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The Real Deal

No longer just a shipbroking pretender, Shanghai has achieved a critical mass of brokers, as China’s trade keeps on growing

There is a moment in every success story when those tipped for greatness cross the threshold between promise and fulfillment. Shanghai has been tipped for many years as being the next big thing on the Asia-Pacific shipbroking stage. It now looks as if the city is fulfilling this prediction, ready to take its place alongside Hong Kong, Singapore and Tokyo.

Critical mass: Shanghai is attracting ever more brokers

One of the clearest indications is the continued increase in the number of established international broking houses that have set up shop in the city, all hoping to capitalise on China’s world-leading economic growth.

One of the latest broking shops to open is Barry Rogliano Salles (BRS)’ Chinese dry-bulk office, which started up in Shanghai in March 2002. Laurent Debart, who runs the office, says that Paris-headquartered BRS had to respond to the increasing role of the Chinese in the dry markets.

“BRS, as one of the world’s main shipbroking houses, could not overlook the growing Chinese market, both as a source of information and from a business point of view,” he explains. “China now represents about 30% of the world’s iron ore imports, and this figure is still growing.”

There has been a good uptake of BRS’s dry bulk services in the year or so the office has been in operation.

“We broker mainly on behalf of local steel mills, coal import and export companies, and local operators,” says Debart. “Cargoes are iron ore and coal, mainly in capesize.”

Another firm to enter the Chinese dry-bulk market by opening an office in Shanghai during 2002 was London-headquartered Howe Robinson, whose office is run by Guang Li. The only surprise here was how long it had taken the firm to take the plunge, given that it had established strong commercial links with China in the 1950s when it was appointed shipbroker for the China National Foreign Trade Transportation Company (SINOTRANS). At one point, Howe Robinson was handling some 80% of the trade between China and the UK. So why the delay in opening up a local office?

Speaking to The Baltic magazine late last year, Howe Robinson’s Joint Chairman Peter Kerr-Dineen said: “In the past our clients simply wanted us to cover the European market on their behalf and just report to them from London. There was no reason for us to be in China.”

Nor was it entirely clear where a China office should be located. Global shipping services giant Clarksons, for example, opened its first mainland China office in Beijing in 1994, only to move it to Shanghai in 2000 when it became clear that the city was to become the nation’s leading maritime services centre.

But broking in Shanghai is not limited to dry-bulk activity. BRS, for example, has for some years had dedicated broking offices working the local container trades – Sino-Shipbroking Ltd, run by Charles Chang. Chang says that the prospects for container broking in the local Chinese market are good. Container throughput at Shanghai’s box berths has grown dramatically in recent years and he predicts that it will continue to grow by between 10% and 20% annually for the next decade. The knock-on effect for local container brokers will be good.

“The growth will bring much potential business to local liner operators, and they will [expand] their fleets by chartering in tonnage, which also means potential opportunities for us,” says Chang.

Newbuilding
Shanghai’s bustling newbuilding industry is another magnet for shipbroking companies. BRS has a dedicated newbuilding office as well (Asia Shipping International), but it is not the only overseas firm to have taken up residency in the city to work the market.

London-based Arrow Sale and Purchase opened up its Shanghai newbuilding office in 2002 to get closer to the Chinese yards and owners, says Patrick Morrison, Arrow’s director for newbuilding and contracting. He says that a double capesize newbuilding deal with Bocimar was the final push the company needed to take the plunge.

“The office in Shanghai is being run by Di Qing, who was with Arrow in Hong Kong and is our key China shipbuilding man,” explains Morrison, who adds that Shanghai is “buzzing” at the moment.
With China steaming up the world shipbuilding rankings, there is a clear demand for brokers on the ground, according to Morrison: “Many of China’s major shipyards are in and around Shanghai, and owners want to have a local broker representing them. It’s a great comfort to owners who want to build in China,” he says.

Morrison senses that China’s share of the shipbuilding cake will only increase, as they are willing to build highly-specified ships to fit tightly with owners’ requirements, rather than off-the-peg standard ship designs. Moreover, he says, the quality is good.

Tax slug for Australian charterers? A recent draft ruling by the Australian Tax Office to impose Royalty Withholding Tax (RWHT) on charter hire did not go down well with the local shipping market. The plan was to apply RWHT to various commercial arrangements used by non-residents of Australia who lease or charter ships and aircraft to residents. Such a tax would treat payments made under charter parties of ships as a royalty payment, and Australian-resident charterers would have to pay RWHT on charter hire to non-resident owners. Not surprisingly, powerful submissions were lodged with the Australian Tax Office on behalf of the Australian shipping industry, led by the Australian Shipowners Association, represented by law firm Middletons. No royalty: Australian charterers protested against new rulings The draft ruling seeks to apply the RWHT to bareboat and time charters, and also to voyage charters where the charterer is the shipper. Derek Luxford, a partner with Australian law firm Phillips Fox, notes that, for Australian shippers, the ruling could not come at a worse time. There is concern that, pending a tax office review of the draft ruling in the light of hostile submissions made to it, any extended period of uncertainty could force some charterers to close their Australian offices. The protests have already met with some success, the ATO reversing its position and deciding not to impose RWHT on ‘standard’ time chartering arrangements. A final ruling is expected in April 2003.

Increasing competition
Is it, then, all good news for shipbrokers in Shanghai?

Laurent Debart is willing to suggest one downside of the city’s extraordinary growth. Everyone is piling in, which means the competition is hotting up as companies jockey for elbow room in the market. The situation becomes hardest of all for the newest arrivals to the city.

“The biggest challenge for us is to convince owners and charterers to support us when other brokers have had strong relationships here in China for many years already,” he says.

Debart is, however, happy about the progress BRS has made in the dry-bulk sector thanks in part, he says, to the firm’s strong market presence in Europe.

And surely that is the strongest indication of all that Shanghai has arrived as an Asia-Pacific shipbroking centre – that companies are not merely trying to capitalise on local business in a narrow sense. They are also there because Shanghai has won for itself a place on the stage of international trade.

Shanghai is evidence of two-way rather than one-way traffic. And regardless of the direction the traffic is heading, Shanghai has arrived.

Author: Roger Overall.