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Interview

with David Chin, Executive Director, Singapore Maritime Foundation (SMF)

22.06.2010 / Energyboardroom

Singapore has built its strengths on the maritime and shipping industry, but SMF was only created in 2004. Can you please elaborate on the choice to establish SMF at that particular point in time?

For historical reasons, Singapore did not have a Ministry of Transport until 2002. Shipping used to be divided into technical and commercial shipping. Technical shipping came under the Ministry of Communications in those days, while commercial shipping was under the Ministry of Trade. When Singapore was first made independent in the 1950s, it was understood that shipping was related to the moving of products and goods. The Ministry responsible for developing Singapore’s export, trade and manufacturing was the Ministry of Trade. The role of shipping was therefore considered to be a support for the work of this Ministry.

Further to this, there are two important governmental acts: The Safety Of Life At Sea (SOLAS) Act and the Carriage of Goods at Sea Act. The first is related to technical shipping and fell under the Ministry of Communications, the second is related to commercial shipping which was handled by the Ministry of Trade through its Trade Development Board. As the Deputy Chief Executive Officer of the Trade Development Board, I was in charge of commercial shipping. In fact, the present Group Director at the Maritime and Port Authority of Singapore (MPA) used to be my Director of Shipping.

In 2002, the Ministry of Transport was formed and technical and commercial shipping were merged. As technical shipping had always been governed by regulators and since commercial shipping had been the responsibility of a pro-business institution, this change initially gained resistance from the private sector. As a result, the private sector started lobbying for a new institution that would take over the old pro-business promotional activities of the Trade Development Board. This eventually led to the establishment of the Singapore Maritime Foundation (SMF) in 2004.

The board of SMF consists mainly of representatives from the private sector, with a role to advise the Singapore government on their maritime needs.- Since SMF is fully funded by MPA, which is in charge of shipping in its totality, the Chief Executive of MPA automatically became a member of SMF’s board. However, all the other members of the board are representatives of the private sector.

Looking at Singapore’s development as a maritime centre, it originally started off with two main shipping activities: the carriage of goods and the technical support in terms of ship repair, which later also developed into shipbuilding and offshore. The two main sectors were thus grouped as shipping and shipyards. SMF’s board will always include at least two representatives from each sector.

As Singapore developed beyond physical shipping, there was a move into shipping services. Attracting shipowners to Singapore and developing Singapore as a shipowning centre brought along a service industry with services such as financing, dispute settlement, arbitration, ship brokerage, to name a few. Whereas the physical part of shipping dates back hundreds of years, the shipyards in Singapore only started developing in the late 1960s, early 1970s. The rise of ancillary shipping services, in turn, started around the late 1980s and early 1990s. Because of the role of this service industry, SMF would additionally have one representative of the legal sector and one representative of the ship financing sector on its board. That is why the Managing Director of the biggest ship finance bank in Singapore, DnB Nor Bank, is on the board of SMF. One of the biggest maritime arbitrators, former Judge Mr. Christopher Lau, is also on our board. From its inception, SMF’s board consists of the top shipping, shipyard, finance and maritime law people related to Singapore’s shipping industry.

These board members decide on what programmes SMF should put in place, while a second level consists of an advisory panel and working groups to support more specific sub-regional maritime-related topics.

Your chairman Mr. Chia announced that he wanted to promote the maritime service industry. What is the rationale behind this push and what is SMF going to do to put this into practice?

In a way, the shipyard and shipping sectors are very established. Even in the first six years under the chairmanship of Mr. Teo Siong Seng, SMF has been doing initial work on the services sector. Now, after a period of time, this preparatory work has come to a stage where there is sufficient critical mass to develop this sector further and give it an even stronger push. This preparatory and developmental work was necessary to properly prepare a strong development of the maritime ancillary services sector.

The reason to push this industry is the fact that after some time, Singapore– may lose its physical side of the industry. We have already seen this happening in Europe. The reason why a space-scarce London is still important is because of its services. In the old days, London was a major maritime port. I went to Newcastle to study shipbuilding in the late 60s and early 70s because London was the centre of the maritime world and Newcastle was the centre of shipbuilding, which is obviously no longer the case today. The same thing may happen to Singapore in future. A maritime ancillary services sector will have a more sustainable ability to hold the maritime industry together.

There are two key examples of sectors in which Singapore can grow further, being ship finance and maritime arbitration. In terms of ship finance, the unfortunate disadvantage of Singapore’s small size is that shipowning and ship finance activity is relatively new. Singapore’s existing banks are therefore more comfortable to lend money for commercial properties, housing, and so on. Oil rig financing for example is very technical and has now moved away from debt to equity financing. The reason for this is that debt financing requires collateral, creating certain limitations. Once there is no sufficient collateral anymore, companies can look into equity financing instead. An IPO has been one way to do so but can obviously only be done once. Therefore, when shipping companies and entities needed more funds, they started looking at project financing. In order to define whether such projects are “bankable”, the financial institutions need shipping experts, which is where German and Norwegian banks such as DnB Nor Bank come into importance. Singapore’s local banks are not quite there yet. Slowly but surely, a series of promotions will lead to a shift from these experts towards local banks. Singapore’s ability to be a maritime hub will be impeded if there are not sufficient banks here. Attracting foreign banks into Singapore is important, at the same time, it will be much more sustainable for the nation to grow the local banks..

One way to grow the shipping knowhow of Singapore’s local banks is to employ shipping people. The other way is to give shipping people the funds to make shipping decisions, which is what we refer to as a shipping trust. This basically implies that a company is being formed by putting shipping people in charge, convincing the public of the qualities of these people, and selling of the units of this trust. With the money put in by the general public, the people in charge of the shipping trust make the bankable decision in using these funds to purchase ships. Because of human nature, the local banks will automatically start copying this behavior as they follow the shipping professionals in their approach. Thereby, the shipping trusts backed by shipping professionals can encourage the non-shipping banks to move into this field.

The government of Singapore has worked very hard to convince people to develop shipping trusts. First, the shipowners needed convincing to allocate part of their fleet for these trusts to start with existing ships. Then the general public required convincing that these investments were as good as common shares in the stock market. In a next step, the Monetary Authorities of Singapore and the Singapore Stock Exchange had to be shown that these shares are well regulated with controllable risk. Therefore, the Business Trust Act had to be amended to make it viable for shipping. All this was done in 2004 and 2005, resulting in the launch of the first shipping trust in April 2006, eight months after the USA launched its first shipping trust. Today, there are three shipping trusts in Singapore while maritime banks are also coming in. That is why SMF feels there is a critical mass now to give banking and ship finance a solid push.

Similarly with arbitration, Singapore has traditionally been a maritime centre where maritime disputes were of course inevitable. In the past, these disputes were either settled in London or on an ad hoc basis in Singapore without much institutionalization, promotion or development. SMF understood that the further development of these services required a proper set of rules. Similarly, it needed to be shown to the world that these rules are as good as in London, followed by an extensive promotional effort to ensure further development in Singapore. After its establishment in 2004, SMF started a working group to find out how maritime arbitration could be developed in Singapore. In 2005, the Singapore Chamber of Maritime Arbitration (SCMA) was formed. SMF let this institution run for about three to four years so that it could slowly establish itself. Now, SCMA has been reestablished inside the Maxwell Chambers, the centre of maritime activities. Now, SMF has started to actively develop this sector further with a full support of all the directors and staff involved.

Now, SMF is also exploring ways to nurture the maritime insurance sector. But what is key from the aforementioned examples is that all these new institutions and industry developments need to start somewhere. SMF’s role is to identify the needs to be addressed to gradually develop the varied maritime clusters and finally to raise its involvement to provide full support, the push that Mr. Chia referred to.

As you mentioned, since SMF’s inception in 2004, there has been a strong push to develop the maritime industry. In the late 80s and the early 90s, the industry was seen as an unattractive sunset industry. What made people believe so and what generated this turnaround?

As I mentioned earlier on, when SMF started, it started on the physical side. In physical shipping, labor cost and the shortage of waterfront land are very important. All the different shipyards were competing for this land back in the days.

In the 80s, Singapore went into stepping up its development in the electronics industry which led to a drain in people from the shipping industry, in order to pursue other opportunities. At that time, South Korea started building and repairing ships, followed by China. These countries obviously faced lower labor costs, leading to Singapore losing some market share. Labor costs were going up because the people in the electronics industry became more highly paid.

Nevertheless, it was understood that the maritime industry was fundamental and Singapore could not afford to let this industry die out. For this reason, the industry went into servicing and shipowners from all over the world were encouraged to come to Singapore. By attracting these owners, an entire service industry was being developed as a result. The way these owners were attracted was done by giving them a tax-free status. While Singapore is not a tax haven, taxes can be exempted for activities considered as essential for the economic well being of the country. As a result, the shipyards went from repairing and building ships into oil rigs and the conversion of specialized ships, where the technology allowed us to justify our higher wages. This was necessary as Singapore was unable to compete on cost with some other countries, even China is now losing market share to Vietnam, Bangladesh and India. Eventually, I see shipbuilding taking increasingly place in Africa. Singapore anticipated this trend and still today has the vision to become the “London of the future”. This is why the chairman of SMF commented that it is imported to grow services. Even though SMF is a small foundation, we are striving hard to push forth these initiatives.

How far do you think Singapore is from becoming an international maritime centre?

Singapore is on the right track but there is certainly room to reach the ultimate goal. I would imagine we will have to work solidly for at least another ten to twenty years. It is not just about having the right companies here. It is necessary to build up the activities and have enough of work done to get the recognition and the trust. For example, if we were to do maritime arbitration, we will not only need to do it well, we will also need to become known to do it well and establish the legal proceedings to no longer create the need to look for these services elsewhere. It is a matter of developing a sort of software which will need to generate sufficient trust in the services being offered from Singapore. Even in ship finance, there is the need to manage more complicated and syndicated major shipping transactions to earn this trust.

What do you think is Singapore’s competitive advantage compared to historical maritime nations like Denmark and Norway or newcomers such as Korea and China?

To start off, Singapore has a solid physical base because everyone still considers the nation from the perspective it has grown: a free port. In a similar way as Geneva has grown as a centre for international business with institutions such as ICC, WTO, IPO and so on, Singapore has a role as a distributing shipping centre of the East. While initially this role covered entire Asia, it will now be more likely that Singapore functions as a hub for Southeast Asia due to the emergence of China. It is an undeniable truth that another hub will emerge in the North, most likely in Shanghai.

With this solid base and a good open system, shipowners and shipping companies of all nationalities are encouraged to come to Singapore and enjoy the nation’s corruption-free stable government and rule of law. These are all necessary aspects for the international community to feel comfortable to settle in Singapore. There are so many Norwegian companies shipping companies present here because, even though their headquarters are in Oslo. This is a strategic business move and a natural progression as many of their customers are here in this region. Similarly, we have a Norwegian law firm, a German shipping bank, English arbitration firms and so on.

Singapore pays particular attention to having the right infrastructure in place to attract and retain the international community. That is why Singapore has Dutch, Norwegian, Swiss and German schools for example. This is all part of the “software” the nation has developed in this respect. While Denmark is the centre of the Baltic trade and while all the first ship sale and chartering forms were written in Copenhagen, one needs to wonder why companies such as Maersk and Lauritzen are now here in Singapore. While Denmark is still an important historical shipping centre, their business increasingly comes from Asia. All these Danish companies simply follow these business opportunities. Why is there a high number of offshore specialist companies in Singapore? Because Keppel and Sembcorp Marine are building the world’s rigs here! All these factors add up and clearly, one part alone is not enough. It is important to develop clusters and whereas not many sectors have their own foundations, Singapore does have SMF to support the maritime cluster. The fact that the first edition of Asia’s premier maritime conference and exhibition, Sea Asia, was opened by the President himself, illustrates the importance that is given to this cluster in Singapore.

The reason to then take initiatives such as Sea Asia is that people forget. It is of no use to enhance all these developments without giving them a physical manifestation. There is a strong need for events where shipping people gather, exhibit, discuss and exchange notes together. In the same way that Greece has its Posidonia, Oslo Nor-Shipping, Hamburg SMM and Shanghai Marintec, Singapore launched its first edition of Sea Asia in 2007. The Sea Asia show was a great success, because in 2009 the show became the number 5 maritime trade event in the world, overtaking maritime shows in Japan and India. It is worth mentioning that while Posidonia and Nor-Shipping are both over 40 years old and Shanghai Marintec has been around since the 1970s, Singapore’s Sea Asia has gained a reputable spot in the world’s top ranking in just 4 years.

What are the main challenges you expect the maritime industry in Singapore will face and what will be SMF’s role in the coming years?

Forty percent of SMF’s work is focused on the industry’s next challenge: manpower. The maritime community is working hand-in-hand to attract talents into the maritime workforce through scholarships, branding campaigns and a series of networking sessions and seminars amongst others. In the late 60s, many bright young people were sent to become marine engineers and naval architects in order to return to Singapore to spearhead the development of this sector. As Singapore progressed and developed, it has now reached the stage where maritime education is much more accessible. Students are able to pursue maritime courses from Newcastle University in Singapore and there are also a variety of maritime courses available. While it was cheaper to send ten students overseas to pursue maritime degrees in the 1970s, we now need a school here to deliver at least 80 maritime graduates each year to support the industry. There is thus a strong focus on developing this manpower today. The Foundation also works in partnership with maritime partners and the government to offer maritime scholarships and internships for young people.

Beyond SMF’s efforts on education and training, SMF spends another 40% of its time profiling the industry to the general public and raising the “hip” quotient of the maritime sector amongst youth. SMF has commissioned the local television station to produce maritime documentaries. There was even a maritime soap opera television serial which we funded to reflect the everyday work of maritime professionals and interesting facets of their careers.

his is important as often, the true decision-makers on the choice of a career are not only the young generation themselves, their parents, relatives and media also play important roles in influencing their choices In recent years, SMF has also embarked on a series of student outreach projects with polytechnics and undergraduates. Students are tasked to create maritime commercials, print advertisements and radio commercials as part of their classroom assignments. These projects have proven to provide a refreshing take on maritime careers and maritime industry, as seen through the eyes of these young minds. Some of them have eventually been incorporated as part of the promotional materials for the maritime sector.

The remaining 20% consists of the developing role SMF plays and relates to the aforementioned activities and initiatives such as the iconic maritime show of Singapore, Sea Asia, maritime arbitration, ship finance, insurance and so on.

It will take time for our hard work to show results. We are confident that with our consistent and concerted efforts with the maritime partners and the government to grow the sector, raise the profile of the sector and attract young talents , our hard work will bear fruit in time to come.

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