To get an overview of the most significant shipping law-related developments in 2015 and a prediction of how the landscape may shift in 2016, Hong Kong Lawyer reached out to Conor Ward, who leads Clyde & Co’s ship finance and transactional practice in Hong Kong and mainland China.
The past year has been difficult and challenging for the global maritime industry. The Baltic Dry Index, which tracks the cost of shipping coal, steel, iron ore and other bulk raw materials, reached a historic low in November 2015. This can be attributed to a combination of factors, including a fall in demand for commodities from China and an oversupply in the shipping market.
The drop in freight rates has been cited as the cause of some large maritime shipping companies filing for bankruptcy protection. The obvious consequence is that the business partners and creditors of these companies – including shipbuilders, banks, shipbrokers, bunker suppliers and vessel charterers – are left exposed and have had to file claims in court proceedings.
We have also seen some vessel charterers react to the lower rates by seeking to cancel unprofitable charters. This has led to a number of disputes between parties to those charters, some of whom have had to proceed to arbitration.
Similarly, the drop in the price of oil has had dramatic effects on the offshore industry as well as on the traditional shipping industry. For example, some oil companies have delayed or cancelled orders for offshore oil rigs and production facilities, while the demand for oil tankers has steadily risen. There are no immediate signs of any substantive increase of the price of oil in the near future.
The Competition Ordinance (Cap. 619) came into full effect on 14 December 2015. However, unlike some other major jurisdictions, which provide antitrust immunity to cooperation agreements between shipping lines, the Competition Commission has not granted any such block exemption. This new area of the law in Hong Kong is particularly relevant to our clients, especially those who have chosen or are planning to form shipping alliances in the current economic climate. We will keep a close eye on the Competition Commission's approach to compliance and enforcement in the coming year.
Leasing companies, particularly financial leasing companies in China, will continue to be key players in the financing of new buildings and quality second-hand tonnage. More and more owners and operators outside of Asia will look to lease financing opportunities in Hong Kong and in mainland China.
More generally, we expect that the shipping industry will continue to be under pressure in 2016. Shipping companies are likely to continue looking for opportunities to consolidate and obtain alternative financing in the face of the slow economic recovery in Europe and precarious outlook for the Chinese economy.