London's nerve center for cargo shipping
D. J. Walker's words are decidedly uncheery. ``At the moment,'' says Mr. Walker, secretary of the Baltic Exchange here, ``you couldn't have a more gloomy field of activity than trade and transport.'' Much of the world's chartering of ships and of dry cargo takes place on the broad, marble-pillared floor of this historic exchange on St. Mary Axe in the City (the financial district) of London. For shipowners, the problem is that there are far too many ships in the world for the amount of cargo available.
``Freight rates in real terms [after removing inflation] are at the lowest levels ever,'' says Walker. ``It has been a very depressing scene for shipowners.''
In fact, for many shipowners the result has been heavy losses, or even worse, bankruptcy -- financial shipwreck.
There is considerable concern that some bank loans could go down with the sinking ships. International banks, according to one estimate, have as much as $70 billion tied up in loans for ship construction or purchase. After their troubles with loans to developing countries and the oil industry, bankers are hardly eager to face another storm.
The 700 limited companies and 2,300 individuals that are members of the Baltic Exchange are a diverse group. Some own ships. Several dozen are lawyers specializing in the shipping business. A small number are merchant bankers, marine surveyors, naval architects, and marine equipment suppliers.
The majority of exchange members are ship brokers, the intermediaries between shipowners and those seeking to transport goods and materials between the world's ports.
These brokers, as Walker likes to put it, ``scour the world'' to find cargoes for the ships they represent.
``Most business is totally and completely outside British trading influence,'' he notes. The brokers are continuing the tradition of a maritime nation long involved in the employment of ships.
As a result of the distances involved in this business, the average broker will spend one-fifth of his income on communications. Most operate on the basis of a commission running around 1.25 percent of the shipping charges involved in a deal. Their companies are usually small. But their revenues add up annually to some 250 million ($350 million).
Brokers do not face the same financial risks as the shipowners. Nonetheless, the decline in world trade in 1982 and '83 trimmed their business. And the recovery in world trade in 1984 and this year has pepped it up.
``There is a struggle to cover overhead,'' Walker says.
As he sees the situation, there is too much shipbuilding capacity in the world. New ships are still rolling down the ways of shipyards in South Korea, Japan, and elsewhere, sometimes ordered by developing countries, such as Egypt of China, seeking to build up national fleets and ignoring the surplus of ships.
These new ships usually have more-efficient engines than older ships, and thus can be more cost efficient. Adding to the world glut in ships, however, they have forced many shipowners to lay up their older ships or send them to yards in the Far East for scrapping.
A few owners have even scuttled their freighters, planning to collect insurance. Others steam slowly, thereby using less fuel, as they sail from port to port seeking more cargo.
The latest area for overbuilding has been container ships. ``This could be a factor in the immediate future,'' Walker says.
He suspects it will be ``a slow business'' restoring a balance between the supply of ships and the demand for their services.
Meanwhile, the exchange has been seeing more trouble over the sanctity of contracts as desperate shipowners (including governments) try to stay afloat financially.
``People treat contracts as more flexible,'' says Walker, who is the chief full-time executive at the exchange. ``It becomes very hard for people to deal with that.''
The exchange itself is basically just a meeting place or club for those in the ship-brokering business or related areas. Members pay 2,000 ($2,800) for admission and a few hundred pounds a year in membership fees. Most of the people active on the exchange are British, but many firms belong to owners around the world.
Mr. Walker estimates that members are involved in some 60 percent of the available business worldwide in the deep-sea transportation of dry, bulk cargoes, such as iron ore, coal, grain, or fertilizer, and in the international shipping of general goods.
This exchange is not much involved in the transport of crude oil or its derivatives, a relatively simple market dealt with largely by telex and telephone from the office desks of participants. The tanker market has also been severely depressed. The development of the major oil fields in Britain, Norway, and Mexico has brought a sizable chunk of world crude production thousands of miles closer to the massive markets of Europe and the United States, again chopping the need for shipping. Moreover, high oil
prices reduced demand.
The Baltic Exchange is open from 10 a.m. to 4:30 p.m. each working day, but it becomes liveliest between 12:30 and 1:30 p.m., when 600 or 700 members may be milling about the floor. It is there that brokers attempt to ``fix'' a ship with cargo or charter a ship for a specific trip or period of time.
The members will exchange views and gossip, try to get a ``feel'' for the freight market, negotiate the details of a deal, or retreat downstairs for lunch or a drink with a business associate. Some maintain communications facilities at the edge of the floor.
Walker points out that it is easy for brokers to get a list of ships and their locations. What is really crucial, he adds, is ``a personal data bank'' -- in other words, business contacts.
An oral contract reached on the floor is binding and must be respected, the exchange executive says. But probably 99 percent of such contracts are confirmed in writing.
In the last century, brokers would have worn top hats and clerks, bowlers. Nowadays, the members are expected to wear ``reasonable dress'' -- business suits in the case of men, and businesslike attire for the 70 or so women members. Only several years ago the exchange was an all-male bastion.
Members are also expected to conduct themselves in ``a manner fitting and proper.'' When two members are discussing a deal, a third should ``stand off'' to the side and not barge into the conversation. If a member cannot find another, he can page him through a ``waiter'' standing in a rostrum in the middle of the floor.
In a sense, Mr. Walker himself is part of the tradition of the exchange. He took office in 1968, succeeding his father. In fact, since the 1800s, four families have headed the Baltic Exchange, with three other sons succeeding their fathers as chief executive.
The staff of the exchange numbers about 160, most of them in the catering operation and only 20 in administrative positions.
Walker finds his job ``interesting'' because almost any event in the world affects shipping. If the Soviet Union has a crop failure, brokers here can look forward to lining up the transport of more wheat to Soviet ports from Canada, Australia, Argentina, or the United States. When famine strikes Africa, the relief ships are likely fitted with their cargoes of grain here.
The Baltic Exchange also operates futures markets in grain, potatoes, soya, pig meat, and freight charges (the latter only opened this spring). Some 75 percent of its business, however -- and its fame -- hang on ship brokering.