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


Memorandum by F T Everard & Sons Limited (FUS 32)

  We are fully supportive of the initiative taken by the Deputy Prime Minister to address some of the basic problems of the shipping industry due to unfair competition.

  F T Everard are members of the Chamber of Shipping and agree with their submission to the Committee establishing an Investment, Employment and Training environment which matches our European competition.

  It is not our intention, in this paper, to go over all the ground mentioned by the Chamber. It is, though, our view, for British Shipping to thrive a substantial package is required in order to improve our competitiveness.

  We intend to highlight two particular ideas from a Short Sea Owners point of view.

    1.  Roads to water.

    2.  Seafarers tax situation.

  By way of background, F T Everard & Sons Limited is a private family company which has been in existence since 1880. In shipping terms we have two distinct short sea fleets. We have over 20 dry cargo ships, some involved in regular forest product movements, mainly timber, from Sweden to UK and Ireland. The remainder of dry cargo ships are involved in short sea and coastal bulk trades and in heavy or awkward lifts. We are one of the largest UK dry cargo operators and are in a highly competitive market. There is a need to maintain current traffic and increase the amount transported by water. This includes ensuring small bulk ships through transport costs (including the high port interface cost) remain competitive against long haul road direct and switching supply sources from medium haul road to longer haul sea supply. We have a fleet of 10 small tankers carrying a significant share of the refined product shipped coastwise from the oil refineries to the regional market storage and distribution facilities. This highly specialised niche oil trade now represents the major part of the UK coastal shipping volume. Coastal tankers carry some 35 per cent of refinery primary distribution, against pipeline, rail and road, but the share has declined by about one-sixth over this decade partly due to closure of coastal distribution terminals resulting from rationalisation and the high costs of environmental upgrading; this tends to increase road tanker miles.

  The Company has played its full part in the training of people both afloat and ashore. We have recruited both officer and deck trainees every year over the last few decades and did not reduce our training budget during the shipping recession in the 80's. Last year we received the major shipowner/manager award for long term training by the international daily shipping newspaper, Lloyd's List, presented by Neil Kinnock. Our recently retired Company Secretary was recognised in the New Year's Honours List for his contribution to training. Safety and Training are given the highest priority in the Company, for instance as Chairman of the Company, I chair our Safety Committee.

1. ROADS TO WATER

  My submission is concerned with the role of shipping in intra UK/European transportation. Shipping is seen as an environmentally friendly form of transportation and we believe we could make a significant impact on the level of (long haul) road haulage traffic. The recent White Paper on the Future of Transport states that one of the four broad aims of the Government's integrated shipping policy is "to facilitate shipping as an efficient and environmentally friendly way of carrying out trade". The submission shows how short sea shipping could be assisted in increasing its contribution to this objective.

1.1 The focus in the short sea sector is on reducing road miles by substituting sea miles:

    —  by seeking new traffic for coastal shipping and preventing further loss of coastal traffic to road;

    —  by routing traffic, with the Continent and with Ireland, on more sea intensive routings through (regional) ports closer to the points of origin and destination of the traffic;

    —  by maintaining a diversity of competitive ports and ensuring development of competitive shipping services, competitive on cost, frequency, transit time, etc., serving directly into the regions of cargo origin and destination.

  Coastal and short sea dry cargo where there are large volumes of traffic moving around Europe, any individual company has an overall small market share.

  Coastal petroleum product distribution where the need is to halt the decline in the proportion carried by sea and, if possible, increase it.

  Unit load (container and trailer) transportation is an area where Everard has only an indirect involvement through its bulk timber services from Scandinavia to UK/Ireland and finds itself in direct competition to more road intensive trailer ferry services and it cannot economically operate multi-port services. The need is to enhance the competitiveness of the longer haul and regional sea routes, with a focus on the northern ports and northern services in particular, and to switch away from driver-accompanied freight trailers on the short Dover ferry crossings to the unaccompanied trailer ferry services.

  The potential road-mile savings, as a percentage of the overall UK road freight market, are relatively small but they are significant in terms of actual tonne-miles and on certain congested road corridors such as the A1/M25/M2/M20. UK port traffic now represents over 10 per cent of UK road freight tonne-miles and it is growing as the UK becomes more integrated with Europe.

  Short sea shipping, on the longer sea routes and to the regional ports, can be likened to a by-pass. I like the concept of maintaining and creating port pairs and shipping networks, defining the by-pass routes and promoting these to the shippers.

1.2 The UK domestic short sea shipping sector seeks a levelling of the playing field and some positive discrimination

  Although if we are to achieve a really significant shift from the roads then radical measures are necessary. However, Government policies currently are essentially non-interventionist and we do not expect subsidies, nor seek any market distorting subsidies.

  Road transport does impose "external costs" whilst shipping with its unlimited highway has the lowest external costs in relation to degrading the environment, destroying the countryside, noise, traffic accidents, etc., and it is generally much less fuel intensive. Discriminatory taxes and controls on road transport are still not politically acceptable and will be seen as a tax on distribution by industry. We can only seek the same positive assistance as received by rail and more encouragement for our industry, including the funding of certain research projects. There are four positive measures upon which I wish to focus with the Committee:

  

  Ensuring a strong, vibrant and responsive industry: there will be no innovation and renewal whilst the profitability and return on investment remain inadequate. As a start there should be equal tax treatment on capital and employment for the UK domestic shipping industry as its competitors abroad.

  Freight facilities grants and port costs: the port interface cost is a very major element in through transport involving a sea move, just as the rail to road transfer cost is a major cost item for rail movements. These interface costs make it hard for sea and rail to compete with road over shorter distances; we need to reduce them, by reducing capital and operating costs and ship time in port, or even eliminate them, by having the industrial process or distribution system at the quayside. The Government provides assistance on capital expenditure through Freight Facilities (S 36) grants for railway facilities and for certain quays, terminals and marine craft where a substantial proportion of the freight movement is within an inland waterway and its estuary. Justification for assistance is based on road-miles saved. This assistance has benefited rail also, to a limited extent, inland waterways and, for equality, should be extended to short sea shipping in a form more suitable for this sector, taking into account a more flexible traffic modelling and forecasting approach to road-miles criteria and covering also improved cargo handling systems, dust suppression equipment, upgrading of petroleum product terminals (see above) etc.

  Forty-four tonne concession: short sea shipping should have the same concessions as rail, in particular relating to movements to the port, including the 44 tonne lorry concession for combined transport movements to/from railheads. There clearly will need to be an inland mileage limit (say 100 miles or further in peripheral areas) as the purpose is to encourage the regional longer sea routings in order to safeguard abuse. There may also need to be some control over which roads are used. The concession would give maximum trailer load compatibility with Europe and tend to shift heavy traffic such as steels and chemicals through ports closer to their origin/destination.

  Planning: location of industry is key in reducing road-miles. In the long term the number and location of a company's factories and distribution centres, and its import and export logistical facilities, affect the level of road traffic more than anything else does. The trend has been to fewer manufacturing, assembly and distribution centres, within the UK and the wider European market, and a focus on the motorway, whilst road transport costs have continued to fall in real terms. Some re-balancing is required. Industry should be encouraged to utilise port areas, particularly in a wider European trade context. Planning procedures should be reviewed and planning controls eased to provide incentive for manufacturing/assembly and warehousing/distribution activities and freight villages/logistical centres to be set up ports. The tendency has been to sterilise waterside land. The planning procedures should take account of the potential reduction in road-miles, using cost benefit criteria.

  These measures will go some way towards meeting the objectives of the White Paper.

2. SEAFARERS TAX

  Most of our European competitors operate an income tax scheme which means that either their individual seafarers pay no income tax or, in the case of many countries (including Denmark, Germany, Netherlands and Sweden), the owners keep all or much of the income tax that the seafarer would otherwise pay.

  In the UK, seafarers qualify for a "foreign earnings deduction" provided they are away from the UK for 183 days in the year.

  Many foreign ships—including ships operated by European and Far Eastern competitors—operate freely in the UK coastal trade. These ships have crews which benefit from tax relief. This puts our own crews, who do not qualify for the foreign earnings deductions since they may not be away from the UK for a full 183 days, at a serious disadvantage. Moreover, we train seafarers, some of whom go to our direct competitors with whom they can obtain the UK tax alleviation.

  We have to be competitive in the market, which has meant that we fly about 20 Canadian officers to work on our coastal tankers. Of course, these officers receive full income tax relief in Canada. We believe that the present UK income tax concession, which is one British shipping overall needs in order to remain competitive with its counterparts elsewhere in Europe, should be extended to all British seafarers who sleep aboard vessels for 183 days (not just those who are away from a UK port). They are effectively away from home and in the same position as somebody working abroad. It is extremely frustrating to train people for our competitors to use against us. Our seafarers feel very strongly on this point. The current situation could affect our future recruitment and training policy.

January 1999


 
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