Memorandum by Professor Richard Goss (FUS
THE FUTURE OF THE UK SHIPPING INDUSTRY
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.
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
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.
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
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 standardsthough 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
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
tradesubject 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 matterse.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 addeda 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.
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.
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
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.
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.
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 simulatorswhich 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.
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 mattersand
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
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 Empireand to many
other countries as wellwe 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
University of Cardiff
and Pershore, Worcs