No diving in the shallow end

Although shipping pools might have clear advantages for some, diving in without careful consideration would be a mistake, says Michael Simms, shipping and energy partner at Moore Stephens, global accountancy and consultancy network with its headquarters in London.

Earlier this month, Baltic Briefing posted an article called ‘To pool or not to pool’, in which industry experts suggested that pooling assets could provide an easier way to consolidate in the dry bulk market while the future remains fragile.

The consensus was that pooling assets is an easy way for shipowners to reduce costs, as well as to consolidate and capture market share without having to “give up their own toys”.

Indeed, there has been an increased interest in pools recently, with a plethora of companies hoping to capitalise on the advantages of pooling assets in a difficult market. Among them are Carisbrooke Shipping and Swiss Nova Marine Carriers as well as Gearbulk and Grieg Star. While Norwegian shipping company Torvald Klaveness is attempting to change the reputation of pools and, at the same time, secure vessels for the two pools already operated in the spot market by the carrier.

Moore Stephens has advised on a number of other pool agreements during the past 12 months, and confirms that it is clear that interest in the concept generally is increasing as a means to leverage money and maximise economies of scale.

But while it might make good commercial sense for like-minded shipping interests to pool their resources to mutual advantage, “traps may lie in wait for the unwary”, warns Mr Simms.

Viable option

“Shipping pools can take a variety of forms, from incorporated entities or partnerships to joint ventures and other forms of agreement,” says Mr Simms. “It is important to choose the right one.”

He explains: “The jurisdiction in which the pool is established is of primary importance, since it will have fundamental tax and reporting implications. Historically, tax-friendly offshore jurisdictions have been a natural fit for many shipping pools, but the recent increased focus on general tax transparency and on proper governance and reporting procedures may serve as a catalyst for change in this regard.
“The existing structure of shipping pools established in offshore jurisdictions is unlikely to change, but it would be reasonable to expect the members of any new pool arrangements to at least consider the option of establishing the pool in a more traditional jurisdiction.”

Mr Simms adds that a move towards greater corporatisation of shipping pools, which may grant access to trade finance solutions, might be a “viable option” for many owners, “provided the terms of entry and exit are acceptable”.

Careful consideration

There are, of course, a range of tax issues to consider when setting up, amending or joining a shipping pool. In case of a new pool, Mr Simms says it will be necessary to consider the tax position of each entity within the pool structure.

Other important considerations include the terms of the pool agreement itself, the status of the pool under competition law, the effectiveness of the marketing strategy, and the way pool accounts are prepared and submitted, he adds.

Mr Simms concludes that shipping pools have clear benefits for some companies. But it is a challenging market, and one subject to increasingly stringent evaluation. It would be a mistake to just dive in without a period of deliberation.

Michael Simms is a partner at Moore Stephens. He has more than 25 years of leading assurance, advisory and regulatory reporting assignments to companies in the shipping and transport, and energy, mining and renewables sectors globally. He can be contacted on +44 (0)20 7651 1184 or Michael.simms@moorestephens.com.