1. Is it true that the United Kingdom fleet requires
investment of $2,222 million over the next 5 years ($1,759 million
newbuild, and $463 million for second-hand ships)?
We understand this estimate to be a projection
of the average net investment by the British industry in recent
years. The gross investment trend (i.e., not subtracting the revenue
from ship sales) would imply a figure nearer $4 billion. Although
the figures look large, when the value of new large and sophisticated
ships (e.g., a cruise ship$300 million, or a containership$100-200
million) is taken into account, it is clearly not a generous assessment.
Leaving aside smaller ships, this could be equivalent to say 4
cruise or cruise-ferry ships and 4 large containerships.
We believe thatif the objective is to
renew the fleet rather than perpetuate the current decline (in
numbers and age-profile)this estimate is a considerable
understatement. Since the average age of the UK fleet has been
constantly deteriorating since 1980 (it now lies at about 18 years
compared to the world average of around 14 and the normal life
expectancy of a ship of about 25 years), if the UK fleet is to
continue sensibly into the medium and long term future, significantly
greater investment will be required in practice. If the objective
is to expand the size of the fleet, clearly the investment requirement
would be even greater. Indeed, the true requirement could then
be in the order of $5 billion net.
2. Is it true shipping companies find that it
is difficult to gain access to capital? Would a Government "guarantee
of loans" assist? Should the Enterprise Investment Scheme
There are several questions here:
Access to capital. In our
judgement, responsible and established shipping companies do not
find it difficult to gain access to capital from banks. The difficulty
lies in achieving a sufficient rate of return to enable the companies
to service the cost of that capital and to renew/expand their
fleet. Shipping operates in a highly competitive international
market and, as such, provokes caution in investors. The degree
of risk is, however, highly dependent on the particular sector
in which the shipping company is operating and on an assessment
of the position/ability/opportunities of the particular shipping
company or venture. By and large, British shipping companies have
moved out of those sectors where the risk is highest and the returns
lowest, no doubt in response to competitive pressures in the trade
and, in some cases, to investor pressures. We have, for example,
now little or no significant representation in deep-sea dry bulk
Government "guarantee of
loans". A guarantee scheme already exists for newbuildings
in the Home Credit Guarantee scheme, which is driven essentially
by national shipbuilding considerations. The UK scheme parallels
similar arrangements in other shipbuilding countries and takes
its nature and levels from an OECD agreement. The UK scheme is
available to foreign carriers placing newbuilding business in
UK shipyards and, similarly, British shipping companies can benefit
from such credit schemes abroad.
However, in recent years, the conditions have
by and large not been favourable compared to current market interest
rates. This is, we understand, currently under review. Moreover,
the scheme is not available for second-hand investments, unless
a major conversion is involved.
Finally, there has been no great call in the
UK shipping industry for a system of loan guarantees. Nor would
one appear to offer any great value for the future.
Enterprise Investment Scheme.
Neither the EIS nor its predecessor (the BES) have had the potential
in themselves to stimulate a substantial increase in investment
or renewal in the British shipping industry. They were pitched
at a completely different level than the "limited partnership"
schemes in other European countries (including Denmark, Germany,
Netherlands and Norway). As such, from an overall view, the EIS
has not proved, and is unlikely to prove a very useful mechanism
in shipping generally. On the other hand, for those companies
which have expressed an interest in it (and a number of shipping
ventures were launched under BES), there is a good case for making
the current scheme more shipping-friendly, by increasing the level
of relief and by allowing ship-chartering companies to take in
ships on bareboat-charter within the scheme.
3. Will the changes you suggest to the SmarT scheme,
and to the tax and National Insurance regimes, really be enough
to raise the number of cadets to the target of 1,200? What else
can be done to attract young people into the industry?
The industry's training and employment proposals
cannot be seen in isolation from the fiscal proposals. The ability
of the industry to participate positively in training will in
practice be heavily influenced by the Government's overall response
on the key issues relating to the investment and employment climate
in the UK. Unless a sufficient core package is adopted to improve
the investment and employment climate, the industry's response
to the promotion of training and other important proposals will
The White Paper's recommendations fall short
of the industry's joint proposals in a number of areas:
there is no increase in the proportion
of training assistance compared to overall cost to the shipowner;
the White Paper rejects, at least
for the time being, the proposal to extend the existing seafarers'
income tax alleviation to all seafarers including those in near-coastal
it is negative also on the National
Insurance proposal, evenat least for the time beingon
the proposal for voluntary payments of Class 1 contributions,
which would actually increase Treasury revenues.
On the other hand, we welcome:
the proposed increase in the overall
budget available for training assistance;
the potential that lies in the proposal
for a maritime training trust;
the greater flexibility shown in
regard to the nationality of ships and of officers supervising
ships for training; and
the willingness to provide support
for graduate training programmes and enhanced rating training
However, the key factor in determining numbers
of British seafarers in training and in employment over the years
has been the size of the fleet and that will only be underpinned
by the fiscal proposals, particularly the tonnage-based tax regime.
In order to strengthen its impact on employment, the industry
has proposed a direct link to training, in the form of the "minimum
training commitment" which we described in our oral evidence.
We believe that a combination of the benefit
arising from the tonnage-based tax regime and the present training
and employment proposals (with only minor adjustment, as indicated
in our written evidence) would be sufficient to generate confidence
in the industry, as a direct result of the manifestation of the
Government's commitment to this industry. That would have an immediate
impact in terms of ships operated from this country and seafarers
employed on those ships and would set the industry well on the
way to rebuilding its recruitment numbers towards the target of
1,200-1,300 new cadets each year, which has been identified by
two Government-sponsored studies. It would also improve prospects
for rating recruitment.
Certainly, the industry is committed to playing
its full part in achieving that target, if a full package of measures
is introduced, through increased promotional activity within the
Merchant Navy Training Board and through pushing a seafaring career
more strongly. In addition, the industry has given an undertaking
to make every effort to increase recruitment by 25 per cent per
year until the deficit is restored. This would mean that the target
could be reached within four years.
However, there are issues relating to employment
costs which we believe the Government should consider further
in the continuing development of the White Paper proposals. These
include the points mentioned above concerning: the Crew Relief
Costs scheme, National Insurance contributions, and the Foreign
Earnings Deductions for Seafarers.
11 February 1999