Posidonia Reflections: Change that will knock your socks off
Posted on | June 15, 2010 | No Comments
Having spent the last few weeks in Greece, cradle of democracy, the shipping industry, philosophy and fiscal irresponsibility, I have reconnected to my favorite ancient Greek philosopher, Herakleitos (Heraclitus to the untrendy).
It was he who, when asked for a sound bite summarizing his outlook, replied: “All things change; nothing stays the same.” He would fit in well nowadays. Particularly in the shipping industry.
Now, I know you don’t ever want to hear about oil spills again, sure, but: Deepwater Horizon has wounded limitation of liability in maritime law. Risk is the new word for liability. While we’re not all in the rig business, this means big headaches for the stuffy denizens of marine insurance.
Are you telling me that these increasingly grotesquely huge cruise ships do not also represent vast potential liabilities, in the event of a fire at sea?
No less a guru than the late Lester Rosenblatt told me so, and that was years ago. The myth of insurance market capacity is a huge Ponzi scheme, in which we all pretend to believe that such a. gargantuan loss could be absorbed. I don’t care what your friends at Lehman Brothers say. Thank God BP is self-insured.
Herakleitos would recognize that the executives at some of our largest companies, and indeed the companies themselves, are zombies. Zombies, he would say, are companies overtaken by change.
Change’s effects, he would point out, are when your company has an oil spill to contend with, generating (according to Credit Suisse’s guess) maybe as much as $40 billion in present and future liabilities, while it only has about $11 billion in cash and property on hand.
Guess it will have to borrow the rest. From Goldman Sachs?
While Barack Obama once promised us “change you can believe in”, the new slogan should be: “change that you couldn’t possibly believe.”
Herakleitos warns us that more change is on the way: “Next month’s big oil spill will be from a tanker. Is your Coast Guard ready, when it barely has enough oil-absorbent boom in the Gulf right now? Is the Coast Guard able to handle what’s environmentally coming, when for the last nine years, the big thing has been the war on terror? How does Homeland Security handle the war on sludge, huh?”
Let’s get back to liability. Lawyers, judges and the International Union of Marine Insurers love to say they believe in fixed principles of maritime law.
But Deepwater Horizon, and in particular its political fallout in the States, has subtly undermined “channelling”: the notion that upstream “players” like banks, charterers, cargo owners, or dealers like Glencore, Trafigura, Vitol and the like, because they aren’t shipowners, would enjoy some immunity in the event of a big, big oil spill. Politics, not law, will always be a factor in a case like Deepwater; the erosion of old-style liability barriers looms up before us like one of those berms in Louisiana. Ask Judge Obama.
Does Oberstar understand about oversight? That committee, and others on the Hill, has thrown buckets of money at the Highway Trust, but not shipping or the marine environment. Isn’t shipping, isn’t cleaner seas and lakes, isn’t the Coast Guard just as important. At least, we now have their attention.
Reputational risk now matters. That’s a big change in the maritime picture. Public opinion is back, as it hasn’t been since Torrey Canyon and Exxon Valdez. How quickly we forgot.
The complaints of the British Pensioners (is that what BP means?) availeth naught. They don’t vote in U. S. elections. That won’t change.
We’re going to hear a bit more about the oversight responsibility of corporate directors in the wake of Deepwater Horizon. How did the budgetary and accounts department fleas manage to walk off with the safety and technical research blanket at BP? Assuming, of course, that there was one.
My dad was an RAF pilot and the rest of us took some hits diring the Blitz, so I claim the right to observe the following about the complaints about “fairness” now seen and heard in the British media: you, friends, have probably never encountered a shareholder derivative suit, but with about 40 per cent of BP shares in the hands of American stockholders, including institutional investors, the British pensioners may actually benefit from the fuss in the States.
You may well get your money back, with interest, if you live long enough. And that, by the way, is as good a reason as any to keep BP alive, and out of the clutches of, um, Shell. I say that as a Shell shareholder.
Preventing casualties is a lot less expensive than paying for them afterward. There lieth the wisdom of all philosophers, ancient and modern.
When penny wise, pound foolish corporate bean-counters learn this wisdom, there will be far fewer Deepwater Horizons, pensioners will sleep more peacefully, we will have cleaner (much cleaner) seas, and the jobs of the good people of BP, presently put at risk, will be safe.
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