Although trade volumes and financing work remain at low levels, maritime and shipping law firms in Asia aren’t necessarily thrown by the stormy weather.

It’s the standard rule of economics: when supply outstrips demand, business will be slow. This is certainly the case for Asia’s shipping industry, which some say has been affected by the financial crisis more than any other sector.

Trade volumes have declined due to waning United States and European demand for Asian exports. From last year’s booming market, many of the new colossal-sized ships built to meet an expected boom in business are now left docked and unused in ports – and those vessels in use are running routes at minimum capacity and at lower charge rates. The industry is marked by an oversupply of vessels, a lack of demand for their use, and not enough capital to keep it going.

Yet while Asia’s law firms may no longer be largely working on the big-ticket deals financing new carriers, they are busy renegotiating contracts, resolving disputes and refinancing loans. Singapore-based shipping firm JTJB is handling more work than they had before the crisis, according to founder and managing partner, Dato´ Benny. “The word which best describes the market right now is buoyant,” says Benny. “It’s been like that for the last six to eight months. What we’re seeing is an increase in litigation and contentious work. It’s a different kind of work but it’s still reflective of a buoyant playing field.”

For the Hong Kong-based lawyers at shipping specialist firm Holman Fenwick Willan, the pace has settled back to normal levels, from a year aptly described as “frightful”. “2008 was the busiest in the firm’s 125 years,” says Holman’s Hong Kong managing partner, Paul Hatzer. “Our Asian offices all had a strong year and new enquiries were constantly being made. Since March, the level of work has slowed down a little, though we’re still planning to recruit young lawyers as they are vital for our long-term future.” 

Before the financial crisis, optimism abounded in the shipping industry. Law firms were advising on deals that were financing new and bigger ships and on maritime-related M&As. However, those deals have now led to an oversupply of shipping assets whose values have dropped and culminated in the recent flow of work. “Three or so years ago, there was a lot of confidence and many companies ordered new vessels or agreed to buy existing ones, assuming they would have the financial means from some source at the time of delivery,” says ship finance specialist Martin Brown of  Ince & Co in Singapore.
“Unlike previous downturns in shipping, this crisis was caused mostly by the illiquidity of the banks, and that caused difficulty for shipping companies to buy those assets they originally intended to. It also caused a collapse in charter rates … and as a consequence, vessel values. All aspects of the shipping market have been affected,” Brown adds.

Simon Spark, a shipping litigation partner in the same office, adds that many of the firm’s shipping clients have been affected by the downturn. “We have seen an increased volume of disputes as owners and operators are forced to re-assess their contracts of agreement, charter and building commitments,” he explains.“This has been accompanied by an increase in bank work-out work and restricts of loan commitments.”

The type of work around now is also reflected in the shipping industry’s financial losses suffered during this year. Hong Kong’s Orient Overseas International reported a first-half loss of US$232m, Singapore’s Neptune Orient Lines lost US$391m, and Korea’s Hanjin Shipping reported a first quarter loss of US$110m – all suffering from the decline in trade volumes and lower charter rates.
Parties in the shipping industry are defaulting on contractual commitments, as the value of assets has now dropped. The bulk of business that law firms have is on the contentious side of “dry work”– refinancing loans, restructuring contracts or litigating the defaulters. “Most active has been the dry shipping department which has been heavily involved in charterparty disputes,” says Bazul Ashhab, a partner at Singapore-based TS Oon & Bazul. “We’ve been very busy assisting parties [in] renegotiating terms and resolving disputes arising out of early re-delivery. Some of the disputes involved were very high-value and urgent. There was also a significant increase in the arbitration instructions coming from outside Singapore.”

It’s also lucky that the “wet work” side, which deals with collisions, casualties and admiralty matters, isn’t as exposed to the credit crunch. Holman partner Paul Apostolis describes it as the fortuitous side of shipping practice. “On the wet shipping side, the global economic downturn has not had a significant impact on the number of marine casualties,” he says. “Most casualties are caused by factors unrelated to the state of the economy, like human error and extreme weather. For example, a recent typhoon which struck Taiwan caused a number of shipping casualties.”

With work volumes at relatively stable levels, which firms are better positioned geographically to capitalise on future growth?

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