22-05-2018

Feature: Shipping sector M&As, economic growth cut vessel arrests in Singapore

The number of shipping vessels arrested in Singapore hit a multi-year low in 2017 thanks to consolidation in the industry, greater credit scrutiny, and a pick-up in global economic growth, trade sources said Monday.

Only 33 vessels were arrested in Singapore last year — a five-year low — compared with 57 in 2016 and 114 in 2012, data from the Supreme Court of Singapore showed.

Warrants for arrest also showed a similar trend. A total of 38 warrants of arrest were filed last year, compared with 68 the year before and 133 in 2012.

Singapore’s waterways are one of the busiest in the world, with around 3,400 vessels arriving at the port each month to take bunker fuel. Disputes over unpaid bunkers and mortgagee claims are often grounds for legal action, trade sources said.

But restructuring and consolidation in the shipping sector over the last two years has resulted in strong companies with a stable cash flow controlling the ships, a maritime lawyer said on the sidelines of the recent WISTA shipping conference in Singapore.

“They are able to withstand the shocks of weaker earnings for a prolonged period of time,” she said.

The merger of Euronav and Gener8, which was announced in late 2017, for example, is expected to create a VLCC behemoth.

The addition of all but six of Gener8’s VLCCs, would bring the number of super tankers managed by VLCC Chartering — a joint venture by Frontline and Euronav-led pool Tankers International — to 71.

This is significant because M&As reduce the number of ships that are offered for each cargo, tightening supply, traders said.

The tanker market, while reeling from low earnings, have not, however, seen significant cases of vessel arrests because consolidation in the sector has shored up finances, trade sources said.

AMCL’s merger with Nanjing and COSCO’s with China Shipping, for instance, has reduced the number of participants in China’s shipping industry, while in the clean segment, Scorpio Tankers merged with Navig8 Product Tankers.

GLOBAL GROWTH

In the Medium Range tanker segment, earnings have been going up.

“There are plenty of opportunities to move oil product cargoes on long-haul routes such as from the Middle East to Europe, North Asia and Africa,” Ardmore Shipping Chief Commercial Officer Gernot Ruppelt said in a recent interview.

This is in keeping with the improvement in the global economy. The International Monetary Fund estimated global GDP growth at 3.7% last year. It has forecast growth this year at 3.9%.

Supply of MRs peaked a couple of years ago and with current demand, the market was more balanced, head of research for Banchero Costa, Ralph Leszczynski said.

“The order book is now falling off. New contracting has been extremely limited over the last two years,” he added.

In 2015, more than 130 MRs and almost 100 LRs were ordered, while last year only 40 MRs and under 10 LRs were ordered.

The fleet of product tankers has expanded by 5-6% in the last three years due to more deliveries and less demolition, but a slowdown was expected, Leszczynski said. Banchero Costa projected a fleet growth of 3% for this year.

CONSERVATIVE FINANCIAL CLIMATE

Shipping industry participants have become more conservative in their business activities, especially in the aftermath of the O.W. Bunker collapse in 2014, Joseph Tan Jude Benny LLP’s senior associate Brenna Yeo said.

“The tighter market and financial situation also encourages parties to settle their disputes rather than commence litigation and arrest vessels as security for their claims,” Yeo said.

“Also, given that Singapore has recently adopted the UNCITRAL Model Law on Cross-Border Insolvency, I would expect vessel arrests to remain relatively low,” she added.

Singapore adopted the United Nations cross-border insolvency legislation in March last year, which allows foreign representatives to apply to local courts for recognition of foreign insolvency proceedings, thereby reducing costs in insolvency administration and increasing asset recovery for creditors.

With global economic growth and a pick-up in shipping segments, creditors are less likely to panic and can afford to wait, Oon & Bazul LLP’s partner Kelly Yap said.

Source: Platts

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