Time to sharpen negotiation skills

| 15th September 2011

Even employing a trained negotiator could be a sound investment. Optimism is key to clinching the best deals but often ‘ambition levels’ are set too low.

NEGOTIATION expert Chester L Karrass once said: “You don’t get what you deserve, you get what you negotiate.” This is an apt metaphor for those companies trying to navigate a path through the economic pitfalls of today’s troubled shipping industry.

The current economic downturn has lasted longer, and has been more severe, than many had predicted. And, having for so long appeared to be surviving the worst effects of the recession with its characteristic robustness, the shipping industry now seems to be heading into stormier financial waters.

Operators that ordered ships or launched ambitious expansion plans in the good times, when freight rates were at or near record levels, have suffered for that since the economic difficulties started to bite in 2008. Today, there are too many ships in service in too many sectors — plus many more yet to be delivered — to carry the amount of trade on offer at rates sufficient to make a profit and to service loans. By and large, the banks and other financiers of shipping loans have shown patience, and a willingness to stand by their clients in the hope that the markets will return to profitability. Now, however, the mood appears to be changing.

We are starting to see, with increasing frequency, ships being arrested and auctioned as financiers seek some sort of return on their investment, however much reduced.

Companies are filing for bankruptcy protection as liquidity dries up and the risk of default increases. Having held their nerve for so long, it seems that the banks are in many cases about to lose patience with non-performing loans.

Those companies that have a viable long-term future may have to try and re-negotiate existing contracts. This requires a particular set of skills, which the average shipping company may not possess in-house. Many people believe they are good negotiators but, often, they are not. Given the probable lack of formal training in this area, that is not surprising. This, when combined with the need to think and operate under conditions of stress and as a party directly affected by the outcome of the negotiations, can be a recipe for failure. When you are manoeuvring in dangerous waters, you are usually safer if you have an expert on the bridge, helping you where necessary.

There are some typical mistakes which shipping companies are prone to make when seeking to renegotiate contracts. These include failing to analyse properly the respective true positions of the different parties, adopting the wrong opening position, and failing to accurately establish objectives and probable resistance points. These shortcomings, and the failure to establish a satisfactory alternative position, can be injurious to the continuing future of some companies.

Engaging a formally trained and experienced negotiator could turn out to be a sound investment, and a form of cheap ‘insurance’ to help avoid making fatal mistakes. Such a negotiator can help focus attention on the key points of successful negotiation. Typically, these key points would include proper preparation, knowing how to influence the negotiating position of the parties and to create the right perception in this regard, establishing the correct level of ambition, using a range of negotiating techniques at the time when they can best be employed to their fullest effect, and avoiding issues which serve only to cloud the mind of the negotiator.

If you are in a distressed situation, as many shipping companies are today, it is likely that the ambition levels have been set too low. The key element here is getting the ambition level (or, put another way, the best result the negotiator can reasonably hope for) right. Most negotiators fail to grasp this, either through a lack of proper understanding, a lack of preparation, or perhaps sheer laziness. Too often, those conducting the negotiation think only about their opening position, and their minimum objectives. When both parties adopt this strategy (and bearing in mind that most negotiators have a co-operative style which targets an outcome which is ‘reasonable’ or ‘in the middle’) it is no wonder they often end up with mediocre results and miss out on opportunities which they fail to recognise.

If you want what you deserve, you have to establish the right ambition level and you have to know how to negotiate in order to achieve that level, or to get as close to it as possible. The secret here is to be optimistic. Too often, ambition levels are set too low. The setting of optimistic levels of ambition will invariably contribute to a better result than if you start negotiating from a more defensive position. In shipping, negotiations will invariably involve contracts for millions of dollars, and it can be a costly mistake to set the levels of ambition too low, or to fail to set them at all.

Negotiating and renegotiating shipping contracts is a stressful business, especially for those who are not trained in how to proceed effectively. So it makes sense to engage professionals who can analyse the merits — and the strengths and weaknesses — of both parties, and who can set the appropriate ambition levels and then advise how to conduct the negotiations in order to get as close as possible to achieving identified targets.

In difficult financial times, the value of using somebody who is effectively a ‘middleman’ to conduct negotiations is often overlooked. But there can be great value in keeping some distance between the ‘purse’ and the decision-makers. Professional negotiators can also use to great effect the power of limited authority and other negotiating techniques which might not be available to a party conducting the negotiations on its own behalf.

Per Ristvedt is a partner at Wikborg Rein in Singapore