Shipping has in recent years experienced, in the industry’s own words, a crisis. Brought on by the economic downturn alongside considerable changes in the market, shipping lawyers have felt the brunt of the changing tides. However, many of them are finding plenty of work to keep themselves occupied and there are now signs that what was at first feared to be a terminal decline may in fact be a reshaping of the global market.
A once-robust industry has been riding the wave of some significant changes since the financial crisis. Dry bulk had a bad year in 2016, with the Baltic Dry Index (BDI) reaching its lowest ebb on 10 February, while oil demand ran slightly ahead of consumption making for an imbalance in the tanker market. “Vessel prices are really low,” one lawyer told us while another remarked, “The industry is in long-term decline due to better technology and better regulation, so there are fewer disputes.” The Hanjin Shipping insolvency still looms large in the industry – as well it should, given that an estimated 530,000 containers valued at US$14 billion in total were affected.
This is a good indicator of where the work is increasingly coming from for lawyers; it is now the big disputes and mergers, as opposed to the smaller work, that is fuelling shipping firms. One lawyer told us that “the shipping market has been quiet for a while but has suddenly picked up in the last few months”. Insolvencies and large-scale collision cases have been fixtures of the current market, alongside big transactions. A recent example of big-money litigation involved the MSC Flaminia lawsuit, in which a German container ship caught fire in 2012 and three lives were lost. In terms of smaller matters, lien work continues to come in but it is increasingly the mega-cases that lawyers look towards to fill their schedules. In itself this is the aim of any good lawyer, but the disparity between the larger and the smaller work seems more striking than in other practice areas.
However, the legal community remains relatively unperturbed by market forces. One of the greatest assets of the shipping industry is its absolute necessity for global trade. The container trade alone is valued at US$12 trillion and the quantity of goods carried by containers has risen from approximately 100 million metric tons since 1980 to 1.7 billion metric tons in 2015, with increased capacity for vessels – though this has led to an excess capacity in the container shipping industry, causing long-term harm. The rapid expansion of container ship production that overtook demand in recent years – at its peak Maersk ordered 20 ultra large container ships in anticipation that the market, which had grown at an average rate of 8.2 per cent between 1990 and 2010, would continue as such – has generated a glut in the market that has caused a once-lucrative industry to suffer.
A greater issue for lawyers again derives from aspects of safety – cargo work is down overall and “nobody believes it will be what it once was, since the carriers are very good now”. Fewer accidents mean less litigation. Naturally, the established shipping firms in the market and the boutiques with strong specialist knowledge will be able to find their niche quite easily, even if the days of swashbuckling are over.
China is increasingly a major player in the market and tanker demand growth this year was expected to come mainly from China, India and its neighbours. COSCO Shipping’s successful takeover of Hong Kong’s Orient Overseas International in a US$6.3 billion deal demonstrated the Chinese state’s ambitions in the arena. In terms of the largest shipping companies by capacity, AP Møller-Maersk still steams ahead at 2.8 million twenty-foot equivalent unit (TEU). COSCO, on the other hand, stands at 786,000 TEU.
Shipping has always been a global business, but law firms seem increasingly aware of the need to be in and around the Chinese market. Leading shipping outfits Ince & Co, Holman Fenwick Willan and Clyde & Co all have shipping practices based within the Chinese mainland. Moreover, it seems likely that large-scale transactions of the kind that law firms look towards to earn their place at the top of the market may come as much from Asia as from the US and Europe.
Rates for container ships are on the decline, which perhaps accounts for the lack of legal work in the area and so the best way to achieve regional dominance and business growth seems to be via acquisitions of one’s competitors. The oversupply of container ships, meanwhile, looks to remain until at least 2019.
Reports are that there is little change in the legal market for shipping practices. “Pretty much the same people are still around in the same firms; no new firms have emerged – not even boutiques,” one source said. This speaks to a greater entrenchment from the established firms in the industry. In a shrinking market where clients look for trusted sources, it seems more difficult than ever for new entrants to break in.
Lawyers we spoke to, while quick to point out that the market is definitely no longer as it used to be, were generally buoyant about their workload. With shipping being an inevitable corollary of a more integrated, more robust and diverse global economy, it is difficult to be too pessimistic. Narrower margins can be offset by the big companies but will continue to hit the smaller outfits, which seem mired in an industry and an economic situation that offers them no favours. For law firms, the established outfits and the savviest boutiques look set to benefit from the rest of a harsh and volatile decade.