Networking with China from a Tanker Broking Perspective

INTERTANKO MEETING

SHANGHAI - Wed 2nd March

NETWORKING WITH CHINA FROM A TANKER BROKING PERSPECTIVE.

The rapid economic growth of China has caused its enormous consumption of natural resources, such as iron ore, coal, and oil. It can not be ignored that China’s entry into the world’s economy is reshaping the map of global energy demand. The Chinese shipping market has become a focus because of these huge demands on these natural resources created by the country’s very well documented industrial and economic growth. Both investment policy and the flourishing conditions are attracting foreign shipping companies to enter into this blossoming market.

At present, it is not difficult to see that the Chinese government is gradually reducing its restrictions on foreign shipping companies intending to operate business in China.

This situation is having a pronounced effect on the many international shipping industries, and shipbroking is no exception. One of the clearest indications is, not only the continued increase in the number of boutique broker shops that are opening in Asian hubs such as Singapore and Hong Kong with Chinese clients as their key targets, but also established international shipbroking houses that have opened representative offices in China, especially here in Shanghai and more recently Beijing.

Braemar Seascope is an example!

But where are the difficulties in networking with China?

Time zones

We may suggest the most obvious as the difference in ‘time zones’ around the world. This is a myth created by those that seek to keep business protected in their own sector, something that prevailed with other emerging nations 20 to 30 years ago, encouraged not only by unreliable and archaic communications, but also by language difficulties. It was prevalent in the Far East but also common practice in Europe and USA.

Shipowners thought they could short circuit and meet the market by opening offices in evolving shipping and chartering centres such as Tokyo, New York, Singapore, Seoul; but the real business authority lay in the head offices in London, Athens, Oslo or Copenhagen. However, this was the start of networking, as even if those offices did not provide improved rates and opportunities, they certainly improved operational efficiency and more importantly created new working relationships by localising communications.

Communication

Communication plays a paramount role in the shipbroking business. But here in China, communication does not simply refer to language, it embraces a culture background. Even though we can use the same language, English to communicate, sometimes the real meaning and intentions behind the words still cannot be properly obtained. Simple misunderstanding can easily lead to disagreements when actually both parties are maybe willing to deal. It’s disappointing to acknowledge this but it is often unavoidable. Communication in a practical sense, therefore remains a difficulty faced by every foreign shipping company that intends to develop business relations in China.

…and culture

There is a cultural hurdle not only in the meanings, interpretations and sentiments when translating business languages, but also in its own basic understanding of shipbroking as a specialist service business.

Shipbroking in China is relatively short lived. The operational policy no so long ago was carried out in a basic manner. Once a purchasing trade agreement of a commodity was reached by the Chinese company, it would contact a major state owned shipping company such as COSCO, China Shipping Group or Sinotrans Group, because at that time, and not so long ago, the Chinese government encouraged the policy that its own tonnage should carry its own cargoes. Clearly, while this may be an idealist situation, this mechanism will not satisfy today’s rapidly growing trade development. However, the thought has been rooted into some traders and owners minds, and being a cargo owner or shipowner some believe it is unnecessary for an intermediary to participate in any dealings and in particular to share in any profits. Unfortunately this can manifest itself especially when the intermediary does not attempt or know how to bring added value to the deal.

So the challenge here is to present the value, not only by dispensing professional knowledge but also adding experience. This means mandarin speaker or not, anyone is just as likely to fail as any one else, unless that knowledge and experience is there!

On the other hand, by considering the extensive and varied services offered by international shipbroking groups, simultaneously drawing on their experience and professionalism will only add value and efficiency to the oil tanker transportation industry.

Networking Research and Data

Many of the larger shipping services companies have comprehensive databases of shipowners, their fleets, age profiles, cargo supply, its distribution patterns and shipyard data. This is extremely valuable material and takes many years to compile and takes an experienced mindset to meanifully analyse. These international shipbrokers are often willing to interpret this information and combine their interpretations with their experiences gained over decades of trading. There’s is no question that this can be seen as added value but the distribution of this service can be restrictive as the company will be keen to ensure that the value of his product will bear fruit.

Sadly, but true, there are a growing number of smaller shipbrokers that try to lay their hands on information that is not theirs and distribute it as their own – of course, that is always a risk one must consider when creating such a service.

The shipping press and other industry publications are very encouraging in developing an informative service; we read many of these journals with interest and these can be purchased over the counter, but the press cannot be requested by a shipping company, cargo supplier, refiner or shipyard to give their views specifically tailored to suit a customer based on their commercial experiences, nor would they expect to be asked! However, they are often the organisers of major networking events and seminars such as this week in Shanghai and so play an intricate part in networking with not only with the established markets, but also with new and emerging markets.

Networking to ensure that the client has the “full picture”

Quite often a principal, whether a ship owner or operator, enters into a negotiation with only part of the market information in front of him when actually a lot more is available. One of the most common occurrences is when a ship owner feels it is more important to work direct with a charterer, partly in fear of losing a piece of business and partly to save paying what might be considered an undeserving commission to a broker. The owner may assume he knows enough about any given market as he receives daily written reports and thus feels he can make a judgement call. However, too often, an owner finds that when he reads the reports the next day, he not only sees his fixture on it, he also sees it fixed at the previous days rate levels!

Conversely charterers, who of course prefer less volatile markets, also have access to the same reports and make their judgement call with the same information. However charterers do not tend to fear the commission structure, as although it is part of the owner’s costs and therefore paid from the received freight, it does not actually get paid directly by the charterers so there is no focus on it. Charterers will discuss freight levels specific to an enquiry with their brokers and get a feel on what their exposure is before working firm.

So where does that leave the responsibility of networking? Many of the shipowners working from Europe, for example, recognise that they can only acquire a clear picture after they have thoroughly investigated the market, understanding their competition and the likely rate trend. It takes discussions with several brokers typically based in key ship chartering hubs to build this picture.

The experienced charterer will usually have a panel of brokers that he uses and those brokers should be trusted at all times by the charterer to supply market information in a timely manner. Owners are normally aware of such panels and respect charterers’ intentions to use only one or two at a given time. However, a nervous charterer is more reluctant to discuss with a number of brokers, as he often fears that his position would be exposed.

Provided these chosen brokers disseminate their information with due care and attention, fixtures should be concluded with all parties satisfied. However, when inexperienced brokers start treating their privileged position like a poker hand, owners and charterers can both start building a suspicious attitude creating an unnecessary resistance, with charterers often fixing their second or third choice vessel and an owner fixing his second or third choice cargo – which is a shame.

Networking after a fixture – post fixture operations

The importance of post fixture operations is one of the most underestimated services provided by a broker. The impact of poor communications and lack of understanding in this sector can cost a principal the equivalent of many worldscale points which would convert to more expensive oil in the case of a charterer, or thousands of dollars a day on his returns in case of an owner.

There is no commercial competition at this stage of the deal – the fixture has been concluded, the owner and charterer have assessed whether they have done a good job, maybe a month has passed since the fixture and the vessel should be presenting itself at the loading port. In larger companies and in particular the larger international brokers, there are operation departments covered by arranged duties 24 hours a day, 7 days a week, like an officers watch on a ship. They look out for each other, cross-checking messages, and have the experience to recognise problems arising from messages that indicate changes from the original fixture or voyage orders. Our own experience is that when we deal with smaller brokers, there can often be a period of day when the sole operator may not be logged onto his messaging system and thus loses a few valuable hours. This is not the fault of the operator, as he needs his rest as well as anyone else. Ninety five percent of the time there are no real operational problems, but for the balance five percent those problems unless averted can be extremely costly. For example when millions of dollars of oil are going the wrong way for a few hours the damage starts to build for both the charterer and the owner. When a vessel is delayed, but the owner feels the time can be made up, a charterer may not be told immediately. However that charterer may have started scheduling with his refinery based on the owner’s original ETA, so the tighter dates will now cause problems.

There are countless stories and tales of problems that could have been averted if the post fixture operator in a broking company had been alert. Experienced post fixture teams know exactly what to check each day and can often recognise a strangely worded message, or worse still, no message when one should have been forthcoming to indicate another meaning. There is very little emphasis on the value that experienced post fixture operation teams can offer to the industry and it continues to startle me that such a enormous responsibility is not a priority in many companies.

Recognising the need for networking practical experience

2005 is the first formal year of China’s membership of WTO, which means some trade and investment barriers will disappear. However, like every country in the world, in order to protect their own national economy, governments will maintain specific regulations whether for political or economic purposes, and due to its relatively short history in the Chinese shipping industry this will be likely in this sector. But hopefully the practical experience of international shipbroking and other shipping services companies will be called upon at these developing times.

Up to now the undeveloped shipbroking sector in China has not had any incentive to subscribe to, or be members of, an internationally recognised shipping institution such as the Baltic Exchange or the Institute of Chartered Shipbrokers, nor acquire ISO quality assurance (International Standards Office) and thus the industry regulations are not well established. The demands of such standards in Europe, USA and the Middle East with Singapore and more recently India recognising the benefits in improving professionalism, are becoming essential.

A Chinese broker who works the Chinese market has not been trained to these professional standards as that training has simply not been readily accessible. But they have had the advantage of long relationships with Chinese clients and are familiar with China’s local regulations and practices. It might even be that their relationship has been used to avert their client from meeting foreign shipbroker companies. This relationship web may also have more power than market forces, with deals being concluded without the need of global information, but in an increasingly thirsty environment for shipping knowledge we must strike the right balance of relationships in this very commercial world..

The satisfaction of evolving the network

Like weeding and ploughing virgin lands, the harvest in autumn can bring the highest satisfaction and happiness. The networking we are referring to is still in its infancy and like the virgin lands is being weeded and ploughed right now with the result being the satisfaction of success which is worthy of the hard work.

China owns thousands of years of history and its business no longer exists in isolation. With the development of business in China, undoubtedly Chinese culture and philosophy will be involved.

Whether we admire it or not, agree or disagree, it gives us the chance, not just to network, but to explore another world.

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DP - 27TH Feb 2005

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