Bermuda continues to thrive as a first class offshore financial jurisdiction.

Although more famous for its insurance and mutual fund financial services industries, Bermuda also has a thriving international ship financing and registration industry.

This should come as no surprise, as it was the shipping industry that first put the island on the international business map more than fifty years ago.

A good number of the world's most famous fleets operate from and/or are flagged in Bermuda.

As at the end of 1999, there were 145 vessels registered with the Bermuda Registry of Shipping, representing many types of vessels including oil tankers, bulk carriers, cargo ships, reefers, passenger ships and even chemical tankers. These vessels represented a gross tonnage of approximately seven million.

The Bermuda Registry of Shipping continues to expand exponentially.

Ship owners and managers are attracted (among other factors) by the Registry's high standards and by the fact that Bermuda registered vessels fly the well-respected British Red Ensign as their national flag, placing them under the protection of Britain's Royal Navy.

Many of the world's leading players in the shipping industry -owners, managers, builders, insurers, lawyers, accountants, bankers - have developed close relationships over the years with their fellow professionals in Bermuda, in order to put together financial structures tailored to the specific requirements of the shipping industry.

As a result, Bermuda lawyers practising shipping law have a unique vantage point that allows them to follow the fortunes of the industry very closely.

The past few years, in particular, have afforded us the chance to observe significant developments in the world of ship financing, which seems (finally) to be coming out of its most recent economic down-turn.

At the depth of the latest "depression'', 18 months ago, the number of deals being done, whether in the financing of new buildings or in the re-financing of existing fleets, fell markedly.

As one would expect, there is always a need to provide some form of financing to existing vessels, so there are always a number of deals taking place whatever the economic climate.

In the down-turn, however, one noticed a decrease in financing deals, and an aversion to risk by lenders who became less willing to participate in financing structures - other than through straightforward mortgage lending.

There have been very few deals these past three or four years which involved securitisations, or attempts to raise finance through public offers.

Shipping provides big business in Bermuda I suspect this will now change, as confidence seems to be returning (albeit slowly) to the shipping industry.

Hopefully, there will be less need for restructurings of over-extended groups.

We have, over the past few years, seen our fair share of these.

In the past six months, the number of ship financings has increased, with many shipping groups taking advantage of competitive prices for new buildings in Asian shipyards to modernise their fleets, and to position themselves for the upswing in the economic cycle.

A noticeable number of deals for new buildings have been placed in European shipyards, primarily for cruise and ferry operators.

There is always the constant fear that this spurt of new building activity will sow the seed for the next downswing of the economic cycle due to over-capacity.

Much of the world's aging tanker fleet, however, is getting to the stage when it has to be replaced.

Accordingly, there is the hope that a prosperous equilibrium will be achieved between the forces of supply and demand.

Another recent trend in the shipping industry that we have observed from Bermuda is the movement towards consolidation through mergers between various ship owning groups, as well as through joint ventures.

The inexorable search for profit in the industry is being pursued through the goal of lowering costs by taking advantage of economies of scale, which are perceived as being obtained through mergers and joint ventures.

This trend is particularly observed in the tanker, liquefied natural gas and cruise ship industries.

Related to the quest for lowering costs, it has been interesting to observe the movement by the shipping industry towards the world of the Internet start-up.

Various shipping groups have been looking closely at the possible advantages of using the Internet and the world of e-commerce to source their bunkering and other requirements.

With the enactment of its Electronic Transactions Act 1999 -which has placed the island at the forefront of the e-commerce world - Bermuda is well positioned to take advantage of this latest trend.

As those of us who are involved in the world of shipping are all too aware, the next three to five years will be a critical time, as it will become clearer during this period whether the nascent signs of returning prosperity will endure.

Hopefully, the industry will have learnt from past experience how to manage and maintain sustained growth.

Given the necessarily cyclical nature of the business, this goal may ultimately prove to be elusive.

In any event, Bermuda will continue to chart a course which will provide financial and legal services beneficial to the international shipping industry, whether in good times or in bad.

N.B.

This is the exact same Law Matters supplement that ran in The Royal Gazette on 20th September, 2000. However do the printing problems that affected the quality of the print, it was pulled from the circulation and did not appear again until the 9th October, 2000.