Asian Legal Business interviewed partner Tormod Ludvik Nilsen

An important step in the right direction

Read the article from ABL below.

Tormod Ludvik Nilsen, Wikborg Rein’s Shanghai managing partner, discusses the potential impact of the guidelines on the shipping industry with Shangjing Li

ALB: What impact do you think China's recently issued guidelines will have on the shipping industry?

Nilsen: Over recent years, the shipping industry has bled heavily and is still bleeding due to overcapacity. Unfortunately, this is a problem which is not going to go away overnight. While the new reforms are certainly a step in the right direction, their impact in the shorter term is uncertain. The State Council has, however, shown admirable ambition in pushing shipping firms to upgrade and modernise their fleets. Ideally, this will lead to a far more efficient, safe, and environmentally friendly shipping sector in 2020. But to a large degree, achieving these goals will depend largely on the development of the world’s financial markets.

ALB: Do the guidelines appear to be able to adequately tackle the challenges that the shipping industry is currently facing?

Nilsen: It is too soon to tell whether the guidelines will produce the desired results. We do, however, think this is an important step in the right direction, and that China is taking on an industry leadership role. The implementation of the reforms by shipping companies will be crucial to the success of these directions, and we have seen too little to judge at this stage. Many of the challenges the Chinese shipping sector is facing are caused by low levels of capitalisation in a tough market. Only the global shipping markets can really correct this.

On top of the troubles faced by the traditional shipping sector, the offshore oil and gas segment is now facing its own challenges. For many yards and owners, offshore has been seen as a profitable space for diversification. But the recent fall in oil prices and an increased focus on the offshore sector’s cost levels will also have a downstream impact on the shipping industry, especially for the yards and OSV operators. There is a rising concern from key players in this industry. Perhaps the silver lining here is the reduced cost of bunkers.

ALB: What are the kinds of advice you are currently giving shipping clients, as they deal with the current situation?

Nilsen: The rule of thumb is to deal with any challenges before they materialise in full. We have seen too many cases where inaction has caused problems, which often could have been avoided at a much earlier time. A shipyard or charterer in trouble is often a problem also for a shipowner. We have worked on dozens of restructurings which have ended well for both parties because our clients were able to deal with the situation promptly.

ALB: How effective do you think the guidelines will be in helping Chinese companies, such as COSCO, reverse their heavy losses?

Nilsen: In general, it will depend on how favourable the policies will be for Chinese industry players and how the interaction between state-owned shippers and transporters will be guided. But with the ambition outlined by the State Council, it appears the government is willing to put in place the policies that are needed to increase the profitability of the Chinese shipping industry.

ALB: How will the guidelines impact foreign shipping companies in China?

Nilsen: They will continue to do well, but the competition is likely to increase and the regulatory framework is changing. We have, for instance, been contacted by several international owners and charterers in relation to the new tax rules for non-Chinese resident shipping companies. In this case, tax treaties should, in most cases, exempt taxation on (for example) charter income in China. But these rules and the new guidelines may imply a tougher climate in China for foreign shipping companies.

Read the article in ABL here.