The dark zone in Asian shipping supply chains

Whether we want to admit it or not, it is a fact that corruption is relatively prevalent in Asia to the point that it is perceived to be an acceptable and routine way of conducting business.


Asia shipping supply chain


CEOs of global shipping companies are operating in a complex environment where business, cultural and geopolitical issues come into play.  There are many intertwining factors that the CEOs have to take into account when they make or condone strategic decisions that affect the value of their companies.

 

Sometimes, these decisions seemingly, on the surface, would bring in revenues, improve bottom line or reduce costs.  But in fact, these are myopic decisions that not only negatively affect the value of their companies but also will have a larger negative impact on the industry as a whole.  These decisions may be illegal or corrupt in the western context, but in the Asian context, they are seen as cultural norm.

 

 

Corrupt custom pervasive in Asia

Whether we want to admit it or not, it is a fact that corruption is relatively prevalent in Asia to the point that it is perceived to be an acceptable and routine way of conducting business.  According to Transparency International, the majority of Asia Pacific countries sit in the bottom half of the Corruption Perceptions Index 2016. 19 out of 30 countries in the region scored 40 or less out of 100.

 

Corruption is endemic in the shipping business as it is relatively opaque, and because it operates across the globe in a wide variety of cultural, economic and political situations. And, there is hardly any recognition for a standardized anti-corruption compliance culture, either from the respective governments or the industry itself.

 

For example, in day-to-day operations of shipping lines, bribing local officials like port inspectors is an expected part of the transaction to grease the processing of cargoes through ports or checkpoints.

 

Illegal oil bunkering occurs when ship-to-ship transfer of fuel takes place not at designated areas and without paying the official fees.  Perpetrators blatantly exploit weak legislation and enforcement.  In this corrupt tradition, they can earn, depending on their status on the hierarchy, anywhere between US$40,000 and US$640,000 per run.

 

To show the wide reach of illegal oil bunkering, there are incidents occurring even in Singapore, a country with strict regulations, extensive enforcement and heavy penalties.  In a recent case, JL Petroleum has been fined by Singapore’s court after pleading guilty to supplying marine fuel without a valid license.

 

Singapore’s police had said that the illegal trade in ships’ fuel is a lucrative business, and more people have been caught stealing, selling and buying such diesel.

 

Intrigue on the high seas

According to latest figures from the International Maritime Bureau, more than half of the world’s piracy are occurring in South East Asia. Specifically, piracy in the waters off Indonesia, the Strait of Malacca and Singapore Strait has increased exponentially, representing almost 40 per cent of attacks globally.

 

Given the scale and frequency of these attacks, it is not hard to have an educated guess that there is corporate collusion with these pirates.  Corrupt insiders within the industry and at the targeted ships’ companies are crucial for the pirates to gain valuable intelligence on when and how to rob the ships of cargoes and fuel.

 

In another instance of high sea intrigue, there are many cases of shipping companies ignoring United Nations’ sanctions against rogue countries.  In a recent example, the United States Treasury Department had blacklisted a Singapore company, Senat Shipping, for providing extensive support, including arranging the purchase, repair, certification, and crewing to North Korea’s Ocean Maritime Management Company vessels.  The United Nations had sanctioned Ocean Maritime Management Company for its involvement in the shipment of banned weapons.

 

Increasing valuation by cleaning house

In as much as we like things to remain business as usual, the fact remains that these corrupt practices in the Asian shipping industry are detrimental not only to the companies involved but are also reflecting badly on the industry as a whole. Bad practices, like the aforementioned corruption, illegal oil bunkering and collusion with pirates, fundamentally erode the ability of shipping companies to operate efficiently and profitably.

 

There is much to gain by having an industry with open, transparent legal and regulatory mechanism.  Change, of course, will not be immediate but incremental, as bad practices are so entrenched in the industry.

 

If CEOs are aware and are convinced that change is necessary to increase the value of their companies and uplift the image of the whole industry, then this will go a long way to attract investors and funds.  Therefore, CEOs must have the courage and conviction to take corrective measures to weed out these bad practices.



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