Shipping 2019: Trends & Conclusions

As the shipping market continues to recover from, and deal with the aftermath of, the 2008 financial crisis, lawyers remain highly active, particularly when it comes to contentious matters. Sources in this year’s research noted the continuing high levels of distressed and insolvency-related work, as well as subsequent disputes. Despite this, practitioners we spoke to also highlighted the significance of key developments in the sector, including technology, as well as the role of protection and indemnity (P&I) clubs, both of which are set to dramatically shift the landscape of the shipping market.

Distressed work

Following the crisis that followed the economic downturn of 2008, the shipping market continues to witness a high level of restructuring and insolvency-related cases. According to lawyers we spoke to, “since the crisis, shipping insolvency work has been the mainstay of work for the practice”. The continuation of distressed work is a global trend that seems to be affecting practitioners from most jurisdictions around the world. The collapse of Hanjin Shipping Co in 2017 saw the ultimate convergence between insolvency and maritime law, after the economic crash of 2008 had left one of the world’s top-10 largest container shipping companies with a crippling $5.4 billion of debt. The container carrier was declared bankrupt early last year, which came amid other high-profile insolvencies around the world. In Singapore, the debt restructuring of Marco Polo Marine was a key development in the field over the past 18 months, part of which saw nine investors pool $60 million as part of a rescue financing bid.

Other companies have had to restructure and adapt their business direction and strategy to fit the new economic climate. Danish shipping company A P Moller-Maersk recently announced its intentions to spin off its oil-drilling capabilities and list this part of the business in Copenhagen next year. The firm is now focusing on its transport and logistics operations, having sold Maersk Oil to Total last year. Major players in the shipping market that have survived the economic crisis have come out the other side looking to reassess and adjust their commercial strategy, resulting in an increase in corporate and finance work for lawyers.

Disputes

As the volume of distressed cases has increased, so have the number of disputes arising within the shipping sector. “All litigation these days is international in nature,” say sources, who also note that cases are becoming ever more complex and sophisticated. One lawyer remarked, “There are no purely domestic cases left – all cases now have international angles and litigation going on in various jurisdictions at the same time. We’re seeing fewer cases of just a domestic nature.”

Lawyers highlighted to us not only the increase in contentious work but also a shift in the type of proceedings, namely a rise in alternative dispute resolution (ADR). The opening and increasing importance of arbitration centres in key shipping hubs, such as the Singapore International Arbitration Centre (SIAC) and the Hong Kong International Arbitration Centre (HKIAC), has signalled a growing interest in arbitration as a form of dispute resolution across the shipping sector. Some sources say that they are seeing more of a push for ADR from local international lawyers, who are unable to litigate in local courts, while others cite a more pro-arbitration stance from local courts as a driving force behind the development. While arbitration is a strong choice across Asia, sources in Australia highlighted the growth of interest in mediation, noting it is “very popular” in the shipping space and that “fewer cases are now making their way to courts”.

Many lawyers we spoke to explained that they are now seeing clients increasingly take preventative loss measures. From a legal standpoint, they are looking at contracts more closely and instituting safety procedures now more than ever. One source said, “There’s a lot of work that’s preventative in nature” and interviewees note that “if anything, it seems the number of claims has gone down”.

The rise of technology in shipping

As with all other industries and sectors, shipping has been greatly affected by technological developments over the past few years. Technology such as blockchain, the internet of things and data analytics are revolutionising the way in which shipping companies operate, enabling better tracking of vessels, monitoring of shipments, and management of cargo trade and transactions. The topic on the radar of most lawyers we spoke to, however, was the impact of artificial intelligence (AI) on the industry, most notably in relation to autonomous ships. Shipping accounts for around 90 per cent of the world’s trade movement, and as such, it is unsurprising that technology companies are investing huge amounts of time and money into developing ways of making the processes involved more efficient, effective and most significantly, independent of human involvement.

Major global players are among those leading the market in this area. In Japan, companies including Nippon Yusen are developing remote-controlled vessels, which are set to transform the Japanese shipping market, while Rolls-Royce has made plans to launch an operational autonomous vessel by 2035. According to many lawyers we spoke to, the main major legal consequence of these developments, as is the case with most technological advancements, is the issue of liability. As technology evolves at such a rapid pace, it will be interesting to see the way in which regulation and legal frameworks adapt and approach related contentious matters. In the recent MSC Eugenia case, in which Glencore International AG lost part of a shipment due to the interference of a third party in the Electronic Release System that was being used, a variety of issues were raised, most importantly those of contractual requirements and obligations when using this system. Respondents commented that, currently, “everyone is trying to understand these developments in technology”, as well as the ways in which they will affect the commercial and operational nature of shipping, and the legal factors involved.

Changes in the legal market

With the internationalisation of business and the global nature of shipping, competition in the legal market has naturally expanded, with lawyers saying, “Competition is definitely on an international level now.” The main shift in the legal market according to respondents has been the increasingly prominent role of P&I clubs. Sources say that as these clubs build up their in-house legal teams, the threat of less work for external counsel grows. One lawyer told us, “Some of their teams are larger than some of the smaller shipping firms.” P&I clubs are also becoming a popular workplace for younger lawyers, with sources noting that newly qualified lawyers will often work in private practice for three-to-four years before moving in-house with a P&I club. The diversification of the job pool for lawyers has grown in recent years, with the market now witnessing much movement between private and in-house practice.

Conclusion

Looking forward, lawyers are optimistic about the forecast for the shipping sector. They expect distressed work including major restructurings and insolvency proceedings to drop off as the market improves – a shift signalled, they say, by the entrance of private equity financing coming into the market. “Mainstream disputes will come back to the fore,” say respondents, with charterparty disputes and collision claims becoming a large source of contentious work once again. The biggest challenge facing the legal market will be the continued growth of P&I clubs in the space, which indicates that the type of work going to external counsel may drop. Despite this, however, lawyers remain confident that for high-profile, sophisticated and complex commercial matters and disputes, the role of private practice lawyers will continue to be an important feature of the sector.

 

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