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Paul Bird
Posted on Saturday, October 27, 2001 - 04:27 pm:   

Salvaging a sunken industry

Budget tax breaks for shipping may help the declining UK merchant fleet, but catching up with other seafaring powers may be tricky, says Joanna Walters

Observer

Sunday March 7, 1999


Rule Panama! Panama rules the waves! It does not ring true but it is the truth. When it comes to moving goods around the world this tiny Central American republic has its flag on a greater tonnage of shipping than any other country.

A revised maritime ditty of the Nineties could just as easily read Rule China (largest shipping line) or Rule Greece (owner of the most ships).

The one nation that need not apply is Britannia. Its navies, merchant as well as military, have not ruled the waves for years and are unlikely ever to again. In the last 30 years the UK has sluiced away more than a hundred years of domination of the world's sea trade.

This week the Government is expected to take small but key measures to claw back some of Britain's share by announcing tax changes for the industry in the Budget. But even if the measures were to prove successful they would not make sufficient impact on the global industry to irritate today's leading seafaring nations or the prospering 'flag of convenience' countries.

British owned, managed or registered cargo ships account for between just 3 and 6 per cent of the world's merchant fleet, according to estimates.

Prior to the First World War the British-owned fleet was not only the largest in the world but as big as every other nation's fleet put together. It remained dominant until the early Seventies, when it sank. Jim Buckley, chief executive of leading London shipbroking house the Baltic Exchange, said this was caused by a combination of inclement conditions. 'Poor management by the British shipping lines led to them becoming uncompetitive in the world market; the unions got greedy and took a stranglehold on pay rates, and flags of convenience came into their own and attracted UK and overseas ships to register under looser regimes,' he said. Flags of convenience generally allow less-well-trained and lower-paid crews - with the concomitant effect on safety and maintenance standards.

Today merchant shipping is dominated by a variety of traditional seafaring nations such as Norway, Denmark and Greece, and others that have quickly built up fleets in recent decades, such as Japan, China, Taiwan and Korea.

The growth of large container shipping corporations has seen much consolidation. Despite this, and the tendency of western shipping companies to join the stock markets, there are still famous multi-billionaire family names in the business. Greece owns more ships than anywhere else and boasts two dozen exceedingly rich shipping families whose magnates can still buy vessels out of their back pockets and fill the society gossip columns with the playboy activities of their sons and heirs.

Among them are the Niarchos clan and the Greek Cypriot Haji-Ioannous. The late Aristotle Onassis owned the world's largest fleet when his business was at its height in the early Seventies; his somewhat shrunken empire is held in trust for his granddaughter Christina.

Norway still has its Wilhelmsen dynasty and in Denmark 86-year-old Maersk Mc-Kinney Moller is chairman of the AP Moller shipping conglomerate founded by his father in 1904.

Hong Kong boasts the Pao and Tung shipping dynasties and, in Taiwan, YF Chang owns the Evergreen company, which runs the world's largest container shipping business.

The Korean Cho family owns the Hanjin Group, which runs a shipping line as well as national airline Korean Air.

By contrast, Britain's shipping family tree has long since wilted. One industry commentator remarked that 'literally hundreds' of British shipping names have disappeared or been swallowed up by our one remaining giant, P&O.

Names such as Shaw, Saville & Albion; British Empire Steam Navigation; British India; Furness Withy; Manchester Liners; the Vestey family of Suffolk's Blue Star company; British & Commonwealth and Ellerman have either been eradicated or lost their independence.

Others, such as Bibby Line, TJ Harrison, Ben Line, James Fisher and F T Everard still exist but are mere dots on the global maritime chart. The British-owned fleet has shrunk by two-thirds in 25 years and the number of British merchant seamen has fallen by 60 per cent to 20,000.

Buckley blames the industry but also the previous government: 'Margaret Thatcher barely knew the difference between shipbuilding and ship-owning.' Not that that mattered much as both dwindled inexorably in Britain during the Eighties. 'The Tory government was a disgrace as far as merchant shipping was concerned,' he said. 'They said the industry had to stand on its own two feet or fall over. When even the arch-Tory P&O chairman Lord Sterling was president of the Chamber of Shipping and he could not get anything out of the Government, the industry knew it was hopeless.'

So it has been left to the Labour Government and John Prescott, deputy prime minister, transport supremo and former ship's steward with Cunard, to do something.

As Buckley emphasised, nothing has happened yet, but the industry is optimistic. If its hope is rewarded, Chancellor Gordon Brown will announce on Tuesday that British-registered shipping companies will no longer pay corporation tax based on their profits but a much lower flat-rate tonnage tax based on the size of their fleets.

It sounds technical and, as far as the £40 billion global industry is concerned, it is a drop in the ocean. But in the largely tax-free international world of shipping it is likely to significantly help attract British-owned ships back to the UK register, boosting the hiring and training of British crews and investment in larger fleets in the long term.

For it is not only the number of British-owned ships that has shrunk since the Seventies but also the total of ships on the UK register.

British and foreign-owned fleets have sailed en masse to 'flag of convenience' countries with cheaper, more loosely regulated registers. P&O has many of its ships on the UK register but also flies the flags of Singapore, Indonesia, Panama, Liberia, and Australia.

Even flying the 'British' Red Ensign can be deceptive, as it is also the mark of registration in former colonies and dependencies such as Bermuda, the Bahamas, St Vincent and the Isle of Man. There British-owned ships do not have to adhere to expensive British-only master and crew rules. This has helped to keep them competitive but done little for the recruitment and training of British seafarers.

Whether fresh government measures can reverse the UK trend remains to be seen. Other European Union countries such as the Netherlands, Germany, Norway and Spain have attracted ships back to their flags in the Nineties by devising tax breaks or setting up secondary 'offshore' registers, a compromise between tight national rulebooks and the relative lawlessness of the developing world's registers.

The British trade association, the Chamber of Shipping, and the seafaring unions have joined forces to lobby for change. They believe it will not only help salvage the British flag from the doldrums but also bolster Maritime London, the collective term given to the clutch of City of London-based institutions that certainly rule the world of shipping in every aspect other than sailing the vessels.

Philip Wake, research director at ship broker and leading industry analyst Clarkson, said: 'The combination of a shrinking British fleet and register has not only meant a decline in our shipping industry but also in the flow of experienced personnel into the maritime services sector.'

Britain has ruled maritime services since the eighteenth century, when merchants did deals with shipowners in a coffee shop on Threadneedle Street to transport tallow from the Baltic for candles and soap. What came to be known as the Baltic Coffee House evolved into the Baltic Exchange, which eventually took up residence in a vast quasi-palace where 1,000 brokers dealt face to face on the trading floor - that is until it was bombed into a new home by the IRA in 1992 and became computerised.

From similar beginnings Lloyd's of London rose to peak strength in the nineteenth and early twentieth centuries, when Britain shipped coal from Wales and the North East and manufactured goods from the Midlands around the Empire, bringing back tea, rubber, spices, grain, wool, coffee and tobacco.

The busiest trade now is in shipping grain from North America to Asia; coal and iron ore from South America, South Africa and Australia to Asia, Europe and North America; and oil from the Middle East, the North Sea and, increasingly, the Americas, all over the world. The largest moving man-made object on the planet is the Norwegian-registered Jahre Viking supertanker, which carries more than half a million tonnes of crude oil.

Scheduled container shipping lines have created a huge trade in the transport of finished goods and 95 per cent of imported goods arriving in the UK still come by sea.

Although few of the ships lumbering in and out of our ports will fly the Red Ensign or have British owners, their contracts, insurance and a thousand and one other legalities are all likely to have been fixed in London.

Maritime London leads the world in ship insurance, underwriting, chartering, surveying and classification, and is bursting with shipping lawyers and arbitrators who draw up contracts and intervene in disputes. New York Singapore have mounted robust challenges to Maritime London but none has yet knocked it off its pedestal.

The industry may never again sing Rule Britannia with any sense of genuine belief but at the very least it wants to be able to cry out 'full steam ahead'.

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