Chairman's Commentary

NYMAR Editor Ranjeeta McGroarty speaks with Jens Alers (Managing Director), Bernhard Schulte (Bermuda)

Ranjeeta:

What is the role of a shipmanager in the life of a shipowner?

Jens:

What that role is depends very much on the individual shipowning company as a client and its degree of interest to involve the shipmanager in its overall business. We have clients who want us to work with them on almost every aspect of their business, from human resources, technical and commercial management to engineering, design and negotiating the ordering of ships. Then there are other clients taking a much more selective approach: From the menu of products and services we offer they pick one or two items, let's say for example newbuilding supervision or safety consultancy. Every client relationship starts somewhere and the happiest relationships are of course those which have been growing over many years into very symbiotic, flexible and integrated relationships.

Ranjeeta:	Can you explain the activities of Schulte Group and BS Shipmanagement?
Jens:	The Schulte family has been doing maritime business for 125 years. Our group rests on two main pillars—our people and a strong and strictly long-term commitment to clients, financiers, suppliers and other stakeholders. In that respect nothing has changed since 1883, when the first Schulte generation entered the business. Our people, all 15,000 of them onshore and onboard, will make sure that we are also still around for the next 125 years and beyond. Just recently I made a presentation on our activities and services. After I had finished, the CEO of the client company I made the presentation to quipped: "So, you deliver pretty much everything, except for the milk?" I do admit, we don't deliver the milk, but we do offer a wide range of products and services including human resources onboard and ashore, training and education, safety, technical and engineering know-how, ship design. shipbuilding and repair yard relationships, newbuilding and conversion supervision, marine insurance, pool management, commercial, corporate and ship finance expertise.
Ranjeeta:	What type of ships do you manage and its geographical locations?
Jens:	The decision from where we do business is driven by three main factors: Proximity to the clients, the countries our seafarers come from and the trade of the ships we manage. Other important factors which influence locational decisions are: Well regulated jurisdictions. Competitive pricing. Taxes. In short: There will always be a dot near you on the Schulte map. Bernhard Schulte Shipmanagement is organized divisionally along the lines of ship types: Crude, product and chemical tankers make up one division, gas tankers, FPSO's and offshore vessels are the second division and the third is made up of container ships, bulk carriers and car carriers. A forth division covers the many "value added" services we offer. We hold significant ship management market share in gas ships, container vessels, chemical and product tankers, FPSO's, the capsize sector as well as the newbuilding supervision and maritime engineering sector. All in all, the group now has almost 300 ships under full management and another 350 in crew management. We have over 60 ships under newbuilding supervision contract right now.
Ranjeeta:	Please sum up your day to day role and the most interesting part of your job?
Jens:	One needs to be flexible—roles change. So does mine. I have been in the maritime business for more than half my life now, most of that time with the Schulte Group in shipbroking and project development as well as shipmanagement. It's kind of hard to say what the most interesting part of my job is: Our business does not just provide me with a mere job: I need to be passionate about ships and the people who take care of them. What has always fascinated me most is the totally global nature of the maritime business, and the extended family and friends one makes in it.
Ranjeeta:	There seems to have been a dark cloud hovering over some shipmanagement companies. What advise would you give shipowners when handing over the life of their vessels?
Jens:	I am not so sure which particular weather system and which shipmanagers you are referring to, but I do know that shipmanagement is certainly not a sunshine industry. We face the elements all the time. Shipmanagers get blamed for everything including the weather and not delivering the milk on time. Being in this business oftentimes feels like a thankless task, but it is the most rewarding place to be when the shore and shipboard teams work together as one and that way they make a huge difference to the success of the ship, the fleet, and ultimately the bottom line of the owner. My advice to shipowners? Don't base your decision on who you want to partner with solely on a budget in an Excel spreadsheet, but take a thorough look at organizations and their specific capabilities: Each shipmanagement company has different strengths and weaknesses. They can be measured. In the end the shipowner needs to make the decision taking into account many different factors. Here are the factors which most definitely should not enter the decision making process: Hearsay and a management fee which is 10,000 bucks lower than the one the next competitor has to offer.
Ranjeeta:	Can you describe a challenging situation that you faced and overcame?
Jens:	A very successful and now retired industry colleague of mine once described his career as a shipmanager as "living in a constant state of unease". Managing ships means one worries a lot. Shipmanagers are hired to worry! Ships operate in a hostile environment. Many people forget that, probably because they look at neat little Excel spreadsheets all day. I think the worst thing I ever dealt with was the death of a seafarer onboard one of our vessels. I felt I had totally failed the man, his family, his colleagues onboard and ashore. That feeling will always stay with me as a constant reminder of why safety is the highest priority in shipping. The most challenging situation I experienced was probably an emergency response I directed during an all night and day marathon. The ship we assisted had grounded during a hurricane and there was a distinct danger of her breaking apart. It was the combination of the skills of the professionals onboard, all the different parties we dealt with ashore and a bit of luck which saw her afloat again next morning.
Ranjeeta:	Do you think shipmanagers are underpaid for the risks they assume?
Jens:	Yes. But that is our own fault. The fraternity of shipmanagers is just as desperately competitive and self-destructive as the airline industry, which continuously manages to shaft itself. But we will get this sorted over the next few years.
Ranjeeta:	How were the financial results for both the Schulte Group and BS Shipmanagement in 2007 and expectation for 2008? Were 2007 results as expected?
Jens:	We prefer not to talk about that because we are a privately owned company and do not publish our financial results. Let's put it this way: Whoever has not made money in shipowning over the last few years might wish to reconsider career choices and switch industries. Whoever has made money in the shipmanagement business over the last few years definitely has a fantastic team at work and must enjoy a great deal of client appreciation.
Ranjeeta:	You mentioned that you recently integrated your various shipmanagement entities. What was the reason and how difficult was the process?
Jens:	That's right: Early last year the leaders of the four Schulte management companies decided to join forces not just as subsidiaries of one and the same shareholder, but truly become one company under one brand and one integrated management team. We decided to call the company "Bernhard Schulte Shipmanagement" in recognition of our joint roots. To be honest, this restructuring was overdue! Complex integration and restructuring processes are never easy, but we are all about a year into it now and things are going well. We have ended the internal competition for precious resources, which can now be deployed to the greater advantage of clients and shareholders.
Ranjeeta:	Any expansion plans? If so, please explain.
Jens:	Expansion is not an end to itself. It has to be planned, it has to lead to increased profitability and it must strengthen, not stretch the company's human, technological and financial resources. As to our specific business expansion plans, I prefer to tell clients and NYMAR members about those in one on one conversations.
Ranjeeta:	Has the credit market affected your company?
Jens:	Nobody operates in a vacuum. As owners and commercial operators we have always maintained an extremely solid balance sheet. We reap the rewards of that in the best of times, but especially at a time when money becomes a costlier commodity. As ship managers we must always be aware of the potential risk of being left out in the cold when the client stops paying bills. It could be one of the bills we sent. The closer one works with the client the better is the understanding for each others' business and the better the early warning systems work.
Ranjeeta:	I believe you are one of the first non-U.S members of NYMAR. What do you hope to see in the New York Maritime Cluster?
Jens:	Peter Shaerf actually told me I was the first overseas member to join NYMAR. I am of course only halfway overseas: I spend a lot of time in New York, with our clients, shipbrokers, technology partners, insurers, friends and family. I come to New York a lot — to do a lot of business. I think that is a good endorsement of the New York Maritime Cluster.
Ranjeeta:	What changes do you see in the shipping industry and what should shipmanagers be looking out for?
Jens:	I see our business becoming ever more complex and complicated. I see a general willingness of the industry, and not just its leaders, to operate in an environmentally responsible manner, essentially by turning what has always been a moral obligation into a dollars and sense business. I see a few industry participants leading the way into a new era of fuel saving propulsion technology. I see that we are on the way to integrate, not just align our businesses with all stakeholders including the regulatory bodies into one seamless information and work flow. I see huge gains in efficiency and productivity emanating from that.
Ranjeeta:	What are the main challenges for the industry and how do you see shipmanagers activities in 2008?
Jens:	2008 is more than half over. The main challenge we saw at the beginning of this year and of course well before then will still be the challenge we are facing in 2009 and well beyond: We are right in the middle of the biggest skill crunch since the first guy figured out how to make a nice roaring fire in his cave. The competition over professional and skilled human resources will heat up, and to some degree our industry only got itself to blame: We are still designing and building ships which only take the cargo carrying part into account, but not the people accommodating part. That must change right away and the smarter section of the industry is already doing that. We must stop thinking of education and training as a cost and instead treat it as an investment, in our heads and in our company balance sheets. We must totally integrate ship and shore careers into one to build and retain talent. We must rethink the way we remunerate people—it's not just the wage increase that counts. It is a real share in the business that people want. They want to share in the financial success they create through their good work onboard every day and every night. Dividends shouldn't just go to shareholders, but also the oceangoing stakeholders! Once that happens we will be well on the way to overcome the crisis!

Monthly News

NYSE Euronext ousts LSE in Qatari Bid

London Stock Exchange (LSE) suffered a blow when lost its bid to rival NYSE Euronext to be the partner in the Qatar's Doha Stock Market (DSM). NYSE Euronext agreed to buy a 25 percent stake in the Qatar securities market, gaining a lead in the race against its British and German rivals to become a truly global stock exchange at a time when growth has slowed in their home markets. NYSE, which is based in New York and owns several European exchanges, will pay $250 million in cash for the stake in the Doha Securities Market and gain a foothold in the fast-growing Middle Eastern economy.

Spectators believe that there is no doubt that in the medium to long term, the Middle Eastern markets will grow faster than the West, and the idea to buy into it is a good one, but it has to make economical sense. Shares in the LSE fell sharply on the suspicion that Qatar, which took a 15 percent supportive stake in London last year, would sell its shares. NYSE Euronext beat the London Stock Exchange, which counts Qatar's investment authority among its shareholders, and Deutsche Borse in a six-month takeover competition.

The intention is to float the DSM within three years, allowing Qatari institutions and individuals to take stakes in the business. Middle East states has been seeking to build a financial platform to allow easier distribution of the huge capital flows that has surfaced from oil wealth. Doha will use existing NYSE Euro-next technology in developing the market. The recruitment process for the required professionals to manage the exchange is believed to be in progress.

Frontline OSG Affair

John Fredriksen led Frontline wants talks with its rival New York based Overseas Shipholding Group (OSG) on a merger or acquisition, the company said in a filing to U.S. regulators. Frontline, which has a minority stake in OSG, has earlier held talks with the U.S. based shipper but failed to acquire it. The company said in a recent filing to the US Securities and Exchange Commission that it entered a forward contract with DnB NOR to buy 1.37 million shares, equal to a 4.4 percent stake, in OSG on August 29 for $93.13m. Recent filings reveal that Frontline and Fredriksen hold a 4.9 percent stake in OSG.

Former OMI Chief joins Intermarine board

Project cargo company Intermarine has appointed Craig Stevenson, CEO of Diamond S Shipping and former CEO of OMI, as Chairman of the Board of Directors. "We welcome Craig Stevenson's ongoing involvement with Intermarine. Craig is joining the company at an exciting inflection point in our growth and development," said Andre Grikitis, Chief Executive Officer of Intermarine. Diamond S Shipping is a shipping fund initiated by First Reserve's shipping fund, a private equity house. First reserve hired Stevenson for the post after the OMI sale. Intermarine hopes its new chairman will set the company's growth plans and strategic objective going forward.

An investment was made by New York private equity firm New Mountain Capital that involved a stake about 36.75 percent in Intermarine following Stevenson's hiring. "Craig's strategic involvement and our recent partnership with New Mountain Capital LLC strongly position the Company to grow with new and existing customers as increased global trade, energy exploration, and infrastructure development continue to drive the need for our services," said Gritkitis. Mr Stevenson is also the chairman of John Fredriksen controlled Ship Finance International.

A Case for New York Arbitration

New York arbitration of maritime disputes seems to have fallen out of favor in recent years, apparently largely to the benefit of the London arbitration market. There are several reasons, why parties to maritime contracts should reconsider whether New York might be an appropriate place to arbitrate disputes. "In particular, New York arbitration is less expensive, is flexible to accommodate the parties" specific needs, and (apparently contrary to common belief) routinely allows the prevailing party to recover its attorneys' fees and costs," Thomas H. Belknap, Jr. from law firm Blank Rome LLP said in a recent article.

The practice of having barristers commonly used in London represent parties before the arbitrators' introduces a double layer of cost (at very high hourly billing rates) that does not exist in New York. "I can recall sitting in on an arbitration in London a number of years ago in which each party was represented by a barrister, a junior barrister, a solicitor and a junior solicitor, at a combined hourly rate of about £1,300," Mr. Belkap Jr said. Other advantage to New York is the exchange rate that buys one pound sterling for nearly two US dollars and one Euro buys about a dollar and a half.

Other points set forth by Mr. Belknap is the fact that New York arbitration is flexible, SMA (Society of Maritime Arbitrators) rules allow for consolidation in appropriate cases, and it allows lawyers to act as arbitrators. "There are plenty of good reasons to decide to arbitrate a dispute in London, or Singapore, or Hamburg, or wherever. There remain, however, many good reasons why New York is a desirable forum for the arbitration of international maritime disputes," Mr. Belknap observed.

Charges against OSG reinstated

A US federal appeals court has reinstated an oil dumping case against New York-listed Overseas Shipholding Group, Inc (OSG) and one of its vessel's chief engineer. The Fifth Circuit Court of Appeals in New Orleans has unanimously overturned a 2006 ruling dismissing oil-dumping charges involving the 1994-built Panama-flagged 96,200 dwt Pacific Ruby (now the C Ruby).

In a 17-page decision, Judge Emilio Garza reversed the dismissal of oil record book and conspiracy charges against the aframax lightering tanker owner - OSG and its South Korean chief engineer Kun Yun Jho. The appeals court also overturned the lower court's view that the US is powerless to prosecute oil-dumping charges in international waters.

"It has long been established that a state has the power to prosecute violations of its laws committed by foreign-flagged vessels in its ports, as long as the port state has not abdicated the authority to do so," said Garza.

According to Garza, the Texas federal court's 2006 ruling made a mistake dismissing the charges, since the oil record violations occur at port and not at sea. "The indictment alleges that Jho failed to maintain an accurate oil record book on eight separate dates," wrote Garza. "On each of the dates listed in the indictment, the Pacific Ruby was docked in a US port."

Harbor Maintenance Tax Gets Horizon Applaud

Charles G. (Chuck) Raymond, Chairman, President and CEO of Horizon Lines, Inc. (NYSE: HRZ), a leading domestic container shipping and integrated logistics company expressed strong support for legislation introduced in the U.S. Senate that would exempt coastwise shipping of containerized cargo from the Harbor Maintenance Tax (HMT).

The legislation, introduced by Senator Frank Lautenberg (NJ), would exempt water carriage of non-bulk cargo between U.S. ports from the HMT. This would eliminate both the tax and associated paperwork burdens that discourage shippers from routing U.S. cargo by sea. By removing these barriers, the legislation would encourage use of the fuel-efficient marine mode to move cargo along our nation's coasts, helping ease highway and rail congestion and the demand for imported oil.

"This is the bipartisan legislative progress we need to make coastwise shipping a reality in America," said Mr. Raymond. New coastwise services will mean economic growth with less impact on the environment and job growth for maritime labor. "We can use our existing marine infrastructure to mitigate highway congestion and improve the overall efficiency of our national transportation infrastructure for sustainable growth," Raymond pointed out.

"America is looking for new initiatives to save fuel, improve efficiency and protect the environment.Coastwise shipping would help meet all those goals and an HMT exemption will help bring it into reality. We applaud Senator Lautenberg and his co-sponsors for this initiative." Raymond also noted Horizon's continued support for similar legislation pending in the House, sponsored by Rep. Elijah Cummings (MD) with bipartisan support. "With support now in the Senate as well as in the House of Representatives, we are hopeful Congress can pass this important legislation," Raymond concluded. The legislation is co-sponsored by Senators Cantwell (WA), Murray (WA), Schumer (NY), Smith (OR), Stabenow (MI), and Vitter (LA).

New US security bill

New Jersey Senators Frank Lautenberg and Robert Menendez have initiated a new bill to create minimum US port security standards at the nation's 361 ports. The senators joined executives from the Port Authority of New York and New Jersey to introduce S. 3174, the Port Authority Implementation Act of 2008, after testimony during a hearing recently suggested that the 2012 deadline for 100 percent box scanning would be unattainable."It's been seven years since 9/11 and President Bush has still not secured our ports. Port security is essential to protect our residents from terrorist attack, and if this Administration won't adequately protect us, we will," Senator Lautenberg said.

Port Authority Chairman Tony Coscia said, "The Senators' bill, which builds on the recommendations of our Task Force, recognizes the critical importance of introducing uniform federal standards for all ports in the country." While the text of the bill has yet to be posted, the senators said in a statement that the legislation would require mandatory, not voluntary, container security standards. It would require that cargo be monitored from the moment it is packed into containers abroad until it reaches its destination in the US. Containers that do not meet the standards would be refused entry.

US Congress passes MARPOL VI

The US Congress has passed H.R. 802, the Maritime Pollution Prevention Act, which will now be transmitted to President Bush for signature. The legislation will implement MARPOL Annex VI, giving the US a voice in the IMO when the matter of emissions comes up for debate in October. Kurt Nagle, president of the American Association of Port Authorities (AAPA) welcomed the move. "While land-based emissions and some marine emissions are the responsibility of the U.S. Environmental Protection Agency, AAPA believes that an international process is the most effective for vessels, the majority of which are flagged in countries other than the U.S.," he said. "Considering that emissions from ocean-going ships are predicted to grow by more than 70 percent over the next 15 years, it's imperative that meaningful and effective air emissions standards be adopted to improve air quality."

Ferry Company Sues Bridgeport Port Authority

Willamette Management Associates was retained by Akerman Senterfitt LLP, attorneys for the Bridgeport and Port Jefferson Steamboat Company to provide forensic accounting and economic damage estimation services for its suit against the City of Bridgeport Port Authority. Bridgeport and Port Jefferson Steamboat Company sued the Bridgeport Port Authority for, among other things, charging an excessive passenger fee to its riders. The ferry company argued that the passenger fee revenue far exceeded the funds necessary to maintain the ferry dock and was instead being used by the Port Authority to support non-ferry projects on the waterfront. Nearly all of the Port Authority's revenue was generated from the passenger fee. The ferry company operates the ferry across the Long Island Sound between Port Jefferson, New York, and Bridgeport, Connecticut.

Alan Schachter, Willamette's New York office director, provided expert witness testimony in which he testified to the amount by which the passenger fee imposed by the defendant on the passengers of the Bridgeport-Port Jefferson Ferry exceeded the reasonable cost of the facilities and services that the defendant provides to the ferry operation. Judge Christopher F. Droney of the United States District Court for the District of Connecticut, cited and accepted the testimony of Schachter in ruling that the difference between what the Port Authority takes in from the passenger fee and what they deliver to the ferry operation is "vast." As a result, Judge Droney enjoined the Port Authority from the further use of passenger fees to fund its activities that are unrelated to and do not benefit the ferry passengers. This decision could affect passenger fees and tariffs charged by governmental agencies around the country.

MARAD seeks Superintendent at Kings Point

Following VADM Joseph Stewart's retirement, MARAD is seeking a new Superintendent for the U.S. Merchant Marine Academy at Kings Point. The job is open from Wednesday, July 09, 2008 to Wednesday, August 20, 2008; Salary Range: 114,468.00 - 172,200.00 USD per year; Series & Grade: ES-0301.The position is a full-time permanent position based in Kings Point, New York. Applications will be accepted from all groups of qualified individuals.

Job Summary: Come on board with us and take a journey that will challenge your mind and develop your career. The quality of our lives, the shape of our communities and the productivity of our Nation's economy depend on our transportation systems. We recognize and value the importance of our workforce and the diversity of backgrounds and ideas that each employee brings. This position has a profound impact on the United States Merchant Marine Academy located in Kings Point, New York ability to educate and train individuals to be highly qualified licensed merchant marine officers inspired to sail on vessels of the United States.

Financial Performance Charts

Shipping Company Performance Chart (NASDAQ)
(source: Nasdaq OMX)

Shipping Company Performance Chart (NYSE)
(source: NYSE)

Transportation Index Charts
(source: NASDAQ Market Intelligence Desk)

Taste of NYC | Upcoming Events and Entertainment

• Central Park Concerts - Crosby, Stills & Nash, July 29, 7pm-10pm-Benefit Concert; Kibbutz Contemporary Dance Company: Nimrod Freed/Tami Dance Company's "PeepDance" July 26, 7pm-10pm | free performance . (www.summerstage.org)
• The New York City Waterfalls - Artist Olafur Eliasson | Four sites including: the Brooklyn Bridge, between Piers 4 and 5, Pier 35, and Governors Island | 212-980-4575, through Oct 15
• Summer Garden Concerts - Mount Vernon Hotel Museum & Garden, 421 East 61st Street, between First and York Avenues | 212-838-6878. The Museum hosts a concert at 6pm every Tuesday in June & July
• Guggenheim Museum - Selections from the Collection New York in the 1940s, through September 8 (www.guggenheim.org)
• MOMA - Now on View, Projects 87 | Sigalit Landau, through July 28. Film Exhibitions: Zeitgeist: The Films of Our Time, through July 23; Dali’: Painting and Film, through September 15 (www.moma.org)
• Metropolitan Museum - J. M. W. Turner, through September 21; Jeff Koons on the Roof, through October 26; Photography on Photography: Reflections on the Medium since 1960, through October 19. (http://www.metmuseum.org)
• Christies - New York, Rockefeller Center. Viewing and Auction |Prints and Multiples July 31 [Sale 2019] (www.christies.com)
• NYMAR Restaurant of the Month - Dovetail |103 W 77th St - Columbus Ave, NY 10024, 212 362-3800 (Chef John Fraser is a veteran of some of the world's great kitchens, including the French Laundry, in Napa Valley, and Taillevent, in Paris).

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