Thursday, November 20, 2008
Crisis talks begin amid fears of more bankruptcies
Michelle Wiese Bockmann - Wednesday 19 November 2008
Bulk carrier charter rates have plunged in the last six months.
AROUND 400 of the global shipping industry’s heavyweights are locked in talks at a London conference centre, amid concern the continuing market meltdown will trigger further insolvencies and chartering defaults.
The crisis meeting is hosted by the Baltic Exchange and initiated by derivatives broker Freight Investor Services.
The meeting is intended to create some order in the opaque and intensely private industry, which operates under the byword of ‘my word is your bond’.
Morning proceedings were dominated by discussions over the complexities of untangling chains of ship hiring counterparties and widespread concern over chartering contract defaults by major traders, including steel mills.
Two of the world’s major charterers of ships, global miner BHP Billiton and commodities giant Cargill have led a flight to quality in the chartering chain, and to implement solutions to ease cashflow concerns.
Delegates said the meeting was told of 150 unsettled trades of the 318 that were, in an industry first, netted for October forward freight agreement settlements. This could not be substantiated as the meeting was closed to the media.
Clearing house NOS worked with FIS and 38 counterparties on the trades, worth $300m, and hopes to expand the scheme for November FFA settlements.
Evidence of market difficulties was obvious outside the meeting.
Brokers and owners’ representatives haggled on mobiles on the stairwell over low rates and poor charterers’ terms.
“Our owners are not going to do these types of deals. It’s short period (charters) of four to six months or three to five months,” one was overheard saying.
In the last six months, rates to hire the global fleet of 7,000 bulk carriers have plunged from their highly profitable levels to below breakeven, as the global financial crisis and looming global recession sharply reduce shipments.
Solutions put forward to address rising counterparty risk range from the drastic but impractical (a temporary shutdown of the paper market and stopping publishing the Baltic dry indices), to the functional but selective (BHP Billiton’s newly implemented charterering clauses that net physical and paper trading that are gaining wider use among larger charterers).
Delegates have complained that the secrecy that surrounds shipping business means very little information is available about the physical and paper positions that charterers and owners hold.
Discussions canvassed a central register of this information, as well as ways to ‘name and shame’ those who are not honouring chartering contracts.
This afternoon’s talks centre on netting physical contracts. The Baltic Exchange plan to release a statement outlining common goals and strageties arising from the meeting either this evening or on Tuesday morning.
As adapted from Lloyds List
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