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Risk management is the key to preparation for the shipping industry

The panelists at Reed Smith’s London International Shipping Week while discussing ‘Tomorrow’s Maritime World, Today’ on September 12 concluded that risk management is crucial to prepare the industry for tomorrow’s maritime world.

Representatives from a cross-section of the industry rendered the debate lively and significant with their rich experience and they were concerned with the three pressing topics in the industry: cyber risk and technical advancements; current trends in finance; and environmental impact of the industry. Though each topic will certainly have challenges unique to it, the panelists concurred on the necessity of risk management.

On the second day, Panel moderator and Reed Smith partner Andrew Taylor introduced the first topic of discussion: cyber risk and technical advancements. Cyber security is the most significant agenda for the industry as a whole, particularly post-Maersk cyber-attack. However, what is the scale of the risk and is the industry responding appropriately?

 The panelists agreed that ultimately it is about risk control. Indeed, the crew, operators, owners and management companies must be educated about the cyber threat, viewed Mark O’Neil, president of Columbia Marlow Shipmanagement Ltd.”. Frank Coles, CEO of Transas Marine added that “common sense needs to prevail” although he warned, “we don’t know what we don’t know” therefore the onus must be on risk control.

  When the discussion moved on to automation, Mark expressed the view that automation is ‘ tapping at our door’ suggesting automation is just round the corner as a reality; but, of course, there will be human element still. According to Frank, however, the technology for automation is here already and a number of shipowners are already controlling decisions from a shore base on information they can receive from vessels. Laura Bugden, company secretary and risk manager, said this could see the beginning of a “very different type of seafarer”.

What are the legal implications of technological changes to vessels? According to Nick Shaw, global head of shipping at Reed Smith, “lawmakers react to the marketplace, but it can be a very slow process to effect legal change in the international sphere”. Therefore, lawmakers are more likely to be asking themselves ‘what is the minimum they can do to fit the current rules to the new reality of autonomous vessels?

 The second topic of discussion centred on current trends in finance. As the traditional banks have exited, new players have filled the void. Despite the opportunities for funds and Chinese leasing agencies, according to Albert Stein, managing director of AlixPartners and a specialist in debt restructuring, the cost of capital is different for big players than it is for the smaller players. Therefore, more consolidation is expected according to all our panellists. Mark confirmed “it will be the bigger players who can ride out the market as returns become smaller than before”. Laura added that with these changes to the market players, greater emphasis must be placed on governance.

 The third topic of the day was the environmental impact of the shipping industry and the response of the industry to the new regulations and the upcoming IMO 2020 global sulphur cap deadline. The discussion understandably turned to the cost of compliance with the regulations. Laura was to the  point and pragmatic when he summarized the industry’s attitude and approach: ‘ no one has the money to throw at it…therefore they’ll wait till the end’ again though, the reality of meeting the 2020 global sulphur cap set by the IMO will largely rely on risk management and training.

 With all the changes required to make vessels environmentally compliant and to cater for automation, the lifespan of a vessel could look very different. With the time it takes to construct a ship, the industry needs to start considering now how to construct ships that cater for some or all of these changes. The next question will be how to ensure investments are still tenable. As Albert commented, “spreadsheet models are going to be very different”.

Reed Smith’s Shipping Group would like to thank Frank, Mark, Albert and Laura for joining the panel for an enlightening discussion on the future of the shipping industry.

 

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