Is the banks' $400 billion global shipping debt about to sink?

Carbon War Room (CWR) and UMAS have released research that suggests climate transition pathways pose risks to the banks that hold $400 billion of global shipping debt. With the onset of climate policies as soon as 2023, there will be a need for significant capital investment to keep vessels competitive. Navigating Decarbonisation: An approach to evaluate shipping’s risks and opportunities associated with climate change mitigation policy lays out the first approach to climate stress-testing of shipping assets and proposes that enhanced due-diligence undertaken today by financiers, shipowners, and shareholders can help deliver long-term value and avoid losses by the mid-2020s.
By examining outcomes of investment approaches in a range of future scenarios in the newbuild drybulk fleet (60,000–99,999 dwt), the research assesses whether the industry is exposed to climate policy-driven risks and how to manage these risks. This is the first known scenario analysis of decarbonisation risks in shipping. Project finance and corporate lending to the international shipping industry has long been big business for major financial institutions. The 18-month project identified that while some financial stakeholders are aware of stranded asset risks, few banks assess ship efficiency or have lending programmes in place to keep assets competitive.
Jules Kortenhorst, CEO, Carbon War Room and Rocky Mountain Institute commented: “This is not an easy time for shipping finance. However, decarbonisation can still be a win-win on profit and climate for shipping desks, but they will have to be more proactive and live up to the green reputation that many of their institutions hold.
“Financiers should be future-proofing investments and preparing to harness the new opportunities decarbonisation will create. Even with $400 billion in global shipping debt at stake, we have little evidence this is happening. We’ve taken the first step.”
Navigating Decarbonisation is the third instalment of research on stranded assets and climate risk in shipping from CWR and UMAS. It offers a method to analyse how GHG mitigation policies in shipping and national contributions under the Paris Agreement could impact existing and future investments in shipping.
James Mitchell, senior associate for shipping with Carbon War Room, explained: “Risk is nothing new to the shipping industry or to the major financial institutions that bankroll it, but climate transition risk is. If a newbuilding financing decision is made today, that vessel will very probably have to compete under new IMO or EU policy actions before its first drydock. This work suggests that these risks will impact the market and should be considered now.
“We recognise the challenges faced today. Markets are weak, capital requirements are increasing, and compliance with upcoming regulations will require significant capital investment. However, actions taken now by financiers, owners, and shareholders will position both individual assets and the industry as a whole for greater long-term profitability, and will ensure that the first step of decarbonisation is a success. We look forward to working with the industry’s leaders to understand the risks and unlock the opportunities of decarbonisation.”
Dr Tristan Smith, Director, UMAS, said: “Future regulation on shipping GHG is now certain. It’s just the velocity and stringency that remain unknown, and we can handle this by thinking in terms of scenarios. This collaboration has given us an excellent opportunity to further think about how techno-economic modelling can help to identify risks and opportunities to different scenarios and has given us many ideas for our ongoing work.
“The key takeaway from the report is for financiers and shipowners to be prepared and thus it is crucial to future-proof assets now and plan for flexibility from the onset, through for example, designing for future retrofits and using innovative financing mechanisms to deal with a variety of future scenarios. Scenario analysis that combines an integrated techno-economic assessment with a number of foreseeable policy scenarios can help navigate future uncertainties and help financiers and shipowners make more informed decisions about their assets.
The full report is available to download here.

‘Doors rear’ or ‘doors front’? New Melbourne terminal makes life hard for truckies

Container transport operators have been working closely with Victoria International Container Terminal (VICT) ahead of the arrival of the first laden ship to be stevedored at the new automated container terminal in Webb Dock, Melbourne.
“E.R. Long Beach” operating for Mediterranean Shipping Company (MSC) on the Australia Express service to/from Asia, the Middle East and Europe, is due to berth at VICT on 26th February.
At 300 metres in length, with a width of 42m and a container capacity of 7,455 TEU, E.R. Long Beach presents challenges in accessing Swanson Dock due to her size.  Hence, MSC is taking advantage of VICT’s ability to handle larger container ships without the need for the Yarra River passage.
“Export container receivals for the vessel commence in earnest from Monday, 20th February.  This has necessitated container transport operators registering with VICT through 1-Stop to use the Vehicle Booking System (VBS), and drivers completing their on-line MSIC inductions (again through 1-Stop) before they can access the Terminal,” commented CTAA director Neil Chambers.
Road transport interface issues
The announcement that VICT was to welcome its first laden container vessel added emphasis to the discussions between CTAA Alliance companies and VICT on outstanding transport interface issues.
“We’ve got some major issues we are still working through collaboratively with senior management at VICT, ones that impact on truck servicing and productivity,” Mr Chambers noted.
“Key among these issues is the instruction from VICT that all containers be delivered ‘doors rear’. This accommodates the operation of the Automated Stacking Cranes (ASC) and the presentation of containers through the automated system to the ship’s side for loading ‘doors rear’.  Similarly, import containers will be loaded onto trucks ‘doors rear’.
“Unfortunately though, this has major implications for road transport operators being compliant with heavy vehicle axle weight restrictions.  In addition, it impacts on exporter and importer instructions where the container doors may need to be orientated differently, particularly when side-loaders are used.”
“In other Australian container terminals employing similar Stacking Crane technology (i.e. DP World, Port of Brisbane), the stevedore provides a service to turn boxes, with an associated fee.  We want VICT to do the same.”
To assist in understanding the scale of the issue, CTAA is conducting a survey of Melbourne container transport operators to gauge the frequency of containers being delivered and picked up from stevedore terminals ‘doors front’.
“It’s a major issue, particularly for our heavy agricultural exports.  We need to find a solution that doesn’t reduce landside productivity and efficiency, or drives up costs unduly,” Mr Chambers said.
Other issues being addressed include several fees to be imposed by VICT, and the management of container weight and truck weight information.
VICT will weigh all export containers, and will compare the declared weight against the actual weight recorded.  Where the declared container verified gross mass (VGM) varies by more than 500kg, VICT will update the gross mass information used for ship loading.
“VICT planned to impose a charge of $130.00 on the container transport operator for the VGM update administration.  In our view, however, the pre-receival advice (PRA) declarant should be charged this fee, as they are responsible by law to declare the VGM,” Mr Chambers said.
“Also, we are encouraging VICT to pass on mis-declared weights information to the Australian Maritime Safety Authority (AMSA) for enforcement action.
“To its credit, VICT has agreed to suspend the VGM Update Fee whilst investigations continue as to how best to impose the fee on the parties responsible in the supply chain for the accurate declaration of export container gross mass,” Mr Chambers said.
“We are also working through the issue of the practical use of the truck weigh-in-motion devices that will provide axle group and overall vehicle weights to the driver as they depart the terminal.”
“We are assisting VICT to organise a discussion with VicRoads and the National Heavy Vehicle Regulator (NHVR) about meeting their “loading manager” obligations under the Chain of Responsibility provisions in the Heavy Vehicle National Law (HVNL).
“Given the considerable variables in axle and gross loading limits depending on vehicle combination, mass accreditation and permits, the heavy vehicle driver has the direct responsibility to ensure that they do not carry the load on a public road unless they are within the weight limits allowed.  The weigh-in-motion read-out will provide accurate information to the driver.  If containers need to be removed, the terminal is clearly entitled to charge for that additional service.” Neil Chambers said.
“The 1-Stop vehicle booking system (VBS) will also work differently at VICT than it does at the two incumbent stevedores in Melbourne.  This may take some getting used to, and fleet controllers will need to become familiar with the differences.
“The good thing is that the ‘mad minute’ created by the daily time slot-drop orchestrated by the other stevedores is removed.  However, for imports, you can only book a slot once the container is discharged and its yard position is known.  The way transport companies schedule their fleet operations will need to adapt accordingly.
“With goodwill and continued communications, we are confident that we will be able to work with VICT collaboratively to smooth the land transport / terminal interface as operations at the new automated facility at Webb Dock get underway in earnest,” Mr Chambers said.
 

Australians fear robots will replace more of their jobs

Up to 16 per cent of Australians believe their current role will be made redundant by a robot in the next five years, according to Airtasker’s latest Future of Work study.
A study by research firm Pureprofile, which polled a representative sample of 1,003 Australians, also found that 71 per cent of the population believe the rise of the machines will replace more jobs than they create.
The data underscores the disparity around the fear of automation and actual job growth. ABS data (2006, 2016) shows that despite the rise of various efficiency driving technologies over the past decade, total jobs have continued to grow.
Meanwhile, almost one in ten Australians indicated that they are leveraging the Sharing Economy to earn extra income. The number of Australians indicating this nearly doubled from the result seen in Airtasker’s 2016 Future of Work study.
“There seems to be some fear in Australia around machines replacing jobs, and this is the first study that quantifies it,” Airtasker CEO Tim Fung said.
“There’s no doubt that digital disruption is displacing some jobs, but Airtasker’s experience is that technology is absolutely creating new industries and jobs that we haven’t seen before.”
“We think there’s some work to be done to increase awareness of the new job opportunities and industries being created through technology platforms, including the sharing economy.”
“We should also be doing more to measure the new types of jobs being created as technology fundamentally changes the way we work.”
The study also revealed:

  • Around 40 per cent of Australians see human interaction to be the main factor that will prevent more roles from being automated.
  • Flexibility and pay remain the most important aspects of a job for all Australian workers. For three years, “flexibility of work” has beat out “predictability of work” as the most appealing aspect of modern work.
  • Those aged between 25 and 34 are the most concerned that their job will be made obsolete by automation within the next five years. However, the same age group is also the most hopeful that machines will create new industries and more jobs than they replace.
  • Of all industries, those working in education are the most optimistic that machines will create more jobs than they replace.
  • In the three years of the study, more Australians than ever before (87.8 per cent) are looking for more opportunities to earn extra income in 2017. This figure is up 7.9 per cent from 2016’s Future of Work study.
  • Up to 85% of those surveyed working in hospitality or construction say they will leverage the sharing economy to earn extra income in 2017.

Sharing economy use and awareness on the rise
As part of the ongoing study, Airtasker has measured the growth and use of the sharing economy trend. In this study, it found:

  • The majority (67 per cent) are now aware of the sharing economy and its platforms. In 2016, less than half (49.2 per cent) were aware of them.
  • The percentage of Australians saying they use the sharing economy to earn extra money rose by roughly half, from 6.1 per cent in 2016 to 9.7 per cent.
  • The number of Australians using the sharing economy also increased from 26 per cent in 2016 to 28.8 per cent in 2017.

The full data set and further data can be found on Airtasker’s Future of Work website.

Truck drivers fear raising safety concerns

A Macquarie University report has revealed the major reasons why truck driving is Australia’s deadliest job, says the TWU.
Long hours, pressure to drive unsafe schedules with unsafe loads and an inability to raise safety concerns without jeopardising their jobs are among the risks to safety facing drivers.
The report criticises a lack of training and a ‘critical gap’ since the Government abolished the Road Safety Remuneration Tribunal “that can eliminate existing incentives for overly tight scheduling, unpaid work, and rates that effectively are below cost recovery”.
The report was launched at a Safety Summit organised by the Transport Workers’ Union bringing together truck drivers, industry, academics and politicians to devise a plan to deal with the crisis in trucking.
“This report showcases a supply chain that puts all the pressure on drivers at the bottom and none of the accountability on the top, the wealthy retailers and manufacturers. It shows how this supply chain pits transport operators, which prioritise safety and employ experienced, trained drivers, against operators which cut corners and force drivers to take risks,” said TWU National Secretary Tony Sheldon.
A survey of truck drivers, which forms part of the report shows:

  • Over 80% of truck drivers work more than 50 hours a week; 10% work over 80 hours.
  • One in six drivers who own their own trucks do not believe they can refuse an unsafe load.
  • Almost one in five owner drivers said they would not report being pressured to falsify a work diary; 42% of owner drivers said the reason drivers do not report safety breaches was because of a fear of losing their jobs.

Dr Sharron O’Neill of UNSW, co-author of the report, said: “This research shows there are safe and unsafe workplaces in the transport industry and highlights how and why they coexist. The study takes a big picture look at the complex web of risk factors driving the unacceptably high rate of fatality and injury to road transport workers. It also highlights the very different degrees to which drivers experience safety at work.”
Prof Louise Thornthwaite of Macquarie University said: “The research highlights a complex mix of regulation. It points to the importance of increasing enforcement and sanctions, particularly to ensure safety for those at the bottom of the supply chain including employees, owner drivers and others. This study highlights a ‘blame the victim’ culture, and calls for those at the top of the chain of responsibility to be held accountable for safety.”
Truck driver Frank Black said rates and payment times have slipped since the government abolished the tribunal last April, making the job even more dangerous. “Things are going backwards and the pressure on drivers is growing. The government can’t be surprised at the high number of deaths and injuries on the roads,” he said.
“Safe Work Australia showed that last year one out of every three workplace deaths involved a transport worker – now we know why. Prime Minister Malcolm Turnbull has to take responsibility for contributing to this situation when he tore down the tribunal and turned his back on a solution to this crisis,” said Mr Sheldon.
Reports released by the Federal Government last April acknowledged the link between safety and the pay rates of drivers. One report also showed a system of safe rates, where drivers are paid minimum rates for all their work, would cut truck crashes by 28%*.
In the 10 years to 2014 over 2,500 truck drivers and other road users died in truck crashes.
Download the report Evaluating Approaches to Regulating WHS in the Australian Road Freight Transport Industry.
 
TWU notes:

  1. Safe Rates

In April, the Federal Government abolished a system backing ‘safe rates’ that the was holding wealthy clients such as retailers, banks, oil companies and ports to account for low-cost contracts that do not allow their goods to be delivered safely. This was despite the Government’s own reports showing a link between road safety and the pay rates of drivers and that the safe rates system would reduce truck crashes by 28%. An Order delivering safe rates for the first time was in operation for just two weeks before the entire system was torn down.

  1. Evidence of pressure

A Safe Work Australia report in July 2015 showed:

  • 31% of employers say workers ignore safety rules to get the job done.
  • 20% accept dangerous behaviour, compared to less than 2% in other industries.
  • 20% of transport industry employers break safety rules to meet deadlines – this compares with just 6% of employers in other industries.
  1. Low pay

Many owner drivers are not making enough to get by as it is with average income of just under $29,500 and 29% of them underpaid (this is based on an analysis by PriceWaterhouseCoopers of the 2006 census, which was included in the regulatory impact statement for the Road Safety Remuneration Bill 2011). Transport companies are consistently in the top five industries for insolvency, with the vast majority of them small firms with five or fewer full-time employees.

  1. Bankruptcies

According to the Australian Securities and Investments Commission, transport operators have one of the highest rates of insolvencies of any industry and small firms of five full-time employees or fewer are the most likely to go bankrupt. In the financial year to June 2015 there were 275 insolvencies among these small operators. In the financial year before that there were 548 insolvencies. The main reason for the insolvencies was inadequate cash flow.

  1. Suicide

Suicide is currently rampant among truck drivers. A study by Deakin University showed 323 truck drivers committed suicide between 2001 and 2010. (Suicide among male road and rail drivers in Australia: a retrospective mortality study). An analysis by the Victorian coroner’s court showing truck drivers had the highest number of suicides out of any other profession, with 53 drivers taking their own lives between 2008 to 2014.
 

Retail uplift to be temporary

The latest edition of the AFGC CHEP Retail Index, an indicator of Australian Bureau of Statistics Retail Trade Data, predicts an uplift in retail turnover growth over the December quarter, followed by a return to the previous trend of slowing growth in the first few months of 2017.
The index estimates that year-on-year growth during the December quarter was 3.3%, including year-on-year growth for the month of December of 3.0% – notably a like-for-like comparison of the same period and, therefore, not simply due to occurrence of Christmas.
Looking forward, the year-on-year Retail Index growth for the month of February 2017 is expected to be 2.0% and year-on-year growth for the March quarter to be just 1.9%. That represents a moderation of more than a third, following the December quarter uplift.
According to the index and ABS data, 2016 was characterised by a degree of inertia, with growth in each month a little lower than the month before, apart from the latter months of the year, where ABS retail trade results proved to be slightly higher than the AFGC’s previous predictions.
Australian Food and Grocery Council CEO Gary Dawson said: “The rise in December quarter retail sales growth is encouraging after a challenging year. However, following this temporary relief, economic trends still point to uncertainties in the national and global economy that are leading consumers to become more cautious. While the residential housing boom, low interest rates and the shift of focus from mining states have bolstered retail turnover in Sydney and Melbourne, these benefits also appear to be starting to run out of steam in early 2017, with modest employment growth, low wage growth and a recent downturn in personal debt affecting retail trade generally.”
 
 

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