2014, is purportedly aimed at boosting domestic processing by forcing investment in local smelters. However, it is likely to cost Jakarta huge short-term revenue losses (admitted by the Indonesian Mining Ministry to be up to USD 4 billion for 2014), along with mine closures and the mass lay-offs of miners. Not good when the country is already fighting a large current account deficit (3.5% last year and the worst since 1986) and which will now become even worse as a consequence of the ban.

There are also expected global repercussions as the world's biggest exporter of nickel ore, refined tin and thermal coal will curb shipments in an attempt to upgrade the industry, shifting away from selling raw materials by developing domestic processing capacities. Already, the world price for nickel has risen 3.6 percent at the news of reduction in supplies with the price of a metric ton of nickel at $13,784.00 on the London Metal Exchange.

The government in Jakarta originally planned to fully ban exports of raw minerals as well as ore concentrates (ores having undergone some processing). No doubt due to lobbying from big US owned miners, it came up with a last-minute decision to ease the legislation, exempting 66 of the miners and allowing exports of copper concentrates till 2017. The caveat? The lucky few have all promised to build smelters in the near future. Oh yes, and they’ve all been whacked with a 25% export tax, rising to 60% in 2016.

As for the rest? Tough luck for them and the local people they employ unless their appeals on the government’s decision to the Constitutional Court are successful. However, this seems unlikely in a country where the judiciary has an abysmal reputation.

The only upside for shipping and the P&I Clubs is that there is now a total ban on shipping unprocessed nickel ore from Indonesia, a country which harbours (as reported in previous editions of SEA Watch) some of the world’s worst IMSBC Code offenders safe in relation to shipment to Group A “cargoes which may liquefy”. The downside? These uncaring and greedy opportunists – many of them Chinese trading companies - will now migrate their deadly business to the Philippines: another major but inefficiently regulated (read “corrupt”) supplier of unprocessed ores.

So will Indonesia’s nationalistic “let’s build smelters” plan benefit Indonesia in the long term? Your editor’s bet is that many of the ‘promises’, from the aforementioned 66 ‘lucky’ mining companies, will turn out to be no more than commercially expedient declarations; designed to buy time in the hope of a change of government at the forthcoming election.

As for current responses, it is reported that Chinese companies have already signed up to build aluminium smelters in Borneo and in Bintan (just across the Singapore Straits and visible from Singapore), inclusive of ports and power plants. Meantime, the Economist magazine warns of a “Smeltdown” by highlighting the immediate negative impact on Indonesia’s economy and currency (which continues to fall in value) as well as the potential for a political backlash against Mr Yudhoyono’s ruling party.

With respect to shipowners, the warning from the Clubs is to be very, very sure that any processed ore cargoes for export from Indonesia have been properly approved by the Ministry of Mining so as to avoid the risk of long and expensive delays. Your editor would add that the shipper/charterer should also, under C/P terms, be made directly responsible for this approval along with any consequent expense or delay. And for those readers whose bulk carriers may now be diverted to the Philippines, watch out because, with respect to the IMSBC Code, it’s the same shippers (wolves) in new (sheep’s) clothing.

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SeaProf/BI 8th run of Key Elements of Shipping + a new course: Key Elements of Chartering

Certificates for Key Elements of Shipping

The 8th run of Key Elements of Shipping is scheduled for 3 days on 24-26 March in Singapore.

Seats are being booked already, even before finalising the programme, so the KES course is becoming an institution in itself.

The last KES course in Oct 2013 was sold out and it looks like it will be sold out once again. The course content is designed as an intensive introduction to the business of shipping for new comers to the industry as well as those who have been in the industry for a few years and are looking to move up to a more senior position.

Topics will include an overview of the industry players, ship types and tonnage measurement, registration procedures, maritime economics, market review, ship finance, ship management, chartering, marine insurance and the issues relating to eco-ships. Some restructuring has also been done to meet the feed back demand for more workshops and tutorial sessions.

Key Elements of Shipping

Speakers and lecturers will include Assoc Prof Cathrine Bjune from the BI Norwegian Business School; Asst Prof Dr Jasmine Lam from NTU, Capt Robert Gordon, MD of SEAsia P&I Services; Djeni Rolana, Chartering Consultant and former COO of Eships, UAE along with other industry speakers from name brand shipping industry companies.

Fees will be SGD 3,550.00 inclusive of lunch, tea breaks and all materials (both hard and softcopies). As usual, the MCF rebate of 70% will be available for Singapore citizens and PR’s (formal approval now pending). The Singapore PIC rebate of 60% will also be available to everyone working for a Singapore company, including those on an employment pass. So the net cost can be as low as SGD 426.00 if both the MCF and PIC rebates are applicable.

Something completely new for this year: a 2-day Key Elements of Chartering course 27-28 March.

Key Elements of Chartering has been designed to run back to back with Key Elements of Shipping. KES attendees (both current and previous) who would like to learn more about chartering law and practice (including practical workshops) can then stay on for an extra 2 days (3 days KES + 2 days KEC = 5 days in total) and be awarded both a KES and a KEC Certificate of Achievement from the BI Norwegian Business School.

Past KES students (now over 250 graduates), who would like to upgrade their chartering knowledge, can also attend the 2 day KEC programme. Other attendees who may also have a basic grounding in chartering from other sources will also be very welcome.

The KEC course will build on the KES Introduction to Chartering module. It will cover the legal aspects of chartering, the operation of voyage C/P’s together with laytime and demurrage assessment and the operation of time C/P’s including off hire and performance assessment. It will then move on to include bills of lading issued under C/P’s and associated liabilities, charterer’s P&I cover and FD&D and dispute resolution and then end with the money making aspects of the evaluation and optimization of TCE as well as fleet positioning, employment strategy and cargo and vessel arbitrage.

The lecturers for the course will be well-known Chartering Expert and Consultant, Djeni Rolana (former COO of Eships) and Assoc Prof Cathrine Bjune who will be assisted by Capt Robert Gordon. Daily workshops will be an integral part of the course so as to re-enforce learning and encourage class interaction. The course outcome is to enable attendees to work in chartering operations as well as upgrade the knowledge of those already working in this sector.

Fees for the KEC course will be SGD 2,550.00 with a 10% discount for those who are also booked on the KES course or who have attended on the KES course on a previous occasion. The KEC course will also attract the MCF and PIC rebates (MCF approval now pending) so the net cost for someone eligible for these rebates and already on the KES course or a previous KES graduate could be a little as SGD 306.00.

We hope to see you at both the KES and the KEC course in March. If you may have any questions, please call our course administrator Yan (a very nice lady who has recently joined us to help Jenn Woo). Yan’s phone number is +65 6323 7732 and her mail info@seaprof.com. Details will soon be available on the SeaProf website at www.seaprof.com

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Capt Kunal Pathak at Willis Marine Seminar 2014

Willis Marine Seminar 2014: Kuala Lumpur

SEAsia’s new GM, Capt Kunal Pathak, was recently invited by Mr Lewis Hart, Willis Singapore’s Executive Director, to attend the Willis Seminar at Kuala Lumpur. Kunal’s remit was to provide a presentation on P&I Loss Prevention and Risk Assessment. The seminar was focused on Malaysian based ship owners and was organised to share knowledge on marine insurance and how it works. Topical stuff as the calendar roles towards the 20 February and P&I renewals day.

The speakers included a knowledgeable line-up of industry professionals with experience covering all aspects of marine insurance. The Willis presentation team, from Singapore, kicked off with some very topical presentations on the current maritime economic climate along with an overview of the insurance market and a detailed review of P&I Club performance.

After the Willis team’s review and their timely reminder of Willis’ critical role in helping owners to assess their insurance needs, the presentation baton was passed to the American Club (Chris Hall) and QBE (A.H. Tan). The focus then turned to providing details of their competing insurance products and, more importantly, helping ship owners understand what to expect from their insurers when things go wrong on their vessels.

As the seminar progressed, the stage was set for some comprehensive presentations on Claims Handling and Loss prevention. The legal aspect of Maritime Claims was covered by lawyers Norton Rose (Ian Teare) and RPC (Iain Anderson), with RPC delivering some very interesting and important information relating to the SCOPIC clause in relation to salvage liabilities.

SEAsia’s role was to present on P&I Loss prevention and Risk Assessment which was scheduled post lunch. By this time, we had all discussed various maritime casualties, either during the presentations or during informal chats at tea breaks. The underlying concern seemed to be that although loss prevention is intended to avoid incidents, the accurate measurement of its effectiveness is both challenging and sometimes debatable.

SEAsia’s presentation covered the importance of loss prevention, the different elements of loss prevention (ship condition, documentation and crew competence etc.). It also addressed the frequent question as to why P&I Clubs require condition surveys on board vessels that have already been surveyed by Flag State and Class and often by charterers as well.

In the current market, where owners are struggling to break even, the further cost of P&I loss prevention can seem to be an unnecessary burden on ship owners. However, when SEAsia’s photographs of some of the very serious defects that have been observed during P&I condition surveys were shown to the audience (on board fully Classed ships) and then considered against the potential severity of the risk to ship owners, the audience obtained a very clear perspective of the return on investment that P&I loss prevention brings to the table.

SEAsia’s Formal Risk Assessment (FRA) concept, which provides an Excel based definitive statement of the nature of the deficiency, the degree of the P&I risk and the rectification required along with a record of verification, was also demonstrated. Our intention being for the attending ship owners at the seminar to understand how P&I Clubs, their correspondents and surveyors can all work with owners to minimise the risks and claims on board their vessels.

At SEAsia, we believe that underlying purpose of loss prevention must be to protect the lives of seafarers because we have seen so many unnecessary tragedies. Yes, loss prevention also saves property and avoids liability claims but the simple and undeniable fact remains that if the crew are kept safe, then the rest of the ship and the venture will be kept safe as well. We therefore see our role as being to identify P&I risk, advise on economical and effective rectification and then help owners and Clubs to meet their loss prevention target. Our goal is to accomplish this as part of a positive team exercise. Not, as a fault finding and finger pointing expedition which is a waste of time and money.

If SEAsia can help you and your P&I Club to make your ships and your crews safer, we will be very pleased to discuss your needs and lend a hand.

Willis Marine Seminar 2014

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The dangers to FF’s and NVOC’s who deliver up cargo without presentation of Bills of Lading

It is not uncommon for Freight Forwarders (FF’s) to be asked by their customers/consignees to release cargo consignments without their presentation of an original bill of lading. Complying with such a request can be extremely risky and can expose the freight forwarder to huge liabilities. Due to numerous misconceptions about bills of lading and delivery obligations, freight forwarders often accede to these requests.

The first question for consideration is whether there is significant difference between and a bill of lading and a sea waybill as regards the potential consequences of release without presentation of the original B/L? The short answer is that there is a very big difference in terms of liability for cargo release.

A bill of lading (B/L) is a ‘document of title’, which transfers ownership to the consignee. It may be an “Order B/L” when marked ‘to order’ of a bank or another party, or a “Straight B/L” where it is made out to a specific and named consignee. Either way, such B/L’s have been construed by the courts as being documents of title such that an FF or NVOC must not deliver the goods until the consignee as endorsed (often on the back of an order B/L) or as named (on the front of a straight B/L) has presented an original B/L.

A sea waybill on the other hand is not considered in law to be a document of title as it cannot be endorsed/transferred to a third party. Delivery has to be undertaken exclusively to the consignee named in the waybill. However, oddly enough, the law does not demand presentation of the original sea waybill. Instead, only proper evidence of identity to prove that the party collecting the goods is in fact the party named as consignee is sufficient.

With reference to the delivery up of cargo under either “order B/L’s and “straight B/L’s”, it must be understood by both FF’s and NVOCC’s that if they do so without presentation of the original B/L (such that they may inadvertently deliver the goods to the wrong person or the correct person but one who has not yet paid for the goods), then they will be considered as being a party to a fraud. As to liability, the bad news is that this liability will be effectively unlimited as neither the standard terms and conditions (STC’s) of the FF or NVOCC or the exemptions and limits in the B/L itself will apply.

The only way which an FF or NVOCC could in fact deliver up goods with presentation of an original B/L would be if, in circumstances where the collecting party appears to be the consignee they are prepared to accept a Letter of Indemnity (LOI) from that party. The upside is that such LOI’s are in fact enforceable in law. The downside is they may be worth nothing if the party providing the LOI has no money or tangible assets to enforce against. The only solution then is for the FF or NVOCC to insist on an LOI which is counter secured by a first class bank but this is often difficult to accomplish.

If an FF or NVOCC accepts an unsecured LOI and it all goes wrong, then they must understand that their own liability insurer will usually not cover such a loss because the LOI has in fact become the liability insurance in terms of the delivery of the goods. So it the LOI is without value, the FF and NVOCC are left on their own.

So, in summary, what are the risks to FF’s and NVOC’s?

Knowingly releasing goods without presentation of either an order BL or a straight B/L by the consignee will constitute both a fraud as well as a breach of the contract. Accordingly, the named contracting carrier (NVOC) would be held responsible for all damages that flowed from the fraud. This includes the freight and related charges, the cost of the cargowrongly converted as well as consequential losses.Also, releasing goods without B/L presentation can void exemption and limitationsunder STC’s and B/L terms with the NVOCC being held liable and then having to seek recovery against the FF. Further, such an scenario could constitute an exception from E+O coverage thus affecting both the FF’s agency and NVOCC’s carrier liability policies.

In terms of the release of goods shipped under sea waybills, an FF or NVOCC may release the goods to the party manned in the sea waybill provide that person has provided satisfactory evidence that they are in fact the correct person. If any goes wrong, then the FF and NVOCC should be able to rely upon their STC’s and well as their own liability insurance to assist.

Recommendations:

Make sure your FF and NVOCC team and your customers understand the serious repercussions of releasing goods without presentation of either order B/L’s or straight B/L’s as well as the protocols for consideration of the acceptance of an LOI. As for sea waybills, the liabilities are less onerous but cargo release procedures must still be carefully controlled. If you may need some help in training and implementation of our advice, then SEAsia will be pleased to assist you.

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SEAsia’s Network Partner in the Philippines: SEAsia Philippines/Thomas Holdings Group (THG)

SEAsia Philippines photo

Standing from left: Dan Tenorio, Filipina Talosig, Cathy Thomas, Lorna Thomas, Juvy Degrano, Ched De Chavez, May Valles, Sheryl Detuya, Cecile Caoili, Engr. Adelo Ignacio Seated from left: Engr. Jay-Al Cosio, Engr. Reegem Gonzales, Engr. Erro King Morales, Romeo Romano

As readers may recall, it was your editor’s sad duty some months ago to report on the untimely death of Mr Paul Thomas, the founder of THG in Manila. It is therefore now a happy event to report on our on-going SEAsia Network Partnership with THG and it’s experienced crew.

The origins of THG lay in the establishment of Henderson International Philippines in 1990 by Paul Thomas. Starting out as a ‘one man band’, Paul quickly made a name for himself as a reliable and knowledgeable surveyor in a country where high end technical skills were sadly lacking. More work soon meant more staff were required and Paul’s team and book of business grew quickly.

Paul’s business interests were many such that eventually he was operating three companies including Henderson’s, Asia Pacific Global Marine Services and Asia Pacific P&I. His next move was to bring these companies under the corporate umbrella of THG and this is how it is now still structured.

The SEAsia Philippines/THG team is now headed by Lorna Thomas, with the assistance of her daughter Cathy. It consists of a total of 17 staff which includes UK trained Master Mariners, Captains Mark Langford and John Pearsall, as well as a team of marine engineers/naval architects headed up by Adelo Ignacio. CV’s for all of these surveyors and consultants are available on the SEAsia website. Mention must also be made of a very important and knowledgeable lady, May Valles, who heads up SEAsia Philippines/THG’s P&I correspondent arm.

The P&I work undertaken by SEAsia Philippines/THG spans the routine to the catastrophic and extends throughout the huge Philippine island archipelago as well as into PNG, Palau, Yap Island, Micronesia and Guam. All difficult places in which to work and travel and where local knowledge and cultural awareness are just as critical as technical skills.

In terms of the future developments, your editor would refer to the above article on the “Indonesian smeltdown” caused by the recent ban on raw mineral ore exports from that country. This will no doubt create a significant increase in ore exports from the Philippines once the pre-ban stockpiles in China have run down.

SEAsia’s previous experience of working with SEAsia Philippines to ensure the safe shipment of such cargoes in compliance with the IMSBC Code was reported in SEA Watch December 2013. Our advice was that this can be a difficult and prospectively risky business with surveyors often being faced by miner and shipper hostility and their refusal to co-operate. Not an enviable task but essential to vessel and crew survival and SEAsia has the knowledge and the people necessary to get the job done properly.

Lorna Thomas, May Valles and the SEAsia Philippines crew are on standby to help you and your ship in either an emergency or for just routine loss prevention work.

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