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SHIPBROKING - OILIN G THE WHEELS OF COMMERCE

To request a shipbroker to address such an esteemed gathering of
maritime professionals such as the Nautical Institute may seem strange. As an
industry, we have been described in terms ranging from ‘those eternal jesters of
the shipping industry‘ to being people who sell assets to people who don't want
them at prices they cannot afford. We are often criticised - oﬁen rightly so - for
a lack of technical and seagoing knowledge, but in the world of maritime
commerce, both globally and in our great port city of Hong Kong, the
shipbroker still provides a vital link in the maritime chain and a vibrant
shipbroking community is an essential component in the fabric of any city
aspiring to be a maritime centre.

The history of shipbroking, like so many maritime service industries, can
be traced back to the London coffee house culture of the seventeenth and
eighteenth centuries, where merchants would meet with shipowners to arrange
for the transport of their cargoes and then nip round to an adjacent coffee house
to arrange their insurance, the forerunner of the Lloyds insurance market.
Shipbroking developed it's own shipping exchange, the Baltic which in
subsequent years was located in the magniﬁcent building in St. Mary Axe,
London, which was tragically destroyed by an I.R.A. bomb in 1992.

The City of London, therefore, is the cradle of shipbroking and remains
the global centre of this industry, but as world trade increased and ports such as
Hong Kong grew in their stature as a shipowning centre, so too did the wealth of
maritime services required to service the needs of the shipowning community.
Hong Kong has been home to a healthy shipbroking industry for around ﬁfty
years, which has seen good times and bad, but the fact that several of the largest
global players in shipbroking choose to base their Asian operations in Hong
Kong is testament to the importance of Hong Kong as a shipbroking centre.

So what exactly does a shipbroker do for a living? The recent headline in
that great organ of accuracy, Tradewinds, trumpeted ‘Easy Money Ends for
Brokers’. Well, I don't think many brokers ever considered shipbroking easy

money, although I will admit that in the nineteen years since I signed on as a
trainee at Clarksons and did the required six months training of photocopying
and coffee making, there have been periods of prosperity in our industry - I
think the average works out at one good year in ﬁve.

In the most simplistic terms, the shipbroker buys and sells ships, if he is a
sale purchase broker, or ﬁnds cargoes for ships and ships for cargoes if he is a
chartering broker. But this almost likens us to the role of a maritime estate agent

and nothing could be further from the truth, not least the fact that a shipbroker's
rate of pay of a meagre 1.25 per cent on a charter or 1.0 pct on a sale is a
fraction of what is charged in the property sector. In this area, we are no
different from shipmanagers, maritime lawyers, surveyors or any other maritime
service sector - we are underpaid.

Shipping, however, is a complex industry and a constantly moving market
and an industry where up-to-the minute information is vital, not just on market
trends but also on the interpretation of events which affect the shipping markets.
Whilst most shipowners naturally have a commercial department that handles
the chartering and buying and selling of their ﬂeet, there is no way that an
average medium sized owner - or indeed a very large owner - would want to
employ the full time staff required to monitor the shipping markets and spend
their time trying to ﬁnd out exactly what is going on in this industry - even if
people were willing to talk to them. And that, is perhaps where the secret of
shipbroking lies. What every shipowner wants to know, is what the opposition
is doing, what cargoes or ships are available or what opportunities for
investment exist. But he also does not want his opposition to know what he is
doing or even thinking and that is where the shipbroker comes in. Shipbrokers
spend a remarkable amotmt of their time gathering information and gossiping,
with fellow brokers around the world, shipowners and charterers and the myriad
different people which make up the shipping industry. This allows them to have
a unique overview of the industry which, in a distilled form, provides the basis
of the information they make available to their customers. An established
shipbroker will probably have no more than six to eight close clients with whom
he shares his ‘deepest, darkest secrets‘ and who can rely on that broker to source
the required information and put him in a position to go and make a market
move.

This is perhaps best illustrated by the consolidation in the capesize market
which happened a couple of years back. Bocimar, the major Belgian capesize
operator, set out to consolidate the capesize industry by taking a large block of
close to forty modern capesize bulkcarriers on period charter. Controlling such
a large ﬂeet would, in their view, allow them to consolidate the market and push
up charter rates when the vessels were ﬁxed to end users. To undertake such a
massive exercise required considerable forward planning. If the market had
been alerted to the fact that a charterer was going to come in and take such a
large portion of the modern capesize ﬂeet, Bocimar would have been forced to
pay more for each ship and would probably not have been able to secure the
number of ships they wanted.

Through enlisting the services of two shipbrokers, the charterers were
able to assess the availability of every ship in their target group without
revealing their intentions, obtaining infonnation regarding position and if that
owner would be interested in a period charter and at what sort of rate. Anned
with this detailed infonnation, the charterers instructed the two brokers, who
worked in close co-operation, to go out and in the space of a single morning,
ahnost forty ships were booked on subjects. The effect on the market of this
dawn raid was that Bocimar were able to then raise capesize rates which
climbed by over US$ 10,000 per day in a short space of time, and yielded them a
healthy proﬁt.

An area where many people might often argue that there is no role for an
intermediary such as the shipbroker is in the sphere of newbuildings. The fact
that our company alone has over seventy newbuilding contracts which we have
placed currently under construction, ranging from small tankers to LNG carriers,
suggests that this is not a universally held view. The shipbroker can, add
considerable value in a newbuilding negotiation, purely ﬁom his position in
being permanently in the market place, as well as the extensive knowledge of
newbuilding contracts which the major players in this sector have amassed. Any

shipbroker would agree that the content of a newbuilding speciﬁcation and the
quality of the supervision which is employed during construction are areas
where a shipbroker can have little input but which are absolutely fundamental to
a good ship being built but a good newbuilding deal requires an owner getting a
combination of a good ship and heating the market on price.

Where a shipbroker does have a role is that in his daily communication
with the world's shipyards, the opportunities which exist are more likely to be
known to him than elsewhere - opportunities such as the fact that some options
were not declared and a shipyard now has available berth space, or that a
previously reported contract has not in fact gone through, or as has been the case
in the past few months, that having put up a ‘fully booked imtil 2004' sign
outside their shipyards in an effort to force up prices, many major yards have
yawning gaps in their orderbook which they are rather keen to ﬁll. Shipyards
oﬁen do not want that sort of information widely circulated, and hence the need

to use a broker to quickly place a berth with a client.

In a booming shipbuilding market, the role of the broker is also vital -
when berths are scarce and prices rising, it is not unknown for shipyards to
adopt a rather arrogant attitude to new clients. Whilst every shipyard has a list
of long-established clients who have regularly built there and generally always
use that yard, shipyards also have brokers who have consistently brought them
business. Our own company is very fortunate in having several models of ships
in our London ofﬁces given by a particular shipyard which has established a
tradition of giving us a ship's model for every billion dollars worth of business
we place with them - we have more than one model. An owner making his first
foray into the newbuilding market - as has been the case with many Greeks over
the past few years - or an owner who traditionally built in Japan and is now

looking to Korea or China, can be well served by a broker who not only knows
those markets but is able to persuade the shipyard that of all the enquiries they
might have at that time, this one is worth pursuing.

These are just a couple of examples of where shipbrokers do a play a role,
but there are many more, whether it be in fmding a particular ship at a particular
price in the secondhand market - a market which is globally worth over US$ 40
billion per year, or ﬁnding a charter for a ship, especially in a falling market and
the ship is open in a particularly difficult place. There is, however, an enormous
amount more to shipbroking than just doing the deal. Whilst we only get paid
when business is concluded, leading to an occasional accusation that shipbrokers
will do a deal whether it is good or bad for their client as all they are interested
in is the commission, that is not a way which long-term relationships are going
to be kept, and as much as in any industry - perhaps even more so - it is the
client relationship which is most important to a broker as without that, he has
nothing. I can safely say that we have had occasions in our group where we
have declined to do business and had no regrets about it.

A recent case is an owner who wanted to build some ships and asked us to
obtain an offer from a particular shipyard. With his record for being difficult
and his appetite for litigation, combined with our belief that the type of ship he
was looking to build was imlikely to be a very attractive sector of the market
come delivery, we declined and when asked by the shipyard why we had
declined, we gave an honest opinion. The deal went ahead anyway, without our
involvement and both shipyard and owner are now in what looks like being a
fairly lengthy litigation.

So where does the shipbroker ﬁt into Hong Kong's maritime scene and
what are his prospects? Hong Kong is the world's largest container port - we
don't have any involvement in that. Hong Kong has one of the fastest growing

and best quality Shipping Registry's - we don't get involved that other than
encouraging clients to use it. Hong Kong has a wealth of technical expertise in
her owning and management companies which allows Hong Kong to take a
world-leading role in formulating proposals such as minimum standards for
bulkcarriers, which will have enormous beneﬁts for seafarers, but that too is not
an area where the shipbroker gets involved.

Where Hong Kong is invaluable to the shipbroking indusny and the
reason it remains such a great maritime centre for shipbroking is that such a
signiﬁcant portion of commercial authority and control of both cargoes and
ships is held in this city. Over 50 million tons of dry bulk cargo is chartered
every year by the leading Hong Kong operators, much of this being iron ore and
grain being exported to China and much of this business is conducted through
Hong Kong's shipbroking community. Hong Kong is home to one of the most
diverse and modem ﬂeets of bulkcarrier and tanker tonnage in the world - over
20pct of the world's bulkcarriers of over 140,000dwt and built in the last ten
years are owned in Hong Kong - and much of this tonnage is bought, sold and
chartered through the Hong Kong shipbroking community utilising their global
range of contacts and expertise. Hong Kong is also the place through where the
majority of ships sold for demolition in China are brokered whilst the
shipbroking community is also actively involved with our legal community in
promoting Hong Kong as the leading jurisdiction for the delicate but important
problem of ship arrests. Hong Kong's shipbrokers also play a leading role in
much global trade where the only Hong Kong based component is the
shipbroker and this further enhances Hong Kong's role as a great cross-trading
centre. Aside from the extensive business shipbrokers based here conduct in
Mainland China, we act as intennediaries in the sales of ships from New
Zealand to Norway, Greece to Vietnam, America to Malaysia and act for many
other shipping interests located across the globe.

Hong Kong's ability to develop a shipbroking industry has also played a
vital role in the development of shipbroking in China, and several of the fastest
growing Mainland Chinese shipbroking companies are owned and managed in
Hong Kong. Many P.R.C. based brokers have been trained in Hong Kong,
likewise the chartering and sale and purchase departments of many Chinese
shipowners have beneﬁted from spending time in the shipbroking ofﬁces of
Hong Kong companies. In terms of contributing to the onward development of
China's maritime services sector, the contribution of Hong Kong's shipbrokers
should not be overlooked.

In addition, shipbroking, oils the wheels of shipping commerce through
their role as a source of information, not just on what ships are worth and what
direction the market is going in, but in their capacity of being in the midst of the
maritime community, they are able to answer almost any question - or at least
know someone who does. This is of particular assistance to banks, P & I Clubs,
law ﬁrms or anyone else involved in shipping and is seeking some guidance on
either a valuation, company, person or particular sector which is outside of their
normal sphere of operation. Our ofﬁce rule is that if we don't know the answer
to a question, we will know someone who does and we'll get back to you.

So what of the future? Can shipbroking in Hong Kong survive the
combined pressures of a downturn in the market and the onslaught of e-
commerce? Will shipowners maintain the trend of using any broker ﬁom
overseas who calls them up rather than use local expertise or worse still, cut out
the broker entirely? I believe that shipbrokers will survive in Hong Kong, but
there will be a much increased trend towards localisation - already well under
way - and the days of the baying expatriate broker propping up the bar in the
Bull and Bear all afternoon are long gone. A higher level of creativity and
actual deal making is going to be required and as the actual shipowning market
in terms of numbers of active owners has fallen in recent years, the brokers must

look overseas to new markets to generate a proﬁtable level of income. Hong
Kong shipowners will utilise the expertise of local shipbrokers, but only if those
shipbrokers can provide an equal or better service than the overseas brokers who
try to deal with this market directly. More utilisation of local brokers would
almost certainly see more investment by those companies in training local Hong
Kong staff - a real problem in Hong Kong where a career in shipbroking has not
been seen as particularly attractive.

As the Greek writer Horace said ‘genius is created in adversity, mediocrity
in prosperity’, i.e. any fool can do well in a good market. A downturn always
produces a shake-out and the current slump is going to see a few casualties
amongst the shipbroking profession, but it will also throw up a huge number of
opporttmities for those who can slug out a recession, and surviving a recession is
something everyone in shipping has had plenty of practice at. For certain, our
earnings will drop and a good dose of belt-tightening will be in order, but the
only thing certain about a recession is that one day it will end - you have just got
to make sure you are around on the upturn.

As regards the internet, last year was the year when numerous chartering
dot.coms were established, heralding the demise of the shipbroker and the end of
‘scandalous’ commission payments to brokers. Shipbrokers were accused of
being luddite in their approach to the internet and as with so many other
industries, the dot.com boys in their chinos and polo shirts sought to prove that
no matter how much hard-earned experience you had gained in the real world, it

was now all irrelevant and we should all kneel at the altar of the intemet.

The only area of the internet which currently makes money is
pornography, and perhaps that is why people think that shipbrokers, who some
consider come a close second to pornographers in the social scale, are destined
to go fully on-line. I totally disagree and I believe that there is a better chance of
the world's grain and iron ore being transported by air freight than there is of a
wholesale shift of the shipbroking industry to the internet and on-line chartering .
That is a personal opinion and if there is one statement of this entire seminar
which gets quoted out of context, that is likely to be it.

Shipbrokers have already embraced the internet as a communications tool
and it has been an enormous asset. The days of huge telex bills are long gone,
indeed the savings in communication costs have been so great that it has
probably saved several small shipbroking companies from going Lmder. The
only downside is that as it means messaging is now free and hence everyone
sends everything to everybody, and as we all know a large proportion of our e-
mails are rubbish.

No matter how much can be done electronically, there will not be a
replacement for the personal relationship between principals and charterers, and
the need for private information - whereby all the best deals are always done -
will still exist and you are not going to get that off the internet. Shipping is
always going to need shipbrokers who will ferret around discreetly in the
twilight zone of our tnily unique industry, thus allowing our clients to then make
their market move with maximum effect. Likewise, for anyone here who has
ever experienced a bill of lading dispute and needed to get Letters of Indemnity
from a charterer in the middle of the night, or had to sort out the inevitable
problems with bunker prices at the time of a secondhand closing or any of the
other numerous problems which come as part of the territory in chartering,
buying or selling a ship, there is always going to be a need for personal
intervention.

Alan Loynd asked me to keep my address short as it meant we could
squeeze a bit more time into the coffee break for everyone to have a natter, and
rightly pointed out that that is one of the most important parts of any seminar,
and let's face it after two grueling weeks of maritime activities, a few beers this
evening with fellow shipping types is what we all really want. When you can
download a cold Carlsberg and the company of the characters that go to make up
this great community that is Hong Kong shipping, then I will admit defeat.
Thank you.