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Peter Kitching addresses a gathering in Melbourne, October 2002.

Is There a Future for Shipbrokers? From addresses by Peter Kitching, Chairman of the Baltic Exchange, to the Hong Kong and Australian shipping communities, October 2002

I doubt that F. Scott Fitzgerald had met many shipbrokers when he said, “Advertising is a racket, like the movies and the brokerage business. You cannot be honest without admitting that its constructive contribution to humanity is exactly minus zero.”

I hope that you will agree with me that shipbroking’s contribution to the shipping industry is substantially more than this.

However, shipbrokers and their industry have come under threat during the past few years – threats in the form of increased globalisation and competition, and threats caused by developments in technology and communication. I would like to discuss whether there is a future for shipbrokers by asking a few salient questions.

Adding value: in Hong Kong, as elsewhere, brokers are providing ever-expanding additional value-added services

Centuries of outsourcing
Firstly, why use an intermediary at all? Isn’t the role of the intermediary an anachronism in the 21st century? In a world where transactions can be conducted at the touch of a button from all four corners of the globe, with information readily available to all, surely there can be no further need for shipbrokers? The globalisation of large corporations has meant increased direct communication between shipowners and charterers, often without the introduction or involvement of a broker. Isn’t this closer cooperation a beneficial development?

In many ways, yes. Closer cooperation between two parties can only mean more business being done, and that’s what we all aim for – owners, charterers and brokers alike.

However, as Chairman of the Baltic Exchange and someone who has spent his entire working life immersed in shipbroking with Simpson Spence & Young, I am sure you will not be surprised to hear that I do, firmly, believe that there is a future for shipbrokers.

Indeed, the business model used by shipping companies for more than 200 years – outsourcing the task of looking for business for vessels to neutral professionals (the shipbrokers) – is now very much in vogue, adopted by modern forward-thinking businesses around the globe in their drive to focus on their ‘core competencies’. Consider how large corporations increasingly no longer administer their IT, legal and even HR services in-house, preferring to use outside expertise. Shipbroking has, in fact, been ahead of the times in many ways, and shipping companies and charterers continue to turn to shipbrokers to take a look at the bigger picture and provide them with neutral advice.

It is a sad reality that not all voyages go to plan, whether due to a problem with the vessel or that the suppliers have not delivered the cargo in good condition, and at this point the role of the shipbroker becomes in-valuable. The broker has forged a relationship between the two parties and it is in his benefit to protect and nurture that relationship. By offering advice based on experience and knowledge, and by acting as a ‘buffer’ between the two parties, he is able to assist in solving a potentially-damaging situation.

Providing personal value
My second question is: Surely business in the 21st century can be concluded at the touch of a button?

The shipbroking industry is sometimes derided by those outside the maritime world as a conservative industry which is slow to adapt to change. I am sure you all remember the criticism at the height of the dot.com bubble by those companies looking to replace shipbrokers.

Since my own time in Hong Kong, from 1988 to 1992, shipbroking has changed enormously. Not only in China but worldwide, brokers cannot simply expect their firm’s reputation and history to bring in business. Shipbrokers today have to be far more dynamic in attracting new business than they have ever been before.

The shipbroking market is currently characterised by many small broking companies, but with a few very large players handling an increasing share of worldwide business, and the smaller brokers focusing more on niche markets.

The numbers of shipbrokers around the world bear witness to the continuing success of the profession, despite the current low freight rates. According to research undertaken the Baltic Exchange in 2002, there are an estimated 1500 competitive broking firms of a reasonable size employing 6000 brokers around the world. Of these at least 600 are based in and around London.

The advantages of time zone, language, history and an extensive interlocking shipping community means that London still handles approximately 30% of all dry cargo and 50% of crude oil chartering business.

The shipping industry as a whole is one based on personal relationships, and this is particularly true of shipbrokers. What has changed enormously, and will continue to change, is the way in which brokers communicate with each other. History shows us that those brokers who invested in communication technologies – from the telephone onwards – have flourished. Yet face-to-face meetings and personal relationships remain essential. In the face of increased competition, it is now more important than ever that shipbrokers get out of their offices and visit clients, cementing those relationships further.

What can a broker add to a negotiation?
This is my third question – and one that, I am sure, you have all asked yourselves at one point or another.

The shipbroking industry has enjoyed considerable success over the years and, despite the many changes to the shipping industry, the business of shipbroking has remained the same in essence – negotiating on behalf of a client to secure the best possible deal.

What has changed since my early days as a broker is the need for shipbrokers to provide value-added services. Clients increasingly expect investment advice, statistical analysis, administrative and operational back-up. From freight futures trading to negotiating charter-back deals, the range of services provided by shipbrokers continues to grow. It is the ability of a broker to identify these opportunities by looking at the larger picture that can prove extremely beneficial to a shipowner.

Making the cut
Is a broker worth his 1.25%? My answer would be a resounding yes. Shipbrokers who provide their marketing services to the international shipping industry as independent companies, operating as competitive brokers paid on a ‘no cure no pay’ basis, are successful for one very simple reason – they provide their worldwide marketing services more cost-effectively and more efficiently than owners and charterers could do by utilising their own in-house resources.

Brokers are able to draw upon their intimate knowledge of the market as a whole, specific research undertaken by themselves and their research colleagues, and external independent indicators of the market, such as the Baltic indices and market reports. Taken as a whole, this provides the shipbroker with an unparalleled overview of the market, and ensures that he is able to give the best possible advice to his clients. As long as shipbrokers continue to do this, the future of the profession remains secure.

The future for shipbrokers
By combining highly-specialised personnel, operating with state-of-the-art technology, and earning commission only as and when they conclude business, shipbrokers have managed to stay ahead of the game. Increasingly shipbrokers provide valuable advice, backed by research departments able to supply a wealth of facts and figures, together with administrative and operational assistance. Coupled with trusted relationships, often built up over many years, I believe that the modern shipbroker looks likely to remain in business for the foreseeable future.

Peter Kitching, Chairman, The Baltic Exchange.
Website: www.balticexchange.com

www.balticexchange.com