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


Memorandum by the Baltic Exchange (FUS 13)

THE FUTURE OF THE UK SHIPPING INDUSTRY: MARITIME SERVICES IN LONDON

SUMMARY

  Maritime London today maintains its position as the world's largest provider of maritime services. It is an interdependent web of services supplied to the international shipowning and merchant community. The latest available statistics from British Invisibles[67] show its value at between £1½-2 billion each year. Shipbroking, as exemplified by members of the Baltic Exchange, alone contributes 5 per cent of the City's overseas earnings from services.[68] Sadly, the time has long gone when the success of these services is intimately bound up with the size and success of the British-owned merchant fleet. Nonetheless, any strengthening of the UK fleet would generate more business for shipbrokers and Maritime London generally, and the Baltic Exchange welcomes and encourages all efforts in that direction. In addition, a continuing supply of trained seafarers is always needed to provide seagoing experience in the shore-based maritime service sector.

  Despite the successes, the structure of Maritime London is fragile. The centre of gravity of world shipping is now in the Far East. Modern and cheap telecommunications offer a threat, as well as a challenge, to the traditional dominance of London. We cannot be complacent.

  Our emphasis is therefore on maintaining and enhancing maritime services in London.

  There are three essential features to this:

    —  Government should send positive signals to overseas owners and cargo interests so that they are clear that their business is welcomed in London and its importance recognised.

    —  The present fiscal arrangements, which include the way taxation is handled on the agencies of overseas company and the law of domicile, should be confirmed as the regime applying to overseas non-UK owners and merchants since loose discussion of changes in that regime have a destabilising effect on the business placed in London.

    —  New ways should be sought to stimulate and enhance Maritime London. We do not intend to resurrect the proposals for a British Open Register made by the Baltic Exchange some years ago because of opposition from the domestic shipping industry but the Committee will want to note the regimes established in Singapore and Vancouver which specifically target overseas owners by offering a benign tax regime, to the benefit of those areas.

Introduction

  This note outlines the Baltic Exchange's position on that element of the Sub-committee's terms of reference relating to maritime services in London, such as shipbroking and the related services. It also touches on the main thrust of the Committee's work—British Shipping—and certain proposals made several years ago by the Baltic Exchange to stimulate world shipping in London. It also draws attention to some specific, shipping regimes established elsewhere in the world and suggests these should be studied with a view to government moves to enhance Maritime London.

Background

  The Baltic Exchange is the world's premier and oldest international shipping Exchange. Founded in London in 1744 it has grown to become the world's focus for bulk shipping and provides a self-regulated market place for shipbroking—unique in the world. Its members, predominantly shipbrokers, cargo interests and shipowners, are concerned with the matching of bulk ships and bulk cargoes and the sale and purchase of vessels. Members handle around 30 per cent of international dry bulk cargo, an estimated half of crude oil tanker chartering and form the world's major sale and purchase market.

  Dry cargo includes major industrial commodities such as coal, iron, ore, and steel. Wet cargoes include crude oil, products of oil such as gasoline, together with liquified gases and chemicals. Over five and a half billion tonnes of cargo is moved by sea each year as shown in this pie chart.


  Aside from those members directly engaged in matching ships and cargoes, the Baltic market also comprises many other facets of the maritime service industry. These include maritime lawyers, marine insurance organisations, protection and indemnity associations, arbitrators, classification societies, ship finance banks and information providers. It is also worth mentioning that the UN International Maritime Organisation is based in London, a reflection of the status of the city in the maritime world, and its presence cannot but be helpful to the UK's leading role in the maritime world.

Maritime Services in London

  Founded on the success of British shipping, London now leads the world as a provider of maritime services. Although, sadly, the UK no longer boasts a substantial merchant fleet, London excels at providing maritime-related services to the international shipping community. These are offered by a large number of independent firms who compete with each other to provide their services efficiently and effectively.

  London's strength lies in its ability to supply a unique and comprehensive range of quality shipping services which appeal to the international maritime industry. If any part were eroded London could lose its critical mass and so it pre-eminence as the principal service provider. The Baltic Exchange is at the hub of this industry and has created the ideal position from which to promote these services to the world.

  Drawing on a number of sources, including Maritime Services[69] published by British Invisibles as part of their City Business Series, the following paragraphs list some of the key maritime-related services operating in the UK.

    —  Shipbroking. London provides the largest community of international shipbrokers. Many operate under the umbrella of the Baltic Exchange which provides a regulated framework for trading. Overseas earnings by Baltic Exchange members were calculated at £316 million in 1997. Estimates indicate that London's share of the international shipbroking market is between 30 and 50 per cent depending on the sector.

    —  Freight Futures. London operates the only freight futures market in the world (The Baltic International Freight Futures Exchange—BIFFEX), operated by LIFFE. The over-the-counter (Forward Freight Agreement) market dealing in freight options and swaps is gathering momentum and is also centred in London. The Baltic provides a range of price settlement indices for this purpose.

    —  Maritime Finance. London's investment banking community is very active in raising equity capital for shipping and in arranging mergers and acquisitions. In 1996 it was estimated that London's loan book amounted to some £6 billion with the annual transaction volume in the range of £1½ to £3 billion.

    —  Marine Insurance. Some 30 per cent of marine risk, both hull and machinery and cargo, is placed in the London market. Third party liability, arranged by the Protection and Indemnity Associations (mutual clubs) account for almost 80 per cent of total world cover.

    —  Maritime Law and Arbitration. English law is applied to shipping disputes more widely than the law of any other country. Consequently, London is the principal centre for maritime law. It is also the world's leading centre for marine-related arbitration.

    —  Ship Classification. Ship surveys are arranged by Classification Societies. The largest is Lloyd's Register, based in London, accounting for 21 per cent of the total world fleet. Additionally, London boasts large branch offices of the other major Societies.

    —  Other Maritime Related Services. There are many other maritime related services on offer in the UK, accounting for a large international market share. These include accountancy, freight forwarding, marine engineering, maritime publishing and consultancy, average adjusting and maritime-related education.

    —  United Nations. The United Nations International Maritime Organisation is also based in London. This is the only UN body located in the UK.

  Estimates put the net overseas earnings of the UK's maritime services in the region of £1½-2 billion a year (1996 figures). This includes a significant contribution from members of the overseas shipping community, principally Greek but also Scandinavian and Far Eastern, who base their businesses in the UK.

  The 1998 United Kingdom Balance of Payment (the "Pink Book"),[70] just published, shows a total of £6,283 billion as the current account on trade in services by the financial services sector. These figures are recorded net of foreign expenses and Baltic members' contribution is £316 million—5 per cent of the total. This is a remarkable achievement from what is essentially a small market which is neither capital nor resource intensive, but does rely on fast, cheap, effective telecommunications. The overall picture is shown in the pie chart.


The non-UK Shipping Community in London

  In the UK there is a large foreign shipping community, mainly shipowners, who are domiciled overseas but are resident in the UK, and shipowners who are domiciled overseas but have agencies in London. The presence of this community contributes greatly to the maritime business generated in London. If this group were to leave London, or be driven away by, for example, changes in the current UK tax regime the consequences could be catastrophic. A recent analysis[71] by the Department of Applied Economics, University of Cambridge, indicated that it could:

    —  Lead to the loss of more than a third of London's tanker chartering business and more than 40 per cent of its dry bulk carrier business.

    —  Lead to a loss of over 4,500 jobs.

    —  Reduce the UK's tax revenue by around £100 million a year.

    —  Have a large adverse affect on the London shipping business and the City firms which specialise in work related to the shipping business.

  The dangers of disturbing the present arrangements are obvious.

Stimulating and Enhancing Maritime London

  In 1993 the Baltic Exchange made outline proposals to the then government designed to attract more business to London. The proposals were prompted particularly by thoughts of the large international fleet operating in Hong Kong which might be seeking a new home as a result of the return of the colony to China. The thrust was to offer a second, parallel register with the acknowledged high safety standards of the UK but open to any nationality. There were subsidiary issues about crewing but a crucial element was that the existing tax regime of the shipowner would be unaffected. This recognised that international bulk shipping operates essentially in a tax-free environment and these international owners would not be prepared to add their vessels to the UK fleet if they felt vulnerable to the long arm of the Inland Revenue. It is not the intention here to raise the proposal again, although its seemed to us to have great merit, but simply to cite it as an example of an imaginative scheme which sought to bring more business through London. Of course the commercial self-interest of Baltic shipbrokers is evident. We believe that further thought should be given to some such regime which has at its heart that objective.

  It is interesting to note that soon after our proposals were made both Singapore and Vancouver established specific shipping regimes with advantageous tax arrangements to encourage Hong Kong shipowners to bring their business to those ports. International shipowners and trading houses are uniquely mobile since they rely only on fast and cheap telecommunications to do their business and are independent of the geographical location of the physical transaction—the grain harvest in North America, the iron ore mine in South Africa, the forest products from Scandinavia, or the fertilisers to India.

  Although Maritime London was built on the back of Empire trade routes and the coaling stations, with the central core of a strong domestic fleet, it has nevertheless thrived now that the British fleet has dwindled. Nevertheless, it would be foolishly complacent to imagine that the mutually interdependent services are not fragile. And as the figures earlier in this Memorandum demonstrate, the loss of maritime services from London would indeed be a heavy blow to the economy. To this end, a strengthening of British Shipping is encouraged and welcomed.

Summary

  Maritime London today maintains its position as the world's largest provider of maritime services. It is an interdependent web of services supplied to the international shipowning and merchant community. The latest available statistics from British Invisibles[72] show its value at between £1½-2 billion each year. Shipbroking, as exemplified by members of the Baltic Exchange, alone contributes 5 per cent of the City's overseas earnings from services.[73] Sadly, the time has long gone when the success of these services is intimately bound up with the size and success of the British-owned merchant fleet. Nonetheless, any strengthening of the UK fleet would generate more business for shipbrokers and Maritime London generally, and the Baltic Exchange welcomes and encourages all efforts in that direction. In addition, a continuing supply of trained seafarers is always needed to provide seagoing experience in the shore-based maritime service sector.

  Despite the successes, the structure of Maritime London is fragile. The centre of gravity of world shipping is now in the Far East. Modern and cheap telecommunications offer a threat, as well as a challenge, to the traditional dominance of London. We cannot be complacent.

  Our emphasis is therefore on maintaining and enhancing maritime services in London.

  There are three essential features to this:

    —  Government should send positive signals to overseas owners and cargo interests so that they are clear that their business is welcomed in London and its importance recognised.

    —  The present fiscal arrangements, which include the way taxation is handled on the agencies of overseas company and the law of domicile, should be confirmed as the regime applying to overseas non-UK owners and merchants since loose discussion of changes in that regime have a destabilising effect on the business placed in London.

    —  New ways should be sought to stimulate and enhance Maritime London. We do not intend to resurrect the proposals for a British Open Register made by the Baltic Exchange some years ago because of opposition from the domestic shipping industry but the Committee will want to note the regimes established in Singapore and Vancouver which specifically target overseas owners by offering a benign tax regime, to the benefit of those areas.

8 December 1998


67   City Business Series-1996: Maritime Services, published by British Invisibles. Back

68   Office of National Statistics, Table 3.6 Pink Book-UK Balance of Payments. Back

69   City Business Series-1996: Maritime Services, published by British Invisibles. Back

70   Office of National Statistics, Table 3.6 Pink Book-UK Balance of Payments. Back

71   The Contribution of the Foreign Shipping Community to the UK Economy and the Economic Effects of a Change to the Taxation of the Foreign Shipping Community, Department of Applied Economics, University of Cambridge, by C Pratten January 1998. Back

72   City Business Series-1996: Maritime Services, published by British Invisibles. Back

73   Office of National Statistics, Table 3.6 Pink Book-UK Balance of Payments. Back


 
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