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


Memorandum by the Royal Academy of Engineering (FUS 30)

INTRODUCTION

  A number of Fellows of The Royal Academy of Engineering were invited to comment on the Transport Sub-Committee's Terms of Reference. Their collated views are presented in the subsequent sections of this evidence. Fellows welcomed this initiative as a demonstration of interest in this important but, some feel, neglected area.

  Commenting on the Terms of Reference in general, several Fellows believed that they should be broadened to encompass all that affects the UK shipping industry, including ship building, repair and maintenance. It is recognised however that these may have been omitted because of a clash of interests with other Select Committees.

  Shipping is a natural activity for the UK as a maritime nation where trading plays an important role in the national economy. As a mode of transport it is economic when compared with other forms of transport and is more environmentally friendly. The coastal shipping market is active with coasters being built and significant trading across the North Sea. Coastal traffic is perhaps under-utilised in the transportation of bulk goods and large items of equipment between many cities which are on the coast or within easy access. Cross estuarial deterrence, because of lengthy journeys and the absence of cross estuarial shipping dampens the economic opportunities of interactions, e.g., the West Country and South Wales. The deep ports to the west of the UK represent the western frontier of Europe yet are not competing adequately with Rotterdam and other mainland European ports. The Channel Tunnel (when supported by adequate transport links) should give our western ports an advantage. They must be seen as the frontier to the rest of the world and not the periphery of Europe.

  An important concern amongst Fellows is the tendency in world shipping to use "Flagging out", with consequent relaxed controls, to cut costs to the point where operating safety is in question, e.g., reduction in inspection and maintenance (a possible factor in the loss of bulk carriers) and the use of unskilled low wage crews which can result in operational misjudgments. There is believed to be no reason why the standards of operating safety of ships should be lower than that of aircraft. International action is required to monitor the standard of ships that are allowed to use national ports, regardless of the flag that they fly. UK airports would not accept multi-engined aircraft flying on one engine with holes in their wings, even if they were only carrying cargo, whatever their nationality.

  Whilst there is no chance of outperforming "flags of convenience" on operating cost, there is a possibility of adding much more IT into shipping on inland waterways, coastal routes and the high seas. Virtual reality training employing ship and port simulators could be developed along with an exploration of the possibilities for entirely autonomous shipping. Ships should be recognised as containing much high value equipment and the Government should consider initiatives to encourage UK Shipping Companies to purchase their assets, or at least a significant percentage, at home.

  An integrated UK shipping policy, in addition to facilitating growth in maritime transport, encouraging UK flagging and UK manning of vessels, should be targeting the development of a lively UK shipbuilding and marine equipment industry. Such assets are of strategic importance to an island nation and are long overdue for regeneration.

THE FUTURE OF THE UK SHIPPING INDUSTRY: COMMENTS ON TERMS OF REFERENCE

1. What action and partnership is required of the industry and government to develop a sustainable, internationally competitive shipping industry?

  The overriding view is that the UK shipping industry operates at a strong financial disadvantage compared with others. However, the shipping industry is extremely eager to compete internationally for commercial ships, particularly in niche markets, but this would only be possible with a level playing field. It is virtually impossible to compete against intervention funding or any other form of subsidy operated in some countries; these include tax benefits (e.g., National Insurance relaxations), cheap loans and other advantages. Even within the European Union, British shipping companies are disadvantaged.

  Remedial suggestions begin with a demonstration of government interest and encouragement. This need not necessarily be financial, in the first instance, since something more is needed (any finance has always been accepted as small compared with financial support given elsewhere). A new approach is needed on all sides to the business venture, the nature of the cyclical cash flow and trade balance. In 1994 the international revenue generated by the UK shipping industry was £4.354 billion and the total expenditure was £2.015 billion. A partnership between the government and the industry is required to examine the role that shipping can play in an integrated transport strategy including inter alia:

    —  constraints in the transport chain associated with cargo handling;

    —  the role of inland waterways;

    —  planning constraints;

    —  exploitation of information systems in, for example, scheduling and traffic management. The potential for improving reliability, as compared with road transport, should be examined.

  The safety inherent in the original design of some specialist ships has been remarked upon and it is suggested that there is a need to improve the professional knowledge of the crew and the level of maintenance. In addition, there should be a comprehensive and formal hazard analysis of the construction, operation, maintenance and disposal of merchant ships together with a requirement for a lower probability of occurrence and severity of outcome with regard to: injury and death of crew members and third parties; damage or loss to ships, their cargoes and third party property; and damage to the environment. These requirements should apply (after reasonable notice), to both UK flagged shipping and any other merchant ships using UK ports. Joint action, through multi-national agreements, should be taken to improve shipping safety, including international pressure to introduce a mandatory Safety Case regime.

2. The benefits of encouraging UK ship registration, the extent and implications of "flagging out", and the specific position of the Isle of Man registry

  UK ship registration is associated with high standards of operation and safety with a consequent reduced risk to the environment but at a cost to shipowners. Flagging out is a major safety problem but is the norm and is very extensive; an example of proof is that The Royal Fleet Auxiliary (a Government owned fleet) is now the largest UK flagged fleet of ships. A benefit to the shipowner of flagging out is that it avoids labour restrictions, resulting from UK employment legislation, which is viewed to be far more onerous than that of other countries. The main reason for the Isle of Man registry was to avoid some of the labour and employment regulation.

  The UK should share in any benefits accruing from UK ship registration at least as much as the Isle of Man, Bermuda or other countries who make a definite pitch at attracting ships to their register. An important consideration is that if the number of ships registered in the UK becomes insignificant then the nation's influence in the International Maritime Organisation (IMO) and other global associations will be lost and we shall not be able to influence shipping safety standards or other marine activities.

3. The contribution that shipping can make to achieving the objectives of the Transport White Paper

  The aims stated in the White Paper are fully supported as desirable and achievable. Shipping already makes an important contribution, over 77 per cent (by value) of our goods are transported in this energy efficient and low polluting manner. Shipping is a vital component of any transport policy and through greater use, including inland shipping, has the potential to ease road congestion. However, its use must be selective and appropriate if it is to be economically viable. Transport modelling could and should be employed to identify where greater use of shipping will be economic and effective. Imports and exports are as important today as ever they have been, yet they are mainly carried in foreign flag ships, so compounding the trade imbalance.

  The concept of door to door transportation stemmed from the UK lead in container shipping and can contribute to "Just in time" (JIT) delivery direct to site, based on intermodal systems. Such an approach could accommodate the anticipated substantial increase in intra-EU bulk goods trading. The ports are the nodes of the UK's trade and pose the greatest potential limitations on capacity, efficiency and attractiveness of intermodal sea transportation. Considerable investment may be needed to smooth the transit of goods.

4. Whether enough UK registered shipping is available to fulfil the country's strategic needs and international obligations

  It is very unlikely that UK shipping could now fulfil the strategic needs, demanded in an emergency, of transporting people and material to the area of operations. It is generally accepted that the UK could not itself mount another Falklands war exercise because of the lack of merchant ships under its flag. However, the question is usually extended to include shipping which the Government broker can secure for use. The criterion is then one of nationality of ownership rather than registration but the situation even then is probably best described as "marginal".

5. The present level of employment of UK seafarers, the effects of any present and future shortage of skilled personnel in the shipping industry and in related on-shore industries, and how the training and employment of UK seafarers can be promoted

  The present historically low level of employment of UK seafarers manifests itself in two ways. One is the vast reduction in the number of people seeking training in colleges and other institutions and the other is the shortage of sea-experienced people for a range of connected posts ashore e.g., Marine Safety Agency, surveyors for Classification Societies, ship brokers and ship management companies. Such positions are now being filled by overseas applicants or inexperienced graduates who, even with additional training, cannot compare in expertise with seafarers. [A report by the University of Wales shows that the UK will become dependent upon non-UK personnel in many key shore-based roles, ("Study of the UK Economy's Requirement for People with Experience of Working at Sea" D M Gardner, S J Petite, DPU 9/80/1 dated 1996).] This low level means that any expansion of the UK industry would be unlikely to succeed unless definite planned action is taken. A diminution of availability clearly creates a vicious downward spiral.

  New ship concepts based on advanced cargo handling will be required for which the UK should be well placed but, as in the case of shipbuilding, ship repairing and marine engineering industries, is heavily dependent on a continuing supply of experienced seafarers. In offshore engineering, the shortage of UK marine engineers is already causing the major exploration and production companies to look to foreigners to fill the gaps.

  The Inter Agency Committee on Marine Science and Technology Working Group on Education and Training reported in December 1997 on the particular skills shortages in maritime operations, transport and ship building/repairing. Government schemes to tackle shortages must be continued and expanded (e.g., GAFT, DOCS, Flagship, etc).

6. What the UK can learn from the experience of other countries in dealing with similar problems, and the role of the European Union

  The UK can learn a great deal from other countries. An understanding is needed of exactly how, in the commercial shipbuilding field, other countries such as Italy, France, Norway and Greece have been apparently successful, or the degree to which they have been unsuccessful in terms of loss and real cost to their Nations. In particular, Denmark with its "Blue Sea" joint partnership with owners, operators, builders, repairers, etc., has retained an eminence in shipping and marine business, as have Norway, Germany and Holland. Importing foreign built ships has an important impact on the nation's balance of payments.

  On the basis that the UK is not prepared to enter into competitive degrading of the standards required of seafarers we can only seek to achieve alignment of standards of all other major shipping nations. To start with an agreement within the European Union on common standards of qualification would be a major, if difficult, step.

7. The role and importance of on-short shipping services provided in the UK, such as insurance and ship broking

  The White Paper, "A New Deal for Transport", paragraph 3.180, implies a close relationship between the shipping industry and the wider maritime related industries. Since the latter cannot flourish in the long term without the former it is proposed that the above "Terms of Reference" be extended to include " . . . and wider maritime related industries whose long term health and contribution to the economy depend on a vibrant UK shipping industry".

  The financial activities of the City of London developed largely on the back of the shipping industry and world-wide trade by sea. A large number of other maritime businesses have also "fed" off UK shipping and are now being starved, e.g., ship repair and maintenance establishments, R&D companies and port services. The City still plays a major world role in shipping finance, insurance, arbitration and broking. With the demise of a UK shipping capability and faced with shortage of experienced seafarers and shipping personnel, the City of London will decline as the leading world centre of these activities. Invisible marine-related earnings by the City in 1994 are estimated to have made GDP contribution of £956 billion. These earnings come from the operation of the Baltic Exchange, through various insurance activities, legal and financial services and from Lloyds Register of Shipping. Over the decade 1984-1994 there has been a steady decline in earnings from financial sources amounting to about 37 per cent in real terms over the period. ("An Analysis of Marine Related Activities in the UK Economy and Supporting Science and Technology" by David Pugh and Leonard Skinner. IACMST Information Document No. 5, December 1996, quoting Chamber of Shipping "Marine related earnings in the City" Study with Erasmus University, Netherlands, February 1996.)

  On-shore services also include ship design, where the UK can play a leading role in meeting strategic marine transport needs. The Engineering and Physical Sciences Research Council (EPSRC) should be encouraged in the tentative steps it is taking in this area, with a view to supporting the precarious research base.

  The major role played by the UK in on-shore shipping services is an important factor in UK influence in maritime affairs. The demise of the UK shipping industry with the consequent reduction in the supply of suitably qualified personnel means either the recruitment of foreign nationals to carry out the duties or the removal of the companies abroad.

December 1998


 
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