- Tanker FFA volumes boom
Tanker Forward Freight Agreement (FFA) volumes spiked this October in the wake of physical market volatility. 27,200 lots were reported traded in the clean and dirty tanker markets for the week 7-11 October, dropping to 15,847 lots the following week.
Volatility in the tanker market is at a record high and, for the first-time, tanker FFA volumes have exceeded dry FFA volumes.
An underlying reason is the greater perceived risk in the market due to global uncertainty, such as trade sanctions. When the market is looking to hedge its risk, the physical market is restrained by the number of available vessels and counterparty exposure. FFAs offer an alternative risk management solution.
The Baltic has invested in growing the tanker FFA market, which has increased the profile of FFAs and their use in risk management. With improved exposure and trust in tanker FFAs, this is now an option that many in the market feel confident in incorporating into their strategy.
- Number of Baltic disputes down
It has been a quieter year for the Baltic Exchange’s dispute resolution team, with the overall number of cases down on 2018.
Commercial shipping disputes come in many shapes and sizes. From unpaid broker commissions to relatively small disbursements, the Baltic Exchange is able to support its members in retrieving monies owed to them through its popular disputes resolution service, headed up by former shipbroker Mike Dunwell in London.
Speaking on this year’s cases, Mike Dunwell said:
“It is great to see the number of cases we are having to deal with is down this year. This ultimately shows a higher standard of business being undertaken. Of course, we are on hand to support should this not be the case.”
Around two-thirds of cases brought to the Baltic this year have been successfully settled, a similar figure to last year. Less than a fifth of complaints have resulted in the errant company having to face the ultimate penalty of being “posted”. A posting means that all members of the Baltic Exchange are advised to contact the Baltic to find out more details before doing business with the company in question. Leading maritime counterparty risk analysis firm Infospectrum also uses the Baltic posting information when flagging risk to its clients. 12 per cent of this year’s total complaints are still ongoing, with eight per cent requiring no further action.
For those ongoing cases, a decision on how to proceed will be made at the next Baltic Membership Council meeting. Until this time, Mike Dunwell will continue with efforts to persuade companies to reach mutual agreement in order to avoid posting.
About the Baltic Dispute Resolution Service
For those unfamiliar with the Dispute Resolution Service, it is a complimentary resource run by the Baltic Exchange for its Members. The service is designed to recoup money owed to Members, mainly relating to commission in the case of brokers, and hire/freight where owners are concerned. However, it can also be used to ensure that an arbitration award is honoured, or, to highlight any form of malpractice according to the Baltic Code of Conduct.
When a breach in the Baltic Code has occurred, and appropriate reparations have not been made, the party is faced with the possibility of being posted by the Baltic Exchange. The threat of being published as an unfit counterparty in front of the global membership, represents a final, highly undesirable, penalty for those unwilling, or unable, to make good on the losses that they have caused. This action is recognised both within the shipping community and by the wider financial and commodity markets, as well as due diligence agencies operating across other related sectors. Clear breaches of the Baltic Code are also often cited in arbitrations.
The Dispute Resolution Service is free of charge to Members who can also use the service to collect monies owed on behalf of their clients. Non-Member companies using the facility will be charged 15 per cent of the total recovered, capped at a maximum of £15,000 per case. The Baltic’s goal is to increase the benefits of being a Member, and this fee to non-Members will enable the Baltic to pursue more cases and give better support to Members seeking help, while still providing a much relied on service to the industry at large.
“We would like to express our appreciation for the Baltic’s hard work, patience and persistence in getting our commission settled which, in spite of all our efforts, remained outstanding for nearly one and a half years.
We realise that this was not an easy task but thanks to your efforts the matter was finally resolved.
It was the first time in our history that we had occasion to use this service which the Baltic provides to its Members and it was a good reminder of the importance of being a Member of a historical institution such as the Baltic Exchange”. – Prominent Greek Dry Cargo broker.
“We highly recommend the Baltic Resolution Service. It is exceptionally user-friendly and responsive and, most importantly, it delivers results. Recently, it helped us resolve a long-standing dispute and recover a large sum of money.” – Leading bulk and tanker operator.
“As a major futures broker, we requested the assistance of The Baltic Exchange Dispute Resolution Service, with five clients who had failed to pay for some time. Within 15 days of initial contact, four out the five parties have paid very promptly and the fifth is still pending.
In our view having membership with the Baltic Exchange is very good value for money.
The Baltic Exchange and SGX contacts were also very influential, as any shipping company would not want to be posted on the Baltic Exchange, or, have this kind of publicity.
Mike Dunwell is very easy to talk to and we trust him and his team with his style and powers of persuasion chasing clients for payment.“– Major worldwide Broker.
If you are interested in finding out more about the service, please contact Mike Dunwell on +44 (0) 20 7369 1631 / M +44 7860 902547 / E firstname.lastname@example.org
Reminder to brokers
It is highly recommended to have your full name and domicile to appear in both the fixture recap and the Charter Party.
Also, if you are not collecting commission from Owners make sure you have something in writing from both parties who will be responsible for paying brokerage commission.
Company Full Style
Make sure you have the correct full style and domicile of Charterers and Owners in both the recap and the Charter Party.
- Places available on Ship Finance Executive programme
There are still a limited number of places available on the Baltic Exchange’s Ship Finance Executive course (London 11-12 November). Led by Professor Nikos Nomikos and Dr Nikos Papapostolou from the Centre for Shipping, Trade & Finance at Cass Business School, the two day programme looks at the banking and equity markets, IPO case studies, bond markets and shipping company valuations.
For further details, see www.balticexchange.com/other-services/training-2/ship-finance-executive
- Baltic/ICS lunchtime lecture: Ship Finance
The next Baltic Exchange/Institute of Chartered Shipbrokers lecture in London (13 November at the Baltic Exchange) will focus on ship finance and will be delivered by Tony Foster, CIO of Marine Capital. The lunchtime lecture will focus on how asset owners and others with exposure to freight rates raise capital today; how does it affect an owner’s chartering decisions as well as related streams; why are we seeing an increasing number of charterer- owner JVs and what the motivations are for these sort of tie ups?
The popular lecture series is aimed at building wider industry knowledge amongst younger chartering and operations staff.
Tony has over 35 years’ experience in the shipping industry (including 13 years spent in Asia) spanning ownership, commercial management, broking and fund management. Together with partners, Tony has successfully bought, developed, led and sold numerous shipping businesses including ship owning, technical management, consultancy and shipbroking. One such business was merged into a pre-IPO entity which became Pacific Basin on listing, following which, Tony took up a management role in Pacific Basin and became a shareholder. After the float of Pacific Basin (which is listed in Hong Kong), he founded Marine Capital in November 2003. Throughout his career, Tony has bought, sold and chartered hundreds of ships across many sectors and since forming Marine Capital, he has led and executed a number of shipping transactions both on behalf of an in partnership with external investors. Tony graduated from Oxford in 1976 with an honours degree in jurisprudence.
Registration or any questions to email@example.com
- Next Baltic/ICS Shanghai lecture focuses on FFAs
The next Shanghai Baltic Exchange/Institute of Chartered Shipbrokers lecture takes place on 13 November with a focus on freight derivatives. The lunchtime lecture will be delivered by Steven Jia, Executive Director at Augustus Maritime. He will discuss how to manage freight rate risk and using Baltic indices to benchmark physical exposure and how to avoid basis risk when transferring exposure between physical and FFA markets.
Steven Jia has an MBA from HKUST Business School and a bachelors degree in Shipping Mangement from Singapore Management University. He has worked at Augustus Maritime since 2011 where he heads up shipping business. He has 18 years of shipping industry experience and five years of trading FFAs and fuel futures.
For further details, please contact Ying Sun. firstname.lastname@example.org
- Baltic Exchange Remembrance Service 2019
Members and friends are invited to attend the Baltic Exchange on 8 November for the annual Remembrance Day service. This year we shall be joined by musicians from the City of London Brass Band. Those interested are invited to join us from 10.45.
The Service takes place at the War Memorial in the lobby area. Coffee and biscuits will be available in the Baltic Exchange bar from 10.30.
Royal British Legion poppies will be available in the Foyer and in the Bar.
Supporting the Royal Legion Poppy Appeal
All Baltic Exchange staff/members are authorised by Nick Pentreath to issue poppies and receive donations in the streets around St Mary Axe from Tuesday 29 October. Nick will be at the Baltic Exchange that day with a supply of poppy trays and tins and would be pleased to receive some assistance from the membership. For more details, contact Nick on the details given below.
Corporate donations to The Poppy Appeal most welcome.
Nick Pentreath, Capricorn Shipbroking
Tel. 020 7283 7975
- Member update: 23 October
The following individuals have applied for membership of an existing member company:
Company Individual Citadel LLC
Ms K Kerr Clarksons Platou Mr L Leishman McQuilling Partners Inc
Mr P John Benedict Poten & Partners (UK) Ltd Ms A Naughton-Rumbo The Air Charter Association Ltd Mr A Mikulski
Any comments should be passed to Karen Karanicholas by 30 October 2019.
- YBA Hong Kong
The Hong Kong Maritime Museum was the setting for the Young Baltic Association (YBA) gathering in Hong Kong in October. Attended by shipping professionals aged 35 and under, the event was co-hosted by Seamaster and the Hong Kong Shipowner Association, and supported the Young Professionals in Shipping Network .
The YBA is just one of many Baltic Exchange societies and clubs which bring Baltic Exchange members together in shipping hubs around the world.
- Defeat for shipping’s “most spectacular fraud”
War Risk underwriters have succeeded in rejecting a $77m claim on the basis that the constructive total loss of the Brillante Virtuoso was caused by the wilful misconduct of the Owner.
On October 7, 2019, Mr Justice Teare handed down a 140 page judgment putting to bed the questions about what has been described as the “most spectacular fraud in shipping history”.
The Brillante Virtuoso was carrying a cargo of fuel oil on a voyage from Ukraine to China. Shortly before midnight on July 5, 2011 the ship was drifting just within the territorial waters of Yemen, waiting to embark an unarmed security team, prior to transiting the Gulf of Aden at a time when Somali piracy in the area was rife. A small boat approached the vessel carrying seven persons armed with Kalashnikovs and with covered faces. The Master allowed them to board, on the basis that they were “security”, whereupon they turned upon the Master and crew, apparently hijacking the vessel.
The Master was taken to the bridge and the chief engineer to the engine control room; the rest of the crew were rounded up in the day room. While the VDR audio recording provided evidence that the armed men told the Master to sail towards Somalia, in fact the ship headed towards Djibouti.
A few hours later, the engine stopped and shortly afterwards, a fire broke out in the lower part of the ship. The fire was started by the detonation of an explosive device brought on board by the armed men. They subsequently fled the ship and by 0500 hrs the entire crew (including the Master and chief engineer) had abandoned ship and were rescued by a passing vessel. Salvors, Poseidon, were promptly engaged and the Judge commented that their response was “impressively rapid”. The fire resurged during the day and the ship, having been extensively damaged by the fire, was ultimately scrapped.
The vessel’s owner, Suez Fortune Investments Limited, and mortgagee bank, Piraeus Bank AE, brought a claim on the ship’s war risks policy for a constructive total loss. The insured value was $55m plus $22m for disbursements and increased value, making a total claim of $77m.
In 2015, in the ‘phase one’ litigation regarding the costs of repairs, Flaux J held that the Brillante Virtuoso was a constructive total loss. The ‘phase two’ litigation concerned liability, with the underwriters alleging that the fire had been deliberately started, with the connivance of the owner, and therefore the loss was not covered. Flaux J struck out the owner’s claim on the policy in 2016 as the beneficial owner of Suez Fortune, Mr Iliopoulos, had failed to comply with a court order to provide his solicitors with an electronic archive of documents and was held to have lied to the Court to prevent the claim from being struck out. The claim was continued by the bank and their mortgagee’s interest insurers.
The fundamental question in the four-month trial this summer was whether Mr Iliopoulos had arranged for a “fake” attack by pirates and for a fire to be deliberately set on his ship in order to bring a total loss claim.
If the ship was scuttled, the underwriters submitted that such misconduct by the owner would also invalidate the claim by the bank under the policy.
Teare J carefully unpacked the leading authorities on establishing wilful misconduct, and the large volume of witness and expert evidence, in coming to his clearly articulated judgment in favour of the War Risk underwriters.
While the burden of proof was on the bank to show that the loss was caused by an insured peril, the burden of proof was on the underwriters to show wilful misconduct with the knowledge of the owner on the balance of probabilities. Teare J referred to his judgment in The Atlantik Confidence  in which he held that the fact that insurers were unable to give a full and complete account of the alleged scuttling need not be fatal to their case, so long as after examining all the evidence the Court is able to infer that the vessel was scuttled on the instructions of the owner. He added to that further guidance from Neill LJ in The Captain Panagos DP  that an inference of an owner’s guilt can properly be drawn if the probabilities point clearly and irresistibly towards its complicity.
The Judge found that there were several matters which, when viewed collectively, cogently suggested that the hijacking was staged. In particular, he held that it was improbable that:
- a group of Somali pirates would have known that the vessel was expecting a security team to board;
- the Master’s decision to allow armed men on board was an innocent mistake in an area known for its risk of piracy; a group of pirates, intent on sharing a ransom for the release of the vessel, would bring with them an explosive device and moreover one that required an accelerant which the armed men did not possess; the Master disobeyed instructions from the pirates to sail towards Somalia and that they (in fact being members of the Yemeni coast guard) did not notice that the Vessel was proceeding away from Somalia;
- the chief engineer slowed and stopped the main engine and the Master turned the ship round to starboard in circumstances where they feared violence against their persons;
- the armed men should so quickly abandon the intention to ransom the ship, instead activating the explosive device and setting the ship on fire;
- the armed men located accelerant and additional fuel in an unfamiliar engine room in the short time available between the main engine stopping and the explosive device being activated.
In making these findings, Teare J noted that while the improbable can happen, when a number of improbabilities occur consecutively within a short period of time, it is very difficult to accept that they are coincidences. The explanation must be that the Master and chief engineer were co-conspirators. There were also further matters pointing to the Master and chief engineer being involved, including that the ship was drifting in the Gulf of Aden and the Master did not sound the SSAS signal so that the authorities did not learn of the attack until it was over. There was also evidence that the salvors were responsible for the damage to the drain cock to the diesel oil tank, which permitted the resurgence of the fire on the following day.
Attention was also paid to the involvement of Mr Iliopoulos. In 2011, his companies were in serious financial difficulties following the crash experienced by the shipping industry since late 2008. Taken together, evidence relating to the events on board the ship, inconsistencies between the crew’s early witness statements and the accounts that they later gave, and Mr Iliopoulos’ motive to set fire to his ship amounted to a cogent and compelling case that he orchestrated the events. This was strengthened by what was known of his character from the earlier findings made by Flaux J.
Having considered all the evidence, the Judge set out several firm conclusions about what happened on the night of 5 July 2011:
- The armed men boarded the Brillante Virtuoso with the intention of starting a fire on board the ship rather than hijacking it for a ransom;
- The Master and chief engineer assisted in this task, in deciding to drift in the Gulf of Aden, in allowing the men on board and in providing accelerant for the explosive device;
- The salvors, specifically their principal Mr Vergos, were a party to the conspiracy. Once the ship was on fire, upon attending the casualty they failed to take obvious precautions to prevent the spread of fire;
- The orchestrator of these events was the owner of the vessel, Mr Iliopoulos. In addition to the evidence mentioned above, it was improbable that the Master, chief engineer, armed men and salvors all took part in this conspiracy by their own initiative.
Teare J held in light of the above that the owner’s claim would have failed in any event had it not been struck out. The fact that the owner’s claim was barred did not prevent the bank from claiming as a co-assured. However, the bank did have to show that the loss was caused by an insured peril.
For War Risk underwriters this will be a very pleasing result following a hard-fought dispute based on the events of over eight years ago. The Judge’s decision endorses the underwriters’ concerns about the claim as well-founded and confirms that the questions they and their advisors asked from the very early days after the casualty were justified.
The judgment is one of common sense and makes plain, when looking at the story as a whole, that the number of improbable events surrounding the “hijacking” could not have been coincidences.
Mr Justice Teare weighed up the body of expert evidence, across many fields, and gave reasons for preferring the explanation offered by the underwriters’ experts. The Judge was unpersuaded by evidence from the chief engineer whose story changed and by the Master, who failed to answer difficult questions and whose answers sometimes had no basis in reality. While owners normally give evidence in scuttling cases, the Judge noted that Mr Iliopoulos had not been called in this trial to give evidence, because his counsel had advised that he should not give evidence in light of the ongoing investigation against him by the City of London Police. No inference could be drawn against the Bank in that regard but Mr Iliopoulos’ earlier attendance in the action, where he showed that he was capable of deliberate and planned dishonesty in relation to this very case, allowed the Judge to draw an adverse inference which strengthened the underwriters’ case.
The soundness of the judgment in fully considering the detailed factual and expert evidence and attributing weight accordingly is likely to make it hard to appeal.
Carrie Radford is a partner and Lucy Espley is a senior associate at Ince, www.incegd.com.
- HFW lift the 2019 Company Cup
The Baltic Company Cup took place on Friday 11 October at West Herts G.C. This year the whole day was kindly sponsored by the Baltic Exchange, so thanks to Mark Jackson from all the players.
Whilst there were some spots of rain, everyone managed to complete the 18 holes relatively dry and in daylight. The course was in excellent condition with the recent rain making the greens slower than they looked, which seemed to catch out a few as a number of putts came up short.
A good day was enjoyed by all and the competition at the top was tight, scoring on the stableford system, with the combined total of both players counting.
There was a brand new car or motorbike up for grabs on the fourth hole for anyone that holed their first tee shot…..Sadly nobody drove home the Mini or Ducati (from what I gather not many of us hit or stayed on the green!).
The best individual score was a solid 38 points from Ian Hughes (HFW 1) playing off seven – very well played.
Nearest the pin on the ninth hole was Coxey, who was about four feet from the prize of a three-day weekend in the Algarve.
In third place, we had two teams tied on 62 points, namely Nomikos (Andy Underwood and BEGS skipper Wiggo) and Baltic A (CEO Mark Jackson and Damien Green from Howe Robinson). There were then two teams who also tied but on 65 points, they were Paccship (Sam Round and Ed Preston) and HFW 1 (Ian Hughes and Andrew Monty from MOL). The winners on a count back were HFW 1. This is the fourth consecutive victory for the HFW empire, so perhaps a good reason for entering two teams on a regular basis? Commiserations to Paccship, so near and yet so far……but a valiant effort.
Congratulations to HFW, worthy winners.
Anyone reading this and interested in joining the Baltic Golfing Society, please contact James Pendered.
We will be holding our AGM at the end of November. Don’t forget the annual dinner will be Thursday 5 March 2020 at the HAC.