Lexology GTDT Market Intelligence provides a unique perspective on evolving legal and regulatory landscapes. This interview is taken from the Shipping volume discussing topics including sources of finance, compliance initiatives and foreign court decisions within key jurisdictions worldwide.
1 What is the current state of the shipping industry in your country?
Amid a somewhat weak trade cycle in traditional shipping and with offshore oil and gas markets yet to recover, the past year has brought some uncertainties for Singapore’s shipping industry.
In spite of this, the Port of Singapore remains one of the world’s busiest ports, and has managed to sustain its overall growth in 2018. Singapore is home to PSA International Pte Ltd (PSA International), one of the leading global port groups, which participates in around 40 terminals in 16 countries across Asia, Europe and the Americas with flagship operations in PSA Singapore Terminals and PSA Antwerp. Despite the intensification of global trade tensions and declining trade volumes, PSA International handled 81.00 million 20-foot equivalent units (TEUs) of containers at its port projects around the world for the year ending 31 December 2018, which was an increase of 9.1 per cent over 2017. Domestically, PSA Singapore contributed 36.6 million TEUs of containers in 2018, which was in itself an 8.7 per cent increase since 2017, while PSA terminals outside Singapore handled 44.69 million TEUs, which was a 9.3 per cent increase over 2017.
The total cargo throughput in 2018 exceeded 630 million tonnes of cargo, which was also an overall increase from 2017. As cargo throughput for 2019 has already exceeded 260 million tonnes, similar results for 2019 could also be expected if cargo throughput continues at this pace.
That said, growth in other sectors of the industry were perhaps more modest. Despite its status as the world’s largest bunkering hub, bunker sales in Singapore also saw an overall decrease of about 1.6 per cent from 2017, reaching about 49.79 million metric tonnes in 2018. The Singapore Registry of Ships has similarly seen an overall decrease of 122 vessel registrations from 2017, although it saw an overall increase in terms of gross tonnage. Separately, according to the Maritime and Port Authority of Singapore’s recent statistics, while the total vessel arrival tonnage exceeded 2.79 billion gross tonnes (GT) in 2018, this has also been an overall decrease from 2017.
Yet overall, the current state and growth of Singapore’s shipping industry has nevertheless been recognised as being a top performer for 2019 internationally. In April 2019, the Leading Maritime Capitals of the World 2019 (LMC) report ranked Singapore as the top leading maritime capital in the world for the fourth time, topping the list in three areas – shipping, ports and logistics – and attractiveness and competition. In July 2019, the Xinhua-Baltic International Shipping Centre Development Index also listed Singapore as the top global shipping hub for 2019 based on factors such as port throughput and facilities, the depth and breadth of professional maritime support services, as well as the general business environment.
Singapore continues to show its strength and operational capabilities in the provision of ship management and shipbroking services, being home to the third largest fleet in the world at city level, while the second largest fleet is managed from the city.
In terms of maritime services, Singapore has also continued to attract top maritime players to use Singapore as a node to connect globally. The Thenamaris Group is the latest global ship management company to incorporate its commercial ship management office in Singapore in 2018. The World Shipping Council also announced the setting-up of its Asia office here in the past year.
Singapore continues to provide a wide spectrum of companies in the marine insurance value chain, such as Lloyd’s service companies, insurance brokers and International Group P&I Clubs, including Britannia P&I Club, which was granted a licence to underwrite business from its Singapore branch earlier this year. Furthermore, the Singapore War Risks Insurance Conditions was launched earlier this year to enhance the existing Singapore War Risks Mutual cover for ships, including those not registered in Singapore.
2 What are the prevailing shipping market trends affecting your country?
With the dawn of digitisation initiatives in the shipping industry, the Maritime and Port Authority of Singapore (MPA) has collaborated with shipping companies on various digitalisation and automation initiatives to foster innovations with a view to uplift the innovation hub status of Maritime Singapore.
One such initiative was the collaboration between Wilhelmsen Ship Service and Airbus to provide shore-to-ship automated package delivery systems to vessels at Singapore’s anchorage via Airbus’ Skyways unmanned aerial system (UAS). Incisive Law LLC was pleased to have played a role in this initiative. We assisted and represented Wilhelmsen Ship Service in developing a bespoke contractual framework forits UAS shore-to-ship package delivery collaboration, which had to be suitable to operate amid the regulatory framework for the commercial use UAS in Singapore. It is anticipated that deliveries of spare parts, documents, water test kits and 3D printed consumables by unmanned autonomous drones is expected to enable a reduction in manpower and increased productivity. Costing on average 90 per cent less than launch boats, they would remove the risks inherently involved with making launch deliveries and also have negligible environmental impact. The MPA has been facilitating the pilot trials, which started in late November 2018.
The MPA has also sought to facilitate the development of autonomous ships for the shipping industry. In April 2019, the MPA signed a memorandum of understanding with Keppel Offshore & Marine and the Technology Centre for Offshore and Marine, Singapore to develop autonomous vessels in Singapore. These vessels are intended to be used for a variety of applications, including harbour operations such as channelling, berthing, mooring and towing operations. Currently, Keppel Offshore & Marine Ltd (Keppel O&M), through its wholly owned subsidiary, Keppel Singmarine Pte Ltd, has embarked on the development of an autonomous tug to be operated by Keppel Smit Towage, which is expected to be completed in the fourth quarter of 2020.
The integration of blockchain technology in electronic shipping documents is another area which the MPA has sought to develop in collaboration with shipping companies in Singapore. Together with MPA, Singapore Shipping Association, Infocomm Media Development Authority, Singapore Customs (National Trade Platform), and the Bank of China, Singapore-based Pacific International Lines, one of the world’s top 10 shipping companies, completed a blockchain pilot with IBM for an electronic bill of lading (e-BL) in early 2019. By exchanging documents electronically with an e-BL, the transfer is almost instant, and goods would be released earlier. The benefit of procuring a faster process would be especially critical for perishable cargo and would reduce refrigeration costs while the ‘paperwork’ is being resolved.
In a collaboration between the Singapore International Chamber of Commerce and the Singapore-based cross-border trade facilitation solutions provider, vCargo Cloud, another application of blockchain technology was unveiled in Singapore in May 2018, in the form of the world’s first blockchain-based platform for electronic certificates of origin. This platform aims to increase the transparency and security of the transfer of electronic shipping documents. This new blockchain-based platform, focused on e-certificates of origins, allows these documents to be scanned using QR codes and then printed. The number of allowable prints is specified beforehand to prevent duplicates. This would greatly streamline the process of verifying certificates of origins. This technology is expected to be developed in the ASEAN region to expedite shipping processes and the accuracy of these processes by minimising manual paperwork.
By using the blockchain as a platform for smart contracts in these instances, the execution or performance of contracts and contractual obligations between parties become automated, immutable and transparent. A unique benefit of this technology is that in addition to having all documentation and information uploaded onto the blockchain ledger to be accessible by all parties at all times, it becomes virtually impossible for any one party to commit a fraud or unilaterally make changes to documents exchanged in the course of smart-contract transactions appended upon the blockchain. This is because participants on the blockchain are constantly asked to ‘verify’ proposed alterations and additions of data before the same can be appended to the previous chain of data.
Lastly, alongside the growth of shipping lines and alliances, Singapore’s future Tuas Terminal is currently in phase two of its development, being the largest the four development phases. With all container operations in Singapore consolidated at Tuas Terminal by the 2040s, this next-generation port will have a capacity of up to 65 million TEUs, and is expected to boost port capacity and enhance efficiencies. When completed, Tuas Terminal will be digitalised and smart, and integrated with the wider supply chain network. It will be equipped with higher levels of automation, such as automated guided vehicles to transport containers between quayside and container yards.
3 Are there any recent domestic or international political or legislative developments that may have an impact on your country’s shipping market?
Over the recent years, promoting environmental sustainability has been a hot-button topic for the shipping industry. The two global regulatory developments put forward by the International Maritime Organisation (IMO), namely the Sulphur Cap for 2020 and IMO Ballast Water Management (IMOBWM), reflect the increasing need to reduce the carbon footprint produced by international trade.
The IMOBWM addresses the issue of invasive marine organisms that may damage local ecosystems if inadvertently transported in ship’s ballast water tanks, whereas the Sulphur Cap is aimed at cutting emissions of sulphur dioxide, one of the greenhouse gases, in marine fuels by 2020. As 2020 draws close, we examine the measures that have been implemented in Singapore to prepare its maritime industry for these changes.
Singapore has made remarkable progress in readying its ports and bunker suppliers to meet the fuel requirements of the Sulphur Cap. In fact, the Maritime Port Authority of Singapore (MPA) has recently published a list comprising 49 accredited Singapore bunker suppliers that may offer bunker fuels with sulphur content not exceeding 0.5 per cent. These suppliers include big players such as BP Singapore, ExxonMobil Asia Pacific, Shell Eastern Petroleum, etc.
To aid shipowners and port personnel in navigating the Sulphur Cap requirements, the MPA and Singapore Shipping Association have jointly released two technical guidance booklets to assist Singapore-registered ships and ships calling at the Port of Singapore. These booklets raise awareness about the various options available for ship operators to comply with the new regulations, such as the use of approved abatement technology such as scrubbers, alternative fuels and compliant fuel oil. These guidance booklets remain accessible on the MPA website. Further, MPA has launched a five-year Singapore Registered Ships Quality Flag Assessment Programme to monitor Singapore-flagged ships worldwide to ensure that they comply with the high standards of safety of operations and marine pollution prevention.
The MPA had also invested about S$17 million in helping the shipping industry implement the mandatory use of mass flow meters (MFM) for the delivery of distillates. Switching from marine fuel oil to distillates bunkers is one option for shipowners to comply with the Sulphur Cap. This is due to the low viscosity and sulphur content in distillates, which render it in compliance with the sulphur requirements. Since 1 July 2019, Singapore is enforcing the mandatory use of MPA-approved MFM systesm for all distillates bunker delivery, following on from the compulsory use of MFM systems for heavy fuel oil delivery since the beginning of 2017.
4 What are the key regulatory and compliance issues for your country’s shipping market? What’s coming up in the near future?
In the immediate term, ship owners and operators would, as mentioned above, need to be mindful of and continue to take steps to prepare for the implementation of the Sulphur Cap in 2020 and IMO Ballast Water Management (IMOBWM). In the context of the Sulphur Cap 2020, shipowners will need to be prepared for the increased cost of compliant low-sulphur fuel oil, or higher priced marine gas oil, unless they are prepared to retrofit their vessels to run on alternative clean fuel such as LNG fuel or methanol, or install exhaust gas cleaning systems. As for the IMOBWM Convention, the master and crew of vessels should be mindful of and ensure that the relevant conditions under the BWM.2/Circ.62 are complied with.
Additionally, with the implementation of the above-mentioned digitisation initiatives in Singapore, sectors of the shipping community that are likely to be involved in such initiatives or services in the near future would need to be prepared to adapt to the dynamic legislative frameworks that regulate the same.
In the context of the commercial use of UAS for shore-to-ship packages deliveries, Singapore has recently introduced amendments to its legislative framework, including the Air Navigation Act (Cap. 6), which would now regulate the operation of drones in Singapore. Most significantly, there are now formal licensing requirements for the commercial use of UAS in Singapore, which would be applicable to shore-to-ship packages delivery services. Furthermore, the revised legislative framework introduces certain regulatory offences relating to drones, including strict liability offences, that could expose companies and their drone pilots to liabilities for, among others, the UAS carrying prohibited items when flying, discharging anything, whether gaseous, liquid or solid when flying and for flying over or capturing photos or videos of protected areas.
Practically speaking, the true scope and extent of the current regulatory framework remains to be seen, particularly since these legislative revisions are still relatively new. But in any event, companies would need to adapt to this current framework by obtaining the appropriate licences and permits, as well as procuring adequate insurance cover, before undertaking commercial UAS operations. Additionally, companies would need to be mindful of the current regulatory framework when structuring their drone service agreements to ensure that potential liabilities and risks are managed as intended.
In the context of the use of autonomous ships in maritime services and perhaps even international trade, we anticipate that there will be major legislative and regulatory changes that the industry would need to prepare for. Amendments to applicable domestic and international legislation and regulations that assist in apportioning liability in cases where an unsafe ship is involved may need to be considered. For example, section 110 of the Singapore Merchant Shipping Act (Cap 179) provides that the owner and master of the vessel would be liable in respect of an unsafe ship, unless they can prove that ‘arrangements had been made that were appropriate to ensure that before the ship went to sea it was made fit to do so without serious danger to human life.’ For autonomous ships, a new set of protocol or arrangements would have to be developed for either the manufacturers or the onshore personnel, or both, to abide by to be compliant with these provisions.
Further in this regard, it is also worth bearing in mind that the rules under the International Regulations for Preventing Collisions at Sea 1972 (COLREGS) would typically assume some form of human control. For instance, Rule 2 of the COLREGS requires the Master and crew to comply with the Rules, and Rule 5 requires every vessel to maintain a proper look out. It would be interesting to see how either Rule be complied with when there are no crew on board the vessel. Perhaps an expansive and interpretative approach could be taken to construe any shore-side personnel, who remotely operate the autonomous ship as constituting the Master or crew for the purposes of Rule 2, or perhaps legislative amendments could be made to specifically regulate or apportion liabilities in the context of the operation of autonomous ships.
Having said all that, it is usually the case that national legislators are in a position to make speedier amendments than international conventions. It may be the case that autonomous shipping may first be used in a domestic context before its popularity extends to the international trade sector.
Lastly, turning now to consider the advent of the integration of blockchain technology in the shipping industry, we also anticipate several regulatory and compliance issues that may potentially arise. For instance, compliance with regulations for the protection of personal data (such as Singapore’s Personal Data Protection Act) may be an issue, as information uploaded onto the blockchain cannot be erased even after its purpose has been served. To address this issue, perhaps further regulatory guidelines may be introduced regarding the use of blockchain technology to ensure that personal data is not uploaded to the blockchain. There may also be changes in legislation to amend the provisions of the PDPA to accommodate the use of personal information within blockchain technology, if the popularity of using blockchain for commercial purposes rises.
5 What are the shipping industry’s current sources of finance? How do you predict they will develop, and what are the advantages and challenges to financing a vessel in your country?
Singapore has a well-developed shipping finance sector, with more than 20 major banks with shipping finance portfolios offering the shipping community a wide array of financing options. In addition, there are various other financial institutions and private equity arrangers with operations in Singapore.
While traditional debt financing has always been a key source of financing in Singapore, Singapore-based banks and financial institutions are increasingly offering sophisticated and innovative alternatives in their efforts to expand their shipping finance activities. Such innovative financing solutions include structured products, leasing, off balance sheet treatments, sale and leaseback, and derivative and hedging structures. Beyond such shipping finance portfolios, the shipping community also has available options such as shipping trusts and listing on the Singapore Exchange to raise capital.
The shipping finance sector in Singapore is set to grow further in the future. This is because Singapore does not see its role as a maritime hub to be limited to physical trade. Instead, physical trade is treated as part of a multifaceted connectivity that includes data, talent, technology and finance flows, as pointed out by Minister Chan Chun Sing at the Singapore Maritime Lecture 2019. Minister Chan Chun Sing also highlighted at the annual event the need to broaden and deepen Singapore’s maritime service offerings by strengthening complementary adjacent sectors such as finance, insurance, community trading and logistics. Such an outlook on the maritime industry, coupled with the Maritime and Port Authority of Singapore’s commitment to work closely with relevant agencies and organisations to facilitate and foster growth in Singapore’s shipping finance sector, will only strengthen Singapore’s shipping finance sector.
Although European banks have historically dominated the shipping finance market, Singapore has taken steps to create world-class financial infrastructure and expertise to maximise the growing opportunities arising from the changing needs of the shipping community. In addition, being both a global shipping hub and a centre of banking, legal and accounting expertise as well as a clearing house for maritime finance transactional information, Singapore is well placed to provide the shipping community with not only finance but also advice on the latest analytical techniques for financing structures, credit assessment and risk mitigation. This, in turn, allows the shipping community to respond effectively to changing market conditions.
6 Have there been any recent significant domestic or foreign court decisions or arbitration awards that impact on your country’s shipping market?
In the last year, the Singapore High Court issued the following written judgments, which clarified several substantive and procedural aspects that have been of interest to the domestic shipping market.
First is the High Court’s decision in The Mount Apo and the Hanjin Ras Laffan  SGHC 57. This decision concerned claims that arose following a collision thattook place between the capesize bulk carrier Mount Apo and the liquefied natural gas carrier Hanjin Ras Laffan within the westbound lane of the Traffic Separation Scheme (TSS) in the Singapore Strait in August 2015. This was one of the few instances where the Singapore Court had to apportion liability for a collision case in Singapore. The Court determined, among other things, issues relating to COLREGS, fault and approach for apportionment of liability, and held that the decision by Mount Apo to cross the TSS at a shallow angle was in breach of the COLREGS, and that she had failed to take sufficient or any action despite her radio message, which was to let Hanjin Ras Laffan pass the her bow. The Court, therefore, found that Mount Apo must bear the majority of the fault for the collision, and liability was apportioned 60:40 in favour of Hanjin Ras Laffan.
Second is the High Court’s decision in The Yue You 902  SGHC 106. Here, the plaintiff bank claimed against the defendant vessel for a failure to deliver the cargo under 14 bills of lading. The plaintiff had extended a loan to the buyer of the cargo and obtained the bills of lading as security for the loan. The defendant proceeded to discharge the cargo without the production of the original bills of lading at the request of the seller and against a letter of indemnity (LOI). When the buyer defaulted on the loan, the plaintiff sought delivery of the cargo from the defendant. Part of the decision involved the determination of whether the plaintiff acquired a right of suit pursuant to section 2 of the Bills of Lading Act as the lawful holder of the bill of lading, as the cargo was in fact delivered against the LOI before the plaintiff became the holder of the bills of lading. On this point, the Court held that plaintiff had acquired the rights of suit in respect of the bills of lading as delivery of the cargo to persons not entitled to the cargo, such as against a LOI, does not cause a bill of lading to be spent.
Finally, the High Court also released two decisions last year involving judicial sales of vessels in Singapore. In Singapore, admiralty in rem proceedings often involve the judicial sale of the subject vessel. The judicial sale, which is handled by the Sheriff of the Supreme Court (Sheriff), is conducted via a closed-bid tender system on the Sheriff’s usual conditions of sale. To encourage bidders, these conditions of sale require each bidder to submit a deposit of S$50,000 with their bid.
In The Swiber Concorde  SGHC 1297, the winning bidder of a Sheriff’s auction decided not to proceed with the purchase of the subject vessel, and forfeited its deposit. After the subject vessel was finally sold in the next round of bidding, the Singapore Court was asked to consider whether a deposit forfeited from an abortive sale was forfeited to the state or for the benefit of persons claiming the proceeds of sale. The Court held that the Sheriff, as a public officer, does not contract on behalf of the state when he enters into a contract for the sale of an arrested vessel. This is because title to an arrested vessel does not vest in the state upon arrest, but remains with the owner of the vessel until the completion of any judicial sale by the Sheriff. Moreover, the Sheriff is acting under a commission for appraisement and sale, and this is for the benefit of all parties interested in the arrested vessel. Therefore, there is no involvement by the state and no reason for the state to claim over the forfeited deposit. Accordingly, the forfeited deposit would be treated as part of the sale proceeds of the vessel.
In The Long Bright  SGHC 216, the Singapore High Court also had to decide whether an arresting party who wishes to discontinue the action is entitled to release the arrested vessel and stop the judicial sale as of right even after bids from potential buyers have been received. The Court found that once a sale order was granted, it had a duty to protect the interests of all parties with in rem claims against a vessel and not just the plaintiff. In the premises, even if the plaintiff’s claim had been extinguished, say, by way of a settlement agreement, the court retained the power to let the judicial sale proceed to completion. This case is significant as it illustrates that where a plaintiff has no further claims against the defendant ship-owner after the vessel is arrested and the sale order is granted, the court may still proceed to the completion of the judicial sale of the vessel if it is in the interest of all other persons with in rem claims against the vessel. The party who wishes to release the arrested vessel and discharge the sale order must show to courts that such release and discharge does not prejudice other interested parties.
7 What is the outlook for your country’s shipping market? Which sectors are likely to grow, and which not?
The outlook of Singapore’s shipping market remains steady, and certain sectors are starting to pick up. As oil prices rise, the oil and gas industry is slowly returning to life. A 28.3 per cent year-on-year jump in output from the marine and offshore engineering sector in June was the biggest since March 2014. Having said that, even with rising oil prices, there is still apprehension in the market. Banks still tend to be reluctant to lend, and oil exploration and production clients still tend to be hesitant to place and commit to orders. It would take some time before the market is willing to invest in the oil and gas industry again, and market confidence is largely dependent on the sustainability of oil prices.
However, as mentioned above, it can be anticipated that the port services sector in Singapore is likely to see growth in 2019. Furthermore, with the construction of a new port at Tuas mentioned above, which is set to be opened progressively from 2021 to 2040, this new port would be strategic in enhancing Singapore’s ability to cope with predicted growth in container volume around the region. It would also attract new shipping opportunities around the region to Singapore – the new port can accommodate mega-vessels that hold 24,000 standard-sized containers or more, with long linear berths and deep-water capabilities, and will run on the latest port technologies and systems, including digitalisation and automated guided vehicles, yard cranes and quay cranes. In the near future, Singapore hopes to carve its niche as one of the leading container transhipment markets in South East Asia.
The new developments in Singapore’s shipping landscape certainly hold promise for the future. However, given the impending introduction of new regulations and technology within the next year, there is bound to be a cloud of uncertainty as to the various legal and commercial issues that these changes may bring. Nonetheless, the efficiency of Singapore’s maritime industry has ensured that adequate preparations and measures are in place to tackle these developments head on.
The Inside Track
What are the particular skills that clients are looking for in an effective shipping lawyer?
With the ever-increasing sophistication of clients who continue to develop their own in-house legal capabilities, what is now expected from external counsel goes beyond just having competency and a proven track record – these are considered a given. A good lawyer should fulfil the role of a ‘business partner’, providing services that extend beyond rendering legal advice. Lawyers need to be able to sift through the multitude of issues their clients have to grapple with, and provide incisive and timely advice and support, often even before the clients recognise the need.
What are the key considerations for clients and their lawyers when arranging finance for a shipping transaction?
There is a multitude of approaches to shipping finance that would call for differing considerations, depending on, for instance, the type of security the obligors are willing to give and the financier is willing to accept. Generally, however, there would have to be a balance between the quality of security and the transaction price.
At its core, it is likely that the primary security granted in such instances would be the vessel mortgage and assignment of earnings and insurances, in which case one of the main factors may be the flag of the vessel, which may in turn have an impact on the law of the transaction. Certain flags may or may not be acceptable to the financier, the owner or the charterer(s) down the line, for reasons including tax, applicable laws and regulations, and more generally the stability of the jurisdiction.
What are the most interesting and challenging cases you have dealt with in the past year?
We concluded a case this year where we successfully recovered damages for wrongful arrest. This case was significant as it involved a novel point of law, and that is whether a shipowner was entitled to recover, as damages, interest on a sum of money paid into court as security to procure the release of the vessel.
We acted as Singapore advisers in the reorganisation of an international marine fuel logistics company that successfully went through a voluntary Chapter 11 restructuring; the financing involved the cross-guarantee and cross-collaterisation given by the company’s Singapore subsidiaries.