There was a time in the shipping industry when a word was a word, and where the word of a parent company counted as a guarantee.
Sadly, that is not the case any more if you ask one of the most experienced players in the maritime cluster, Torben Janholt, CEO of J. Lauritzen and former president and current vice president of the Danish Shipowners’ Association. The shipping company had a mediocre result for 2011, a USD 44 million deficit against a USD 136 million surplus for the year before, but had it not been for trading partners ignoring signed agreements the results for 2011 would have looked significantly better.
A default in Korea Line meant that Lauritzen Bulkers lost four time-charter contracts along with a long term time-charter party for a Capesize dry bulk ship. But more than this, what makes Torben Janholt talk about the loss of the code of honor is the number of Chinese trading partners who have not kept their word.
“The moral code is not what it used to be. The challenges are created not least by the many new trading partners in China. The old oath “my word is my bond” just does not exist everywhere in shipping today…. but it used to be the code of honor. The Korean loss is by far the biggest part, add to this the Chinese and our total loss in 2011 was about USD 60 million. If we had not had these losses, we would - even in a very bad market - have exited last year with a small plus on the bottom line,” says Janholt and goes on:
“Unfortunately, in many cases today, if you do not want to pay for the contract you have signed and entered, it doesn’t take much to run away from it. The degree of trust between partners is not what it used to be. The financial crisis is probably partly to blame for this; we are in a double dip, which hurts. And we are seeing a lot of new players, players who might not know the rules of the game.”
These bitter experiences have made Lauritzen work intensely with risk management, gathered together in a strategy called “Risk and Opportunities”.
“It has taught us that – where previously we would have gotten a guarantee from a parent company or would have run a background check on a company in the case of a big contract – today the process is a lot different and much more thorough. We have established risk control and in our strategy we are working heavily with the evaluation of risks,” says Torben Janholt.
Among other precautions, these days Lauritzen does not want too many agreements with one company or too many ships on charter to the same company.
Aside from poor payers, the risks within shipping have increased in the last few years. Natural disasters have gotten bigger and more frequent. Add to this the financial crisis, the economic downturn and political tensions.
“The economic-political situation in the world today is unfortunately quite unstable at this time. On the one hand, we have the conflict in Iran and the economic situation in the Mediterranean region. On the other hand we have China in the background, wielding an incredible power. There is no doubt that the growth is coming out of China; without China, we would not have experienced the present growth. But the question is also, in what direction is China moving politically….are they by themselves? Do they want to change the balance of power, and what will this mean for the world community and world trade?” concludes Torben Janholt.