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Professional Talk

November, 2018

Redefining Indian Law On Arrest of Non-Owned Ships: Sunil B. Naik V. Geowave Commander:- A Review


The Supreme Court of India, on 9th March 2018, marked a milestone in the field of Admiralty law while deciding the case, Sunil B. Naik v. Geowave Commander by incorporating the principle that there cannot be an arrest or restraint of a vessel in possession of a non-owner, but owned by a complete third party, for a maritime claim against the former. The Admiralty law in India regarding this was silent. It was this huge uncertainty that was set aside by the apex court through the above decision.

The facts of the case are as follows-Oil and Natural Gas Corporation Ltd. awarded a contract to one Reflect Geophysical (a Singapore based company) to carry out seismic survey off the coast of Gujarat near Okha port in 2012. Reflect Geophysical then entered into a bareboat Charter Party Agreement dated 29.06.2012 to charter the vessel ‘Geowave Commander’ from Master and Commander AS, registered in Norway, for 3 three years.

Later, Reflect Geophysical contracted with one Yusuf Abdul Gani (on 01.10.2012) and one Sunil B Naik (on 30.10.2012), to give on hire the vessel ‘Orion Laxmi’ to work in support (like towage duty) and 24 fishing trawlers being the chase vessels to assist in survey operations to be conducted by chartered vessel Geowave Commander respectively. When payments due to Yusuf Gani and Sunil Naik were defaulted by Reflect Geophysical, they approached the Bombay High Court to enforce their claim against Reflect Geophysical by arresting the vessel Geowave Commander. Even though the court gave an ex parte decree to arrest the vessel, later it refused to order arrest, holding that Reflect Geophysical was not the owner of the vessel Geowave Commander, and hence the claims against Reflect Geophysical could not be enforced through the arrest of the chartered vessel.

On appeal by the two aggrieved parties, the Supreme Court bench consisting of Justice J. Chelameswar and Justice Sanjay Kishan Kaul, considered three important principles while adjudicating the matter. One being the precedent set by the SC itself in the landmark decision of MV Elisabeth &Ors. v. Harwan Investment & Trading Pvt. Ltd. “The foundation of an action in rem against a ship arises from a maritime lien or claim imposing a personal liability upon the owner of the vessel.” Here the claim was only against the charterer of the vessel and not against the de jure owner of the vessel. Thus the chartered ship cannot be arrested for a claim against its charterer. The court observed that “the crucial test would be of ownership, which in the present case clearly does not vest with Reflect Geophysical and the de facto ownership under their bareboat charter cannot be equated to a de jure owner, which is necessary for an action in personam”.

The second point that crossed the Hon’ble Court was Article 3(3) of the International Convention on Arrest of Ships, 1999, which forbids the arrest of ships not owned by the person liable for the claim, except under a judgment based on a contrary law of the respective state. The Indian Admiralty law is silent on that matter, hence no judgment for arrest of such a ship could not take place. The SC itself has stated in the Elizabeth case (supra) that in the absence of any specific statutory provisions, maritime laws of the world can be adopted and adapted by Indian courts. Therefore, though India is not a signatory to the above convention the principles of the same can be utilized appropriately.

Finally, despite the fact that the court considered the plea of “beneficial ownership”, it didn’t really agree to it while adjudication. In Medway Drydock & Engineering Co. Ltd. v. M.V. Andrea Ursula, it was observed that “a ship would be beneficially owned by the person who, whether or not he was the legal or equitable owner or not, lawfully had full possession and control of her, and, by virtue of such possession and control, had all the benefit and use of her which a legal or equitable owner would ordinarily have”. But the fact that the above judgment was dissented by the Queen’s Bench itself in l Congreso Del Partido was duly noticed by the court. From the latter case, the court concluded that “mere possession of the ship, however, complete and whatever be the extent of the control was not found good enough to confer the status of ownership. The “beneficial use” of a chartered ship would not ipso facto convert the status of a charterer into a “beneficial owner.”

Hence, the Apex Court of India laid down a strong precedent that there cannot be an arrest or detention of a vessel in possession of a non-owner, but owned by a complete third party, as a security for a maritime claim against the former. The fact that the most significant admiralty case of Elisabeth v. Harwan Investment & Trading was cited and International Convention on Arrest of Ships was referred, where India not being a signatory, are all fascinating points to be noted. It is also interesting to look into, how the plea of “beneficial ownership” wasn’t really given importance for adjudication.


September, 2018

MARITIME INDUSTRY IN THE DECADE OF DIGITAL TRANSFORMATION


(continued from July edition)
Challenges and Opportunities – Singapore’s journey towards digitalization in 2018

Innovative players are bypassing the traditional shippers with new and cost-efficient digital business platforms that deliver more benefits to customers. In 2018 the Maritime Industry is reinventing itself, ushering in containerization, larger vessels, and electronic data exchange. The industry is also poised to make a drastic progress and growth in maritime financial recovery overcoming some of the constraints like fuel costs, entry of larger vessels in the market and also the new environmental regulations and standards.

Progressive ports are also embracing the digital breakthrough. Digitalization has helped the transformation of ports and terminals. Smart technologies have replaced the old systems that support the basic infrastructure and tools that handle cargo, manage traffic, customs dealings, safety assurance, and monitoring energy use, thus reducing wastage. Some ports worldwide have tied multiple individual systems into a single interconnected port-wide platform.

On 16th April 2018 the United Nations Maritime Organization has approved a strategy to eliminate carbon dioxide emissions altogether by 2020. The Maritime Singapore Green Initiative  also have made efforts to reduce the environmental impact of shipping and shipping related activities to promote clean and green Shipping in Singapore. In 2011 the Maritime and Port Authority of Singapore had decided to invest up to S$100 million over 5 years in Maritime Singapore Green Initiative, followed by the support from the maritime industry this was enhanced and extended till 31st Dec 2019. This initiative also makes Singapore’s efforts to a responsible flag and port state to clean and green shipping thus making it the most preferred Shipping hub globally.

The Singapore Budget announced on March 2018 that it will top up its Maritime Cluster Fund by S $100 million to help more transition to Digital and Automated maritime future. Senior Minister of Transport, Dr Lam Pin Min said that the latest amendments will lift the total investments in the MCF to $285 million. He also added that the introduction of the Maritime Transformation Map (MTP) will be rolled out over a period of few months and will co-fund the same with matching investments from industry partners, for the development of technology with high potential for industry applications. The Maritime and Port Authority of Singapore also have signed five Memorandums of Understandings (MOU) and two Agreements with local and international partners at the recently held Singapore Maritime Technology Conference (SMTC). These MOU’s are also aligned with the Sea Transport and Transformation Map that are designed to strengthen Singapore’s connectivity and help Singapore to take its Maritime Industry to be at par with the latest developments and adaptations of areas such as automation, data analytics, intelligent systems and cyber security. Thus Singapore has emphasized the importance of digital technology and innovations and is getting ready for a journey towards a better future for its Maritime Industry.


July, 2018

MARITIME INDUSTRY IN THE DECADE OF DIGITAL TRANSFORMATION CHALLENGES AND OPPORTUNITIES – SINGAPORE’S JOURNEY TOWARDS DIGITALIZATION IN 2018


The rapidly developing digital technologies are embarking on a significant transformation of the Shipping Industry across the globe. The implementation of Digitalization, the innovative cyber security systems and technological solutions, autonomous mobility and artificial intelligence has helped in transforming the developments in the shipping industry. With the inputs of accurate, updated and secure data insights, delivered on time, the achievement of a more strategic and cost effective productivity along with maximum performance is possible. The ability to centralize the decentralized digital transformation on a digital platform creates a great potential for organizing markets efficiently. The exchange data and digital platforms enables the companies to have a control of and also organize the logistic chains delivered on time, by reducing the waiting period and predicting the arriving time of the vessels accurately, thus opening up the possibility of unmanned ships in future.

The world’s first crewless cargo ship will be delivered in 2018 under the name and fame of Yara Birkeland and the operations is assumed to commence in 2020. These Unmanned Ships are also referred to as “Unmanned Sea Surface Crafts” and these vessels are either remote controlled by shore- based controllers/officers, or controlled completely by complex algorithms with no human existence or a combination of the above mentioned two. The challenges that will be faced by these are guidelines and legal regulations to be followed in case of any violations, or maritime incidents involving any damage to the vessel, the cargo, human life, environment and property. The existing legal framework is that of the UNCLOS82 regulations by the International Maritime Organization. The present legal system and maritime regulations are designed for manned vessels so this will make it a difficult task for the legislators and jurists to decide upon the best and effective legal resolution in case of a violation or dispute. Therefore many countries are already considering amendments or integrations in the existing regulations and also drafting of fresh shipping guidelines and laws.
Digitalization has brought in many challenges as well as opportunities. According to the IMO over 90% of the world’s trade is carried out by sea as this is the most cost-effective way to move goods and raw materials across the world. One of the important factors is that it reduces cost and increases efficiency. The data inputs and interconnected technologies are emerging to create a revolution in the maritime industry. Systems like Radio Frequency Identification System (RFID) are used to track the movement of the vehicles cargo and people, and ensure timely delivery of cargo. GPS navigation system, automated electronic data exchange from ship to ship and ship to shore increases the efficiency, safety and accuracy in navigation and communications.
There are many challenges to overcome, and one of them is that of marine liability. The Question of liability is considered to be more complex as the vessel travel through different national waters and of different jurisdictions. The insurance industry will also face similar challenges in resolving disputes and also the difficulty to analyze the resources to risk management as well as to understand loss occurred. Thus, it becomes a necessity to ensure maximum data security for preventing a risk or loss. Cyber attacks on unmanned ships also can be problematic as container vessels reliant on digital navigation systems could be potentially manipulated and a small failure in a system can result in dangerous consequences in an interconnected digital environment. The networking of vessels and ports is an enormous opportunity for shipping. This also helps in reducing the ongoing over capacity paired with a relatively soft global demand, and the existing pressure on the rates and profit margins of the industry.


May, 2018

Understanding an Arbitration process, and its Scope in Singapore


Singapore is today one of the most illustrious and renowned seats of Arbitration because of the well-developed infrastructure, modern national legislation, and a strong position as a financial and commercial centre in Asia. Singapore has a wide spectrum of efficient arbitrators from across the globe ranging from seasonal dispute resolution generalists to highly specialized practitioners and expertise covering the entire legal and technical area of intellectual property. The Courts of Singapore is famous for its integrity, cost-efficiency, neutrality, competency and impartiality and also offer a high level of support for arbitration with minimum intervention. Moreover Singapore has many renowned local and overseas law firms and professionals who expertise in arbitration.

The obsequious nature of the people of Singapore towards the legal system is a notable factor. Singapore also welcomes foreign arbitrators and allows them to arbitrate in Singapore without a work permit and without withholding tax. According to the Singapore laws only a Singapore qualified lawyer from Singapore law practice can appear before the High Court for International arbitration related matters even though the original contract which was the subject matter of the arbitration may have been governed by a foreign law. Singapore also ensures that the arbitration legislation is kept responsive to the global legal and commercial developments. A recent study shows that Singapore is challenging the established centres of arbitration like London, Paris and Stockholm. Another factor that favours Singapore is its geographically convenient location and this makes it a neutral venue for parties from different parts of the globe.

The United Nations Commission on International Trade Law (UNCITRAL) the Model Law recognizes the incorporation and the enforcement of the arbitral award provisions by giving effect to the New York Convention of 1958 within its ambit. As Singapore is a signatory to the 1958 New York Convention, the Arbitral awards issued in Singapore are enforceable in over 150 UN Member states, and also in certain Commonwealth jurisdictions under the Reciprocal Enforcement of Commonwealth Judgement Act. The Awards are final and binding in nature and have no right of an appeal. In fact if parties to an arbitration can appeal it defeats the sole purpose or “raison d’etre” of arbitration.


March, 2018

UNDERSTANDING AN ARBITRATION PROCESS, AND ITS SCOPE IN SINGAPORE


Arbitration is an alternative dispute resolution process, in which the parties to a contract, present the arguments and evidence to an independent and neutral third party known as the “arbitrator” who is appointed by mutual consent or a statutory provision. This arbitrator who acts as a judge makes a determination named as an “award” which is legally enforceable and binding on both the parties.
The arbitration process is similar to going to courts, but is distinct in various forms of other non-binding dispute resolutions like mediation and conciliation. Arbitration is the best alternative to court-based litigation and it is more expedient, neutral, efficient, enforceable and confidential. The next question that arises in one’s mind is, “Which laws will be applicable here?” Well, usually the arbitration agreements seldom make any provisions for the governing law of the arbitration agreements. In International arbitration what needs to be perused are a number of factors like, the laws that govern the contract, the arbitration agreement, the arbitration procedure or the legal seat of arbitration and the law of the States where the award will stand enforceable.
The arbitration agreement is a contract in its own right, and is separable from the substantive contract entered into by the parties .This depicts the doctrine of separability which means that the arbitration agreement can be governed by a different law than that of the governing law of the substantive contract. It is always advisable to incorporate a governing law clause in the arbitration agreement to obviate in future, and in case if it’s not specified in the agreement, then the guidelines laid down by the Court of Appeal in the English courts are referred to. Arbitration is preferred to litigation because the parties can select neutrals of appropriate nationality and choose the applicable law, language, venue and the Seat of arbitration.

Seat of Arbitration:

The seat of arbitration is also known as “the place” of arbitration or “the locale” and plays a significant role in arbitration as it determines the governing procedural law of the arbitration and the enforceability of the award. It is the legal jurisdiction to which the arbitration is tied and will determine the procedure or rules which govern the arbitration and also makes the mandatory national laws of that country applicable. The canonical model for arbitration is based on “lex arbitri” which means ‘the law of arbitration’ and this varies from country to country. It also contains provisions that regulate the internal and external elements like the composition and appointment of the tribunal, requirements for the arbitral procedure and due process, the enforceability of award, the neutral nature, and many more.
The Geneva Protocol on Arbitration Clauses 1923 exemplifies an early perception that the law applicable to the arbitration should be that of the arbitral seat, and the arbitral procedure including the constitution of the arbitral tribunal shall be governed by the will of the parties and the law of the country in whose territory the arbitration takes place. The basic approach of the Model law is that the law applicable to each arbitration (the lex arbitri) will be the law of the place where the arbitration takes place (the lex loci arbitri) and the selection of the “Seat” of arbitration ordinarily results in the arbitration being conducted in accordance with the jurisdictions legal framework, with such derogations or variation as may be permitted. So if Singapore is selected as the “seat” of arbitration, it mandatorily and automatically adopts the Singapore Arbitration Act or the International Arbitration Act. The place of arbitration is different from the physical venue of arbitration which is the place where the arbitral tribunal carries on the hearing witnesses, experts or the parties. Traditionally the most popular seats of arbitration were London, Paris, New York and Geneva, where the oldest arbitral institutions are based, but the latest surveys shows Singapore growing to be one of the most popular preferences.
The International Arbitration Survey, conducted yearly by the School of International Arbitration since 2006 has depicted improvements and innovations in International Arbitration practices and trends worldwide. It has Ranked Singapore as the fourth most preferred and widely used seat in the 2015 International Arbitration survey, making Singapore a leading venue for international Arbitration. Asia has seen a significant growth in Arbitration due to the global economic evolvements making the two financial centres of Asia, Singapore and Hong Kong major seats in that region.


January, 2018

VALUE ADDED TAX TO BE IMPLEMENTED FROM JANUARY 2018


1st January 2018 will witness the implementation of Value Added Tax (VAT) law in UAE which was a topic of discussion within the companies and individuals since last one year. The implementation of VAT will provide a new source of income to the UAE Government which they will be contributing to improve the services to public. The VAT shall be made applicable on all the import and / or supply of goods and / or services at every stage of production, distribution, at a rate equal to or less than 5%.
As per the VAT law, published by the government, the VAT will not be charged on the following categories:

1. Exports of Goods and Services to outside GCC;
2. International Transportation, and related supplies;
3. Supplies of certain sea, air and land means of transportation (such as aircrafts and ships);
4. Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;

IMPACT OF VAT ON DIFFERENT SECTORS:

1. EDUCATION:
No VAT shall be imposed on the Private and Public School education (excluding higher education) and related goods and services provided by such educational institutions, higher education provided by any institution owned by Government and / or 50% funded by government; after school activities supplied by the teachers and school trips where is the actual purpose is educational and within the curriculum. All the above mentioned categories are exempted from VAT.
However, the education provided by private higher educational institutions, School uniforms, related stationeries, electronic equipments like tablets, laptops etc; school trips of recreation and not within the curriculum shall impose VAT at the rate of 5%.

2. MEDICAL & HEALTHCARE
Though basic healthcare and related services including but not limited to Dental Services, Vaccinations etc will not attract VAT, the medical insurance products like Medicines, Medical equipments will not be exempted. Hence the VAT shall be payable on annual premiums.

3. TRANSPORTATION:
Although VAT will be added to the price of petrol, the supply of local passenger transport, such as taxis, buses and the metro will be zero-rated, and consumers will not be affected. International transport, whether by air, sea or road, will also be free of VAT, though with the cost of the supply of these services set to increase in many circumstances, this will no doubt be passed on to the consumer in the way of price increases.

4. TELECOMMUNICATION :
The VAT shall also be made applicable to the telecom service providers in UAE. Starting from January 2018, most of the telecom services shall be subject to 5% VAT in compliance with the Federal laws and regulations.
With the introduction of VAT from January 2018 and the imposition of Excise tax from October, 2017, the Country is considering to impose new taxes in the future in order to increase its revenue and thereby making them less dependent on the revenue from the production and export of Crude Oil, which played a huge role in increasing the Government revenue.


November, 2017

MARITIME ARBITRATION: A Global Analysis



The arbitration process in the Middle East is developing in a way which is quite promising. The Middle East region is reasonably well-equipped with arbitration facilities. There are a number of significant regional arbitration centres – for example, Dubai International Arbitration Centre (DIAC); DIFC/LCIA situated in the Dubai International Financial Centre; the Abu Dhabi Commercial Conciliation and Arbitration Centre (ADCCAC); Qatar International Court and Dispute Resolution Centre (QICDRC); and the Bahrain Chamber for Dispute Resolution/American Arbitration Association (BCDR-AAA). However, the judicial intervention and uncertainty in the enforceability of arbitral award is a matter of great concern. It has been noticed that the judiciary in the Middle East has not achieved the same standards of excellence in arbitration as others in more favourable jurisdictions. There have been instances where the lawyers conducting arbitration were subjected to prosecution for unfavourable outcomes. As a consequence, they were sometimes declining appointments and even resigning from ongoing cases as they were unhappy about the risks they were running. Under DIAC Rules, there was no appeal process. Further, as awards had to be signed within Dubai itself, this sometimes meant arbitrators having to fly in and out solely for this purpose.

India has huge potential to develop maritime arbitration but it would be a long and difficult ride before it is fully achieved. There have been significant improvements in recent years in India’s provision for structured arbitration. It was noticed that a properly functioning arbitration system was necessary if the country was to attract more trade and investment. The Indian Arbitration and Conciliation Act, amended in 2015, had introduced changes in respect of interim relief, public policy considerations, High Court involvement in arbitration and 12-month time limits to determine awards. This was aimed at countering concerns that arbitral awards in India were taking too long. However, the 12 months could be extended by agreement between the parties. The whole package has been improved. The Mumbai International Arbitration Centre’s Rules were approved in June 2016 and the Centre opened for business in October. The aim was to establish a cost effective and transparent process, focusing on procedures for multi-party and multi-contract cases, expedited arbitration and the scrutiny of awards.

China is a relatively young player in the international shipping arbitration scene. The Maritime Arbitration Commission (MAC) is the predecessor of the present China Maritime Arbitration Centre (CMAC). It seems that the MAC was more experienced than that the maritime courts in China in terms of handling maritime disputes. Also, maritime disputes in China are predominantly settled by conciliation and mediation. The attitude of the maritime court towards this organization is somewhat hostile exemplifying unfriendliness and competition. CMAC had revised its Rules in late 2014. The new CMAC Rules came into effect on 1 January 2015. CMAC’s Revised Rules allows an arbitrator much freedom in choosing the appropriate procedure. It also stresses that the parties are to be given reasonable opportunity to make submissions and arguments.

International arbitration is on the rise in all these regions, generating an increasing interest in the practice. Thus, there is an increasing trend towards convergence of arbitral institutional rules and rise in the number of arbitral seats where parties can expect a modern and pro-arbitration approach from the judiciary.


September, 2017

Maritime Arbitration: A Global Analysis


Maritime arbitration is being increasingly preferred as an alternative method of dispute resolution by the stakeholders in the maritime industry. Major maritime countries in the world have been upgrading their legal system with much emphasis on arbitration with the intention to project their country as an arbitration friendly forum. The contracting parties while deciding on the forum for arbitration basically seeks to resort to jurisdictions which provide for cost effective and speedier adjudicating procedure with finality of arbitration award, ensuring certainty in results.

London continues to dominate the maritime arbitration scene. It has been noticed that the London Maritime Arbitrators Association stood head and shoulders above all other dispute resolution centres. One of the advantage of the arbitration in England is that unlike other jurisdictions, the English courts usually allow you to raise questions on a point of law. This right of appeal can in a way prove advantageous to the parties.  The full implications of Brexit for arbitration in the UK are being closely monitored by the industry, but it does not appear to have had any immediate impact. For a number of reasons, London remains a very attractive venue for parties to choose as a seat for arbitration. Apart from London, Paris and Geneva are also much sought after arbitration jurisdictions.

Commercial arbitration in the United States originated in New York which has a long and rich history of supporting maritime arbitration and continues to be a leading maritime and commercial arbitration centre. Party autonomy is the hallmark of New York maritime arbitration. The parties are free to determine most procedural rules, and to select arbitrators (or the method of their selection) and the law to be applied. The arbitration awards are final and not subject to appeal save on narrow, largely procedural, grounds. A great majority of maritime arbitrations in New York are conducted under SMA (Society of Maritime Arbitrators) rules. Awards are enforceable in any country which is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral awards and the Inter-American Convention on International Commercial Arbitration. Maritime awards in New York are usually final and binding. There are very few specific grounds under which an award can be vacated, and these are confined to the fairness of the arbitration procedure. A mistake in law or fact is generally not a ground for vacating an award. Motions to vacate, modify or correct must be made within three months of the date of the award.

Singapore is gaining global footprint in respect of maritime arbitration. Its established record of neutrality has contributed to its development. The courts in Singapore have offered maximum judicial support to arbitration and minimum intervention. The Singapore International Arbitration Centre (SIAC) stands out above the other regional arbitration centres. The country boasts a state of the art, integrated dispute resolution centre that houses first class hearing facilities and offices of top ADR institutes and dispute resolution professionals. Furthermore, Singapore has a judiciary that supports arbitration and there is a constant re-examination of legislation to ensure arbitration-friendly laws and processes are in place to promote and support arbitration. According to the International Chamber of Commerce (ICC) 2015 Report, Singapore has consistently been ranked as the number one preferred seat for arbitration in Asia and among the top five preferred seats globally. The International Arbitration Act and the Arbitration Act only set the framework governing arbitrations in Singapore. Consequently, the provisions are generally not mandatory insofar as parties are free to agree on the specific rules and procedures that bind them. This is in line with the fundamental principle of party autonomy in arbitration proceedings. However, the provisions relating to the enforcement, setting aside and/or appeal of the arbitral award are mandatory. The main arbitration organisations in Singapore are the Singapore International Arbitration Centre (SIAC), International Chamber of Commerce (ICC) and the Singapore Chamber of Maritime Arbitration (SCMA).The Singapore government has built an impressive infrastructure to support international arbitration in Singapore and has actively been behind efforts to promote Singapore as the obvious and best choice for arbitration in the region.


July, 2017

New Sulfur Emission Norms A Boon Or Curse?


International Maritime Organization’s ship pollution rules are contained in the “International Convention on the Prevention of Pollution from Ships”, known as MARPOL 73/78. On 27 September 1997, the MARPOL Convention has been amended by the “1997 Protocol” which includes Annex VI titled “Regulations for the Prevention of Air Pollution from Ships”. MARPOL Annex VI sets limits on NOx and SOx emissions from ship exhausts and prohibits deliberate emissions of ozone depleting substances.

IMO has stipulated new cap on the sulfur emission (Sox), which is now reduced to 0.5 % from 3.5%,and which is to be enforced by 2020 by all signatories making respective jurisdiction its responsibly for its compliance. Its Compliance with the provisions of Annex VI is determined by periodic inspections and surveys. Upon passing the surveys, the ship is issued an “International Air Pollution Prevention Certificate”, which is valid for up to 5 years.

It is important to note that under the “NOx Technical Code”, the ship operator (not the engine manufacturer) is responsible for its compliance, While it cannot be denied that this emission cap is essential to reduce the air pollution and for safe and clean environment as envisaged under MARPOL, there are certain repercussions, which cannot be ignored as a result of bringing this regulation.

These standards will be implemented on the world merchant fleet of approx 90,000 ships, which in turn will affect the entities associated with it viz. insurance, classification societies etc. Non-compliance with these regulations may lead to suspension of class, which in turn will affect their Insurance cover. Classification societies or class are non-governmental organizations doing periodical inspections, and have the standards for the construction and operation of ships as per the guidelines provided by IMO. The ships have to be class approved in order to get an insurance cover and therefore the retrofitting and upgrading of engines will be important to meet the specified standards.

For any type of insurance, be it P&I or Hull and Machinery, Ships cannot be in breach of regulations for the insurance cover and moreover companies are going to be reluctant in settling claims for ships which are not even eligible for sailing in the post 2020 emissions regime.

The sulfur emissions do not come under the insurance norms but changes made in engines to reduce the sulfur content can lead to damage to the insured H&M. Although at this stage, it is difficult to quantify the insurance-related impact of the new sulfur emission regulations, but can no doubt be a pinch to the insurers, if the claims are of high value. It is highly likely that the technology for reducing the sulfur content will be costly and older ships would be recycled or scrapped, paving the way for a new fleet making it another factor to be considered.

Keeping the above consequences in mind, the insurance industry is already grappling with lower revenues as the insured value of the ships is going down, in part due to a supply overhang. Also the fact that new clubs/companies are entering the insurance industry is also impacting the margins of some of the existing insurance players.

Also surplus supply of ships has already dragged down freight rates, reducing the ability of ship owners to take insurance covers consequently insurance premiums have declined eroding the earnings of underwriters thus under the circumstances can it be implied that new norms are creating a “perfect storm” like situation, as costs for ship-owner is rising among others expenses and risks, along with expenses associated with training and familiarization of crew for handling cleaner marine fuels? The question remains to be answered.

 


May, 2017

Perception v/s Reality


Rahat Talreja – Vice President – CSS India

You must have been accused of being a Robber (as in: You robbed me) or Lootera (as in: you looted me) or Fleecer (as in: You fleeced me) or Thieves / Thugs (as in : they thugged us or in Hindi: chor hai yeh log)

More so if you are in the business of airline, malls, multiplex, logistics, high end restaurant, airport shops and cafe’s etc. Let me elaborate.

Airlines

Perception:
Every peak season like Diwali, Christmas etc., you see articles in newspapers on how airlines are “looting” passengers with exorbitant sky high fares. Bombay to Delhi ticket at 25000 which normally is 2500.
Then same night, you put on the TV and the TV as always is broken into 6 frames – 5 guests/panellists and 1 host journalist – all arguing on : Are airlines right in looting innocent passengers with sky high fares?
What is the regulator doing? DGCA? Airlines Ministry on this loot? NGO view, political party view, customers view all are unanimous: They are looting.
Just 1 person would be representing the airlines who would also 75% agree to it that they are looting.
This is perception.

Reality:
Open the balance sheet, profit and loss account, sales / purchase registers, cost matrix of the airline.
95% of the time, every year, they fly passengers: Below cost.
Reason: no pricing power and uncontrolled competition.
95% time they lose money on every ticket.
5% time – they have some opportunity to cover up due to demand supply matrix
Yet, they guzzle the capital invested, have poor balance sheets, and have losses on operations.
In India, all airline promoters are billionaires starting from Govt of India run Air India to Tata’s Vistara to Naresh Goyal’s Jet airways to the 5 star ex. airline Kingfishers billionaire promoter Vijay Mallya to the Wadia’s Go air
Because to become a millionaire, you start as a billionaire. After the so called “loot”
This is reality.

Multiplex and Malls

Perception:
How can they ask 400 bucks for a popcorn,
200 bucks for corn and 600 bucks to see this useless movie which is like semi porn (remember I am a poet at heart)
150 bucks for the parking? 100 bucks for a bottle of water?
On TV, the argument goes again: where is the regulator? Why allow them to fleece customers?
Hushed comments: these guys make HUGE money

Reality:
Most malls shut down eventually. Most multiplex chains get sold or shut down. In India, it’s almost a monopoly with PVR. Space for none but one. But are they making that kind of money you think? The answer is: read their finances, that’s the truth and you will realise how the real estate and municipal taxes are what you pay for and not the popcorn, water, wafers etc.
And we are not even bringing in parameters like return on investment which are prime to businesses.

Logistics

Perception:
Your rates are very high
Your THC is high
No one is charging VGM
Your destination charges are high
Then, it gets more personal
You guys are looting
You are like thugs
Don’t take advantage
You guys are making huge money from us

Reality:
(applicable to most except the few top companies in the listed space)
No logistics company promoter lives on the expensive Mumbai Island City / South Mumbai, all live in the suburbs and farther than that. That itself is a sign of the high charges and loot.
None is in the millionaire list
Most are highly leveraged
Most started from scratch and are still scratching something to remain in business
Negative freight & Rebate are words and concepts holier than God himself for them
Most are poor enough to see travelling to a foreign country and sometimes by business class as a sign of “I have arrived“
A lot many “buy THAT car or THAT phone” and think they have arrived and many such poor think tales.
So the real money always eludes the glamorous businesses.


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