If you weren’t able to make the second webinar with Maritime UK “The New Normal for Global Maritime, from 3 perspectives” on 20th May 2020, we’ve pulled together some of the key take-aways from each of our speakers in this handy “Drive Through Knowledge” article. Please note that we’ve tried to keep the insights and takeaways as close as possible to how they were worded by the expert speakers.
INSIGHT: Benchmark earnings in the tanker market have seen huge fluctuations since September 2019.
- According to the VLCC benchmark earnings in the tanker market, vessels carrying crude oil (from Saudi Arabia to China) between January 2017 and September 2018 saw an average of $20-50,000 per day.
- The market as of September 2019, has seen two enormous spikes to record levels of over $300,000 per day. As of late, this volatility has been due to COVID-19, but we have seen this in the tanker market before due to geo-political disruption as far back as middle of 2019 with a tax on tankers in Middle East and tensions with Iran which culminated in sanctions being placed on one of the major owners of VLCC’s in late September 2019.
- As we came into 2020, we were expecting the impact of IMO 2020 in terms of the bunker fuel switch to influence the strong drive in the market. Figures at the beginning of 2020 were in line with expectations, but sanctions on owners were revoked and end of January and we saw a collapse in demand for cargo into China as the virus took hold. What looked like a strong market saw a huge collapse, from over $100,000 per day to about $15,000 per day.
INSIGHT: The IEA predicts oil supply and demand to be down in Q2, however they expect it to rebound in Q3.
- At an OPEC meeting at beginning of March, OPEC and Russia were unable to decide on taking oil off the market to prevent huge oversupply. This meeting fell apart and OPEC and Russia decided to make as much oil as possible instead of cutting oil supply and effectively engaged in a price and market share war, driving a second massive spike at the end of March and beginning April.
- At a time when oil demand was collapsing (demand in April was down 25 million barrels a day) OPEC countries went into full production mode, sending out more cargo, building floating storage resulting in another spike. OPEC agreed end of Easter to cut production, and the spike receded.
- The IEA expects oil supply in Q2 to be down about 20 mill barrels a day in addition to the 25 million barrels a day decline in April. IEA predicts a dramatic decline in oil demand in Q2, however this will rebound in Q3 up to 97 million barrels a day.
INSIGHT: A ‘new normal’ in oil supply and demand will be established by 2021.
- The second half of 2020 is expected to see low oil supply and floating storage unwinding, resulting in a challenging period ahead for tanker owners. However, for owners this downturn is expected to be relatively short lived. The next few months and quarters are volatile, but a ‘new normal’ situation will be established by second half of 2021.
Legal Perspective
Is the dispute resolution system in England virus-proof?
INSIGHT: The UK court system has adjusted well to Coronavirus.
- During last 10 weeks, we’ve had virtual hearings, obtained injunctions and proceeded with contempt of court proceedings. Despite the technological challenges making processes slower, cooperation has continued. Court judges and lawyers have coped well due to an increased emphasis on e-filing and e-documentation and innovation in technology.
INSIGHT: We are seeing, and will continue to see, virtual justice in arbitration and court processes.
- Arbitrators are required to carry out arbitration with speed and accuracy. Hearings are going ahead via video conferencing with arbitrators immobilising themselves too make sure that the arbitral system continues to run. Generally speaking, masses are moving. We all live in a remote, virtual world, and arbitration is moving forward.
Window on the world in the last 10 weeks: prominent legal issues emerging because of the pandemic
INSIGHT: The concept of mitigating force majeure will be developed further in the next couple of months.
- Everyone is talking about force majeure in every context, specifically contractual arrangements for ships and cargo. In English law it is deemed that a contract must have a force majeure clause – no clause, no force majeure. Both parties in an arrangement have to exhaust all ways of forming the contract and the commitments that must be upheld which may entail reorganising their affairs to ensure they try and mitigate the consequences of force majeure.
INSIGHT: Legal frustration is becoming more commonplace.
- Legal frustration is a common-law concept which goes back many years, which involves a contract being broken or a contract being impossible to perform due to radical circumstances or contract changing occurrences leading to a consensual legal termination of said contract. Despite legal frustration being very rare, we are seeing more instances of this arise as a result of the pandemic.
INSIGHT: There must be a powerful clause in a contract to allow a party to terminate a contract because of economic distress.
- When a contract becomes more difficult to perform, or when the bargain doesn’t look as appealing as when it was fixed, UK law states that if you enter a contract it must be enforced and respected.
INSIGHT: Company restructuring has huge knock on consequences, because for every restructuring and insolvency there are many creditors that themselves may be facing financial difficulty.
- In 2008-9 with the freight crash, there was a domino effect in the freight futures market but also the physical market, where the default of others created problems for companies that were desperate to survive and perform, but simply lost the ability to because they defaulted.
Disruption to HR
INSIGHT: Covid-19 is becoming the accelerator for one of the greatest workplace transformations of our lifetime.
- The scale of the shipping industry has allowed us to adapt and respond to the virus by increasing the diversified ways of working. Technology is enabling companies to adapt and continue to develop and maintain contact and collaboration.
INSIGHT: There will be an appetite for the flexible workforce model allowing recruitment and new hires to continue as normal via online assessments and onboarding processes online.
- The UK maritime sector is worth £40bn and supports just under 1,000,000 jobs and global sea trade is expected to double in size to $3trn by 2030. Maritech has seen 378 global hires in last 12 months, with 112 of these within the UK.
INSIGHT: It is essential for those studying during this difficult time ensure that they are filling the potential gaps on their CV.
- Be it by volunteering, virtual learning, leveraging your university’s career services, virtual networking, practicing interview skills & online assessments, joining company talent pools, and continuing job searches as normal as all these things will increase your employability and make you stand out.
INSIGHT: The UK government’s Maritime 2050 strategy has a big focus on people, outlined across 5 key areas, as well as a pledge to maintain a world-class workforce, with a key focus on the next generation.
- Inspiring people
- Expanding the talent pool – highly skilled and diverse people across an incredible breadth of roles
- Skills & training
- Career progression
- Social framework