Weekly Bulletin

OBAMA’S RANSOM ORDER

            President Barack Obama’s executive order on Somalia and piracy is designed to allow the US government sufficient flexibility to be able to target and penalize ransom payments to pirates “at its discretion”, reliable sources have confirmed to Lloyd’s List.  At the same time, well-placed sources within the administration emphasized that Mr. Obama’s order was not a “blanket prohibition” against ransoms.  Nonetheless, senior maritime legal sources expressed concern that Mr Obama’s executive order was “purposefully vague” and designed to plant a seed of doubt among shipowners that paying ransoms could land them in trouble.  The White House executive order has authorized the Treasury Department to freeze the US property of entities determined to be “contributing to the Somalia conflict”.  According to the Obama blueprint, such “support” would most clearly be established if a person or entity is found to have had dealings with 11 designated individuals, or the militant Islamic group Al-Shabaab.  A Washington source, speaking on condition of anonymity, said: “The executive order only prohibits US persons from dealing with the 11 designated individuals and the designated entity [Al-Shabaab]. It is not a blanket prohibition against ransoms.  (Lloyd’s List, 4/16/2010.)  OBAMA administration officials have asked that shipowners faced with hijackings and ransom demands in Somalia consult with the US Treasury Department’s Office of Foreign Assets Control from the onset of the situation.  This would allow Washington to provide guidance on how last week’s executive order could affect ransom payments, they said.  According to well-placed sources, this outreach is a subtle message that shipowners may use collaboration with Washington to determine how to avoid sanctions under the order and still pay ransoms to get their crews freed.  It is unclear whether OFAC will move to minimize uncertainty and concern by issuing policy guidance prior to publishing regulations, which are expected.  The order is the first explicit recognition by Washington of a link between piracy and terrorism financing.  Unfortunately, this guidance does little to quell fears of the maritime community, given the industry’s global interconnectivity and the need to move quickly when ransom demands hold lives and property in the balance.  Maritime regulatory consultant Dennis Bryant saw the “fine hand of [US Secretary of State] Hillary Clinton” in President Barack Obama’s order.  “It is a matter of public record that Mrs. Clinton wants to outlaw all ransoms. In her view, this would make it an unprofitable business for pirates, and the problem would go away,” Mr. Bryant said.  (Lloyd’s List, 4/20/2010.)

SOMALI PIRATES INCREASE OPERATIONAL RANGE

            On April 18, 2010 a 55,790 GRT tanker was fired upon in the Indian Ocean by Somali pirates.  This incident is significant as it marks the furthest we have seen Somali pirates travel from the Somali coast, and the closest they have executed a hijacking attempt to India.  All vessel transiting the Indian Ocean between Somalia and India are advised that the risk to pirate attack is high, and all counter-piracy measures should be employed when transiting this region.  (Office of Security, Maritime Administration/DOT, 4/20/2010.)

IDLE SHIPS BACK TO WORK

            The number of laid-up container ships above 5,000 TEUs has dwindled to the lowest level in more than 14 months, largely due to slow-steaming, and will likely fall further in the coming two months as the peak shipping season gets under way and ocean carriers launch new services to cope with rising demand, Paris-based consultant and analyst AXS-Alphaliner said. The number of unemployed container ships is expected to fall below 20 by June from a peak of 82 in March 2009 with the introduction of 10 new services on the Far East-Europe and Far East-North America routes in the March-May period. Rising cargo demand also is expected to absorb all the large new container ships to be delivered in the first half of the year. All 20 container ships of more than 5,000 TEUs delivered since Jan. 1 have found work.  (The Journal of Commerce, 4/19/2010.)

RATES REMAIN SOFT

            The soft commercial property/casualty insurance market shows no sign of ending, according to a survey released last week by the New York-based Risk & Insurance Management Society Inc.  The “RIMS Benchmark Survey,” which is administered by New York-based consultant Advisen Ltd., found decreases in premiums for every line of coverage tracked by the survey during the first quarter this year.  The survey found that general liability was the most competitive line during the quarter, with the average premium falling 4.4%.  The average property premium, which had been essentially flat during the past several quarters, fell 2.9%.  “Insurance capacity is abundant throughout the commercial lines market, but the lingering impact of the global recession has reduced the demand for that capacity,” Dave Bradford, Advisen executive vp, said in the statement.  “Abundant capacity, coupled with diminished demand, keeps downward pressure on rates.  As things now stand, insurance buyers can anticipate another year of favorable insurance prices, although catastrophe claims always are a wild card in the pricing cycle.”  (Business Insurance, 4/19/2010.)

TOUGH TIMES FAR FROM OVER FOR CONTAINER SHIPPING

            Container shipping is not yet out of danger, despite the recent surge in cargo volumes and rebound in freight rates that has lifted the gloom from an industry that accumulated unprecedented financial losses in 2009.  That is the message from Drewry Shipping Consultants, which has added its voice to those urging caution at this stage of the fledgling recovery.  “Until we see consistent month-on-month improvements on the main trades into this year’s peak season period, we cannot seriously suggest the global recession is over and that the container trades can heave a sigh of relief,” the firm says in its latest Drewry Container Forecaster.  With the liner trades having avoided the widely-anticipated failure of a major carrier, and trade conditions looking much better, “many believe this year will see a return to better times and profitability”, Drewry notes.  “But it is still early days; a large number of post-panamax vessels are due for delivery this year and most of the all-important transpacific rate contracts have still to be signed.”  (Lloyd’s List, 4/20/2010.)

AUTO PORTS

            Imports surged in the first quarter of the year, but not as far as the overall U.S. market would suggest because the turn-around in demand happened so quickly in the first three months that orders for new cars lagged the overall market.  Import penetration of the U.S. automobile market has been growing steadily in the past few years, even during the recession and even as foreign producers establish more factories in the U.S. to produce for the domestic market and for exports, a move that theoretically would cut into imports.  Automobile imports accounted for 27 percent of the U.S. market in 2008, up from 23 percent in 2007.  Baltimore’s automobile trade volume is up 0.3 percent for the fiscal year that began last July and is accelerating as the recovery progresses.  BMW, which started importing cars through Baltimore in March, expects to bring in 50,000 vehicles this year.  The recovery is a good sign not only for ports and terminals, but also for rail carriers, motor carriers and ocean car carriers.  And other U.S. ports are seeing similar gains. “We were down about 41 percent last year — a sizable decline,” said Josh Thomas, a spokesman for the Port of Portland, Ore., the fourth-largest automobile import gateway in the United States.  But the skies are brightening.  “The good news is that we are starting to see some upticks after months of steady declines,” Thomas said. Auto volume increased 33 percent in February year-over-year.  Other ports are more optimistic. “I think this year we will probably match what we did in 2008,” said Roy Schleicher, chief commercial officer at the Jacksonville Port Authority.  The Port of Charleston, whose focus in the automobile trade is on exports, expects its auto volume to jump 50 percent in the next few years as a result of the expansion of the BMW plant in Spartanburg, S.C., which produces approximately 600 vehicles a day.  (The Journal of Commerce, 4/19/2010.)

CUSTOMS’ VIGILANCE

            At a recent trade association luncheon, a senior Customs manager provided some statistics and background about Customs operations.  Nationally, some 21.1 million containers were handled, 24.8 million entries were filed, and 5.2 million cargo examinations took place, including 175,646 pest and soil agriculture inspections in fiscal 2009, through last September.  To deal with potential risks, Customs relies on the oft-described layered approach to security, which includes advance information (24-hour rule, Free and Secure Trade, the Importer Security Filing rule), the National Targeting Centers, nonintrusive inspection equipment (including radiation portal monitors), the Container Security Initiative (which gives Customs a presence at ports that account for 86 percent of all U.S. oceanborne imports), the Customs-Trade Partnership Against Terrorism and the Secure Freight Initiative.  Nationally, Customs has a Business Resumption Plan. Should another terrorist event occur, whether national or regional, the first cargo to move would be that needed for national security. Next to move would be cargo belonging to trusted shippers and trusted travelers. Such notices can be found at: www.cbp.gov/xp/cgov/trade/trade_outreach/bus_resumption. Is there any better reason to join C-TPAT?   (The Journal of Commerce, 4/19/2010.)

LEGALITY OF RENAMED IRANIAN SHIPS

            A watchdog run under the auspices of the University of Wisconsin has released a list of 78 Iranian ships said to have assumed new identities in an apparent bid to sidestep US sanctions imposed in September 2008.  Parties doing business with these ships, now registered in places such as Hong Kong, Malta and Germany, are at risk of “taking part in an illegal transaction”, even if ignorant of the sanction, the Wisconsin Project on Nuclear Arms Control said in a communiqué.  The communiqué appears equally aimed at the State Department and the Treasury Department’s Office of Foreign Assets Control, which released the International Maritime Organization numbers and other identifying details of 123 ships when Islamic Republic of Iran Shipping Lines and 18 affiliates were blacklisted in 2008.  US authorities had promised to update the list to provide for counter-moves, but this has not been done, the Wisconsin Project said.  Under the sanctions, US banks were asked to reject funds transfers involving any of the 123 ships. Freight forwarders and shippers were forbidden from chartering, booking cargo on, or otherwise dealing with the vessels.  At least 80 of these vessels were renamed as of March 17, the watchdog said.  (Lloyd’s List, 4/14/2010.)

CHINA LOOKING TO OFFSHORE MARKET

            The chairman of Shanghai Waigaoqiao Shipbuilding made Chinese maritime history when he handed over a 136 m-high, 3,000 m-depth semi-submersible offshore drilling platform to China National Offshore Oil Corp.  The handover of the sophisticated drilling platform to China’s largest offshore oil producer was a milestone for the country’s offshore industry, the origins of which can be traced back to the mid-1990s, when Chinese companies first edged into the sector.  Now, the tempo of development is picking up and it is not hard to see why — the demand outlook from offshore energy projects at home and abroad is extremely promising.  China itself has enormous untapped energy reserves off its coasts.  The country’s largest offshore oil producer CNOOC has 74.8m barrels of oil equivalent net proved reserves in the East China Sea and 1.1bn barrels of oil in its northern Bohai Bay oilfield.  (Lloyd’s List, 4/14/2010.