T R A N S P O RTShipping insightsIssue 3Thriving in a changing worldA DV I S O RY
Contents       Introduction	                         2       Anti-bribery and corruption issues	   4       The future cost...
  Shipping Insights	 Introduction	     Welcome to our third publication in our “Shipping Insights” series. 	Perhaps it’s a...
Shipping Insights                     In this issue we:                   • Consider the anti-bribery and corruption issue...
  Shipping InsightsAnti-bribery and corruptionissues in the globalshipping industry	       Non-compliance with anti-corrup...
Shipping Insights  The US Foreign Corrupt Practices Act 1997In terms of global anti-corruption enforcement trends, the FCP...
  Shipping Insights                       • Application to non-US individuals and companies. The DOJ and the SEC have     ...
Shipping Insights  Of particular note, the Bribery Act goes beyond the requirements of the FCPA ina number of key areas:• ...
  Shipping Insights                       These corruption risks are of course in addition to the fraud risks that typical...
Shipping Insights  Finally, companies are also preparing corporate response plans in the event of aninvestigation or regul...
10  Shipping Insights                        • A policy and procedures on the use of outside advisers/third parties includ...
Shipping Insights  11Bringing the price of carbononto the balance sheet andboardroom agenda	     Climate change is a truly...
12  Shipping Insights                        However in 2007 international shipping emissions were estimated to be 870 mil...
Shipping Insights  13propulsion, solar panels and fixed sails or wings become more and more viable asretrofits or incorpor...
14  Shipping Insights                        The use and management of these funds is also a matter for further considerat...
Shipping Insights  1 5Challenging times for Shippingcompanies in achievingfunding targets?	      Over the last two years t...
16  Shipping Insights                        The plight of ship owners has been shared – in part at least – across the ful...
Shipping Insights  17More risk adverse investors and financial institutionsThe flexibility of banks and other financial in...
18  Shipping Insights  1        What is the current        operating model?  2        What does the current               ...
Shipping Insights  19Do you enter into a charteragreement and work outthe accounting impact later…maybe it’s time you chan...
20   Shipping Insights                         Key impacts                         The right-of-use model                 ...
Shipping Insights  2 1                                     The derecognition model                                     The...
22  Shipping Insights                        Other considerations                        • In contrast to the current leas...
Shipping Insights  2 3• Structuring of shorter term leases under 12 months may become more common  to take advantage of th...
24  Shipping InsightsA view from Asia	     We cannot recall a period of such turbulence in the global shipping marketand o...
Shipping Insights  25The global PMI (Purchasing Managers Index) data supports the view that the industrialproduction momen...
26  Shipping Insights                        Dry bulk                        The outlook for 2009 for the dry bulk market ...
Shipping Insights  2 7
28  Shipping InsightsKPMG’s Global ShippingPractice contactsJohn LukeKPMG in the United KingdomGlobal Head of ShippingTel....
kpmg.com                                                                                                                  ...
218021 Shipping Insights 3
218021 Shipping Insights 3
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218021 Shipping Insights 3

  1. 1. T R A N S P O RTShipping insightsIssue 3Thriving in a changing worldA DV I S O RY
  2. 2. Contents Introduction 2 Anti-bribery and corruption issues 4 The future cost of climate change 11 Raising finance 15 New lease accounting proposals 19 A view from Asia 24
  3. 3.   Shipping Insights Introduction Welcome to our third publication in our “Shipping Insights” series. Perhaps it’s a cliché to say “we live in unprecedented times” but it’s a cliché ,that seems to fit. Navigating through operational and financial regulation has become more challenging, but there are opportunities for ship-owning and ship-managing companies to thrive in a changing world.As the shipping sector adapts to deal with the aftermath of a hugely turbulenttime in the global economy, some optimism is starting to enter the market. To some, the increasing regulation is burdensome, to others it provides anopportunity to develop strategies and “steal a march” on competitors.Issue 3 of Insights recognizes that the range of topics being covered inBoardrooms is ever expanding, and we hope this edition provides thought-provoking views in relevant areas.
  4. 4. Shipping Insights  In this issue we: • Consider the anti-bribery and corruption issues facing the sector – with the advent of new legislation in certain territories, we look at how some organizations see effective and robust anti-bribery and corruption policies as a “blessing in disguise”; • Outline the future direction of a carbon-efficient economy – managing the effects of climate change is a global challenge, and the manner in which shipping companies respond will have material consequences to company John Luke profits and sustainability; KPMG, GlobalHead of Shipping • Look at the challenges of raising new finance – with the severe tightening of the capital markets abating, we look at ways in which shipping companies can achieve funding targets; • Assess the implications of new financial accounting standards – rarely do accounting standards affect the operating model. However with new proposals issued by the International and US accounting standards setting bodies, many shipping companies may re-look at ways in which they finance and operate; • Provide an assessment of the pace of recovery in the Far East – we are seeing some green-shoots of recovery, but the view from our member firms in the Far East is that this remains fragile – for the time being at least. If any of our articles provoke debate, we would be delighted to hear from you.
  5. 5.   Shipping InsightsAnti-bribery and corruptionissues in the globalshipping industry Non-compliance with anti-corruption laws can have serious implications forcompanies with extensive overseas operations and especially those doing businessin countries with recognized corruption risks. With the US Government strengtheningits stance on enforcement of the Foreign Corrupt Practices Act, with the introductionin the UK of the Bribery Act and more countries looking to bolster local bribery laws,it is imperative that companies ensure that their global networks operate under robustanti-bribery and corruption compliance programs. Indeed, the implementation of a robustanti-corruption compliance program could secure long term advantages to a companyin terms of corporate culture and control. Introduction Today’s global shipping and logistics companies operate in a highly challenging global regulatory and enforcement environment. Despite the global economic downturn, companies are expected now, more than ever, to operate within an anti-corruption framework that is set by a range of far-reaching legal and regulatory requirements. The penalties for “getting it wrong” and for falling foul of these anti-corruption laws can be severe – including heavy fines, imprisonment and debarment from participating in government business, as well as damage to corporate reputation and, ultimately, to the company’s bottom line. The US Foreign Corrupt Practices Act (FCPA) and UK Bribery Act are not the only anti- corruption laws that the industry should be aware of. In 1997 32 countries, including , the United States and United Kingdom, signed the OECD Convention against Bribery of Foreign Public Officials in International Business Transactions, which imposed on all the signatories the obligation to enforce the Convention under local law; that number has now risen to 38 countries. Today, most global corporations will be based in an OECD country that will have their own local anti-bribery laws. Additionally, the US Government operates a number of other far-reaching regulatory obligations such as US Trade Sanctions/ Export Controls, the USA Patriot Act and Anti-boycott Regulations. If companies undertake transactions using the US banking system, liability may also attach under these laws. This article will present an overview of two of the primary pieces of legislation in this area, the FCPA and the UK Bribery Act, and how these will affect the global shipping and transport industries.
  6. 6. Shipping Insights  The US Foreign Corrupt Practices Act 1997In terms of global anti-corruption enforcement trends, the FCPA truly represents theso-called “long arm” of American jurisdiction in terms of the US Government’s desireto root out corrupt activities in any entity’s overseas operations where that entity hasthe required US footprint.The FCPA is in two parts. Under the first, as enforced by the Department of Justice(DOJ), the FCPA’s anti-bribery provisions make it a crime to offer or pay money or“anything of value” to a foreign government official with the intention of winningor retaining business. The provisions apply primarily to U.S. companies and citizens,foreign companies listed on a US stock exchange or with the appropriate nexusto the United States and to any person acting while in the United States.Under the second, as enforced by the Securities Exchange Commission (SEC),the FCPA’s books-and-records and internal controls provisions require companies thattrade securities on US stock exchanges to keep accurate books and records and tomaintain an adequate system of internal financial and accounting controls.Penalties for breaches of the FCPA can be severe on both the corporate entity andindividuals including fines, imprisonment, disgorgement of profits and debarment fromparticipating in US Government business.The FCPA applies for the most part to US companies and citizens, non-US companieslisted on a US stock exchange and any person acting while in the United States. Overrecent years, the US Government has been aggressively applying the Act’s reach toinclude jurisdiction over non-US companies and individuals that they consider havethe appropriate nexus with the United States.Enforcement trendsSince the late 1990s, the DOJ and SEC have adopted increasingly aggressive andhigh-profile tactics in investigating and enforcing FCPA violations against bothindividuals and organizations. The current focus is on the so-called “high-risk”industries and against non-US companies and individuals for stepped-up enforcement.This puts the global shipping and logistics companies – as well as the companieswho utilize transoceanic shipping companies – in the spotlight.The following illustrate some of these enforcement trends as they relate to the industry:• Record fines. Some of the world’s biggest companies have incurred – and will likely continue to incur – very substantial penalties as a result of FCPA violations. By way of example, Siemens AG in 2008 resolved its long-running, global investigation into corrupt payments made through third parties in multiple jurisdictions by the payment of US$800 million to the US DOJ and SEC in fines, penalties and disgorgement of profits. In 2009, KBR/Halliburton paid US$579 million in respect of bribes paid to Nigerian customs officials. In June 2010, Technip S.A. paid US$338 million again in respect of bribes paid to Nigerian government officials.
  7. 7.   Shipping Insights • Application to non-US individuals and companies. The DOJ and the SEC have been focusing attention on expanding the FCPA to combat corruption carried out by non-US individuals and companies. Global shipping companies need to take this trend seriously. To establish jurisdiction, the only requirement is that the authorities consider the target company has a nexus or contact with the United States. In recent enforcement actions, this has been established in part by the use of the US banking system and by email servers being located in the United States. In theory and in practice, this means that (for example) a European shipping company with a limited corporate footprint in the United States and which conducts no business to or from the United States but that uses the US banking system in respect of its overseas operations could unwittingly come under the jurisdiction of the FCPA. • Individuals are going to jail. Since 2009, individual prosecutions have become an enforcement priority for the DOJ and these cases often are focused on the individuals who pay bribes and those who facilitate them. • “Small” bribes are still bribes. The FCPA does not have a materiality threshold or minimum. In both the cases of Panalpina and Con-way, the individual sums paid to customs agents were considered relatively small. • Payments by subsidiaries and business partners. Companies with overseas operations in multiple geographies will usually by necessity if not by local law require the legitimate services of local business partners and advisors – achieved by means of subsidiaries, joint ventures or through acquisition. Under the FCPA (and Bribery Act), the parent company can be held liable for bribes paid on its behalf by its third party business partners regardless of the lack of any actual, day-to-day oversight of the partner’s operations. Through the FCPA, the US Government has been seeking to level the playing field of US companies doing business overseas in a business climate where bribery and corruption should be not tolerated. The DOJ and SEC appeared determined to continue aggressively to focus on particular industries for stepped-up enforcement. The UK Bribery Act The UK Bribery Act 2010, passed into law in April 2010 and likely to be implemented by spring 2011, is designed to demonstrate the UK Government’s resolve to “get tough” on bribery. On paper, the Act creates arguably the toughest enforcement regime in any jurisdiction – indeed some of its key features go beyond the requirements of the FCPA. The Bribery Act creates four separate offences: offering or paying a bribe to any person; requesting or being paid a bribe by any person; bribing a foreign public official; and the strict liability corporate offence of failure to prevent bribery. A corporate body found guilty of any of these offences can be subject to monetary penalties which may be unlimited in cases of failure to prevent bribery, and individuals may be fined or imprisoned. The Bribery Act applies to UK companies, citizens and residents regardless of where in the world the alleged bribery occurs. It will also apply to non-UK companies with operations in the UK even if the bribery took place in another country. In theory, a European shipping company with UK operations that engages in bribery outside the UK could be prosecuted under the Bribery Act in the UK for its failure to prevent bribery in its overseas operations.
  8. 8. Shipping Insights  Of particular note, the Bribery Act goes beyond the requirements of the FCPA ina number of key areas:• The Act prohibits the payment of bribes to, and the receipt of bribes from, any person (not just a foreign public official), anywhere in the world.• Senior officers of a company can be held personally liable for offences committed by the company if those offences have been carried out with their “consent” or “connivance” It is foreseeable that this could apply to a country manager who . knows but chooses to ignore the fact that his local sales team “do what it takes” , i.e. pays bribes, to win business in a competitive, new market.• The corporate offence of failure to prevent bribery can be established when the bribe is carried out by an “associated person” of the company. This can include payments made by a third party agent, subsidiary, joint venture partner etc. so long as that individual is “performing services” on the company’s behalf. Whether the parent company has any direct control over that individual may not be relevant.• Under the strict liability offence, the company itself can be prosecuted for its failure to prevent the bribery from having been committed. The legal burden then shifts on to the company for it to prove that it had “adequate procedures” in place that would – or should – have prevented the bribe from having occurred in the first place. There is no definition in the Act of what constitutes “adequate procedures” although the Act requires that the UK Ministry of Justice should issue guidance, expected in autumn 2010 roughly six months before implementation of the Act.When the Act goes live, the expectation is that it will be enforced aggressively by theSerious Fraud Office (SFO). The Bribery Act has “teeth” and the SFO’s prosecutorsare deploying accordingly.Relevance to the shipping industryWe have identified in broad terms four main areas where the activities of the globalshipping industry is likely to be at risk in respect of where its primary corruption riskswill lie. The four areas are:• Operating in the so-called high risk jurisdictions, in fragile democratic systems and in countries with known corruption risks;• Interacting with public officials, for example in connection with payments made to port and customs officials to evade tariffs, avoid storage costs, obtain licenses, release confiscated goods or services and demurrage;• Providing transportation services to other, high-risk sectors such as defence, construction and energy and natural resources; and• Using in-country agents, subsidiaries or entering into joint ventures, including cooperation with local businesses, or using commission-based incentive structures, and handling transactions which might be related to politically exposed persons (PEPs).
  9. 9.   Shipping Insights These corruption risks are of course in addition to the fraud risks that typically will occur to any company with global operations and decentralized structures, such as manipulation of financial statements, cash skimming, payment fraud, procurement fraud and revenue leakage. Compliance These anti-corruption laws are far-reaching and they place considerable operational and corporate governance requirements on any company let alone those with global operations. In KPMG’s view, this means that the development, implementation and monitoring of a robust Anti-Bribery and Corruption (ABC) compliance program should be not just a corporate imperative but could also be seen as a “blessing in disguise” for those companies who realize and act upon the implications in terms of the benefit to the company’s corporate culture and control. At its simplest, an effective ABC compliance program needs to consider and address what specific corruption risks are faced by the company in its various lines of business, who its customers are, who its suppliers and partners are, and where in the world it operates. An ABC program should be carefully tailored to allow head office and local management to have sufficient control and visibility over the company’s operations. To begin with, the success of any ABC program will depend upon three key factors. The first is the “tone from the top” in terms of how the program is set and driven by the board. The second is the “tone from the middle” which requires that senior and local management are fully brought in to the policies and also given the resources to maintain and enforce the policies across their regions, business lines and staff. Finally, the company’s on-the-ground, outward/customer-facing employees should also be fully conversant with and adhere to the company’s ABC code. By necessity, this means that the training of all staff depending upon levels of seniority will be crucial, as will be continuous monitoring to help ensure that there is adherence to the policy. Whilst the need for an ABC program is clear for those companies operating directly within the scope of the FCPA and Bribery Act, it is also now clear that companies that wish to partner with US and UK/EU companies also need to demonstrate that they have similar ABC programs in place. Indeed, the existence and operation of such programs is now seen as a distinct business advantage if not requirement, or the absence of one a possible hindrance, during the selection process. On a related note, and primarily because the corrupt actions of a third party can result in liability attaching to the parent company, this has further emphasized the need for companies to undertake detailed due diligence enquiries of potential business partners during the selection process. This will likely occur in any MA or Know Your Customer context and will be in addition to the legal and accounting due diligence. Areas to analyze include: the identity, reputation, track record and other corporate relationships held by the target company’s officers, board members and shareholders; an examination of their sources of wealth, connection to PEPs and government entities; a flow of funds analysis and review of the company’s books and records for corruption indicators. Similarly, post-relationship, many companies are also insisting upon and exercising monitoring rights over their business partners, to include cascading audit rights and the requirement that the local entity complies with and or adopts the company’s ABC policy.
  10. 10. Shipping Insights  Finally, companies are also preparing corporate response plans in the event of aninvestigation or regulatory matter, when typically time of response will be of the essence.Included in these plans is to delineate the roles played internally by key functions suchas legal, internal audit, IT and externally by outside counsel and forensic experts.The foundations of an ABC compliance programGiven the established guidance and field of cases regarding the FCPA and other bribery andcorruption laws, and based on our firms’ experience gained from these in regard to betterpractices, it is likely that a robust ABC compliance program should include the following:• Boards taking responsibility for ABC;• Appointing a senior officer accountable for oversight;• A clear statement of the company’s anti-corruption culture;• Documented policies and a code of ethics, applicable regardless of local laws or culture, which must also apply to business partners;• Consistent disciplinary processes providing for individual accountability;• Assessing risks specific to the organization;• Financial controls and record-keeping to reduce the risk of bribery;• Policies and procedures on gifts and hospitality, including a hospitality register, and facilitation payments;
  11. 11. 10  Shipping Insights • A policy and procedures on the use of outside advisers/third parties including vetting, due diligence and appropriate risk assessments; • A policy covering political contributions and lobbying activities; • Training to help ensure dissemination of the anti-corruption culture to all staff; • Establishing whistle blowing procedures e.g., a helpline; • Regular and risk-based checks and auditing; • Wherever possible, implementation of procurement and contract management procedures to minimise the opportunity for corruption by subcontractors and suppliers; • Monitoring for compliance, including the execution of third party audit rights; and • A documented response strategy and investigative procedures. Conclusion By nature of where, how and with who it operates, the global shipping industry carries with it certain inherent bribery and corruption risks, but it must also operate under a legal and regulatory framework that is increasingly onerous and far-reaching. In our view, one of the most productive ways for the industry to respond to these challenges is by embracing their requirements by building “fit for purpose” ABC compliance programs. Some of the essential benefits include the effective, proactive management of risk and the long-term business advantages this can bring. KPMG contact: Tom Hopkinson Tel. +44 207 694 5304 tom.hopkinson@kpmg.co.uk KPMG’s Anti-Bribery Corruption practice provides services to our firms’ global Transport clients relating to implementation of the Bribery Act, maintaining compliance with the FCPA and related legislation, and investigating alleged violations and financial irregularities. Our services are split into three core areas: • Compliance – advising on the development and implementation of effective compliance programs to help prevent, detect and respond to ABC issues; • MA and integrity due diligence enquiries – assisting organizations to identify potential corruption issues as well as advising organizations on making informed decisions about the individuals and third parties they wish to conduct business with; and • Investigations – providing cross-border investigations of violations, accounting irregularities and asset misappropriation, using a range of forensic accounting, technology and investigative skills.
  12. 12. Shipping Insights  11Bringing the price of carbononto the balance sheet andboardroom agenda Climate change is a truly global challenge. Across industries businesses areresponding to the human contribution to climate change through the managementand reduction of green house gases (GHGs) most significantly the release of carbondioxide (CO2).The aim of this article is to highlight areas where, despite transportation’s exclusionfrom the Kyoto Protocol, major shipping companies nevertheless have to plan for anddeal now with climate change related challenges. We also look at what may happen ininternational regulation to address the issue of climate change and the maritime sector. Background Established by the United Nations (UN) the Kyoto Protocol is the International agreement for the reduction of carbon dioxide through which ratifying countries established CO2 reduction targets. The protocol also established market mechanisms to incentivize emission reductions including carbon trading, the clean development mechanism and the joint initiative. International transportation was not included in the Kyoto Protocol as it was considered to be the responsibility of the two main UN organizations overseeing international shipping (International Maritime Organisation – IMO) and aviation (International Civil Aviation Organisation – ICAO). Hence, the Kyoto Protocol has a reference to the pursuance of such emission reductions by the IMO and ICAO. As yet, neither the IMO nor ICAO have developed mechanisms equivalent to those established at Kyoto. Both organizations are actively considering the steps they might take but, as yet, neither have come forward with processes likely to achieve equivalence with those established at Kyoto. Consequently the EU has introduced regulation to include the aviation sector into the EU emissions trading scheme (ETS) as of 2012 and is considering doing the same for international shipping. For shipping business there is the additional challenge, UN negotiations will be ongoing through 2010 and 2011 with the intention of developing a legally binding international agreement to succeed Kyoto. It is almost certain such an agreement will take consideration of both aviation and maritime CO2 emissions. Shipping’s contribution to climate change International shipping provides the overall lowest carbon intensity for long haul transportation and needs to incorporate this into making the case for an appropriate sector reduction mechanism.
  13. 13. 12  Shipping Insights However in 2007 international shipping emissions were estimated to be 870 million tonnes of CO2. This is 2.7 percent of all global emissions. Mid-range projections indicate that without a concerted policy approach this will increase by between 150 percent and 250 percent by 2050(1). As other sources of CO2 are stabilized and reduced, for example through the EU ETS, the relative contribution from an unabated shipping industry will proportionately increase putting even greater pressure to act. The effects of climate change on shipping The physical effects of climate change will pose challenges for international shipping and the maritime sector as a whole. The predicted increase in frequency and severity of weather events is likely to increase, with impacts on routing, journey times, insurance cover etc. Counter balance this with possible positive effects like the opening of Arctic routes with the subsequent shortening of shipping journey times. Overall the predicted effects of climate change on the maritime sector pose significant future challenges, challenges which should now be factored into strategic planning and corporate risk management. Options for managing climate change in the maritime sector The IMO through its Marine Environment Pollution Committee (MEPC) has been working hard to develop policy responses that are intended to stabilize and reduce the release of GHGs from the sector, whilst at the same time, meeting the expectations of the EU and its wider global stakeholders. Options being considered are both technical and market based. Technical options include a mandatory energy efficiency design index and ship efficiency management plans. The most commonly spoken about market mechanisms are a maritime emissions trading scheme (METS) and an international compensation fund (ICF) to be financed by a levy on marine bunkers. In March 2010 an expert group was set up by the IMO to conduct a feasibility study on the development and implementation of market mechanisms as a policy tool. A number of proposals have been put forward to the MEPC including those by France, Germany, Norway and the UK. These proposals have a common central idea of a global METS based on the allocation and surrender of carbon allowances and advocate allowance auctioning as opposed to the free allocation of allowances which characterized the initial phases of the EU ETS and led to problems including windfall profits and market distortions. Pricing carbon emissions is widely seen as the best stimulus for development of new low carbon maritime technologies. Emerging technologies that are likely to benefit include the use of new and improved propulsion devices such as contra-rotating propellers, steam plant improvements and electronically controlled engines. As the price mechanism takes effect, technologies such as wind generators, kite assisted
  14. 14. Shipping Insights  13propulsion, solar panels and fixed sails or wings become more and more viable asretrofits or incorporated in the new design and build of ships. Innovations in hullcondition, improved hull coatings and the introduction of air cavity/hull lubricationtechnologies will also emerge. The options for strategic approaches to voyage planningwill also be more frequently used to improve performance and emissions includingengine monitoring, slow steaming and weather routing.ChallengesDeveloping a globally applicable market based mechanism on the necessary scaleposes fundamental and important challenges. For example, such schemes needa qualifying threshold for participation, a baseline year, a cap on emissions and anemissions reduction path over a given period of time.Other challenges include establishing the governance and operations of a coordinatingadministrative body, establishing global oversight and enforcement of the scheme,and enabling a robust process for carbon allowance auctioning.The co-ordinating body will have much to do addressing such things as the interactionof maritime allowances with other existing and developing carbon markets.Highly fungible allowances will stimulate a higher level of carbon trading andmore options for trading and hedging strategies.How much will this cost and who will pay?The price of carbon is based on a number of market factors. The EUA (equivalent to1 tonne of CO2) spot price is currently around US$20. Some analysts predict that if theEU were to increase its 2020 emissions reduction target from 20 percent to 30 percentthis would take the price to US$25. Market analysts also predict that the average priceof carbon for phase III EU ETS (2013 to 2020) will be between US$38 to 50 but mayjump above that higher end value towards the end of the period (2).The cost implications for international shipping and the price of transportedcommodities will vary dependent upon fuel prices and the cost of carbon at any giventime. Recent cost modelling(3) indicated the CO2 cost percentage of operating andvoyage costs for different types of vessel range from 14 percent for handysize bulkersand tankers to 18 percent for capes and VLCCs and 22 percent for container mainliners. The modelled impact of the additional transport costs on the price of goodswas 1 percent for agricultural, 2 to 3 percent for ores and coal, 0.4 percent for crudeoil and 0.4 to 0.8 percent for manufactured goods.In a global carbon trading mechanism the majority of the cost increases associated withthe METS will be passed onto the consumer of the goods and materials transported.There are a relatively large number of different players involved in the shipping industry.Clarity will be needed to determine which party has what emissions responsibilities –owners, operators, ship managers, charterers or the ship despondent owner.Auctioning of allowances will generate a significant fund, the size of which will dependon the proportion of allowance auctioned, the price of allowances during the auction andlinkage with other schemes. It has been estimated(4) that full auctioning will generatein the order of US$15 to 30 billion with a carbon price range of US$15 to 30 per year.
  15. 15. 14  Shipping Insights The use and management of these funds is also a matter for further consideration: to use them to offset negative effects of the scheme on developing country participants; to assist developing country climate change mitigation and adaptation projects; and to support technological research and development within the maritime sector. Conclusion International climate change attention is now firmly focused on the transportation sector and, in particular shipping operations. Pressure from the EU emphasizes the urgency for a workable and equitable solution to be developed quickly. Failure to do so may well result in the sector being brought into the EU ETS. Work at the IMO is focusing on a number of options and it is likely that there will be a combination of technological and market based solutions adopted. Whatever the outcome, the sector as a whole (including the supply chain as shipping customers become more carbon sensitive) will soon need to factor in the price of carbon. Experience shows that proactive, strategic approaches by new entrants to carbon markets leads to significant cost and operational risk reduction and, in a number of cases, delivers market and competitive advantage. KPMG contact: S imon Davies Tel. +44 207 694 3377 simon.davies2@kpmg.co.uk KPMG firms are assisting companies to understand and plan for the future financial and commercial climate change risks and opportunities on national, regional and international levels. We can help you integrate these considerations into your day to day considerations and into your short, medium and long-term business plans. KPMG firms provide strategic advice and tactical assistance to the maritime sector in the areas of climate change and carbon and sustainability. We help clients develop robust and effective internal programmes that are designed to reduce current and future risks and at the same time help clients prepare for the opportunities that moving to a low carbon economy will present. 1. Second IMO GHG Study 2009, update of the 2000 IMO GHG Study MEPC 59/4/7 2. Point Carbon News, Carbon Market Daily Volume 06 Issue 82 4th May 2010 3. Delft et.al.2010 (cost increase ratios depend on fuel price and allowance price assumptions (2007). CE Calculations based on a fuel price of USD360 per metric tonne and an allowance price of USD 30 per metric tonne of CO2). 4. MEPC 60/4/54 Impact assessment of an emissions trading scheme with a particular view on developing countries
  16. 16. Shipping Insights  1 5Challenging times for Shippingcompanies in achievingfunding targets? Over the last two years the shipping sector has been severely hit by the effectsof the economic crisis. Depressing headlines were common place. An unprecedented shortfa ll in road freight carryings: The European road freight mar ket is in crisis. Even the strongest companies have experienced significantly falli volumes and certain sectors ng have seen a reduction of up to 50% (source: Logistics han dling – August 5, 2009). Ports are sq ueezed; U were cong ntil middle estion and of 2008, th shipping co a lack of in e main wo mpanies tr frastructure rries for m ying to save to cope wit ost port op leaner time h growing erators s (source: T money by demand. N he Internat minimizing ow, with ional Herald port calls, Tribune – Ja operators al nuar y 16, 2 so face 010). Shipping companies hit by downturn; The [shipping] industry has been hit hard by Crisis river transport intensifies; The river transport the collapse in global trade. Attempts to save section is suffering from overcapacity up to 20-30% in the money have left many vessels out of service dry bulk segment. Because of the crisis, demand for inland (source: BBC News – March 4, 2010). cargo shipping has decreased sharply (source: Financieel Dagblad – February 3, 2010). The sudden and severe shortfall in demand, coupled with substantial overcapacity has significantly reduced asset values and company profitability. This trend may well continue, with medium forecasts indicating large oversupply across the three main shipping sectors (oil, bulk and containers). Oil tankers Bulk carriers Container ships 46% of 71% of 45% of current fleet current fleet current fleet Million cgt Million cgt Million cgt 70 70 70 60 60 60Note: Excess supply is based on Drewry 50 50 50base case projections and takes into account 44.5 40 40 40replacement requirements; oversupply is forecast 66.5 30 30 30 16.1in all three demand scenarios (low, base and high); 20 19.3 20 20 35.5 36.4slippage, cancellations and negotiated delays may 10 10 22 10 20.3 16.2reduce excess supply somewhat but are unlikely 0 0 0to result in balance. Scheduled Excess Forecast Scheduled Excess Forecast Scheduled Excess Forecast deliveries supply requirement deliveries supply requirement deliveries supply requirement 2009-2013 2009-2013 2009-2013 2009-2013 2009-2013 2009-2013 Source:  Clarkson Research; Drewry, Feb 2010
  17. 17. 16  Shipping Insights The plight of ship owners has been shared – in part at least – across the full supply chain. Port operators are also under pressure as projects to increase capacity have come on line just at the wrong time. Global port container throughput versus container capacity growth development Mln TEU FORECAST 1,000 800 838 863 797 821 741 752 776 600 619 580 525 507 542 400 471 476 200 0 2008 2009 2010 2011 2012 2013 2014 Capacity Throughput Source:  Drewry, Annual Review of Global Container Terminal Operators, 2009. International Herald Tribune, As shipping industry cuts back, ports are squeezed, January 16 2010. A global transport and shipping crises Perhaps the shipping sector isn’t quite in crisis, but the speed at which the markets changed surprised us all – major and minor players together with their financiers were severely hit. To put it in some context, the combined 2009 losses of shipping line companies have been in excess of US$20 billion. All have had to take actions to shore up balance sheets and cash flows. In KPMG firms’ experience, the most common responses have been to undertake major cost reduction programmes through staff redundancies, laying up of vessels (either hot or cold), slow steaming, cancelling leases or new build contracts, renegotiating charter rates or postponement of maintenance. Other companies have been looking at ways of improving working capital, initiating bond and share issues and (trying to) renegotiate loans and financing arrangements. The road to recovery The first signs of recovery have become apparent in recent months. Shipping and port companies are reporting second quarter increases in volumes, better rates and improved operating margins. Truck deliveries have been steadily increasing suggesting further market strengthening. KPMG member firms have seen a pick-up in global MA activity across the sector. With volumes now gradually climbing back to pre-crises levels, one of the key questions now remains whether rates will follow a similar pattern in the short to medium term?
  18. 18. Shipping Insights  17More risk adverse investors and financial institutionsThe flexibility of banks and other financial institutions has been put to the test withthe increased need for cash and credit. Several industry research studies and ourown observations have highlighted the difficulties in successfully (re)negotiatingand securing loans and other lines of credit. In KPMG firms’ experience, smaller andmedium sized companies have had more acute problems, with the larger operatorsevidently exercising more bargaining power with not just the banks and other financialinstitutions, but also customers and suppliers as payment terms and rates have beenflexed and altered.We have seen banks and other financial institutions becoming more risk adverse.As margins and cash flows of shipping companies have deteriorated covenantshave been put at risk. With risk policies tightened within banks and other financialinstitutions they are assessing the strength of shipping companies in a much widercontext. The “domino effect” whereby consideration is given to the impact acrossthe entire value chain is forming an integral part of their risk analysis.A more proactive approachProviders of finance have also started to show a greater interest in the managementteams of distressed companies. Those with relevant experiences of navigatingcompanies through periods of financial stress or economic downturns appear to belooked upon more favourably. Lenders have also taken steps to recommend outsidesupport to management teams, and in the severest of cases parachuting one oftheir own representatives into the organization to assist in the financial turnaround.This approach is not too dissimilar to the operating philosophy of private equity.But “the right team” is only half the story. Funding partners, by default focus on thecompany’s structural risks (where is the loan positioned, what are the redemptionoptions, should the loan burden be shared, what should the risk premium be). In thiscontext it is important to what information and what level of detail should be provided.Lenders are requesting more detailed information, more frequently and on a transparentbasis. Some companies have struggled with this intrusive approach. Annual budgets andreforecasts are no longer considered sufficient. Banks and other financial institutionsincreasingly require more detailed, substantiated business plans, which containcomprehensive analysis and set out a clear vision for the business going forward.But more than this, lenders want to understand and challenge the business model riskprofile and in this context scenario analysis (or “stress testing”) is essential. It is notuncommon for lenders to ask companies to run a whole range of sensitivities for themto get a better grip of the drivers of profit and cash.Presenting the business planKPMG firms’ advice is simple – never go and meet a funding partner with a“half cooked plan” Robustly challenge your own assertions, build solid relationships .with debt providers and, from time-to-time at least, put yourself in their shoes.
  19. 19. 18  Shipping Insights 1 What is the current operating model? 2 What does the current 8 What does the (financial) debt position look like? forecast look like for the next 3 to 5 years, including conditions 3 What has been the basis and assumptions? of preparation of the business plan? 9 What sensitivities have been identified, including a substantiated view on a downward and worst case scenario? 4 What are the key business drivers and 10 Realistic view of their influencing factors? management on the business plan (and if appropriate 5 What are the Company’s of an independent third key markets and party expert) what is the Company’s competitive position? 6 What is the Company’s strategy and what is the outlook? 7 What (financial) results have been achieved in the recent past? KPMG contact: Edwin van der Stam Tel. +31 104 534332 vanderstam.edwin@kpmg.nl KPMG’s Transport and Logistics practice provides a range of Advisory services including Business effectiveness, IT advisory, Restructuring, Risk and Transaction Services.
  20. 20. Shipping Insights  19Do you enter into a charteragreement and work outthe accounting impact later…maybe it’s time you changed? The International Accounting Standards Board (IASB) together with the USFinancial Accounting Standards Board (FASB) have recently published an exposure draft(ED) on lease accounting. The proposals, if accepted, will have significant consequencesfor ship owning and operating companies. The aim of the exposure draft is to respond to longstanding criticisms that lease accounting has been too permissive of off-balance sheet treatment by lessees, overly complex and dominated by arbitrary rules. A key component of the Boards’ proposals has been the intention to eliminate the requirement to classify a lease as an operating or finance lease and instead propose a consistent lease accounting model for all lessees and lessors. Leasing is an important source of finance and investors want a complete picture with comparability. Credit providers often employ various techniques such as present value method (capitalize the present value of disclosed lease commitments) or a factor method (e.g. seven times operating rent expense) to adjust financial statements to reflect notional capitalization of operating leases. The intention is that the new standard will provide all users of accounts better, more reliable information. As the Boards move toward finalising their proposals companies have the opportunity to voice any concerns. With a comprehensive consultation process now underway, companies have until 15 December 2010 to digest the proposals and provide the IASB and FASB with their views.
  21. 21. 20   Shipping Insights Key impacts The right-of-use model For lessees, the Boards propose the right-of-use model, in which the lessee recognizes an asset for its right to use the underlying asset and a liability for its obligation to make future lease payments. That is, all leases will be “on-balance sheet” for lessees, subject to certain scope exemptions. The right-of-use asset would be recorded initially at the present value of the lease payments, plus initial direct costs. It would then be amortized over the life of the lease and tested for impairment. A lessee could revalue its right-of-use assets. The right-of- use asset would be presented within the property, plant and equipment category on the balance sheet but separately from assets that the lessee owns. The liability would be measured at amortized cost, using the effective interest rate method, with an interest expense recognised in the income statement. The discount rate would be the lessee’s incremental borrowing rate, or the rate the lesser charges the lessee if readily determinable. The Boards have recently devoted significant time to lessor accounting issues and decided to expose two significantly different lessor accounting models for comment: the performance obligation model and the derecognition model. Lessors would be required to assess which model to apply on a lease-by-lease basis. If a lessor retains exposure to significant risks or benefits associated with the underlying asset, then it would apply the performance obligation model, otherwise it would apply the derecognition model. The performance obligation model The performance obligation model focuses on the additional rights and obligations created by the lease contract. Under this model, the lessor continues to recognize its interest in the underlying asset and recognizes a new asset for its right to receive future lease payments (or lease receivable) and a corresponding liability for its obligation to deliver use of the leased asset to the lessee (or performance obligation liability). During the lease term, the lessor will continue to recognize depreciation on the underlying asset, and recognizes finance income on amounts receivable from the lessee and lease income arising from amortization of the performance obligation. The lessor will not recognize a gain on commencement of a lease under this model, assuming that the lessor has a single performance obligation, being its obligation to grant the lessee the right to use the asset for the lease term.
  22. 22. Shipping Insights  2 1 The derecognition model The derecognition model views the lease contract as if it has transferred a portion of the underlying asset to the lessee. Under this model, a lessor derecognizes a portion of the leased asset, reclassifies the remaining portion of the underlying asset as a residual value asset and recognizes a lease receivable due from the lessee. During the lease term, the lessor will recognize finance income on the lease receivable and any impairments in the income statement. The lessor may recognize a gain on commencement of the lease under this model, if the initial carrying amount of the lease receivable exceeds the carrying amount of the portion of the leased asset that is derecognized.The lessor presents the lease income and expense on a net or gross basis to reflect the lessor’s business model. Right-of-use model Balance sheet Right-of-use asset X Liability to make lease payments (X) Income statement Amortization expense (X) Interest expense (X) Impairment (X) Lessee lease rentals leased assets right to use Lessor Is there a transfer of significant risks or benefits of the underlying asset? YES NO Derecognition model Performance obligation modelBalance sheet Balance sheet Residual asset X Underlying asset X Right to receive lease payments X Right to receive lease payments X Lease liability (X)Income statement Revenue X Income statement Cost of sales (X) Lease income X (gross or net based on business model) Depreciation expense (X) Interest income X Interest income X Up-front gain X Impairment (X) Impairment (X)
  23. 23. 22  Shipping Insights Other considerations • In contrast to the current lease term (being the minimum contracted period plus any additional periods for which it is reasonably certain that the lessee will extend the lease), the proposals would require lessees and lessors to determine the lease assets and liabilities on the basis of the longest possible lease term that is more likely than not to occur. Purchase options should be excluded from lease accounting as these are considered a termination of the lease contract when exercised. • To address concerns that the cost of tracking information could outweigh benefits the proposals include simplified accounting for short-term leases, with a maximum possible lease term of less than 12 months. Under this simplified model the lessee would recognize a right-of-use asset and a liability measured at the undiscounted value of the lease payments, and the lessor would use accrual accounting. • The ED proposes that an intermediate lessee/lessor should apply the proposed lessee accounting model to its head lease and the proposed lessor accounting models to its sub leases. It appears that these requirements may result in an economically identical head lease and sub-lease being measured differently. • In-substance purchases (lessee) and sales (lessor) will be exempted from the proposals, i.e., transactions in which control passes to the lessee at the end of the contract, and the risks and rewards retained by the lessor are not more than trivial. Accordingly, many existing finance leases will become in-substance purchases outside the scope of the proposals, with the contractual payments falling within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments. What does this mean for you? Our view of the potential impact for leases in the shipping industry is as follows: Type of contract Current IFRS treatment Future impact Voyage charter Outside scope Likely to be outside scope, seen as a purchase Contract of affreightment Outside scope of services Time charter Operating lease Recognize assets, liabilities and additional charges Bareboat charter Finance/Operating lease in the income statement Consequences of the proposals • The devil is often in the detail and the proposed change to lease accounting will require companies to reasses their lease arrangements. • The scope of the proposed standard will become a key focus area for structuring opportunities in the future. With in-substance purchases not in scope, this will be a significant area of judgement, similar to the determination of operating or finance leases currently. Lessors and lessees are likely to have different drivers when arranging finance.
  24. 24. Shipping Insights  2 3• Structuring of shorter term leases under 12 months may become more common to take advantage of the simplified accounting proposed in the ED, in order to simplfy the accounting or to reduce impact on the balance sheet.• The proposal to exclude the exercise price of purchase options from lease payments might also create structuring opertunities, given that the purchase option maybe economically similar to a renewal option in some cases.• Companies will need to check whether they negotiated frozen GAAP covenants, or start to engage with lenders to address the conseqences.• EBITDA ratios are a key profit measure for the industry, investor communications will need to be adapted. Additionally bonus schemes and employee share plan targets are often based upon measures of EBITDA. These will need to be adjusted or reconsidered by Human Resource departments.• With more countries adopting IFRS, shipping companies across the world are likely to be affected.Change, change and more change!As we reported in Insights 2, a significant number of proposals are being issued byaccounting standard setting bodies. Both the international standard setter and the USstandard setter continue to work together to converge US GAAP and IFRS.Many of the projects being considered will impact shipping companies. In addition tothe lease accounting discussions, finance teams are also trying to unpick proposalsfor revenue recognition, financial instruments and financial statement presentation.Depending upon where you sit in the supply chain, you might end up recognizingrevenue at a different point in time and may well need to invest in changes tosystems capturing revenue data. KPMG contact: Ian Griffiths Tel. +44 2 07311 6379 ian.griffiths@kpmg.co.uk KPMG’s Accounting Advisory Group has practical experience of assisting companies with expected or actual changes to accounting standards. KPMG member firms are already helping companies review existing lease contracts to establish the impact of these proposals and assisting companies plan for these changes through consideration of investor communication, process documentation and staff training.
  25. 25. 24  Shipping InsightsA view from Asia We cannot recall a period of such turbulence in the global shipping marketand operators in all regions have been similarly affected.Two years ago everyone in the sector was focused on increasing port and terminalfacilities – the race to build bigger, more efficient ships was hot and the global shippingmarket was booming. Then the markets changed… freight rates dropped right off asdemand plummeted just at the time when the global fleet was expanding. Laying upwas the only option for many, with previously fit companies looking to survive. In Asia, we’ve started to see the “bounce-back” Idle ships are coming back into service . and there is a renewed sense of optimism in the air. But the challenge for all operators is to understand how firm the recovery will be and how best to navigate to enable them to take advantage of the opportunities presented. In this brief article, we assess the strength of recovery in the container and dry-bulk sectors in Asia. Container Over the past year the Asian economies have led the recovery of international container trade volumes to such an extent that there may be a re-emergence of the pre-recession pressure on freight infrastructure. Intra-Asia was already one of the world’s largest container markets and we see this trend continuing as Asian economies and consumer markets further develop. Along with China and India, which are driving expansion in the Asia Pacific, encouragingly South East Asian economies such as Vietnam and Indonesia are also on the growth trajectory in 2010. However, for the medium term at least, China and India will remain the two main drivers of growth in Asia. The IMF forecasts that these economies will grow 9.9 percent and 8.4 percent respectively in 2011. The investment in infrastructure and urbanization process in China and India will help to enable the continuous rapid growth of these economies for the next 20 years. Perhaps the next phase of development will be the growth of rail infrastructure which will further open the countries’ interiors to increased export production. Positive demand expected The recent hints of recovery appear to be driven by genuine demand for cargo. Consumer spending is in the midst of a trend recovery, underwritten importantly by the rebound in jobs and incomes. On top of genuine demand recovery, the continuous inventory re-stocking will also help boost container traffic in the next few years. Consumers are more positive about the economy and retailers are building up their inventories to meet that demand.
  26. 26. Shipping Insights  25The global PMI (Purchasing Managers Index) data supports the view that the industrialproduction momentum can be sustained. The global manufacturing PMI rose in themost recent months, as did its forward-looking new orders component. In Europe theGerman, Swiss and UK manufacturing PMIs rose close to or reached all-time highs.Similarly the Japanese manufacturing PMI has been rising. One positive feature worthhighlighting is the extent of export rises among the PMI components.Historically, the Chinese PMI new export orders data precedes port throughput bya few months. Growing new export orders from China is a good indicator of furthergrowth in the sector next year.Supply sideActual supply growth has slowed on new order delays, cancellations and pick-up inscrapping as many ship-owners were successful in renegotiating with the ship yards.Idle ships are coming back into service – approximately half of laid up vessels beingsuccessfully reintroduced into the active container fleet. Encouragingly, load factorshave remained high and the vessel charter rates have rebounded from the bottom.The remaining idle fleet is small in size, and therefore we can expect further rateimprovements in second half of 2010, driven by the implementation of peak seasonsurcharges on various routes. That said; sudden ill-discipline amongst the industryplayers in supply of container vessels could quickly put pressure on again.PricingTowards second half of 2009 as partial economic recovery signs picked up with a drivefor re-stocking of inventory. Given the urgency of this demand there was a suddensurge in shipping and air traffic volumes. Shippers resorted to aggressive pricing bylevy of various surcharges on the transpacific routes.Carriers historically have not had much pricing power. However, this time round, withstrong demand recovery and industry-wide effort to manage capacity, freight rates andload factors on the Asia/Europe trades have been on the rise and close to historicallyhigh levels. Shipping lines have added capacity on the transpacific routes, but theirslow steaming has partially offset the increased capacity. It is expected that for theshort term, the pricing power will remain in the hand of operators.European exposureEurope is a key market for the Asian shipping carriers. Asian carriers have an estimatedrevenue exposure to the Asia/Europe trade of 5-35 percent. However, the exposurespecifically to economically troubled European economies could account for only about5-6 percent of Asian carriers’ revenue.Germany is the most important trading nation in Europe, accounting for a 30 percentshare of the top 12 European ports’ throughput and 19 percent of Asian exports.Moreover, it is expected that there shall be a strong global recovery and, within that,a strong recovery in the larger European economies. The growth prospect is positiveif the financial difficulties get out of the way. Some economists expect Europe’s GDPgrowth to be 1.5 percent in 2010, but on the back of a strong Germany, GDP growthin the Euro zone this year could be stronger than expected.
  27. 27. 26  Shipping Insights Dry bulk The outlook for 2009 for the dry bulk market was fairly negative. The freight rates had collapsed and industry counterparty risks were a primary concern. However, the actual market performance in 2009 exceeded expectations. In the second half of 2009 the economic recovery started and the market shifted favorably towards the ship owners with increasing freight rates. Although new ship deliveries were higher than at any time previously, they were 40 percent lower than as projected at the start of 2009. Demand had also recovered more strongly than projected which has benefitted the dry bulk industry. Furthermore, activity also returned to the dry bulk vessels sales and purchase market giving greater reliability to vessel values. China and, to a lesser extent India’s, enormous commodity import volumes reflect their influence on the dry bulk market. Going forward, the increasing commodity import volumes and location will drive the dry bulk freight rates higher, however due to the uncertain global economic outlook and hasty capsize capacity expansion will weigh on the strength and sustainability of the dry bulk freight rates. Clarksons forecast capsize capacity to grow by 20 percent in 2010 which will create substantial downward pressure on the dry bulk freight rates. Although the shorter term view may be unpredictable due to the above factors, long-term it is expected that strong demand from Asian countries and recovery from the economic crisis from OECD countries coupled with tempered supply is expected to create positive outlook for the dry bulk market. Asian dominance As outlined, the Asian market continues to dominate trends in global shipping. There is starting to be a real interest from new market entrants – either those choosing to relocate from other parts of the World (to be closer to operations and to take advantage of fiscal regimes) or start-ups who believe that assets are cheap. KPMG contact: Wah Yeow Tan Tel. +65 6411 8338 wahyeowtan@kpmg.com.sg KPMG in Singapore is assisting many operators re-locate, re-optimize cost bases and re-assess approaches to risk management and control. Our Singapore shipping practice leads our support to shipping companies in Asia, specializing in a range of audit, tax and advisory services.
  28. 28. Shipping Insights  2 7
  29. 29. 28  Shipping InsightsKPMG’s Global ShippingPractice contactsJohn LukeKPMG in the United KingdomGlobal Head of ShippingTel. +44 20 7311 6461john.luke@kpmg.co.ukAustralia Germany South AfricaMalcolm Ramsay Nicholaus Schadeck Patrick FarrandTel. +61 (2) 9335 8228 Tel. +49 421 33557-7109 Tel. +27 21 408 7496malramsay@kpmg.com.au nschadeck@kpmg.com patrick.farrand@kpmg.co.zaBelgium Greece SpainSerge Cosijins Dimitra Caravelis David HohnTel. +32 0 382 11807 Tel. +30 210 6062188 Tel. +34 914563497serge.cosijns@kpmg.be dcaravelis@kpmg.gr dhohn@kpmg.esCanada India SwitzerlandJim Pickles Manish Saigal Beat NyffeneggerTel. +16046913572 Tel. +912230902410 Tel. +41 22 704 1601jpickles@kpmg.ca msaigal@kpmg.com bnyffenegger@kpmg.chChile Japan SwedenAlejandro Cerda Suminori Ikeda Björn HallinTel. +56 2 631 1441 Tel. +81 3 3539 5301 Tel. +46(8)7239626acerda@kpmg.com suminoriikeda@kpmg.com bjorn.hallin@kpmg.seChina Korea TaiwanAndrew Weir Dae Gil Jung/Se Bong Hur Fion ChenTel. +852 2826 7243 Tel. +82 2 2112 0233/0212 Tel. +886281016666andrew.weir@kpmg.com.hk dgjung@kr.kpmg.com fionchen@kpmg.com.tw sebonghur@kr.kpmg.comCyprus UAEDemetris Vakis Netherlands Robert HallTel. +357 222 0900 Herman van Meel Tel. +971(4)4030300Demetris.Vakis@kpmg.com.cy Tel. +31 20 6567222 rhall1@kpmg.com vanmeel.herman@kpmg.nlDenmark United StatesJesper R. Olsen Norway Chris XystrosTel. +45 3 818 3593 John Thomas Sørhaug Tel. +1 757 616 7009jesperolsen@kpmg.dk Tel. +4740639293 cmxystros@kpmg.com john.thomas.sorhaug@kpmg.noFinland VietnamPauli Salminen Russia John DittyTel. +358 20760 3683 Alexei Romanenko Tel. +84838219266pauli.salminen@kpmg.fi Tel. +7(495)6638490 jditty@kpmg.com.vn Aromanenko@kpmg.ruFrancePhillipe Arnaud SingaporeTel. +33 1 55686477 Wah Yeow Tanparnaud@kpmg.fr Tel. +65 6411 8338 wahyeowtan@kpmg.com.sg
  30. 30. kpmg.com For further information please contact: John Luke KPMG in the United Kingdom Global Head of Shipping Tel. +44 20 7311 6461 john.luke@kpmg.co.ukThe information contained herein is of a general nature and is not intended to address the circumstances of any © 2010 KPMG International Cooperative (“KPMGparticular individual or entity. Although we endeavour to provide accurate and timely information, there can be no International”), a Swiss entity. Member firms of theguarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the KPMG network of independent firms are affiliatedfuture. No one should act on such information without appropriate professional advice after a thorough examination with KPMG International. KPMG International providesof the particular situation. no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. Printed in the United Kingdom. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative, a Swiss entity. Designed and produced by KPMG LLP (UK)’s Design Services Publication name: Shipping Insights 3 Publication number: RRD-218021 Publication date: September 2010 Printed on recycled material.

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