The Institution of Shipping

For someone to get an academic degree in accounting, for instance, it does not automatically qualify them to represent clients on accounting matters. This approach to qualification is not a judgment against the institution granting the degree, but the premise that the professional society of accountants – wherever they may be – make the effort to ensure that their members have to meet certain standards – professional, academic, legal, ethical, etc – and practice the profession under a certain set of rules. There are people who have studied accounting but failed to pass the professional exam, and as a consequence, they ended up slaving in the back office doing book-keeping at a substantially lower pay scale. For the professionals in law or medicine, “passing the bar” is even more critical and demanding. Professional societies go to a great length to ensure that their members are knowledgeable and current and of a certain standing; and they do weed out the “bad apples”. In exchange for maintaining (certain) standards, the profession enjoys a high degree of reputation and its members earn a respectable living.

Having ourselves being in the shipping profession for almost two decades, and only becoming a member – after passing a series of exams – of the Institute of Chartered Shipbrokers (ICS) in the UK in the last three years, and now in the final stages of becoming an accredited appraiser (valuator) with the American Society of Appraisers (ASA) (after again passing series of exams of law, ethics and subject matter) in the USA, it got us thinking that the shipping industry really lacks professional organizations whose credentials are a sine qua non in the industry.

To be a practitioner shipbroker, there are really no professional certifications to hold or minimum body of knowledge to possess in order to practice the profession. True, most young shipbrokers usually have studied a subject matter related to the maritime industry, but there are no minimum standards of the breadth and depth of such knowledge or some uniformity. And, given that ship-brokerage involves aspects of law and finance, the actual field of knowledge can be quite substantial. Most ship-brokerage offices would hire people apparently good at selling and getting compensated on commission and let Darwin’s law of survival do the rest of the work. And, true, certain ship-brokerage houses have their own in-house training, but again, this rests with the employer, who still can opt how to train young professionals.

Why there should not be a mandatory license in order to practice the profession of a shipbroker? Why there should not be professional assurances of standards of practice and also of ethics – including consequences for breaking the rules?

Likewise, almost all shipbroker houses advertise their vessel valuation service as part of their set of services offered. Most of vessel valuations are so-called “desktop valuations” where no physical inspection of the asset is required, and typically ships are valued based on the “last done” – a process shipbrokers should be good at. However, when valuing an asset to the tune of millions of dollars, one would expect more effort and detail to reach a complete valuation, and, actually assurances of the integrity of the valuation process. Ship valuations and appraisals are used for loan documentation and on-going loan-to-value (LTV) tests for the loan, are used for insurance and claims purposes, for arbitration and court proceedings, and many other factions, where small detail is crucial. Yet, the ship appraisal process is approached in a cavalier way in terms of competence, or even worse. It has been known that vessel valuations services can be used to curry favor with principals and shipowners for shipbroking business, and there have been known instances of “broker shopping” for vessel valuations that will render the highest vessel value (dear reader, please keep in mind when asset prices are low and sometimes “underwater” in terms of LTV, vessel values are critical for triggering default clauses with severe consequences). Once again however, there is no professional body ensuring accuracy and integrity of ship valuations. The “loss leader” model seem to work for many parties when it comes to vessel valuations, with the exception of US banks and lessors and equipment finance companies that steadily are demanding that vessel appraisers to be certified, qualified and obeying by a professional code of ethics by the American Society of Appraisers.

The Baltic Exchange’s –another venerable maritime organization to which Karatzas Marine Advisors is a member of – keystone premise is “Our word our bond”, an expression that is rather encompassing of the mentality of the shipping industry. In an industry of perfect competition, it’s an open field for providing services in the maritime industry: the qualified and less-qualified, the competent and not, the good and the bad… There is room for many a “cowboy” and “buccaneer” in the shipping industry, and sometimes lots of caveat emptor, along with people in shipping whose word is their bond.

For strangers new to the shipping industry, sometimes it’s a learning curve before finding one’s bearings in terms of people to depend on. The push for new technologies in shipping is offering a quick bypass to professional credentials as now an agnostic algorithm can be programmed to provide the services; an algorithm build (hopefully) by experts in the field, an algorithm that obeys a set of rules (but not a code of ethics).

Besides technology, there is an underlying trend to bring shipping into an age of an “institution” where services and products are better defined and where the buccaneer and un-predictability element of the business go away. Charterers want to see bigger shipowners with efficiencies and critical mass and predictability of service, shipping financiers want to see bigger shipowners with better practices and efficiencies, etc, Taking inefficiencies and un-predictability out of the system, professional accreditation for services would go a long way.

A new day, a new epoch for shipping? Image credit: Karatzas Images

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