Select Committee on Environment, Transport and Regional Affairs Appendices to the Minutes of Evidence


Memorandum by Professor Richard Goss (FUS 2)

THE FUTURE OF THE UK SHIPPING INDUSTRY

SUMMARY

  This memorandum suggests that British shipping should be assisted by strengthening Port State Control, by providing some equivalent to the protection accorded to other industries and that East Coast UK-Continental ferry services should be assisted so as to reduce road congestion in the south-east. Improvements are also needed in training and in the examinations conducted by the Marine and Coastguard Agency.

INTRODUCTION

  This memorandum is in response to the Sub-Committee's invitation to send written memoranda on the future of the UK shipping industry. I have spent the whole of my working life in and around British shipping, since the age of 15. I served eight years at sea, rising to be Chief Officer and becoming a Master Mariner. I have degrees in economics from Cambridge University and have published many papers on various aspects of maritime economics. I spent five years working in the head office of a leading British shipping company, 17 years as a civil servant, mostly advising on economic aspects of British shipping policies (this included acting as economic advisor to Lord Rochdale's Committee of Inquiry into British Shipping) and 15 years as Professor of Maritime Economics in the Department of Maritime Studies and International Transport in the University of Cardiff. Shortly before I retired I was elected the first President of the International Association of Maritime Economists. I am a Fellow of the Nautical Institute and of the Royal Institution of Naval Architects and a Vice-President of the latter.

  I propose to deal briefly and selectively with the Committee's terms of reference. I shall keep to the economic analysis and eschew the romantic approach inspired by such writers as Jeffery Farnol, C S Forester and Dr Arthur Ransome. There is little romantic about present-day shipping.

DOES BRITAIN NEED A SHIPPING INDUSTRY?

  Britain is a great trading nation with an overseas trade far exceeding any possible value of its own shipping industry. Our primary need, therefore, is for efficient shipping services: not for ships of our own. This may be shown by our trade having increased many times over since our shipping began to decline.

  If it were important for great trading nations to operate their own ships then perhaps Australia, Canada and South Africa should join in, regardless of their own efficiency in shipping. Yet the experience of those countries who have chosen to support their own shipping industries, whether by subsidies, fiscal favours or other protectionist measures, is dismal. Such measures have proved ineffective in supporting shipping; and expensive to the taxpayers and traders concerned. With time, unintended side effects have often appeared, with interested parties draining off the benefits to their own advantage. Various African, South American countries provide excellent examples; so do the subsidy and cargo preference arrangements in the USA. Recent examples of abolishing such measures (e.g., in Brazil and Chile) have shown great advantages to the countries concerned. The largest fleets today are those of the flags of convenience (focs), which have no such support. Many of these registers are operated by commercial firms located in London (Liberia) or the USA (Vanuatu). Despite the "nationality" provided by this registration, they may therefore be regarded as equivalent to other offshore operations.

  Subject to the points made below, it follows that British shipping should be allowed to operate in free competition and on bases which are broadly comparable with those of other British industries. If it cannot do so on an ordinary commercial basis then there is no more reason to support it than there is for the Argentineans or the New Zealanders to support their shipping. In economic terms, this means that the value added of the domestic resources involved (primarily of labour and capital) should contribute at least their opportunity cost to gross domestic product.

  The British shipping industry is, however, subject to two major disadvantages.

  1. There is unfair competition from ships whose low costs result from low safety standards. These are not wholly foc ships. Some focs have good safety standards—though some do not, being administratively ineffective and interested mainly in collecting their registration dues. Other flags, including parts of the former USSR, have low safety standards, though they are not generally recognised as focs.

  The importance of this lies in shipping having, very largely, an internationally competitive market, in which those ship operators who try to maintain high standards (and there are many, including several British companies, whether acting as owners or as managers) are in competition with those who achieve lower costs by accepting lower safety standards. Some of the latter use classification societies with lower standards than those which belong to the International Association of Classification Societies (IACS); but the lists of ships detained under Port State Control in Britain show that many are classified by IACS members.

  A study carried out for OECD has shown that, despite the risks of inspection and possible detention under port state control arrangements, it is more profitable for a ship operator to have low safety standards than high ones. It follows that the system of port state control in which Britain and several other European countries participate needs to be considerably strengthened. Since most British ship operators maintain fairly good safety standards, the main effect of this on British shipping will be to remove low cost competition of a kind which is not only unfair to the ship operators but undesirable for the seafarers and the environment as well.

  Neither governments, those concerned with the environment (e.g., the Environment Agency) nor the consumers of shipping services are represented on the governing boards of classification societies. Seafarers (who may lose their lives) are scarcely represented either, though credit should be given to Lloyd's Register of Shipping, which has recently invited one to join them. On the other hand, ship operators, shipbuilders and private sector insurers are heavily represented. It follows that classification societies, whether members of IACS or not, cannot effectively balance the various interests concerned. In any case, the system of classification of ships does not generally allow for unannounced safety checks of the kind considered essential in other British industries and frequently carried out by HSE.

  Because British shipping operates world-wide, I therefore, suggest that:

    port state control should be made much more rigorous and the several regional schemes of port state control now existing should be modified so as to have one unified system in which information about unsafe ships is widely known, both within the system and to shippers, passengers, seamen and the ships' insurers.

  Operating unsafe ships would thus become unprofitable, if not impossible. The proportion of the world in which unsafe ships could operate profitably would thus be gradually and effectively diminished until it was negligible. It was by just such means that piracy and the slave trade were eliminated.

  2. Since the early 1920s most of British industry has been protected, whether through customs tariffs, quotas or other means. This has been continued in the European Union. No equivalent forms or levels of protection have been accorded to British (or European) shipping whose policies have generally been considered in relation to ships of other countries than to other British (or European) industries.

  This inconsistency has had predictable results: if one sector of an economy be protected then it is likely to become larger than it would otherwise have been: and if another be left without protection then it is likely to become smaller than it would otherwise have been.

  Economists generally agree that the best solution is that of abolishing all forms of protection and adopting free trade—subject to such safety and environmental matters as those discussed above. There is, however, the "second-best" argument, (developed by Lipsey and Lancaster, in The Review of Economic Studies, 1957). This suggests that, if political and other matters prevent the adoption of free trade, then it would be possible to achieve a better distribution of a nation's resources by providing roughly equivalent levels of protection to all its economic sectors. In practice, of course, this would have to be done in various ways; nor should any precise consistency be expected. The result would not be ideal: but it would be much better than having protection for some sectors and none for others.

  Although this idea has been around for some time (see, e.g., Professor Haralambides' inaugural lecture at Erasmus University, Rotterdam, on 19 March 1993), there has been little consideration of it in official circles. It would, moreover, represent a considerable departure from previous shipping policies. I therefore suggest that:

    a substantial study should be promoted of the effects of leaving shipping open to free competition whilst protecting other sectors of the economy; and leading to recommendations.

  Ideally this should be done on a European basis but, if that should prove impossible, then there are ample resources to mount a British one. Bodies which might be involved include the Department of Transport, the Regions and the Environment, several British Universities (e.g., Cardiff, London Guildhall and Plymouth), the Chamber of Shipping, such professional associations as the Institution of Marine Engineers and the Nautical Institute and the relevant Trade Unions. Any or all of these might act together. They have already done so for other matters—e.g., the development of Formal Safety Assessment.

  Such a study might proceed by estimating the effective protection currently accorded to other industries (a customs tariff expressed as a ratio of value added—a standard technique used at successive GATT negotiations and now in WTO) and examining the ways in which similar effects might be produced for shipping. One such approach might be the whole or partial relief of taxes on employment, including income tax and social security payments. UK-based seamen might be deemed to remain in benefit, free of charge. To extend this to corporation tax might involve special arrangements aimed at preventing leakages to other activities. This might involve "ring-fencing" British shipping companies in ways parallel to those now used for North Sea oil. It might be wisest, therefore, to concentrate first on employment-based taxes. The present system, of lessening income tax by examining how many days a British seaman has spent within a given distance of the UK, provides a starting point, despite its patent absurdity in this context.

SHIP REGISTRATION

  Although legally necessary, this is now little more than a bureaucratic formality having negligible economic or strategic significance. Subject to the arguments in the previous section, there are no substantial reasons to encourage ships being registered in Britain, to prevent it, to discourage it or affecting the Isle of Man registry. As noted above, focs are best regarded as a maritime equivalent of other offshore activities.

CONTRIBUTION TO THE OBJECTIVES OF THE TRANSPORT WHITE PAPER

  Most of the Transport White Paper published earlier this year had to do with domestic transport, for which shipping is irrelevant except across the Irish Sea and to offshore islands. Nevertheless, much road traffic between the Continent and Scotland, the North of England and the Midlands currently travels by the Dover-Calais route, which involves driving through the congested south-east of this country. Road congestion and the case for increasing public expenditure on roads in this area (including the Thames crossings) would be lessened if this traffic were encouraged to move to ferry services from the Forth, Tyne, Humber and East Anglia. Continental ro-ro services from these areas should therefore be encouraged to expand beyond the points indicated by commercial profitability.

  This could be done by various means. They include selective road pricing and sophisticated forms of subsidies for shipping. The latter might include seeking competitive bids for operating services at freight rates well below current levels. These shipping matters, therefore, need to be considered in the context of the development of integrated transport policies. Unfortunately, the administrative structure of the DETR is such that shipping (together with ports) matters are considered separately. I therefore suggest that:

    assistance for ferries from the east coast of Britain be explicitly considered in relation to road congestion in London and the south-east

and that, to prevent the point from being pigeon-holed, a published report be required.

STRATEGIC MATTERS

  The Falklands episode apart, most military plans and activities are now made in conjunction with other countries, whether on standing formal bases, like NATO, or on more ad hoc ones, like those in the Gulf. The question, therefore, is not whether there is enough British shipping for British forces but whether there is enough shipping, in total, for the total allied forces involved in military plans. Moreover, military shipping needs are likely to be specialised (e.g., for beach landings or carrying tanks) or urgent. General support for British shipping will provide neither of these.

  If merchant ships were needed to form a military reserve then they could be built for and owned by the Royal Fleet Auxiliary, being chartered out on commercial bases whenever they were not needed for military activities.

EMPLOYMENT AND TRAINING

  Parallel with the decline in British shipping there has been a decline in the employment of British seafarers, many of whom will reach retirement age in the next few years. Shortages will therefore be with us soon and this is likely to appear across the world. Whilst there has been a significant growth in the employment of British nationals on other countries ships (largely on focs), this is uncounted, both as such and in the statistics concerning shipping and their contribution to the balance of payments. All this has been assisted by many British shipping companies abruptly (though legally) making many seamen redundant and either replacing them with those from overseas at lower wages or re-employing them on flagged-out ships on lower overall terms. In a service with quasi-military characteristics, this had a marked effect on loyalty.

  Some years ago most Merchant Navy cadets worked virtually as seamen but for a fraction of their wages. At present, they are treated as full-time trainees. This has made ship operators correspondingly less willing to employ them and especially since many do not stay at sea. Though no one directly involved is likely to admit it, these reforms are the real reasons for the decline in officers' training in British shipping.

  Similar reasons apply overseas and the overall result is the prospect of a world-wide shortage of seamen, particularly of qualified and experienced officers.

  As the armed services demonstrate in every war, enthusiastic young people can be quickly trained to do quite complex jobs. There may be some difficulties in complying with rules covering length of service, but the general abolition of lengthy apprenticeships (e.g., seven years in the printing industry) shows that these may often be modified. The real shortage, therefore, is likely to be that of senior officers capable of acting on their own in unexpected circumstances, whether these are physical (e.g., taking a tow in mid-Atlantic after an engine-breakdown) or commercial (e.g., negotiating the outcome of a dry-docking contract).

  As standards rise, moreover, so do the training requirements. Some training can be shortened with modern equipment (e.g., ship-handling with simulators—which should become an examination requirement): others, like showing powers of leadership, need to be inserted in training programmes. On this last the Committee should see Captain Peter Roberts' paper on "Training for Command" in the November 1998 issue of Seaways, the organ of the Nautical Institute, where he notes the general neglect, in current training and examinations, of skills in commercial awareness, management, personnel matters and practical ship-handling. Senior qualifications like the MCA examinations need to be broadened beyond the purely technical to include these matters. This could be achieved by combining the training required with existing university courses, in this and other countries. Training and education may thus be brought together. (Recommendations of the 1970 Rochdale Committee have been ignored in this and other respects, presumably because of institutional and professional inertia.)

  At the moment, moreover, it is extremely difficult for British seamen to get the necessary finance for university courses. The Marine Society and the Nautical Institute between them offer a small number of scholarships but such arrangements should be expanded with government help. Coupled with the reluctance of UK shipping companies to recruit graduates (they seek no more than school-leaving qualifications) and the increasing tendency for bright young people to seek higher education, this means that the pool of intelligent, well-educated seafarers is steadily diminishing. This will continue unless something is done to stop it.

  Retraining requirements, for those who left the sea some time ago and whose qualifications are no longer valid, are seriously inadequate. My own certificate of competency as a Master Mariner could be re-validated with only a few weeks shore training, and without any re-examination, even though it has not been used for over 40 years. This would leave me grossly incompetent at commanding any modern ship since I have forgotten most of the navigational techniques and have no experience of modern methods of cargo-handling, stability control, safety regulation or fire-fighting and have never had primary responsibility for manoeuvring a ship in close waters.

ON -SHORE SHIPPING SERVICES

  Most countries need some people with nautical or marine engineering skills to provide harbour-masters, pilots, surveyors and many others important skills. In Britain there are markets in ship-broking and insurance and it is sometimes suggested that shipping ought to be supported in order that these various professions may continue.

  These arguments are easily exaggerated. No doubt practical seafaring experience is valuable in these matters—and the lack of it amongst the directors of British shipping companies certainly contributed to their decline. The supply of such people would, however, be enhanced by the reform of training suggested above.

  To the extent that shortages remain, however, suitable people may be brought in from elsewhere and without any burden on the taxpayer. Sources of such experience may include the Royal Navy and other countries so that just as, in the late 19th century, Britain provided harbourmasters, pilots and surveyors to the rest of what was then the British Empire—and to many other countries as well—we may welcome expertise which we have not provided ourselves. Since English is the common language of maritime matters, language could not provide a barrier.

Department of Maritime Studies and International Transport

University of Cardiff

and Pershore, Worcs

November 1998



 
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