CONFRONTING SHIPPING PROTECTIONISM - SIR YUE-KONG PAO 1979-1982

Sir Yue-Kong Pao’s contribution to INTERTANKO was marked by the Association’s developing place on the world political stage.

Pao was one of the world’s richest men, a giant in Hong Kong society and the largest independent tanker owner. He was also very well-connected with direct access to world leaders like Britain’s Prime Minister Margaret Thatcher, America’s President Ronald Reagan, and Germany’s Helmut Schmidt. Pao’s Annual Meetings featured President Ferdinand Marcos in Manila in 1981 and Dr Henry Kissinger in Washington in 1982.

INTERTANKO gained its consultative seat at the Intergovernmental Maritime Consultative Organisation, IMCO, and also gained consultative status at the United Nations Conference

on Trade and Development, UNCTAD - a status the Association was to use with great effect. By 1982 INTERTANKO has member companies in 29 countries. The category of “Subscriber” members was expanded in 1979 principally to allow the member Kuwait Oil Tanker Company - which had been taken over by the state and so no longer conformed with the membership eligibility requirement of “independence” - to retain its association with INTERTANKO.

In 1979 the “UNCTAD V” Conference convened in Manila, Philippines, with an agenda including cargo sharing - discussing ways of encouraging shipping to and from developing countries to be carried out partly in national fleets of that country. INTERTANKO opposed the concept of forced “cargo sharing” in the belief that the open market gave the developing countries the most efficient access to competitive shipping costs. INTERTANKO produced a paper and presented it at UNCTAD V. Developing countries’ tanker fleets had in fact grown faster than industrialised countries’ fleets over the 1970’s, noted INTERTANKO.

It may have seemed odd that, at a time when the concentration in tanker shipping was still on reducing the tanker surplus, and tanker operating was barely profitable, developing countries should have wanted to join in, but the second agenda of UNCTAD was an attack on “open register” shipping - registration of ships in countries with which they had little if any association. This had over many years been a target in the United States to be shot at as well. All the efforts of the Americans had however failed to stem the outflow from the American flag and the sinking of American-flag competitiveness in international bulk shipping.

UNCTAD remained busy into 1980. The Committee on Shipping met in September and INTERTANKO was pleased to see there was no resolution aimed at cross-traders or promoting cargo sharing. However, in 1981, cargo sharing was back on the agenda. UNCTAD became involved in what INTERTANKO described as “added uncertainty and endless meetings”. The East Bloc countries and the developing countries backed the UNCTAD Secretariat which wanted to develop cargo sharing rules, at which INTERTANKO commented “under these circumstances economic reasoning may easily be overridden by political ambitions”. With few exceptions even the smallest developing country had a national airline: now they wanted a national shipping line too.

The UNCTAD Secretariat’s submission had decided that there were “formidable barriers” to developing countries entering ship operation due to control of the trade by trans-national co-operations in bulk trades - referring in fact to dry bulk shipping. A “Group of Experts” was formed in 1981 at the “endless meeting” to examine the Secretariat’s contention and investigate the conditions in four dry bulk trades. Oil for the time being was excluded. The experts’ examination found no substance in the Secretariat’s assertions but INTERTANKO remarked that the Secretariat’s “campaign for flag preferences is not likely to be stopped by the Group of Experts’ report”.

On open registries, at Geneva in June 1981 the UNCTAD Committee on Shipping adopted a resolution to phase them out. The terms were that “present regimes of open registries be gradually and progressively transformed into normal registries by a process of tightening the conditions under which open registry countries retain or accept vessels on their registers so that they will be capable of identifying owners and operations including the maintenance of standards and the welfare of their crews”. A relatively bland wording but the aim of the developing countries’ group was still creation of national fleets.

The developing countries group’s spokesman at Geneva had been the Sri Lanka delegation’s leader. As INTERTANKO reported “Sri Lanka surprised everyone shortly afterwards by announcing that she had opened her registry for foreign vessels”.

UNCTAD’s threats to free competition in shipping were to continue for some years but the shipping industry, including INTERTANKO, could claim some satisfaction that arguments in favour of free competition had been substantially vindicated and upheld by the Conferences in the face of the UNCTAD Secretariat’s pressure in the other direction.

The United States made fresh rumblings about promotion of American flag shipping - a bill presented in Congress proposed to retain 40 percent of the coal trade to American flag shipping. Tormod Rafgård, General Manager of INTERTANKO, and Trygve Meyer met with the United Stated Maritime Administration officials, and with the Senate and the House of Representatives in Washington to defend the international shipping system. The change of President from the Democrat Jimmy Carter to the Republican Ronald Reagan, committed to free trade, blunted the protectionist threat, and in fact maritime subsidies for American shipping were substantially reduced.

Another oil price shock occurred in 1979 following the Iranian Revolution but the reflection into the tanker industry was less earth-shaking than the embargo of 1973. The tanker market improved and ship values rose. A Very Large Crude Carrier (VLCC) built in 1974 worth 11 million dollars in 1977 was valued at 29 million by the end of 1979. However as war broke out in 1980 between Iran and Iraq - limited at this time to land border fighting - and a recession gripped the industrial countries, uncertainty of oil supply and reduced oil demand depressed the market.

OPEC production fell from 30 million barrels of oil a day in 1980 to 21 million in 1981, on top of a ten percent drop from 1979 to 1980. As the price of oil had risen, energy conservation became of more interest in consumer countries and wasteful use of oil was reduced - thus further reducing demand. In 1980 tanker market activity reduced. Timechartering fell from 27 million deadweight tons to 23 million, and voyage chartering fell 9.3 percent. Increased production in new oil producing areas improved the opportunities for smaller crude oil ships to obtain reasonable rewards, by reducing unremunerated ballast voyage legs, but this was not an option open to VLCCs.

The surplus tanker capacity was absorbed in a variety of ways. Some was in lay-up. Some was absorbed in deadfreight - unused (empty) ship capacity - oil traders shipped oil in specified cargo parcel lots, unlike oil companies which had tended to load tankers up to capacity. Some tanker capacity was now absorbed by ballast tanks or slop carriage. Much of the fleet was still slow steaming, due to the high cost of bunker fuel. Port times had increased particularly because extra time was now taken in crude oil washing (COW) of tanks, and tank stripping to improve cargo outturn.

The number of tankers in lay-up fell from 24.7 million tons of capacity in 1978 to 10.1 million in 1979, and to 7.5 million in 1980. On the other hand, floating storage of oil increased. At the end of 1979, 7 million tons of tanker capacity was thus engaged, by the end of 1980 the figure was 10 million and during 1981 a peak of 35 million was reached, principally represented by Japanese strategic reserves, and storage close by the United States. The difference was that tankers employed as storage ships gained a freight income - sometimes higher than voyage rates. Laid up ships did not earn any money.

Scrapping of surplus ships continued at high volumes but still not high enough to dissipate the surplus. INTERTANKO continued its activities to encourage countries to start scrapping industries. In 1982 Sir Yue-Kong Pao led a delegation to China and met the Prime Minister Zhao Zhiyang and other ministers and officials. INTERTANKO preached the virtues of free competition and spoke about the potential for increased ship scrapping in China. China had hitherto not scrapped any ships. The first ship scrap facility in China was started at Chungmin Tao in 1983. A few years later China scrapped more tonnage than any other country in the Far East.

Over the period 1974 to 1979, 1,350 tankers had been scrapped. In 1980 twenty six VLCCs were scrapped and in 1981, forty one. Oil companies moved to scrap their obsolete and surplus ships - a move INTERTANKO had promoted. Only one oil company VLCC was scrapped in 1980 but fifteen of them went in 1981.

The search for alternative uses for surplus tankers continued. Many combination carriers were reclassified for dry cargo only. INTERTANKO commissioned a study on storage of coal in tankers. Studies looked at shipping fresh water in tankers, at use in offshore oil production, and as accommodation hulls. Thirty two conversions took place in 1981, from oil shipment to other purposes.

New ordering and deliveries were at moderate levels. However the order book rose in 1979 from 11.6 million deadweight tons to 20.8 million, and in 1980 to 26 million. Most of these orders were for smaller ships, particularly modern product carriers with enhanced cargo segregation and cleaning capabilities, to switch between different oil grades. The 1981 order book dropped to 5 million tons. INTERTANKO continued its seemingly eternal battle against ship building subsidy, and warned ship owners and investors against indulging in speculative ship ordering.

INTERTANKO ventured into a new area, at the 1980 Annual Meeting, by launching in co-operation with Det Norske Veritas a bunker fuel testing scheme. Bunker fuel quality had become an increasing concern to ship operators and INTERTANKO responded to it. The rise in bunker prices had been paralleled by reduced bunker quality as oil refiners extracted more and more higher-value products out of crude oil - leaving therefore a worse and worse residue for marine fuel.

As well as meaning that ships were getting “less for more” - an economic argument - the declining quality of bunker was risking engine damage and could cause engine breakdowns at sea and the hazards of a stranding. Furthermore, bad bunkers left a large unburnable sludge residue in the bunker tanks which had to be disposed of. INTERTANKO worked to obtain internationally-agreed bunker standards under the International Standards Organisation - ISO - scheme.

Tanker safety work centred on pressing governments to fulfil their obligations under the IMCO Conventions. INTERTANKO urged governments’ maritime administrations to improve the provision of navigational aids at ports and congested shipping areas. Waste oil reception facilities - increasingly relevant in view of increased amounts of bunker sludge - remained inadequate and were called for. Studies were initiated into the provision of safe anchorages for disabled tankers.

In 1981 INTERTANKO adopted a slogan, “Standardise for Safety”, to identify a need for tackling safety provision, pollution prevention and crew training and qualifications. The slogan emerged from INTERTANKO’s Safety and Technical Committee and was launched by W.S. Martin of Capeside Steamship Co. It was a clear call for the ratification and implementation of IMCO’s safety standards by the necessary national legislation.

The problem of implementation was a serious one. The Safety of Life at Sea Convention SOLAS 74-78 took effect in May 1981. Whilst onboard requirements had been complied with, only the United States, Japan and the United Kingdom had adopted them for application in their ports. IMCO was urged by INTERTANKO to work on enforcement of existing Conventions before discussing amendments to them. The Marine Pollution Convention MARPOL 73-78 had still by 1981 not achieved the necessary ratification to come into force - three countries short of the necessary 15, and eleven percent short of the necessary 50 percent of shipping.

INTERTANKO’s discussions also foresaw the development of port state control of shipping - the right (and duty) of port states as well as flag states to regulate and check the condition of ships using a country’s ports. INTERTANKO member Jan Bucha Godager addressing the 1979 Annual Meeting in Kuwait said “The shipping industry is interested in keeping up a good standard on board the ships. It will serve no useful purpose to keep sub-standard ships going, which will result in pollution and a threat to safety. Traditionally safety at sea was a question of safety of the crew and the ship and its cargo. Nowadays it is also a question of safety and pollution threat to the coastline of the port state. No doubt we will see a development where the port state will have a steadily increasing influence on safety matters. In our efforts we would also have to search for ways and means of finding agreements for voluntary compliance on an international basis, particularly when ratification of conventions, from experience in the past, shows us that timing and efficiency are not according to expectations from people who have dealt with shipping over generations”.

INTERTANKO’s Safety and Technical Committee concerned itself about onboard standards of crew qualification in the wake of the Standards of Crew Training and Watchkeeping (STCW) Convention. “Management,” said the Committee, “should assume the responsibility for adequate onboard training of personnel who are entrusted with the safety of life and ships at sea”.

Not all initiatives intended to improve tanker safety were welcomed by INTERTANKO. The oil companies proposed the formation of a database of information recorded on tankers and their crews. The scheme, codenamed VISTA  - Voluntary Information System for Tankers - was promoted by the Oil Companies’ International Maritime Forum, OCIMF.

At the 1979 INTERTANKO Council, INTERTANKO decided that, whilst fully supporting any constructive moves to eliminate substandard operators, “mechanical projects based on the mere compilation of historical data of vessels’ ownership and conditions would not produce a higher degree of operative excellence and thereby improve maritime safety and reduce pollution”. INTERTANKO believed the VISTA project duplicated, unhelpfully, the work of Classification Societies. VISTA was shelved but new more sophisticated plans from OCIMF in the next decade gained a more positive response from INTERTANKO.

The criticism which Per Gram had levelled on INTERTANKO’s behalf at modern practice on bills of lading produced an attempt at a solution in 1981. There are risks involved in delivery of oil cargoes without the bills being produced, and to receivers different from those stated in the bills or at ports different from the destination. Chase Manhattan Bank launched a pilot scheme for a Bills of Lading Registry and presented it to the International Chamber of Commerce, and a committee of Protection and Indemnity Clubs.

The Bill of Lading Registry scheme was designed to provide a method for depositing the bills of lading in a registry and thus giving security - by way of ready access to the original bills - to shipowners delivering cargo to receivers. The long postal or courier journeys of bills of lading amongst traders as cargoes at sea were bought and sold were theoretically completely eliminated.

In 1980, past Chairmen Jørgen Jahre and Erling Næss retired from the Executive Committee and were made Honorary Members of INTERTANKO. The Vice-Chairmen of INTERTANKO in 1981 were Derek Hall of P.& O. Steam Navigation, United Kingdom, Sven Salén of Salénia, Sweden, and Professor Dr R.Stödter of John T.Essberger, Germany. Membership fees were now 350 dollars per ship below 50,000 Gross Registered Tons and 700 dollars above. The Secretariat staff numbered twelve. The Safety and Technical Committee had grown to twelve members and the Worldscale Committee had five. The Documentary Committee still led in numbers with seventeen members including owners, brokers and lawyers.

INTERTANKO had now marked its tenth anniversary and in 1981 the Financial Times devoted several pages to the Association, and the shipping paper Lloyd’s List published a twenty-page supplement to mark the occasion. Advertising came from shipyards and shipping banks - despite INTERTANKO’s long-time strictures against their overbuilding of tankers - shipowners, equipment suppliers, bunker suppliers, Classification Societies, P.& I. Clubs, agents and brokers. But no oil companies advertised.

Sir Yue-Kong Pao’s three year term as Chairman ended at the 1982 Annual Meeting in Athens in April and he followed Jørgen Jahre and Erling Næss in becoming an honorary member of the Association.