Cover Story: London aims to stay ahead of the game

London is among the leading maritime business hubs in the world and is determined to remain so whatever the still uncertain outcome of the protracted Brexit negotiations. Maritime businesses based in the UK capital are preparing to adapt to this change as well as the increasing competition they are facing from some maritime hubs outside the EU.

Jos Standerwick, Chief Executive of Maritime London, which promotes London as a shipping business centre and the UK as a whole, and is actively supported by about 100 companies and organisations that have a direct interest in promoting the maritime services sector in the UK, said that London remains the leading international centre for resolving maritime disputes through arbitration, the leading base for P&I and other insurance cover. The Baltic Exchange is the leading vehicle for vessel and cargo fixtures.

“All of these services are facing increasing competition from overseas, especially in Asia, such as in Singapore, and the decision of the UK to leave the European Union will add to those competitive pressures. The role of Maritime London will therefore become even more important to promote London as the leading centre for international shipping business,” Mr Standerwick commented.

A recent report by the Baltic Exchange and Chinese news agency Xinhua ranked London as the third leading global shipping centre behind Singapore and Hong Kong. This index includes consideration port and wider business services. According to this study Hong Kong overtook London in 2018, but London was still judged the leading global location for professional maritime services.

In another recent global financial survey, London lost its previous ranking as the most attractive global financial centre, being overtaken by New York, though London remained ahead of Singapore and Hong Kong and EU finance centres. This was mainly due to the challenge being posed by Brexit to London’s status.

London is likely to remain the leading global hub for marine insurance whatever the outcome of Brexit negotiations and new president of the International Union of Marine Insurance Richard Turner told its annual conference in Cape Town in September that it was still too early to tell what impact Brexit might have on the London insurance market.

Nonetheless, Lloyd’s of London is going ahead with opening a new subsidiary in Brussels, which is expected to be open for business in January 2019. This move is intended to ensure that insurance underwriters can continue to do EU business after the UK leaves the EU, avoiding any uncertainty.

The 2016 takeover of the Baltic Exchange by the Singapore Exchange was seen by some as a portent for further challenges to London’s dominance in maritime business. However, the Singapore Exchange was clear that the move was not meant to undermine London’s existing role but intended to strengthen both cities leading roles in the growing freight derivatives markets and other shipping and cargo transactions. That has so far proved the case and the change of ownership has not damaged the standing of the Baltic Exchange in London, which remains the leading centre.

London is continuing to fight off potential rivals to its dominant position for maritime arbitration and the resolution of maritime disputes. In particular, Singapore set up its own maritime arbitration service, the Singapore Chamber of Maritime Arbitration in 2004, in an effort to win some business from London. Brexit has added a new perspective to this challenge to London’s dominance of maritime arbitration. Although Singapore has picked up some business, it has not so far dented London’s leading position.

Speaking in London at the London Maritime Arbitration Association earlier this year, Lisa Clarke, a Senior Claims Executive at UK P&I Club, but giving her personal view, said that an estimated 2,357 maritime arbitrations were handled by the LMAA in 2017, while Singapore saw fewer than 10% of this number.

She said that London became the leading centre for maritime arbitration because English law offers a degree of certainty and cases are dealt with consistently. Other legal principles make English law a favourable jurisdiction for parties to contract while maritime arbitration in England is a well-oiled machine developed from years of experience.

Ms Clarke commented: “The argument has been raised that Brexit will see developing centres of arbitration such as Paris and Dubai attempting to seize the opportunity to promote maritime arbitration there. Whilst it seems unlikely that a dramatic shift will occur overnight, especially with London’s well established and respected status, it does seem that some change may be on the horizon and this may lead to growth in other maritime shipping hubs. That said, the current thinking suggests that Brexit will have very little impact on the London Maritime Arbitration community.”

Law firm responds to new challenges

Major changes in the structure of ship financing since the global financial crisis have necessitated those law firms playing a prominent role in shipping finance deals to adapt their approach to new circumstances. The amount of shipping funding provided by bank loans has declined as banks are less willing to take on what are seen as relatively risky investments in shipping. Other sources of funding have partially filled the gap, in particular private equity. Royal Bank of Scotland was formerly a leading provider of shipping finance especially to the Greek market, but following that bank’s travails, it has opted out of shipping finance. Other banks in the UK and Europe have also ceased or severely reduced their shipping lending.

Harry Theochari, Partner and Global Head of Transport at Norton Rose Fulbright, told SMI that this year has been exceptionally busy with various international shipping deals but that the market has changed considerably. “Previously I was basically a banking lawyer acting for banks in shipping transactions. But the amount of funding from syndicated loan facilities for shipping is now about half the level it was in 2007. Most big shipping transactions now involve private equity. The level of finance for shipping being provided by bank loans has reduced considerably since the financial crash.

“Private equity is now very active in shipping and learning quickly. Most of the private equity funds investing in shipping are based in the US but some have offices in London. Some have been acquiring shipping loan portfolios from banks. Some shipping companies are using bond markets to raise funds but that is relatively quiet and still a small proportion of overall shipping finance. Bonds and private equity combined are not making up the shortfall in funding from banks,” Mr Theochari said.

He highlighted several recent major shipping deals that the law firm has acted. Norton Rose Fulbright recently advised Citigroup and other lenders of Danaos on a $2.2 billion restructuring of the Greece-based, New York Stock Exchange listed containership owner. Norton Rose Fulbright’s Athens, London and New York offices advised Citigroup and other lenders including China Exim Bank and Eurobank. The transaction resulted in a substantial balance sheet restructuring and recapitalisation of Danaos and positions the company to take advantage of future growth opportunities in the container ship sector.

Norton Rose Fulbright Banking Partner Yianni Cheilas, who led the team advising Citigroup, commented: “This complex and versatile transaction demonstrates Norton Rose Fulbright’s expanded and global capabilities with several teams across many offices operating seamlessly as a single unit to provide highly specialised advice in various fields across multiple jurisdictions and under challenging time-lines. This was a milestone deal in a difficult environment involving numerous stakeholders, but hopefully it is a major step forward for all involved.”

Another major ship finance deal Norton Rose Fulbright has advised on in recent months includes advising Gener8 Maritime on its merger with Euronav to create one of the world’s largest independent crude tanker operators. Mr Theochari led the Norton Rose Fulbright team on this deal. He said: “We are delighted to have advised Gener8 on this merger. It illustrates a trend we expect to continue, as the key market players strive to increase in size.”

Mr Theochari added: “There is still a lot of oversupply in shipping and there will be more consolidation, so we expect to see more work from mergers and acquisitions. We have also seen a lot of Chapter 11 bankruptcy protection work and major financing restructurings.”

Regarding the potential risks to London’s shipping business from Brexit, Mr Theochari commented: “Brexit is clearly providing ammunition for rival shipping market hubs such as Singapore. But London has a 300-year head start in maritime services such as legal, banking, and insurance and it is likely to remain the leading centre after Brexit. Although more firms may set up offices elsewhere due to Brexit, London will remain the leader for shipping business. I cannot see London being overtaken in the foreseeable future. In fact, the EU needs to support London in this role as any loss of business will not go elsewhere in the EU but outside the EU.

He said that Norton Rose has 56 offices around the world. “London is still our biggest in terms of shipping and transport. Norton Rose Fulbright will continue to grow worldwide.”

Another London-based law firm, Watson Farley & Williams, was acting for Danaos in the same financial restructuring deal that Norton Rose Fulbright acted for some of its lenders. This deal was led by WFW’s Athens office but supported by a team in London. 

Port of London seeks more trade

The Port of London and River Thames have been central to the city’s role as a leading maritime hub for centuries. Its activities may not be as visible from the city itself as they once were, but it still plays a vital role and it is often overlooked that the port handles as much cargo now as it has ever done. 

The Port of London Authority is determined to see current cargo volumes increase further and has set itself the ambitious target of becoming the leading UK port in terms of cargo handling from its current second place. In 2016 the port handled more than 50 million tonnes of cargo (50.4 million) for the first time since 2008, although in 2017 it slipped back slightly to 49.9 million tonnes. 

PLA Chief Executive Robin Mortimer points out that the Port of London is on the doorstep of the UK’s biggest consumer market. “Our strategy is based on flexibility backed by substantial and continued investment and investment by terminal operators as they commission new facilities or upgrade existing ones,” he said.

“Our goal is to be the top port in the UK in the near future, increase cargo tonnage, increase intra-port freight and double passenger journeys to 20 million to become an integral part of London’s transport network.” Specifically, PLA’s Thames Vision, which was launched in 2016 to cover the following 20 years, sets a target for cargo handling to reach 60 to 80 million tonnes annually. 

As part of its efforts to achieve these aims, in 2017 PLA launched the Port of London Infrastructure Group. Mr Mortimer commented: “We have never had such a group, public and private sector, acting as one voice for the port, discussing the challenges and what is needed to make it a success. The Group involves 70 ports and terminals on the Thames.”

Major developments include Tilbury 2, on the site of the former Tilbury Power Station, being developed by Forth Ports, which owns operates the Port of Tilbury, and is expected to open in 2020. The site already had a deep water jetty and the new facility will have three berths including dedicated ro-ro terminals. Other major developments include Seacon investing £2.5 million upgrading its Tower Wharf terminal, Cobelfret upgrading its Purfleet ro-ro terminal and the Thames Enterprise Park on the site of the former Coryton oil refinery, which includes deep water jetties.

In May this year the PLA launched its Investment Plan with the aims of speeding up efforts to reach the goals set out in its Thames Vision for increasing cargo volumes and diversifying its income streams. The PLA is looking to leverage funding from public and private sources. 

“The investment plan is not going to deliver the Vision alone, but will move the Vision forward, where judicious investments will support the growth in river use and deliver a wide range of public benefits. Diversifying income streams will make the PLA more financially resilient, in the face of variations in port trade, and so better able to sustain our services into the future,” Mr Mortimer said.

The PLA is also making considerable investments towards greater digitalisation of its services. Nearly all vessel calls are booked digitally and the authority is looking at options for a digitalised Vessel Traffic Management Service. “Our goal is a smart sustainable port,” Mr Mortimer said.

Reflecting the increased pressure for cleaner air throughout London, in June the PLA published Air Quality Strategy. Mr Mortimer commented: “We want to reduce emissions to air from marine services on the Thames.” As part of this strategy the PLA has recently put into service the UK’s first hybrid pilot boat, operated in the Thames Estuary by Estuary Services, which is a joint venture between the PLA and Peel Ports. 

The environmental challenge is not without controversy as efforts to develop a new cruise terminal at Greenwich have run into objections from residents concerned about emissions from large cruise ships that moor there close to residential properties.

Regarding the potential impact of Brexit, particularly on the port’s extensive shortsea services to EU ports, Mr Mortimer said: “We have looked at this closely, both in terms of how it might impact our operations and those of our customers.  In simple terms, our core operations overseeing port trade will not be affected.  There is potential, depending on the outcome of the settlement negotiated, for some of our short sea focused customers to be affected by the new trading arrangements.  Our position is that frictionless borders are essential to efficient port operations. We are working closely with our customers to make sure we are prepared for any changes that might be necessary as well as capitalising on any opportunities.”