Month: October 2019

Forget the traditional fourth quarter peak; there will be no upturn in air cargo markets for the next three quarters, according to Kuehne + Nagel International (K+N) chief executive Detlef Trefzger.

“At the moment I would say that the decline will not stop this year…or the first two quarters in 2020,” he added. “I would assume that next year we might have a flat market versus 2019.

“What happens then in 2021 and following years we will have to see; it’s too early to say.”

Speaking during a 22 October conference call with analysts after the Switzerland-based forwarder announced a downturn in its third quarter 2019 air freight performance, he said only growth in global gross domestic product (GDP) could provide the trade expansion momentum sufficient to persuade shippers to use air freight for more shipments.

However, he also noted that bearish air freight markets in 2019 should be viewed in context. “2018 was an exceptional year,” he said. “We saw growth in our network of 20% and more, organically. Which is also not normal.”

By contrast, in 2016 and 2017, 2% market growth and 4% to 5% growth for K+N was viewed as normal. “So, obviously markets have to rebalance again,” he added. “And for sure (the weaker performance of air freight markets this year is) also a reflection of all the trade discussions and trade noise that are ongoing.”

As reported in FreightWaves, K+N’s ocean freight and land transport units both made third-quarter gains, helping to offset the downturn in air freight markets.

The Swiss logistics giant’s third-quarter earnings before interest and tax (EBIT) rose 16% year-on-year to CHF283 million ($287.2 million), while net turnover fell 1.1% to 5.23 billion Swiss francs in the period.

K+N (SWX: KNIN) was the world’s second-largest global third-party logistics provider after DHL Supply Chain & Global Forwarding by revenue last year, according to Armstrong & Associates. And despite the downturn in air freight, its results for the first nine months of 2019 suggest it is well on its way to maintaining that position this year as well as reaffirming its position as the world’s largest ocean forwarder.

Net revenue of CHF15.8 billion over the period was 3.1% higher than a year earlier, while EBIT rose 6.6% to CHF794 million. The forwarder said organic net turnover growth amounted to 4.3%, foreign exchange effects had a negative impact of 2.9% and acquisitions had a positive effect of 1.7%.

“Against the backdrop of consistently tense global markets, Kuehne + Nagel once again delivered very solid results,” said Trefzger. “In Seafreight and Overland in particular, our focus continued to be on customer service, cost efficiency and digitalization.”

Seafreight, K+N’s key revenue earner, saw an increase of 7.3% year-on-year to CHF5.6 billion in the first nine months, with EBIT up by 10.2% year-on-year to CHF357 million over the same period.

“Seafreight posted a very solid net turnover growth and once again improved its performance in the third quarter,” said a K+N statement.

“Kuehne + Nagel grew significantly in a stagnating overall market and, with 3.67 million standard containers (TEU), the group transported 152,000 units more than in the same period of last year (up 4.3%).”

The company said the main success drivers of its Seafreight unit were a “selective growth strategy” and “effective cost management.”

More articles by Mike

Shippers and container lines will likely settle the “who pays how much” dilemma of new low-sulfur IMO 2020-compliant fuels in much the same way as they agree on freight rates: They will simply negotiate a price both parties can live with.

That is the view of a growing number of market and fuel experts as box shipping stakeholders face the estimated $11 billion bill due next year because of the introduction of low-sulfur fuels that become mandatory under International Maritime Organization rules on Jan. 1.

Patrik Berglund, CEO of Xeneta, an Oslo-based ocean freight rate benchmarking and market analytics platform, sees no precedent to suggest lines will succeed in billing customers for the full higher cost of the new low-sulfur bunkers. Rather, he believes the market will determine who pays how much.

He argues that oil prices are currently not at historically high levels while ocean freight rates in the current slack season are tumbling on key trades.

“I think the notion of increased costs to run operations for carriers, equals increased rates for shippers, is flawed,” he said. “There’s no historical evidence to support this.”

“Therefore, if higher fuel costs get passed on to shippers in today’s market, we wouldn’t have rate levels that are outside of anything we normally have from market fluctuations due to shifting supply/demand balance,” he added.

No historical precedent

“Also, if you look historically, rates or costs for shippers do not move in correlation with oil price.

“It’s beneficial from the seller side to focus on cost increases as IMO 2020 regulations come into effect. But whether those costs can be passed on to the customers remains to be seen. The state of the market — the supply/demand balance — will be the key decisive factor.”

“Bewildered” shippers and forwarders have expressed confusion over the timing and transparency of new bunker charges already being introduced by container lines as they phase in the fuels. Shippers are particularly wary that container lines might hike the fuel component of freight to compensate for bearish spot rates.

For their part, carriers have insisted they will only charge for the “extra cost of compliance.”

A recent survey of transport professions by Stifel shed some light on how container shipping stakeholders think the IMO 2020 bill will be divvied up. Responses suggested that shippers and retailers would bear the biggest impact, followed closely by consumers, then carriers and finally freight forwarders.

“As expected, capacity providers — ocean and surface transportation — tend to think shippers will eat the most cost, while shippers expect carriers to shoulder most of the burden,” reported Stifel. “What all parties did agree on, however, was that consumers will be among the most affected groups.”

No more than $500/FEU?

Among those with exposure to trans-Pacific container rates, roughly 20% of those surveyed by Stifel anticipated a drag of less than US$150 per FEU, 60% anticipated between US$150-$300/FEU and 20% expect US$300-$500 per box. “No one expects more than US$500,” said Stifel.

The problem faced by lines is how to explain to customers in a transparent way what exactly they are paying toward the higher cost of low-sulfur fuels.

For example, the price differential between low-sulfur, IMO 2020-compliant fuels and the noncompliant (unless ships are fitted with scrubbers) heavy fuel oil currently in use varies by $150-260 per ton at present. However, with so many factors such as vessel size, feeder costs, voyage times and regional fuel price differences, translating bunker price differentials into a price for a specific box movement for each customer is nigh on impossible.

“There are also many trades which are decidedly one way (and empty on the backhaul). Who pays for the extra cost for the empty leg?” asked Hans-Henrik Nielsen, global development director at Dubai-based CargoGulf, the NVOCC operating arm of Gulf Agency Group.

“Many lines may want to align the cost of such a move with the ‘freight paying leg’ and thus the cost would increase further.”

Nielsen believes lines will price the new fuel through a range of mechanisms in a bid to extract as much as they can from customers, much as they do with surcharges and spot freight rates.

Forget transparency

“Container operators have never been good at transparency — and who says transparency is needed?” he said. “The container operators will try to profit on this. They have always done so. War risks, bunker adjustment factors, etc. They cannot help themselves.”

He expects mainline operators to “try to play the political card or eco-friendly card,” which “they might even get away with” at first, but eventually he expects the market to decide pricing.

“I have no doubts that there will be concessions given to larger clients because, after a while, [more expensive fuel] is just a cost of doing business,” he added.

“You do not see Electrolux or Samsung complain about costs increasing for washing machines or flat screen tellies. There is no surcharge in the store to buy a TV. You walk in, there is a price on the telly which you accept or you don’t.

“Shippers and carriers are not friends — that dialogue was back in the old conference days. It is a client/supplier relationship. You can have excellent working relations, but one party does not owe an explanation to the other party for its pricing or choice/rejection of service.

“IMO 2020 will not go away — the political global decision has been made. So it is a cost of doing business. But after a while the surcharges will disappear. A surcharge by nature implies it will go away again when things normalise.”

FreightWaves articles by Mike

Costamare reported third-quarter 2019 results that beat analysts’ expectations as the container ship lessor said the supply of post-panamax ships is tightening going into the end of 2019. 

Costamare reported adjusted net income to common shareholders of $30.9 million for the third quarter, tripling the figure reported a year earlier. 

Adjusted earnings per share of $0.26 handily beat estimates of a $0.19-per-share profit in the quarter.

“During the third quarter of the year, the company delivered profitable results. As was the case in the previous quarter, net income and earnings per share more than doubled, boosted by increased charter rates and the addition of new ships,” said Gregory Zikos, chief financial officer of the Monaco-based Costamare. 

Including one-time expenses, the company reported $28 million in net income to common shareholders.   

Revenue from chartering container ships to liner operators came in at $123.6 million for the quarter, a gain of 35%.

The company said charter revenue was higher thanks to the addition of four new container ships to its fleet and a higher number of operating days for the company’s 60 vessels.

The company extended or entered charter agreements for four post-panamax vessels during the quarter, with an additional nine vessels below 5,500 twenty-foot equivalent units (TEUs) in capacity seeing charters extended.

Costamare said charter rates for the larger container ships continued to improve and there is “limited supply available for the post-panamax sizes” above 5,500 TEUs.

“We have 18 post-panamax ships coming off charter over the next year, which positions us favorably, should market momentum continue,” Zikos said.

U.K. police have launched a murder investigation after the
bodies of 39 people were found inside a truck container on an industrial estate
in southern England.

Police reported that everyone inside the container – 38 adults and one teenager – was found dead, adding that identifying the victims would be a “lengthy process” and their nationality was unknown.

The truck’s
driver, a 25-year-old man from Northern Ireland, has been arrested on suspicion
of murder.

Police believe the truck traveled from Bulgaria and entered
the U.K. on October 19 via the Welsh port of Holyhead, a major roll-on/roll-off
entry point for traffic from Ireland. The truck and bodies were discovered by
police shortly before 01:40 BST at Waterglade Industrial Park in Grays, Essex.

Early indications point to human trafficking by criminal
gangs as the cause of the deaths. Indeed, the National Crime Agency (NCA) has
sent officers to assist the investigation into the 39 deaths with a remit of
identifying any involvement by criminal gangs.

“We are working with partners
including Essex Police and Immigration Enforcement to provide specialist
support to urgently identify and take action against any organised crime groups
who have played a role in causing these deaths,” a
spokesperson told FreightWaves.

If the deaths are proven to be the result of people
smuggling, the words of Duncan Buchanan, policy director at the Road Haulage
Association (RHA), a U.K.-based trucking representative body, will be proven
sadly prescient.

Speaking to FreightWaves earlier in October, Buchanan predicted a rise in human trafficking and the targeting of trucking by criminal gangs ahead of the scheduled exit from the EU of the U.K. on October 31 after when checks at U.K. ports are expected to be tightened.

“We’re in a situation now that 40, 50, 100 miles away from the
main exit points of the EU there are migrants trying to get into vehicles,” he said. “It’s a
serious problem. It hasn’t gone
away; in fact, there has been an increase because the smugglers have been
saying Britain is going to be ‘closed’ after October 31.”

Seamus Leheny, Northern Ireland policy manager for the
Freight Transport Association (FTA), told the BBC that if the truck discovered
this morning is found to have originated in Bulgaria, getting into Britain via
Holyhead was an “unorthodox route.”

He added that, after reports of increased security checks at
Dover and Calais, “it might be seen as an easier way to get in by going
from Cherbourg or Roscoff, over to Rosslare, then up the road to Dublin”
and then across to Wales and into England.

Arrests related to human trafficking to the U.K. are certainly on the rise. On October 21 the NCA reported the arrest of five men suspected of hiding migrants in a cattle truck in a bid to smuggle them into the U.K. The arrests followed the discovery of 13 migrants, including one child, found in a hay compartment on a lorry carrying livestock in the port of Calais, France, on October 19.

“Border Force officers had
searched the vehicle acting on information from the NCA,” said an NCA statement. “After
the search the lorry driver, a British national, was detained by the French
authorities.”

Four more men, aged between 23 and 39, were then arrested by
the NCA on suspicion of facilitating immigration in a series of raids in
Romford and Brentwood, also located in the county of Essex, just a 30-minute
drive from where the 39 people were found dead this morning.

Richard Burnett, RHA chief executive, said the investigation
into the 39 deaths was ongoing and “our
thoughts are with the families of those who have lost their lives.”

He added, “Whatever
the circumstances of this tragedy it highlights the danger of migrant gangs’ people smuggling on lorries.”

A representative of the FTA added that migrants were
currently targeting all Northern European ports, not just Calais in France.

“FTA is calling for the
government to maintain close contact with its European counterparts to ensure
security systems are maintained,” added
the representative. “The
safety of both the drivers and migrants must be protected. Our thoughts are
with the families of those who have lost their lives so tragically.”

In a rare bit of good news for container shipping, Maersk said full-year operating earnings will come in better than originally forecast.

The world’s largest ocean carrier on Monday said earnings before interest, taxes, depreciation and amortization (EBITDA) for 2019 will be between $5.4 billion and $5.8 billion, compared with an earlier forecast of $5 billion.

The Copenhagen-based company increased its forecast thanks to better-than-expected performance in its ocean freight segment. Despite lower freight rates and slower global demand growth, ocean freight’s results were “driven by strong reliability and capacity management combined with lower fuel prices.” Maersk also said it saw improved margins in the terminal and towage business.

Maersk said third-quarter revenue came in at $10.05 billion, down slightly from a year earlier but up 4% sequentially.

EBITDA for the third quarter was $1.656 billion, up 22% sequentially and 45% from a year earlier.

Revenue for the first nine months of 2019 is coming in at $29.22 billion, up 1.3% from a year earlier with EBITDA of $4.25 billion, up 57% from a year earlier.

The third quarter of 2019 saw some of the best months for container shipping in terms of volumes thanks to front-loading ahead of the imposition of U.S. tariffs on Chinese goods. July and August import volumes of 1.96 million and 1.97 million twenty-foot equivalent units (TEUs), respectively, were the best months for North America this year, according to the National Retail Federation. It expects September volumes of 1.9 million TEUs, the third highest in 2019. 

But spot shipping remains stuck at multi-year lows due to overcapacity on major trade lanes and the slowdown in U.S.-China trade volumes. The Freightos Baltic Daily Index sits at a 15-month low of $1,240 per forty-foot equivalent unit. (SONAR: FBXD.GLBL) 

CMA CGM has launched a new range of import and export financing products in partnership with global invoice platform company Incomlend.

The Shipfin Trade Finance (STF) portfolio of products is, according to the carrier, “simple, reliable and rapid,” offering importers and exporters tailored financial solutions ranging from extended payment terms to financing advances.

CMA CGM’s strategy is to encourage customers to acquire the services via its various platforms, establishing the French carrier as a single source for trade finance and transport solutions.

“By launching Shipfin, the CMA CGM Group goes even further in the customer relationship,” said Mathieu Friedberg, senior vice president, Commercial Agencies Network, CMA CGM Group. “We draw on our more than 40 years’ experience acquired at the heart of international trade to offer innovative, simple and relevant solutions beyond shipping to support our customers’ international development.”

STF products are currently available on the CMA CGM, ANL, APL and CNC platforms to customers based in pilot countries India, Dubai, Singapore, Hong Kong, Malaysia, Indonesia and the Philippines.

“The Group is working to make Shipfin Trade Finance available next year in Europe and the U.S.,” the CMA CGM Group told FreightWaves.

The STF range has been launched with two initial products: Supply Chain Financing aimed at importers and Cargo Financing for exporters.

Supply Chain Financing allows importers to free up working capital via extended payment deadlines of up to 120 days and optimized payment tracking, according to CMA CGM.

Cargo Financing frees up capital for exporters by allowing them to “maintain their cash position by receiving payment as soon as they load their goods, for up to 90% of the value of the invoice,” said a statement.

Cargo Financing also optimizes tracking of invoices and customer receivables and reduces risks through the use of CMA CGM’s credit insurance coverage, according to the carrier.

Nearly all maritime kidnappings and hostage-takings in the nine months to the end of September this year took place in or near the Gulf of Guinea, said global maritime piracy watchdog the International Maritime Bureau (IMB).

New data from the IMB shows that worldwide there have been 70 actual kidnappings of seafarers and 49 hostage-takings year to date. The West African country of Guinea alone saw 23 hostage-takings, Nigeria a further 12 and the West African country of Togo an additional seven. Cameroon and Nigeria were hot spots for kidnapping, too.

The IMB says about 86% of all maritime hostage-taking and 82% of all actual kidnappings happen in or near the Gulf of Guinea. The body adds that there were at least 119 incidents of piracy and armed robbery against ships  from January through September. That’s a 31% decline compared to the 156 incidents recorded in the same period in 2018.

Incidents are down globally but Gulf of Guinea remains a concern

“Although incidents are down, the Gulf of Guinea continues to be a concern for piracy and armed robbery-related activities, with kidnappings of crew members increasing in both scale and frequency,” said Pottengal Mukundan, a director of the IMB.

That said, the IMB freely concedes that there’s a high degree of under-reporting. The assistant director of the IMB, Cyrus Moody, told FreightWaves that the IMB’s own research indicates there’s roughly a 50% under-reporting of incidents.

Possible reasons why  include the fear that insurers will hike rates if it is known that a ship was attacked. There are also fears that if an attack on a ship is reported then criminals may “go harder on the crew,” the next time the same ship is attacked. Some operators may worry that local authorities could hold or delay the ship.

Gulf of Guinea – piracy at the center of the world

The Gulf of Guinea lies between West Africa and Central Africa. It’s the sea-space at zero degrees longitude and zero degrees latitude. There are different definitions what constitutes the Gulf of Guinea. The international “Guidelines for Owners, Operators and Masters for protection against piracy and armed robbery in the Gulf of Guinea region,” a document issued by the major global maritime shipping organizations, applies to the waters off the countries of Ghana, Togo, Benin, Nigeria and Cameroon.

However, the Guidelines also say pirate attacks have occurred as far south as Angola and as far west as Sierra Leone, so the area of threat is enormous.

The Gulf of Guinea is an attractive area of operations for marine criminals for several reasons.

Many high-value, poorly-defended targets

Firstly, it has many high-value targets.

There are many ships because there are numerous ports and a great deal of cargo. And, because vessels are entering or leaving port, ships may be traveling slowly. They may be sitting low in the water, and are therefore easier for pirates to board, because they are fully laden. Or they may be at anchor waiting for commercial instructions or repairs or for any number of other reasons. As Moody pointed out, ships are constantly entering and leaving, or waiting around or in, the area of high threat.

Secondly, the targets are poorly defended because of certain provisions of international law. That is also the reason why experts talk of “piracy” and “armed robbery against ships,” and why there is a distinction between the two in statistical tracking, even though they’re physically the same crime.

What is “piracy”? What is “armed robbery against ships”?

A summary of Article 101 of the UN Convention on the International Law of the Sea (UNCLOS) indicates that maritime piracy is any illegal act of violence committed for private ends by the crew or passengers of a private ship and directed on the high seas, or in a place outside the jurisdiction of any country, against another ship.

The International Maritime Organization, a specialized body of the United Nations, uses the international definition for piracy to define “armed robbery against ships” but with the difference that the crime happens within the borders of a country.

The key parts are the concept of “high seas” and “outside the jurisdiction of any country.” Or, to put it another way, whether a maritime crime is “piracy” or an “armed robbery against a ship” depends upon where the crime happens in relation to the international/territorial border.

So a crime against a ship in the middle of the Atlantic Ocean is piracy. But a criminal attack on a ship in, say, the Port of Long Beach, California, is armed robbery against a ship in the U.S.

Where is the maritime border?

On land, a man-made barrier, or a natural barrier such as a river, often marks the location of the border. While there are no visible barriers or landmarks at sea, nonetheless, there is still a border. Under UNCLOS, a country’s sovereignty can extend from the coast out to sea up to a limit of 12 nautical miles (about 13.8 U.S. miles). This sea-space is known as the territorial sea.

Just as crimes against crew and ships in U.S. territorial waters are subject to U.S. law, crimes against crew and ships in the waters off Ghana, Togo, Benin, Nigeria and Cameroon are subject to the criminal laws of those countries. The close proximity of all those sovereign nations poses several challenges.

Hot pursuit and armed guards

Law enforcers have a right of “hot pursuit” under article 111 of UNCLOS. Marine police (or navies) can chase and capture criminals who flee out of a country’s jurisdiction and onto the high seas. But if the criminals cross the border into a neighboring country, the chasing police lose that right. And, just as happens with neighboring countries the world over, police and criminal investigators cannot wander freely back and forth across borders to tackle crime.

A few years ago there was a big problem with Somali pirates attacking ships as they sailed through the Gulf of Aden. Deployment of armed guards aboard ships was the primary means of tackling Somali piracy along the east coast of Africa. Unlike ships in the Gulf of Guinea, however, ships sailing off the coast of Somalia were attacked in international waters and therefore the law of the local coastal state did not apply. So armed guards were a legally sensible response.

But that wouldn’t work in the Gulf of Guinea. Ships have to enter and leave the territories of the coastal states to visit the local ports. Nations jealously guard their monopoly on the right to use armed force in their jurisdictions and generally do not allow large numbers of openly armed foreigners to enter and hang around in their territory. So ship-borne foreign armed guards would not be allowed.

Local law enforcement and judicial systems

National sovereignty presents a further problem to deterring or stopping pirates because not every country has a well-developed law enforcement and judicial system. There’s a good reason there’s no piracy epidemic immediately off the coast of, say, the state of Oregon. U.S. law enforcement would take decisive action against repeated acts of organized piracy or armed robbery in that area. And the U.S. has prosecutors, courts, judges and a penal system to try, convict, sentence and imprison pirates and other maritime criminals.

That’s not so in the Gulf of Guinea.

“Nigeria did not even have piracy as a crime,” Moody explained to FreightWaves. So piracy (if outside the territorial sea) or armed robbery against ships couldn’t even be prosecuted as such in Nigeria. However, Moody pointed out that Nigeria has more recently enacted laws against piracy.

“You always have maritime crime where the response from law enforcement and the judicial system is not adequate or robust,” Moody told FreightWaves.

Nigeria begins to tackle the problem

However, Moody added, there is a sense that Nigeria acknowledges there is a problem and is taking the first steps to tackle offshore violence.

Moody said there was a regional law enforcement conference recently to discuss the issue, and local authorities are thinking about partnerships to carry out security exercises and safeguard local waters.

And, in the last few days, the Nigerian Navy has announced that it will use designated maritime courts to handle cases of piracy and maritime armed robbery.

Moody also said the Nigerian Navy will respond to calls for help.

“We have good cooperation with the Nigerian Navy and the local maritime administration. We’ve relayed information to the Nigerian Navy who have gone to assist,” Moody stated.

But there are other obstacles to enforcement.

Africa is huge. The sea-space is vast

Africa is huge. And the Gulf of Guinea sea-space is vast. The straight-line distance from the western border of Ghana to the southern border of Cameroon is about 910 U.S. miles. If a mariner were able to sail the same distance in a north-northeast direction in a straight line from the southern tip of Florida, he or she would finish at roughly the same latitude as Richmond, Virginia.

Moody pointed out that if a navy does respond to a distress call in the further reaches of the Gulf of Guinea, “it’s a few hours of sailing. Pirates have been, done what they need, and have left”.

That’s a problem because pirates often kidnap and hold crew in some pretty inhospitable terrain. Nigeria alone saw 23 kidnappings and 12 hostage-takings of seafarers, and Cameroon saw another 23 kidnappings. Areas where hostages are held include marshes, rivers, swamps and jungle. So there are physical as well as jurisdictional barriers to tracking down pirates and robbers who have kidnapped crew.

Shipping industry executives do not discuss how much they pay in ransoms, and the crew are held hostage during the negotiation period for, on average, about four to 12 weeks.

Unlike their Somali counterparts, West African pirates kidnap crew, rather than hijack ships, because local law enforcement agencies would be able to track down and recapture a large ship. The Somali pirates were able to hijack and seize ships because they operated from a failed state with no local law enforcement.

The typical attack by West African pirates and robbers involves the pirates climbing aboard to loot the ship of small property and the crew’s personal effects and to kidnap the crew.

“There’s lots of violence”

“There’s lots of violence,” Moody explained. “There have been no fatalities this year, but crew do tend to get injured. The typical criminal activity is yelling, shouting and slapping to intimidate and get compliance from the crew. With the slightest resistance from the crew, they tend to get roughed up.”

West African pirates tend to be armed with knives for cutting ropes, crowbars for breaking open doors and lockers, and heavy-caliber automatic firearms.

Apart from ransacking the ships and kidnapping the crew, the pirates also want to steal cargo. Typically, they seize smaller quantities of refined products of crude oil, such as gasoline, that can be sold in the local markets around the Gulf of Guinea.

About the IMB

The IMB is a not-for-profit and non-political specialist division of the International Chamber of Commerce set up in 1981 as a “focal point” to help counter international maritime crime. The International Maritime Organization (a division of the United Nations) adopted a resolution on November 20, 1981, urging governments and all other interested parties to co-operate and share information with the IMB to help in the fight against maritime crime. 

One of the key functions of the IMB is to relay live piracy and armed robbery information. In the event of an attack, the IMB can relay information to local maritime police and navies who may be in a position to intervene. Secondly, the IMB can broadcast and emergency alert to all ships in the region so that they can take countermeasures or, if appropriate, render assistance. The warning will also let ships that are about to enter the high threat area. 

As maritime piracy and armed robbery takes place all over the globe, the IMB will accept reports from around the world, 24 hours a day, seven days a week. 

The IMB urges ship operators and other appropriate persons to file incident reports. “Your information may save lives,” the IMB has stated. 

Contact the IMB’s 24 hour anti-piracy emergency helpline: + 60 3 2031 0014

The IMB can also be contacted by fax and email:

Fax: + 60 3 2078 5769
E-mail: imbkl@icc-ccs.org / piracy@icc-ccs.org

Pictured: WiseTech founder and CEO Richard White. Photo: supplied by WiseTech.

The last couple of days took a dramatic turn with U.S. short seller J Capital making explosive allegations that global logistics software behemoth, WiseTech – a A$9 billion (US$6.2 billion) company, has been seriously misleading investors. WiseTech has robustly denied these claims.

In other news CTI Logistics pulls in A$212 million of revenues and, meanwhile, trucking industry association NatRoad says that truck rest stops are “desperately needed”. 

WiseTech hits back at allegations of financial trickery

Global logistics and productivity software provider WiseTech Global (ASX: WTC), which has offices and customers around the world and in North America, has rejected allegations of financial impropriety made by short-sellers J Capital Research. WiseTech shares dropped by about 10% to A$30 (US$20.56) on the release of the J Capital allegations. One Australian dollar equals about 69 U.S. cents.

WiseTech is a major logistics software company. The software company has a market cap of about A$9.5 billion and has over 12,000 logistics company customers in more than 150 countries. Its main product, CargoWise One, executes over 51 billion data transactions annually.

In reporting on the story, it is necessary to summarize the allegations made by J Capital and WiseTech’s response. We do not ourselves make, or support, any allegation against either company or any of the individuals involved.

J Capital’s allegations

In an aggressive note and research report, J Capital makes an estimation in which it alleges that WiseTech overstated profit by up to 178$ in the three years since the company listed. It also alleged that the company’s underlying organic growth was 10% and not 25% as stated by the company. J Capital claimed the estimated 80% of the top line growth was from purchased revenue. J Capital makes a variety of further allegations namely that European revenues were overstated, that subsidiaries are shielded from audit; that the auditors “aren’t looking at the numbers closely enough”; that the increase of profit growth post-IPO is “suspect”; that its core product “is held in low regard” by clients; that the company is manipulating its accounts and that “insiders are cashing in on the story that WiseTech is pushing out to investors”.

WiseTech fires back

Referring to the J Capital report, WiseTech responded late yesterday with a detailed denial of the allegations made against it. WiseTech stated that the J Capital report “contains many claims and allegations that are untrue. WiseTech rejects entirely the allegations of financial impropriety and irregularity contained in the [J Capital] document. The Report was published without prior inquiry to WiseTech”.

The software company noted that J Capital is a short seller and that it had disclosed it could benefit from a decline in the WiseTech share price.

“We are very concerned that the allegations in the document may mislead and manipulate the market to the detriment of WiseTech’s business and its shareholders, large and small. Our financials, our revenue, our profit, our growth rates and our product have all been verified comprehensively and form part of the external independent audits conducted annually,” the software company said in a statement.

The company added that it supports investigations by Australian regulators into attempts by overseas domiciled short sellers to target Australian Stock Exchange-listed companies. It also supports prosecuting unconscionable conduct. 

WiseTech’s detailed response

The software company said there had been no overstatement of profit, growth or revenue and that results had not been inflated. WiseTech said J Capital’s estimates for revenue growth were incorrect, adding that the software company’s disclosures between organic and acquired revenue growth had been made in full. It noted that J Capital had made allegations that capitalizing costs of software development had exaggerated profits and revenues. WiseTech then stated it has complied with Australian and international accounting standards, explaining that it had “appropriately” expensed software efforts including maintenance, bug fixes and other software investments not likely to be commercialized.

WiseTech added that European revenues had not been overstated as revenues are allocated to region, which is based on the customer’s invoicing location. WiseTech points out that some of the company’s biggest customers, such as DHL, are based in Europe and so WiseTech revenues from such customers are allocated to that region. WiseTech added that J Capital also excluded six of WiseTech’s largest European acquisitions. “This has a significant impact.”

The software company added J Cap’s allegations about WiseTech’s growth may mislead as J Capital appears to have compared operating profit in financial year 2016 with net profit after tax in financial year 2019. WiseTech also pointed out that pre-IPO accounting is “not unusual” and that it made investor materials “on a pro forma basis excluding one-off IPO costs as well as in the statutory form… WTC’s approach is consistent with other business that IPO”.

WiseTech also noted that all of its subsidiaries are required to maintain detailed accounting transaction records to support group auditing. The software company also stated that auditors include the companies Grant Thornton and KPMG. WiseTech adds that, in the 2017 financial year, one of the audit partners “necessarily changed to accommodate her maternity leave and the reviewing partner took on the role”. WiseTech added that KPMG has released an unqualified independent auditor’s report for each year since becoming the company’s auditor.

Finally, WiseTech denied the allegation that the company’s report is designed to facilitate insider “cash in”. The company noted that the two founders, Richard White and Maree Isaacs, currently own over 154.1 million shares with a value of over A$4.6 billion.

“Richard sold only 5.8m shares for a total value of $73m. Maree has sold no shares. In the period since listing, long-term directors and shareholders, Charles Gibbon and Mike Gregg have sold a combined 5.7m shares, which they have held since 2006, for a total value of $106m. The same two directors continue to hold 31.2m shares with a total value of $936m”, the company states.

CTI reports revenues of A$212 million

Road transport company CTI Logistics (ASX: CLX) reported its annual results late last night after market close. Revenues from operations were A$212 million and profits before income taxes were A$1.79 million. Profits after tax were A$788,074.

Meanwhile, revenues from other income were A$945,728. Profit before income taxes stood at A$1.79 million and the profit for the year, after all taxes and costs, was A$788,074.

Total revenues of A$212 million represented a 15.92% increase on the previous year. Most of that increase was driven by a boost in transport revenues, which were the biggest revenues generated by the company. Transport revenues stood at A$121.05 million, which accounted for about 57% of the company’s revenues. It’s a big increase from the previous year. In 2018 the company’s transport revenues stood at A$94.41 million. So the company has increased its transport revenues by A$26.64 million, a 28.21% increase.

The boost in transport revenues was driven by the acquisition of Jayde Transport and Stirling Freight Express. Both acquisitions are reported by the executive chairman, David Watson, to be “complete” and they are are operating under the CTI Logistics branding.

Logistics revenues accounted for another A$84.4 million, which was 39.83% of the total revenues generated. Security services generated another A$6.13 million of revenues.

The two biggest costs, by a wide margin, were employee benefits (at A$70.14 million) and subcontractor expenses (A$68.39 million). The third biggest cost was motor vehicle and transport cost. A further large cost was property cost at A$17.19 million.

The company also expanded its warehousing capabilities and technologies. It now offers third party warehousing to national clients.

“All of the above came with some cost, including non-recurring moving and establishment costs. In addition, as a services business in a difficult economic environment, we are still seeing significant reductions in activity and increased margin pressure across a wide range of clients,” Watson wrote in the Chairman’s Statement.

CTI Logistics is a Western Australia based company working in the business to business and business to consumer segments. Its operations include couriers,taxi trucks, fleet management, warehousing, biosecurity services, logistics (warehousing, distribution centers, cold supply chain) and freight forwarding, among other things. The company operates a fleet of over 750 vehicles, including but not limited to semi-trailers extendable trailers and truck mounted cranes.

Rest areas “desperately needed”

Australian trucking industry association, NatRoad, has declared that there is a desperate need for heavy truck rest areas in the capital of Australia, Canberra, and the associated Australian Capital Territory.

“The road transport industry is crying out for facilities essential to supporting improved road safety and professional driver fatigue management,” Nat Road has said in a statement following the release of a survey conducted in July and August 2019.

The key findings are that the “overwhelming majority” of professional drivers park on the road when taking breaks. The facilities wanted by truck drivers are parking away from traffic and light vehicle parking; fresh drinking water; rubbish bins; toilets; showers and shade. Drivers also want healthy food instead of food from a major food chain.

The Transported Asset Protection Association (TAPA) has announced that it will explore the benefits of aligning its Parking Security Requirements (PSR) industry standard with the newly established European Commission’s (EC) Safe & Secure Parking Places for Trucks programme. TAPA is an organization that unites global manufacturers, logistics providers, freight carriers, law enforcement agencies and other stakeholders to improve efficiency within supply chains. 

The idea behind the potential alignment of TAPA’s programme with the EC programme has to do with tackling the spike in truck cargo crimes at poorly guarded parking spots. Aligning the standards will help with adoption and thereby quicken the pace of security offered for trucks at parking areas across Europe. 

“At TAPA, we strongly believe that such standards should come from the industry and be for the industry because at the end of the day it is the industry that is paying for it,” said Thorsten Neumann, President and CEO of TAPA EMEA (Europe, the Middle East and Africa) region. Although a vocal supporter of the EC initiative, Neumann reserved some scepticism concerning the manner of its integration with TAPA PSR. 

“We are supporting the EC initiative, and we are part of the experts’ committee. But we still see some administrative hurdles within the entire process. We strongly believe that the process is, by far, the most complicated. It’s not really going into the direction where we foresee significant support coming in from the industry,” said Neumann. 

The issue separating TAPA PSR and the EC is mostly ideological. TAPA PSR has embedded a tiered self-certification programme into its process that can help rapidly increase the number of secure parking sites in Europe. 

The programme was designed by industry experts and provides TAPA members with an online route planning tool that identifies all the parking spots that are PSR-approved. However, the EC has refused to implement the self-certification process to date, bewildering TAPA. 

“We see self-certification as a way to start the process of securing parking spots because if you have excessive administrative hurdles, you can never get parking places certified as they will see it as too much work,” said Neumann. “We are in this triage process, where we are in constant communication with the EC, with the EC being in contact with the [European] Parliament, and the Parliament still pushing back on some areas where the EC needs to adjust.”

That said, the pace at which the standards are aligned needs to be quickened, as year-on-year recorded incidents of criminal attacks on vehicles in unsecured parking spaces have continued to go up at an alarming pace. Last year, the EMEA region accounted for 58.8% of all crimes reported to TAPA, with data from the first half of 2019 showing a 167.6% increase in unsecured parking lot crimes year-on-year. 

Though a part of the rise in recorded incidents might be attributed to a general increase in the percentage of reported crimes, the trend is worrying all the same. 

“We will continue to move forward with our own PSR security standard while our discussions with the EU continue, but we can see a lot of common ground to align our respective programmes and provide a solution to satisfy the high demand for all levels of secure truck parking,” said Neumann. “We are confident that by working together, we can meet our shared goal of making supply chains safer and more resilient.”

The Treasury Department’s Office of Foreign Assets Control (OFAC) on Oct. 17 extended a general license exception to allow U.S. companies to continue doing business with a Swedish oil refiner that is 50% owned by Venezuela’s state oil company.

Petrόleos de Venezuela S.A. (PdVSA) was placed on OFAC’s Specially Designated Nationals and Blocked Persons List on Jan. 28, 2019, for its alleged role in providing financial support to President Nicolás Maduro’s regime.

Under the sanctions, all property and interests in property of PdVSA subject to U.S. jurisdiction are blocked and U.S. persons are generally prohibited from conducting business with the oil company. However, OFAC has issued general licenses that authorize certain transactions and activities related to PdVSA and its subsidiaries within specified time frames.

One of those general licenses covered Stockholm-based Nynas AB, which is a 50% joint venture with PdVSA. Nynas refineries in Europe import Venezuelan crude and refine it into specialty oils for use in asphalt and as lubricants.

In its 2018 annual report, Nynas acknowledged the U.S. sanctions “affected PdVSA’s ability to supply Nynas with the agreed volumes of crude oil that we rely on to make our products.”

“The sanctions target new financial debt where a U.S. person or USD are involved,” the company added. “They do not target any commercial purchases of crude oil from Venezuela or sale of any product derived thereof, but indirectly the U.S. sanctions on Venezuela are causing non-recurring costs for both bitumen and naphthenics supply and higher product costs for alternative more expensive external sources.”

This is the fourth time that OFAC has extended the general license, known as General License No. 13, for Nynas AB. The new General License 13D is valid from Oct. 17, 2019, to April 14, 2020.

The Trump administration has endorsed Interim President Juan Guaidó, who has been blocked by the Maduro regime from taking office since earlier this year. The U.S. government has since turned up trade sanctions targeting financial transactions and exports to Venezuela to pressure Maduro to leave office.

However, the Trump administration said it would remove the sanctions against Venezuela once the Maduro regime exits power.