Shipping finds itself at the crest and the bottom of a wave

Friday, 18 September 2009

On Monday morning the full complement of new trainees arrived at Ince & Co, the maritime law specialist. Unlike the picture at many other City law firms, there had been no need for deferrals. In fact, it took on two more young lawyers than last year. There is a similar picture at Holman Fenwick Willan, another great maritime firm, where recruitment has held up well. Partners, senior associates and even three to four-year qualified assistants say they need more trainees to help them to cope with the volume of work.In other words, business is booming for shipping-based law firms.

And so it is highly pertinent that this week Norton Rose has published The Way Ahead for Transport, a heavyweight report that analyses the state of the market for shipping, aviation and rail as seen by industry insiders.It comes, unsurprisingly, to gloomy conclusions — especially about shipping. “Shipping respondents appear to be the biggest victims of the drop in global trade while also suffering from the lack of available finance,” it says.So what is going on? The Norton Rose figures point to a sector in which two thirds of the industry expect widespread bank enforcement of troubled shipping loans and 80 per cent predict that it will be at least 12 months before the number of banks actively lending to the sector increases. A similar number expect no return to pre-crisis levels of available bank debt within three years. Almost 70 per cent of the sector regard the market as poor.

It is this crisis in confidence that is fuelling the unprecedented level of activity among law firms. Shipping lawyers take no pleasure in the problems facing their clients. Yet now that the sector has slid into crisis their services are urgently needed to sort out the tangled wrecks into which many shipping businesses have collapsed.“I’ve been in the shipping field for 26 years and the downturn took me totally by surprise,” says Harry Theochari, the Norton Rose asset finance partner who inspired the survey.

“The fallout has been striking. For example, on behalf of our clients we have arrested more ships in the past six weeks than in the past six years.”Although shipping is the preeminent global business with the leading players coming from countries such as Greece, Norway, China and Singapore, the preferred jurisdiction for contracts and dispute resolution is England. Nigel Thomas, of Watson, Farley & Williams, says: “English law works better than any other system and it gives us, as English lawyers, a tremendous advantage. Recently there have been pressures from the Norwegians to use Norwegian law but international clients don’t want to use it.”

London’s position as a financial centre reinforces the primacy of English law given that, as Theochari points out, this is a sector that has heavily relied upon bank debt for most of its history. Moreover, the complex network of relationships of those who charter, sub-charter and sub-sub-charter means that once something goes wrong there is a massive knock-on effect luring more and more people into the web of litigation. So it is very convenient for everyone to be operating under the same code (especially given New York law’s absence from the international shipping business).

One of the biggest things to have gone wrong, of course, over the past year is the extraordinary slump in the rates that owners can charge. For large bulk carriers the drop has been from $200,000 (£121,000) a day to just $10,000. This has left parties with gaping holes in their income in relation to their outgoings. Ben Knowles, of Clyde & Co, says: “Last autumn there was an unprecedented collapse in the dry shipping market. The fallout of that collapse has benefited many of London’s medium-sized shipping and trading practitioners.”For James Wilson, of Ince & Co, the imperative is to ensure that legal advice is delivered in a wholly commercial — not purely legalistic — way. “There is no point in this market to adopt a rottweiller approach if the people on the other side do not have the money to hand over and therefore your client, the claimant, cannot effect the claim,” he says. “So you need a pragmatic approach to mediation or negotiation in order to get a result.

The original agreement for a charter may be for $100,000 a day but if $25,000 is all the party can afford to pay then it’s better to negotiate for $30,000 than end up with nothing by not being prepared to compromise.”Pragmatism is also starting to bite in the distressed shipbuilding market. The boom years lead to a massive over-ordering of ships that in many cases are being mothballed as soon as they are launched. However, Marcus Bowman, of Holman Fenwick Willan, says that there are some signs that bargains are starting to come on the market and being snapped up. “What’s important for us is to have activity in the market,” he says. “Ships are now cheap. It’s not all gloom and doom.”

Source: Times Online