Edgar Chin is joint managing director of Incisive Law LLC, which is the local alliance partner of international law firm, Ince & Co. Edgar is the head of Incisive’s shipping team and he handles a broad range of shipping and admiralty matters as well as international trade matters. He regularly appears as lead counsel before all levels of courts in Singapore, as well as in arbitrations both ad hoc and institutional, including under the SIAC, LCIA and ICDR. Edgar also has extensive and practical experience in the protection and indemnity (P&I) industry, having been a claims director at an International Group P&I Club, where he spent five years working closely with owners and operators, brokers and underwriters globally with a focus on Asia.
Moses Lin is a director of Incisive Law LLC who handles a broad spectrum of commercial shipping and trade disputes including charter party disputes, cargo loss and damage claims, demurrage, despatch and cargo off-specification matters.
Justin Seet is an associate in the shipping team advising clients on charter parties, bills of lading collisions, cargo claims, and ship building and sale and purchase disputes. He is also regularly involved in insurance-related disputes, both on issues of coverage and subrogated recoveries.
Samantha Ch’ng is also an associate in the team and who has been involved in a wide variety of contentious shipping matters including, collisions, vessel arrests and releases and claims of technical natures.
GTDT: What is the current state of the shipping industry in your country?
Edgar Chin, Moses Lin, Justin Seet and Samantha Ch’ng: Singapore, home to one of the busiest transshipment ports in the world, hosts some 140 international shipping groups and around 5,000 maritime establishments are based here. This sector accounts for over 170,000 jobs and around 7 per cent of Singapore’s GDP. The current state of the ever-present industry has seen an overall uptick in 2017 and the first half of 2018.
Singapore saw the overall tanker vessel arrival rate, which includes oil tankers, chemical tankers and liquefied natural gas (LNG) and liquefied petroleum gas tankers, at 24,411 in 2017. This was an increase of 2.93 per cent from 2016. Specifically however, chemical tankers saw a dip in tanker vessel arrivals by 8.56 per cent in 2017. Thus far, as of March 2018, the tanker vessel arrival rate was at 6,050. If arrivals continue at this pace, we should see relatively similar results for 2018.
By the end of 2017, the total number of vessels registered with the Singapore Registry of Ships was 4,578. There was a decrease in vessel registration by 139 from 2016. As of March 2018, there has been a lower number of vessel registrations per month; however, the gross tonnage has seen an increase.
Bunkering has always been a critical component of Singapore’s maritime ecosystem. Even in the face of a challenging business environment, bunker supply volume in Singapore, according to the Port of Singapore Authority (PSA) Statistics, reached 50.6 million metric tonnes in 2017, which is a year-on-year increase of 3.99 per cent from 2016.
From January to April 2018, PSA has handled a volume of 11.69 million 20-foot equivalent units (TEUs), which is an increase of 14.2 per cent over the same period in 2017. The flagship PSA Singapore Terminals contributed 33.66 million TEUs in 2017, a 9 per cent increase from 2016 and PSA terminals outside of Singapore handled 40.89 million TEUs, which amounted to a 10.4 per cent increase from 2016. Since the beginning of 2018, the monthly figures of container throughput have continued to rise at a steady rate, already showing a slight increase from the figures in 2017. PSA International Pte Ltd (PSA Int) handled 74.24 million TEUs at their port projects around the world by the end of 2017. The group’s volume increased by 9.8 per cent from 2016.
It can be seen from the figures that, on the whole, the shipping industry is experiencing some growth despite the challenging environment.
GTDT: What are the prevailing shipping market trends affecting your country?
EC, ML, JS & SC: One key trend that we see affecting the Singaporean shipping market is the increasing interest in the field of marine fuels. Singapore has identified LNG and offshore renewables as two new growth areas. The global expenditure on LNG is projected to exceed S$369 million by 2021. Further, tightening environmental, fiscal and financial regulations are translating into higher compliance costs for business.
The accelerating pace of technological change across the globe, which has resulted in ongoing disruption to existing business models has also affected the shipping market in Singapore. To combat this, the government and the Maritime and Port Authority (MPA) have been encouraging companies to invest in innovation and drive productivity improvement. Under Singapore’s Next Generation Port 2030 roadmap, the Tuas terminal development will be completed in four phases over a span of some 30 years. Upon completion, the terminal will have total capacity of up to 65 million TEUs.
The MPA is developing platforms to facilitate the sharing of vessel and cargo-related information with the wider trading community. It is also looking at digitalising trade and maritime documentation. The Singapore Maritime Institute will invest S$12 million to set up the Centre of Excellence in Modelling and Simulation for Next Generation Ports that will enhance Singapore ability to handle increasingly complex port operations.
However, the Singapore ports face risks: namely, direct calls, which bypass the need for transhipment. Alliances formed can better allocate slot capacity, freeing up some vessels that would otherwise be under-deployed. Instead of laying up these vessels, they may be used to string direct services without the need for international transhipment. The expansion of gateway ports in the region – including Kalibaru Port in Jakarta, Laem Chabang in Thailand, Manila in the Philippines and Hai Phong in Vietnam – means they are now better equipped to serve direct calls. With a pick-up in trade between these Association of Southeast Asian Nations countries and the rest of the world, it may be more commercially viable to make direct calls at these ports. There is, evidently, intensifying competition among regional ports and international maritime centres.
GTDT: Are there any recent domestic or international political or legislative developments that may have an impact on your country’s shipping market?
EC, ML, JS & SC: There have been two recent global regulatory developments put forward by the International Maritime Organization (IMO): IMO’s Global Sulphur Cap for 2020 and IMO Ballast Water Management (IMOBWM), which was implemented in 2017.
IMOBWM is meant to address the issue of invasive marine organisms which may damage local ecosystems if inadvertently transported in ships’ ballast water tanks. This regime has a profound economic impact on the industry. Not only does this involve an implementation cost of approximately US$1.5 million per ship, ship operators still face a serious challenge in the lack of shipyard and manufacturing capacity needed to retrofit the ships with the new treatment systems. However, with the adjusted implementation dates of 8 September 2019, existing ships now have a little more breathing space to implement the new systems according to standards imposed by the IMO. It is important to note, now that the IMOBWM has entered into force, the shipping companies should not anticipate any further relaxation of the implementation of the Ballast Water Management Regime.
IMO Global Sulphur Cap is aimed at cutting emissions of sulphur dioxide, one of the greenhouse gases, in marine fuels by 2020. The IMO announced in October 2016 that there will be a 0.5 per cent cap on sulphur content in marine fuels from 1 January 2020 onwards.
The MPA invested almost S$17 million last year to help the shipping industry implement the mandatory use of mass flow meters (MFMs) for delivery of distillates. Switching from marine fuel oil (MFO), the current de facto marine fuel choice, to distillates bunker is one option for ship-owners to comply with the IMO 2020 global sulphur cap.
In April 2018, the MPA further set aside S$9 million to impose the use MFMs for delivering cleaner-burning distillates bunker to international ships from July 2019. This means that all existing bunker tankers that are registered with the MPA as being used for distillates delivery would be eligible for a co-funding incentive of S$60, 000 per vessel.
The use of distillates bunkers assists shipowners in complying with the IMO’s global sulphur cap. The use of MFMs reduces human intervention in measuring marine fuel being transferred between buyers and sellers, and this in turn helps to reduce disputes between sellers and buyers, and bolsters the efficiency of MFO bunkering operations at the port of Singapore.
GTDT: What are the key regulatory and compliance issues for your country’s shipping market?
EC, ML, JS & SC: Generally, there is a reduction in the use of both capital markets funding and bank financing in the ship financing industry. Banks, which were traditionally the industry’s main source of funding, have become more selective in their lending to shipping companies following the global financial crisis and in light of the increased regulations under Basel III and the upcoming implementation of Basel IV.
Since 2014, tough trading conditions in the shipping industry have stemmed the flow of capital markets transactions. The oversupply of ships, depressed freight rates, unsustainable debt and negative macroeconomic environment have led to a slowdown in capital markets activity. There has been a dramatic reduction in the use of capital markets funding by the industry from US$23.2 billion in 2014 to US$10.3 billion in 2015 and to approximately US$1.8 billion in the first eight months of 2016.
The shipping industry has been exploring alternative funding, and export credit agency (ECA) financing has becomes one of the most popular sources of alternative funding in recent times. While ECAs accounted for a mere 10 per cent of shipping and offshore-related debt finance before 2008, their contribution increased to over 33 per cent in 2016.
While there has been a lot of European banks exiting the market, a growing number of Asian banks that are entering the market. In particular. There is an emergence of Chinese leasing companies in shipping. They have been gaining popularity in recent years and are said to be exploring setting up offices in Singapore.
Singapore’s finance, legal and accounting expertise as well as a position as a clearing house for maritime finance transactional information enables shipowners and shipbuilders to respond effectively to the current market. Not only are they able to obtain financial advice, they can also obtain advice on the latest analytical techniques for financing structures, credit assessment and risk mitigation.
GTDT: What are the shipping industry’s current sources of finance? How do you predict they will develop, and what are the advantages and challenges to financing a vessel in your country?
EC, ML, JS & SC: Reduction of sulphur by 2020
As mentioned above, the 2016 the IMO announced that it aims to reduce marine fuel sulphur by 2020. Under the new global cap, ships will have to use marine fuels with a sulphur content that is no more than 0.5 per cent by 1 January 2020 – this is a marked reduction from the current limit of 3.5 per cent. Necessarily, this would lead to a significant increase in cost to shipowners, refiners and bunker suppliers. Shipowners will have to be ready for the increased cost of compliant low sulphur fuel oil, or higher priced marine gas oil, unless they are prepared to retrofit their vessels to run on alternative clean fuel such as LNG fuel or methanol, or install exhaust gas cleaning systems.
International Convention for the Control and Management of Ships’ Ballast Water and Sediments
Also, as a result of the Ballast Water Management Convention, which was implemented in Singapore in September 2017, unmanaged ballast water is not to be discharged within Singapore port waters unless it is necessary for the purpose of ensuring the safety of a ship in emergency situations or saving life at sea. The master of the ship is to ensure that the relevant conditions under the BWM.2/Circ.62 are complied with.
GTDT: Have there been any recent significant domestic or foreign court decisions or arbitration awards that impact on your country’s shipping market?
EC, ML, JS & SC: Singapore’s highest court, the Court of Appeal issued its decision in May 2018 confirming that a lien over sub-freight and sub-hire (lien) is a registerable charge under the Companies Act (Cap 50) (CA).
A Singapore-incorporated company had entered into a bareboat charter party (BBC), as the charterers, with the defendant Greek ship-owners. Pursuant to clause 18 of the BBC, the Owners would have a ‘lien upon all cargoes, sub-hires and sub-freights belonging or due to [the charterers], or any sub-charterers and any Bill of Lading freight for all claims under this Charter . . .’. The charterers then entered into a pooling arrangement with a sub-charterer, and earned revenue from chartering the vessel to the sub-charterer, which in turn employed the vessel in the pooling arrangement.
The charterers subsequently filed for winding up in Singapore. The owners sent their first lien notice to the sub-charterer purporting to exercise a lien over their unpaid sub-hire to the charterers. The charterers were eventually wound up, following which the owners sent a second lien notice to exercise a lien over bill of lading freight, payable by the consignee of the cargo on board the vessel to the charterers. The charterers’ liquidators sought a declaration that the owners’ lien was a registerable charge under section 131 of the CA, which should now be void against the liquidators as it had not been registered in Singapore within 30 days after its creation. The owners argued that the lien should not be deemed to be a registerable charge.
The High Court held that a contractual lien is a registerable charge under section 131 of the CA. The court reasoned that a contractual lien is a form of security interest that amounts to a floating charge and that it can also amount to a charge on a book debt. In this regard, the owners’ lien falls within the meaning of a ‘charge’ under section 131 of the CA, either as a floating charge under Section 131(3)(g) or as a charge on book debts under section 131(3)(f).
The Court of Appeal upheld the High Court’s decision and held that the lien is registerable (in line with the position in England, see Western Bulk Ship owning III A/S v Carbone Maritime Trading APS and others  2 Lloyd’s Rep 163) and that it should be characterised as a floating charge and hence registerable under section 131(3)(g) of the CA.
The Court of Appeal acknowledged the commercial inconvenience and impracticality of requiring registration of the lien, especially if the charter is for a short duration or for a single voyage, and if registration may even be required after the charter has come to an end (when there are further sub-freights yet to fall due). The Court of Appeal also acknowledged that companies and their officers are exposed to fines and penalties under section 132 of the CA if the duty to register charges is not complied with. Notwithstanding this, the Court of Appeal stated that commercial consequences of requiring registration cannot change the nature of the security (ie, that it is a floating charge and hence registerable).
Interestingly, the Court of Appeal opined that in the event of default by the charterer, which is when the issue of the lien arises, the shipowner can usually avail itself of remedies other than the lien (eg, to suspend performance or to exercise a lien over the cargo) as it would often be more difficult to ascertain the identity and contact details of the sub-charterers, and ‘[I]n most cases, the reality is that by the time the shipowner is looking to exercise the lien on sub-freights, it would probably be too late to do so because by then the sub-freights would have been paid over to the charterer. Hence, in most cases, the consequences of non-registration are likely to be muted.’
The Court of Appeal concluded that, nonetheless, it remains and uncontroversial fact that the requirement of registration of liens is hugely inconvenient and impractical, and may have a negative impact on the local shipping industry. In light of this, the Court of Appeal suggested that it may be appropriate for the legislature to examine suitable reform to carve such liens out of the reach of section 131 of the Companies Act so as to maintain Singapore’s competitive edge as a leading maritime hub. This position is in line with the position of Hong Kong where liens have been expressly excluded from the registration regime by section 334(4) of the Companies Ordinance (Cap 622) (HK). It remains to be seen whether the legislature will heed this call but until then, it is clear that liens involving Singapore incorporated companies are registerable under Singapore law.
“Marine and offshore related companies will be seeing a better year in 2018 as orders slowly return due to improving demand for oil.”
GTDT: What is the outlook for your country’s shipping market?
EC, ML, JS & SC: The remainder of 2018 is looking steady, to put it in the simplest terms. There is an expectation that the factors that supported the freight rate increases of 2017 will continue in 2018 – a return of higher trade volume growth and a further increase in fuel prices, triggering higher fuel surcharges, among others. A long-awaited recovery is indeed in place, albeit more sluggish than expected. In terms of profitability, 2018 will be somewhat comparable to 2017, instead of being the banner year that was anticipated.
Marine and offshore related companies will be seeing a better year in 2018 as orders slowly return due to improving demand for oil. Global crude oil price increased since the start of the year to finish 2017 on a high note, and the advance continuing into 2018 may see demand for crude oil finally gathering steam.
On the technology front, the MPA has also put in place an MOU with NUS Enterprise for the Maritime Technology Acceleration Programme. The key challenge is to convince the large corporates to embrace the open innovation approach, which involves sharing information and committing resources to work with external innovators, especially young tech start-ups. It is yet to be seen how successful these initiatives will be and their impact on the large shipping market in Singapore.
In a conservative industry, with the maritime people having continued to do what they want because they could, it has now been realised that this is no longer viable. If market participants do not ride along with the changes, they will lose relevance. Still, there is an expected and forecasted recovery in the shipping market that will occur between 2018 and 2019, followed by an upturn in the oil and gas industry between 2020 and 2021 that would give the maritime industry a further lift. By then, it is crucial that Singapore is poised to ride the wave of changes.
The Inside Track
What are the particular skills that clients are looking for in an effective shipping lawyer?
An effective shipping lawyer must be able to explain what may be otherwise be considered as complicated aspects of maritime law in a straightforward manner so that the essential points are distilled and easily understood.
Apart from a high level of technical skill, a comprehensive understanding of the industry is a must to recognise the intricacies of the practice, the challenges that may be faced at each juncture, and the benefits that may be gained from taking certain steps. In this regard what may arguably be the most important is the ability to see the big picture and not get bogged down by small issues that may arise.
It is also imperative that a shipping lawyer is adaptable to the fluidity of each situation, so advice may be given in a practical and innovative manner, and strategic advantages can be captured in each situation.
What are the key considerations for clients and their lawyers when arranging finance for a shipping transaction?
Key considerations for a transaction and what security would be appropriate depends on the type of financing or refinancing, eg, whether the transaction relates to the building of new ships or the purchase of existing ships, whether it involves a single ship or multiple ships, etc.
These factors consequently have an impact on, inter alia, the identity of the borrower, what type of security would be sought (eg, whether a guarantee is to be issued by the holding company or shipowner), and whether financing is provided by way of secured lending or leasing.
Separate to considerations of the type of security, since it is almost always the case that the revenue generated by the charter would be used as interest payment or repayment of the loan to the lender, another important aspect is the charter party contract, which varies depending on which party is to retain possession and control over the ships.
What are the most interesting and challenging cases you have dealt with in the past year?
Together with Ince & Co Singapore LLP, we advised the owners of the tanker, ALNIC MC, which was involved in a collision with the US Navy destroyer, the USS John S. McCain on 21 August 2017.
Interestingly, both Singapore and Malaysia claimed the collision occurred in their national waters. This stems from a dispute over the sovereignty of the Pedro Branch Island (4.6 nautical miles from the collision). In 2003, both countries submitted the issue of sovereignty to the International Court of Justice (ICJ). In 2008, the ICJ ruled in Singapore’s favour. In 2017, Malaysia applied for a revision of the 2008 ruling (the Application). There is now more certainty as Malaysia applied in May 2018 to withdraw the Application and the window for revision has now lapsed.
What is heartening is that Singapore and Malaysia have not let the dispute hamper humanitarian efforts in respect of the collision.
Edgar Chin, Moses Lin, Justin Seet and Samantha Ch’ng
Incisive Law LLC