Koo calls for stricter standards to be applied

May 24, 2013

Commoditisation of shipping leading to lower standards in the industry

 Mr. Kenneth Koo

Mr. Kenneth Koo, Group Chairman and Chief Executive Officer


The nature of the bulk markets has changed dramatically in recent years, becoming more commoditised with the entry of private equity funds and other less established players, according to TCC Group Chairman and CEO Kenneth Koo.

He  laments  the  fact  that  this commoditisation of shipping has led to not only lower  barriers  of  entry  but  also  lower standards in the industry.

The solution to this problem before it got out of control should have come from the class societies, he maintains. “A lot of it has to do with the way the ISM is carried out,” Koo told Seatrade Asia Week. 

With  the  ISM  code  binding  on ship  managers  rather  than  beneficial shipowners, there is little incentive for them to  run  their  ships  well,  instead  devolving that  responsibility  to  the  managers  while they view it as an asset play. “It  means  that  as  long  as  you  don’t manage  your  own  vessel you  can  always  invest in  one,  that’s  why  the barriers to entry are low,”  he  said.  This  could have  been  forestalled if  class  had  imposed minimum  requirements  for shipowners  for  example, Koo pointed out. 

The problem extends to yards, where many of the greenfield yards were only able to start business because the class societies were not stringent enough about their standards, he said.  “The  gatekeeper  to  ensure  that the  shipping  industry  maintains  a  fleet  of vessels  that  are  responsibly  and  reliably managed and owned must be class,” Koo reiterated.  Since  they  are  involved  with  so  much regulation,  the  entry  barriers must be protected  so  that  owners  are able to address and cope with the risks of shipping. What the new  owners  may  not  realise is that ultimate liability comes back  to  the  beneficial  owner and  with  new  regulations such  as  the  Rotterdam  rules coming up, this may yet come back to haunt them.

The  impact  of  these  new players has  been  felt  on the  market,  he  said.  With  a  plethora  of different  types  of  owners  putting  tonnage on  the  market  and  rates  at  record  lows, charterers  feel  there  is  less  of  a  need  to lock  themselves  into  with  less  emphasis on contracts of affreightment as charterers take a shorter term view on taking in period tonnage.  “There will always be a niche for long term time charters,” he said.

Source: Seatrade Asia Week Issue 153, April 2013