Cover Story: Positioning for a new era in growth

Any suggestion that Singapore is being adversely affected by shipping’s continued market lethargy can only be described as anathema to those proponents of the island state’s standing as the world’s number one maritime centre. Day-to-day living costs may be going up, certainly when compared to other international business centres, but the long-time thorn in Singapore’s side, the soaring price of accommodation, office and domestic, has not only stopped over recent months but has started to reverse, thanks to an oversupply of available living and working space.

Hot on the heels of top maritime city status accolades handed out over the last year and a half by the influential Xinhua-Baltic International Shipping Centre Development Index and the Menon Report, Singapore is not resting on its laurels. Conscious of growing competition from Shanghai and to a lesser extent Hong Kong, it is still succeeding in attracting in a wide diversity of industry sectors keen to be close to their customers.

Dr Lam Pin Min, Senior Minister of State for Transport and Health, used the recent Singapore Shipping Association’s (SSA) Annual Lunar New Year Cocktail Reception to announce two new initiatives, the Singapore War Risks Insurance Conditions (SWRIC) and the development of an inter-operability framework for electronic trade documents for the maritime and trade industries, to boost the maritime industry and strengthen Singapore’s standing as a leading global maritime hub.

The SWRIC is an enhancement of the Singapore War Risks Mutual (SWRM), Singapore’s first national war risks insurance facility which was launched in 2015 as part of efforts to develop Singapore as a comprehensive marine insurance hub. Available to members of SSA irrespective of the flag of the ship, and non-members whose ships are registered in Singapore, the cover under SWRM rules includes Protection and Indemnity (P&I) war risks, hull war risks, detention and diversion expenses, sue and labour and discretionary insurance. In a short span of four years since its launch, the SWRM cover has exceeded expectations with close to 800 ships insured.

To augment the SWRM, the SSA has spearheaded a working group which prepared the SWRIC, a comprehensive set of insurance conditions which aims to raise the bar on existing war conditions in the marketplace today, by bridging coverage gaps as well as updating and simplifying the existing war conditions available in the market. The SWRIC is also the first set of insurance conditions to be written from a ship owner’s perspective, addressing important risks that are felt by the global shipping community. Local expertise will be developed to ensure that the conditions are updated and remain relevant to the industry.

To further the progress of digitalisation efforts in the maritime sector and to bring about benefits to the wider supply chain ecosystem, the Maritime and Port Authority of Singapore (MPA) is galvanising the shipping community and other government agencies to develop inter-operability enablers. This is a step-up to the three-party Memorandum of Understanding (MOU) that MPA, SSA and Singapore Customs signed at the Sea Transport Industry Transformation Map launched in January 2018 to jointly look into the digitalisation of trade and maritime documentation, such as Bills of Lading (BL), in the industry.

Since the signing of the MOU in January 2018, the industry has seen progress with successful e-BL trials amongst consortiums led by two shipping lines – one by APL and the other by PIL and IBM. The trials simplify existing processes as well as leverage blockchain technology to bring various trading parties together to support information sharing and transparency. To facilitate inter-operability of the solutions developed by the various consortiums, the members are excited to include a new MOU partner, Info-communications Media Development Authority (IMDA), to develop a new inter-operability framework. The MOU signing ceremony, which took place at the SSA event, was witnessed by the Guest-of-Honour, SMS Lam.

Working together with IMDA, the industry can expect to see different digital ecosystems inter-operate seamlessly with efficient exchange of electronic trade documents. The work will entail the development of a set of governance and legal frameworks, technical standards and inter-operable digital enablers.

“The close partnership between the Government, the industry and SSA is a unique competitive advantage for Singapore. We must continue to strengthen this partnership. This will enable Maritime Singapore to stay relevant and competitive,” said SMS Lam.

There is no better place to see digitisation at work in the city state than in the Port of Singapore and its plans for relocation to the Tuas mega port. A fleet of 30 driverless vehicles deployed to move cargo containers around the terminal are in the vanguard for the move to the Tuas mega port. Over 1,000 of these battery-powered four-wheelers will be developed for Singapore’s future port. Towering above these vehicles is the world’s largest fleet of automated yard cranes – numbering nearly 200. At Tuas, that figure will rise to almost 1,000.

These are just two examples of the automation systems that PSA is looking at with Tuas in mind. And the lessons to be learned will be vital.

The project is set to cost billions of dollars and span more than two decades. And the stakes are high – not least because the maritime sector contributes 7% to the economy and over 170,000 jobs.

The Singapore maritime ecosystem supports many home-grown companies, including small and medium enterprises, in areas from manufacturing to logistics to technology. And with the PSA giving up its city terminals by 2027 and the Pasir Panjang Terminal by 2040, when the Tuas mega port will be completed, the industry’s future will singularly lie in the new port.

For success to come, “the Tuas that we’ll operate must be different from the port that we run now”, said PSA International Group Chief Executive Officer Tan Chong Meng, who added: “Tuas, for us, is an opportunity to reset.”

And growth through digitalisation is even making inroads into the financial services sector as Classis LLC’s Legal Director Charmaine Fu claimed. “Singapore is growing, and the Government has done a lot to push the legal sector. But there is this huge push by the courts and the Government to adopt technology – Singapore 4.0 – for professional services.

“The Government is coming out with initiatives and funding to adopt this technology – whether they are electronic platforms for trade or electronic bills of lading. For law firms there is artificial intelligence funding so we have an incubator for that in Singapore,” she said.

According to Classis (a Singapore law firm with close associations with Clyde & Co), law firms in Singapore need to stay ahead but at the same time the legal markets have changed here. “We have many international law firms opening in Singapore and at the same time the traditional small players are finding themselves with little or no succession and we are seeing a lot of young lawyers quitting practice and moving to corporate law. We also see a lot of junior lawyers starting their own practice and joining up with the large international firms as their local partners,” Charmaine Fu said.

Ian Short, Director in Campbell Johnston Clark’s Singapore office, believes that Singapore is still the ‘go to’ place in Asia for ancillary services such as insurance and law. “Singapore has the infrastructure in place and it is well positioned so if the markets improve it will continue to grow,” he said. “The increasing number of P&I Clubs opening offices here is testament to that and whilst many of these perform legal work in-house, there will always be advisory work for the lawyers and the running of arbitration and high court matters. It is also a key location to develop direct relationships with ship owners and shipping companies.”

Barry Stimpson, founding partner of Reed Smith’s Singapore office, added to the debate: “The Singapore Maritime Cluster is an initiative of the Singapore government helmed by the MPA, and which provides funding for various maritime related activities in Singapore’s aim to be a leading global maritime hub and centre for maritime knowledge and R&D excellence. This includes being a centre for maritime legal excellence. The MPA is fully committed to the cluster and supports legal initiatives like conferences and training workshops with a maritime focus, as well as research and development on technical and technological advancements across the entire spectrum of the maritime industry. The maritime cluster initiative has been positive for Reed Smith and our Formal Law Alliance (FLA) as it has opened doors and new opportunities for us to develop business within the maritime and shipping space.

“International law firms in Singapore are generally not able to provide advice on Singapore law. In the sectors in which Reed Smith specialises in, and in particular shipping, there are greater cases where Singapore law is necessary, especially in multijurisdictional disputes and transactions. Therefore, it is essential to have a Formal Law Alliance (FLA) or a Joint Law Venture (JLV) with sufficiently experienced Singapore-trained and qualified lawyers to provide support to advise on those matters involving a Singapore law element.”

He added: “We have an FLA with Resource Law who are specialists in, among others, shipping and commodities/international trade. Following Reed Smith’s FLA with Resource Law, the firm is now able to advise (via the FLA) seamlessly on local and international law, including ‘wet’ and ‘dry’ disputes, ship finance, transactional and regulatory work. The alliance offers our clients a genuine one-stop-shop service not able to be offered by a number of the local firms in Singapore. Reed Smith is now able to assist clients seamlessly with, for example, London-seated arbitrations, and can (through our FLA) offer Singapore law expertise to clients. The alliance also allows the firm to make a contribution to the expansion of Singapore as a regional and international centre for legal services and legal excellence, and affirms its continuing commitment to the Singapore market and the needs of its clients.”

But what about Singapore’s role as an arbitration centre? Singapore has very successfully established itself as a dispute resolution centre for the whole of Southeast Asia. It is the largest arbitration centre, in terms of value and number of cases, in Asia. Singapore is competing with larger arbitration centres in Europe, including London, for all types of arbitration but in particular, shipping arbitration. A number of London chambers have established their presence in Singapore to meet the demand arising from the number of arbitration cases. However, there remains a very strong connection with London in relation to the types of arbitration that are handled, in particular in the shipping sector and in many cases, the parties involved are from countries other than Singapore, including the UK and elsewhere in Europe.

But while growth and innovation remain high on the island city’s agenda, the issue of the cost of living and the availability of human resource won’t go away.

The biggest challenge facing Singapore has been attracting the right talent to fill the burgeoning job vacancies, especially in the executive sphere, according to Matt Conway, Managing Director of recruitment specialist Faststream. As he contends, not only is there a finite number of available people in Singapore to fill the positions, but when it comes to recruitment Singapore is competing with jobs in Shanghai and, to a lesser extent, vacancies in Hong Kong.

“2018 was one of our busiest executive search years to date, with 30% of APAC revenue coming from Executive Search assignments in Asia – the highest in the group. And 60% of our executive search work last year was in marine. And when we say marine we mean any company providing a product or service for the Maritime industry in general – OEM, ship supply, consultancy, class, insurance etc. The rest is spread across ship managers and owners. This has not just been organic growth but new growth and upskilling, or consolidation with companies joining together and looking for and new management. We work with several private equity firms with portfolios focusing on the marine and maritime sectors and this has translated into many search assignments for senior management changes.

“The marine space has experienced increased focus from Asian-based private equity firms. We spend considerable resource tracking data and raw vacancies. In any given month we would expect to be briefed on anywhere between 95 and 120 new Asian vacancies,” he added.

But with the 30% drop in the price of property rental and the 12% to 15% income tax level, company executives with young families wishing to relocate to Singapore are facing the added cost of international schooling.

“School fees can be SGD$100K for three children, not including buses and levies etc. ,   so a Technical Superintendent on SGD$12K-SGD$14K per month with two children, is looking at a schooling bill of SGD$60K-SGD$70K – effectively half his monthly wage,” said Mr Conway.

Steffen Pedersen, Partner at Thomas Cooper Singapore, said Singapore has been under pressure over the last two general elections to look after the career opportunities of local Singaporeans, meaning that it is harder for foreigners to secure employment visas. And when you factor in the point that many P&I Clubs are taking more of the legal work inhouse, law firms on the island have to be lean and mean to win the business. But always being mindful not to stretch yourselves. And while the Singapore government is keen to ensure local companies use Singapore lawyers, many owners are happy to put Singapore as the seat of the arbitration while using English law because of the certainty involved.

Tony Goldsmith, Partner, Master mariner and Head of Hill Dickinson’s Singapore office, added to the debate saying that while his law firm has been looking more to ship finance and non-contentious work and so become less reliant on work from the P&I Clubs, expansion of the firms business has come more from commodities and finance. “There is always work in the shipping sector here in the region but the opportunities lie more with the owners themselves than with the P&I Clubs. It is important to build a reputation, as we have done, for the expertise you have. If there is major casualty work, then we are the ones to be called upon.”

Hill Dickinson was the first law firm to have their Master Mariners qualify as lawyers. As Mr Goldsmith stressed: “To some extent what you might be seeing is a transition back to casualty managers – due to lack of interest in people wanting to qualify. One of the biggest problems that shipping law practices face is recruitment and being able to offer a good career path to youngsters.”

On a general note, he added: “Singapore needs to keep growing because it is facing huge competition from the shipping world. You have Malaysia growing in sophistication, funded by China, and Singapore needs to be agile to meet the competition that wasn’t there before.”

According to Captain Manish Jain, Director and Head of Operations at Womar Tanker Pools, while Singapore may not be one of the cheapest cluster options, it scores big when it comes to efficiency and linking businesses together with their clients. “It is a location where you could easily have six to eight meetings a day,” he said. “We could find many other offshore locations that are more cost-efficient but then you are far away from the business.

“The challenge facing Singapore is the cost, but you have to beat this by being more efficient and this comes with systems and technology and concentrating on your core business. This means that companies need to outsource if they are to concentrate on their core business,” he added.

But, as Christopher Kirton, Managing Director of Norstar Ship Management, emphasised, despite the costs involved, there is an attraction to living and working in Singapore.

“Singapore is getting more expensive in some areas and cheaper in others, but there is a softening of rental rates, especially when it comes to older buildings, brought about by the plethora of serviced flats and serviced offices.

“But there hasn’t been a softening of wages: these seem to have stayed static. But there are people who are struggling on the wages they are paid because it is getting expensive. An average middle manager can earn $20K per month and some companies pay a 13th month as part of the salary.” But as he suggested, over the last couple of years there have been a few Europeans looking to work in Singapore and willing to take a pay cut to get here. But if you have kids then the education costs can be very high.

Nicolas White, Senior Consultant at London Offshore Consultants, said the cost issue had to be put into perspective.

“Singapore is an expensive place to live, yes, but exchange rates and, in particular, a weak pound has not helped companies and makes us look expensive compared to London, when in reality consultant’s fees have not increased much, if any, over the last decade. We are now seeing rates for consultants under pressure and the law firms speak of this as well.

“As a business centre Singapore is competitive and as a resolution dispute centre, is growing. To a certain extent, the Judiciary is the driving force behind this, by ordering parties to mediate. In general, we are seeing more competition and the market is changing.”

LOC, host of the Asian Marine Casualty Forum 2019 (AMCF), recently announced its finalised event programme and speaker line-up.

Held in conjunction with the Singapore Maritime Week 2019, the two-day forum will gather over 300 luminaries and delegates from the maritime wreck and salvage industry at the Sands Expo and Convention Centre, Marina Bay Sands Singapore on 11th and 12th April 2019.

A by-invitation-only event, AMCF aims to provide the platform for the sharing of best practices, exchange of ideas, and to facilitate discussion on how the industry can overcome the challenges of major salvage and wreck removal operations in the 21st century.

Notable speakers confirmed include Sam Kendall-Marsden, Director of Claims, The Standard Club; Doug Martin, President Smit Salvage Americas LLC; Nigel Clifford, Deputy Director, Safety & Response Systems, Maritime New Zealand; Captain Mike Meade, CEO of M3 Marine Group; Tony Goldsmith, Singapore Managing Partner at Hill Dickinson, Martin Hall, Head of Marine Casualty at Clyde & Co; Tim Fuller, Director at Britannia P&I; Charo Coll, President of the International Salvage Union; Andreas Brachel, Vice President, Head of Environmental Claims, Gard AS; Jacob Terling, Directorate General MOVE European Commission and Brendon Hawley, Head of Safety & Compliance, Wilhelmsen, Singapore.     

Commenting on the line-up of speakers, Andrew Squire, Deputy Chairman of LOC, said: “AMCF was conceived to foster meaningful and constructive industry discussions, and we are very encouraged and heartened by the overwhelming response from our stakeholders. We hope this informative event will inspire the people in the industry to come together, participate, learn and share in a mutually beneficial way.”

And while Singapore continues to build on its success as a major global maritime hub, industry players and observers are cognisant of the dark clouds that loom over the horizon, according to Raymond Peter, Managing Director of BSM Singapore. 

“One of the key challenges would be the impending IMO 2020 Sulphur Cap, and we are less than one year away from the deadline. The sulphur cap carries far-reaching implications across the wide spectrum of the maritime value chain, and in that regard, BSM works closely with our customers to advise them on their available options for regulatory compliance,” he said.

“Another challenge is the impact of economic and geopolitical uncertainty on the maritime industry, such as the ongoing Sino-US trade row which will undoubtedly pose new threats and challenges at the strategic level and operational levels. “We believe there are opportunities abound even during this challenging period. To seize these opportunities, we continually invest to stay ahead of the curve. We invest in disruptive technologies such as predictive analytics, and also in crew training to maintain high standards in our operational efficiency and service delivery,” he said.

This whole issue of the sulphur cap is an interesting one and according to industry practitioners like Captain Jain, there are two sides to the story.

“Out of the 90,000 or so ships in operation today, less than 3,000 will have scrubbers fitted and the majority of these will be open loop. The problem they are facing are the bans on open loop scrubbers in ports in China and Singapore and there are bound to be others that will follow.

“What this means is that the other 85,000 or so ships will opt for alternative fuels and supplies will be plentiful in Asia, Europe, the Middle East and the US. Not sure about South America. But the business case will be to provide low sulphur fuel and not high sulphur fuel and the market will adjust,” Capt Jain said.

Taking this argument even further, there are many in the industry that believe the subsequent high demand for low sulphur or alternative fuels could boost supplies at the expense of high sulphur options.

Incorporated in early 2009, WOMAR began as a 50/50 joint venture between Heidmar, Inc and other investors. Headquartered in Singapore, it operated the Marida Tanker Pool (10-14kdwt Coated IMO II Tankers) and later expanded its partners to include other tanker pools – Stainless Tanker Pool (19-25kdwt Stainless IMO II ships) and Sakura Tanker Pool (Aframax Tankers). Today, it continues its founding quest as specialists in the commercial asset management of chemical and oil tankers of up to 55,000 DWT and Aframax Tankers. They trade worldwide with a focus on chemicals, vegetable oils, clean and dirty petroleum products and crude oil.

So what are the game changers facing ship managers and shipmanagement in general?

Sikha Singh, Deputy Chief Executive Officer of the Executive Group, added to the debate by saying that while managers were seeing changes from a business point of view with more private equity coming in, you always have to be aware that the owner has to be able to make a profit. “As a manager, we are always sandwiched in the middle between the owners and issues like the environment or regulation, but the amount of knowledge that managers have is strong. We are there to guide the ship owners.

“Digitalisation is part of the game now. Whether you like it or not, it is inevitable. We have in-house software development here at Executive and we are looking at the next level such as robotics. We are hopeful that in-house we will be involving this in a bigger way.

“But managers also have control of the workforce, with training. They are prepared for the next level. it is important to be comfortable and not complacent. We are very clear with what we have. All our areas of business complement each other – from our training institute to ship repair, ship supply and our software development. We have crew management, technical management and accounting – everything is there together,” she said.

Raymond Peter again: “The current market condition is lukewarm. We expect the demand for high quality third-party shipmanagement to grow, albeit at a slower pace.

“There is a need to be prudent and cautious in our approach to growing the business. It is important to forecast the type of business opportunities that are available for ship managers.  Once the business is secured, the next challenge is the deployment of crew.  Recruiting, training and retention of quality crew are the major concerns facing the entire shipping community, and BSM is no exception.  Owners that trust ship managers with their vessels would wish to see that their vessels are well-maintained and well-managed within their budget.

“The owners and principals are increasingly demanding services beyond core crew and technical management services. BSM has responded by increasing the diversity of complementary services ranging from software applications, hospitality, travel to fleet maintenance and repair and newbuilding and conversion,” he said.

Chris Kirton added: “Most ship owners don’t change managers for the sake of it. There has to be a reason. We treat every ship as if it were our our own. We try to work with the smaller owners and all owners have access to me. Some of the larger sized managers say the smaller managers won’t survive and the smaller players believe there is opportunity for them in the market because of the personal service they believe they can give. 

“The challenge is putting forward a case to the owner to change his manager or take up the opportunity of employing one. Some will change because they are reacting to a bad experience or because they have changed their philosophy of which kind of manager they want to work with.

“Crew competency and crew availability are by far the biggest challenges we face because young people don’t want to go to sea. No one wants to get their fingers dirty. We have an advantage here in Norstar because in Myanmar being a seafarer is still seen as a good career. When it comes to competency, STCW 95 and the amendments have lowered the bar. As far as the 2020 sulphur cap is concerned, I am not a proponent of scrubbers but prefer the clean fuels option. Scrubbers are just kicking the can down the road. The industry needs to look at other options such as nuclear. Scrubbers are a no go because it is just a case of taking contaminants out of the air and putting them in the sea unless you are dealing with closed loop, and more places are banning open loop scrubbers. If you look at the issue from a financial point of view, putting scrubbers onboard ship is a no brainer as long as high sulphur fuel is available. The 90% of ships without scrubbers will use alternative fuels which will be available.” λ