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


Memorandum by Shell International Trading and Shipping Company Limited ("STASCO") (FUS 34)

[STASCO is the primary oil trader and shipper within the Royal Dutch/Shell Group of Companies ("Shell")]

THE FUTURE OF THE UK SHIPPING INDUSTRY

INTRODUCTION

  As a major international oil and gas shipping company based in the UK, STASCO is grateful for the opportunity to provide a submission to the Committee and welcomes the initiatives of the Committee, the DETR and the Deputy Prime Minister in establishing their respective reviews regarding the future of the UK Shipping Industry.

  STASCO also concurs with the comments of the Chamber of Shipping to the Inquiry on methods to support and encourage the UK Shipping Industry since they reflect many of the views held by ourselves.

SUMMARY

    —  Oil and gas shipping is an increasingly international, highly competitive business, frequently operating in a low cost and low tax environment, where efficient and effective supply and management of human and physical resources are essential for success.

    —  Maintenance of standards is of major importance to the oil and gas shipping business. This requires the development, maintenance and retention of marine professional skills at sea and on shore and the uniform and effective enforcement of international regulations.

    —  A positive Government policy for the UK-based [British] shipping industry is welcomed to encourage training and employment, facilitate the ability to compete in the global arena, and promote the development and enforcement of sustainable international standards.

    —  Current seafarer employment provisions, such as assistance for training and employment travel costs and the UK Foreign Earnings Deduction tax exemption, are acknowledged as being beneficial. Any expansion of these would be welcomed. At the least they should be retained in their present form if the Government does not wish to put the UK Shipping Industry (which does not receive the same support as other countries) at a disadvantage vis-a-vis its main competitors.

    —  It is important that the Government continues to develop a general business environment in the UK for undertaking international business. Anything that restricts the present openness and flexibility of approach will send messages to business that contradict this overall objective. The facility to register ships in the British dependent territories and particularly the crown dependencies is of benefit to the British shipping industry in competing internationally. It strengthens rather than weakens the link to the UK, since undue restrictions may cause shipping companies to look beyond the Red Ensign group altogether rather than accept to be compelled back to the UK mainland. The dependent territory and crown dependency registers should be regarded as complementary to British shipping.

    —  Subject to the foregoing comment on registration, implementation of the plans in the DETR paper "British Shipping—Charting a New Course" should provide a stimulus to the UK shipping industry and result in the delivery of a potentially significant contribution to the UK economy. We share the view put forward by the industry jointly in the Deputy Prime Minister's Shipping Working Group that the primary linkage to the UK in any significant new measures should be through a commitment to training of UK seafarers, rather than through a requirement to register in the UK mainland. This is particularly important both in regard to the tonnage-based tax proposal and the expansion of Crew Relief Cost assistance.

SHELL

  Shell Companies are responsible for almost 20 per cent of the global seaborne movement of crude oil and refined products and 16 per cent of the world shipments of liquefied natural gas (LNG).

  STASCO, in its own right, is the world's largest oil trader and one of the world's largest charterers of (term and spot market) oil tanker tonnage. It owns, demise charters, manages and/or mans a deep sea fleet of more than 50 oil and gas (LNG and LPG) tankers, trading worldwide including specialised product carriers, state-of-the-art Very Large Crude Carriers (VLCCs) and approximately 25 per cent of the world's LNG carriers.

  Of the 800 officers serving with Shell, approximately 470 are British. Of a similar total number of ratings, the majority are from the Far East. Thirty-five British ratings are employed, serving on two specialist offtake tankers in the North Sea. STASCO is currently training 135 British and 60 other cadets for deck and engineering officer positions.

  Shell's global skill pool of marine professionals ashore, which includes a high proportion of former seafarers, includes more than 150 engaged in commercial, technical, operational and consultancy activities in London. A similar number are employed by Shell Companies around the world supporting ship, shore and other marine-related activities, while a further 100+ are employed in other parts of the Group's business. Additionally Shell's former seafarers occupy a series of senior positions in a number of key marine-related businesses and industry associations in the UK and overseas.

  Shell also has local shipping operations around the globe with coastal, river and other tonnage, for example in Argentina, Australia, New Zealand and across Europe, with extensive UK-based operations, including: owning and operating offtake tankers in the North Sea; owning and managing Floating Production (Storage) units; chartering supply, support, standby and other offshore craft; and operating and chartering coastal distribution vessels.

CHALLENGES FACING THE OIL AND GAS SHIPPING INDUSTRY

  The oil and gas industry is a highly competitive international business in which shipping is a key component and where competitiveness is paramount.

  UK based shipping enterprises are generally faced with international low cost competitors frequently operating in low- or no- tax regimes and in some instances with low or even unacceptable standards. The world's shipping industry is also facing a growing manpower shortage of seagoing officers and with British officers this is becoming more acute. In this environment the challenges for British shipping companies are considerable, and partnership with the UK Government to help ensure a level playing field is essential.

  Since the capital charge associated with a new vessel is frequently the major element in the overall cost of owning and operating a ship, the fiscal regime of ownership is a crucial element in the competitive environment. This is therefore one of several reasons why more owners are turning to operating and financing leases, areas in which the UK has to date been a major centre.

  As well as the quality of the ship itself, the quality of staffing is a key ingredient for safe and reliable ship operation, and considerable efforts are directed at the training and retention of qualified officers for the oil and gas fleets—see also below.

  Oil and gas shipping is a very energy efficient transportation mode and has generally an excellent safety record. However it has historically been blighted by a poor image, due in no small part to the minority of tonnage and operators of sub-standard quality. Over recent years the major international oil companies have therefore taken a lead in undertaking progressively more rigorous ship inspection and vetting programmes. These initiatives have been complemented by flag and port states who have in turn stepped up inspections and detentions as part of this crackdown on sub-standard shipping. The leading role in many of these programmes which the UK Government has taken is widely acknowledged and much appreciated by the shipping industry. We also believe there is considerable potential for the use by Governments of the Ship Inspection Reporting programme (SIRE) developed by the Oil Companies International Marine Forum (OCIMF).

TRAINING AND EMPLOYMENT

  There is a growing worldwide shortage of seagoing officers. The recent amendments to the IMO Standards of Training, Certification and Watchkeeping (STCW) Convention have given added impetus to the drive for improved standards. For STASCO, and other companies in a similar position, the recruitment, training and retention of high calibre staff is of considerable importance.

  With the tradition of seafaring in Britain and the high standard of nautical education, British officers are sought after by companies worldwide. The main constraints on increasing employment opportunities for school leavers are that:

    —  many companies, both British and international, that employ British officers do not contribute their share of training;

    —  for many a career at sea with its periods away from home is not attractive, apart from certain exceptions in the short sea trades.

  Companies such as ours endeavour to point out the benefits of a career as an officer:

    —  structured training followed by good opportunity for progression;

    —  high degree of responsibility as a junior officer at the age of 20 years+, with commensurate salary (circa £19,000 per annum);

    —  the opportunity for travel and considerable job challenge in a management and technical environment; and

    —  frequently opportunities for subsequent career development in shore positions.

  In our fleet of increasingly sophisticated vessels, e.g. LNG, technologically advanced VLCCs and multi-grade product carriers, with a high degree of automation and reduced manning numbers, on-board skills are naturally at a premium. This requirement provides stimulating career opportunities, as well as challenges, for ships' officers today and is a prime element both in the recruitment and subsequent retention of staff.

  To maintain a core of British officers for the Shell fleet, we are currently training 135 British cadets. The minimum educational requirement for entry as an officer cadet is four GCSEs, with reasonable aptitude for mathematics being important. About half our cadets join with GCSEs, the other half with A-levels.

  In contrast to the opportunities within the international industry for British officers, those for British ratings tend to be limited to specialist vessels trading around the UK. Realistically, we do not envisage that this situation will change significantly.

  In summary, our fleet is mainly engaged in international trades. The attractiveness to Shell of British officers is based on their quality, expertise and competitive cost.

  In UK-plc terms, investment in officer cadets and their training yields a good return on UK human capital, even if they are subsequently employed offshore.

UK LOCATION

  The UK has traditionally provided a stable, open and flexible business environment for international shipping entities engaged in the globally competitive marine world where assets are owned, operated, classed and insured on an international basis. This has included, for example, the facility to register ships in the British dependent territories and crown dependencies. In 1994, therefore, when Shell decided to restructure its maritime operations and to consolidate its four European fleet managements (then based in the Netherlands, UK, Germany and France) with its commercial, technical and operational support units, this was a major factor in the selection of the UK/London as the most effective location for this consolidation.

  A further important factor in this decision was the proximity that a UK base offered to leading international marine facilities required by an integrated shipping business, such as insurance, P&I; ship brokers; maritime lawyers; classification; and industry and international shipping organisations—the so-called Maritime London.

  This decision has also enabled STASCO subsequently to build upon its competitive operating position with continued and potentially improved access to British seafarers.

CHOICE OF REGISTER

  With the majority of the ships managed and operated by STASCO being leased and/or otherwise owned by third parties or Joint Ventures in which Shell has a minority interest, the selection of the register for the ship(s) is not always in the direct control of Shell. However Shell does insist that the chosen registers must be of good repute and exercise high standards, for example the Isle of Man, Liberia, Brunei, Malaysia and Bermuda.

  Chartered-in tanker tonnage (spot and term) is frequently internationally flagged, with the root owner usually choosing a register that gives maximum flexibility in terms of manning (particularly in regard to the mix of nationalities whose certificates are acceptable) and asset management, e.g. the ability to buy and sell in the international marketplace. Whilst the choice of the register lies with the owner rather than the charterer, one of Shell's strict screening criteria is registers which, by their record, demonstrate compliance with all relevant international legislation (e.g. SOLAS, MARPOL, etc.) and an administration which effectively implements quality standards through a regime of inspections and investigations.

  For STASCO's own fleet of oil fleet of oil tankers, which is managed in London and manned by its international cadre of seafarers, it is common to use the Isle of Man (IoM) register since this offers cost-effective manning arrangements, such as acceptance of major international proficiency certificates, and is co-operative and responsive in its approach, whilst retaining all the benefits of a first class flag administration.

  For other vessels owned and operated by Shell companies, the nature of the trade often gives rise to a flag preference-for example the offtake tankers in the UK-sector of the North Sea are registered on the UK register and most coastal vessels are registered under the flag of the country concerned.

  We do have a concern that British Government policy appears to be directed, inter alia, at increasing the size of the UK register rather than that of the combined British registers, i.e. including the registers of the British crown dependencies and dependent territories. The DETR paper points out that the central element of the Netherlands' maritime initiative reflects the new focus on Dutch ownership rather than Dutch ship registration.

  Our own experience with the Isle of Man register is that its Marine Administration exercises very high standards. It is represented at the International Maritime Organisation (IMO) by the UK and therefore they speak as one voice. IoM registered ships are just as available for defence purposes as UK registered vessels. The existence of the registers of the crown dependencies and dependent territories has enabled British Shipping to compete in the international arena, which includes other countries that have offshore registers.

  The DETR paper contains a proposal that the Crew Relief Costs Scheme (CRCS) should in future be limited to seafarers on UK registered ships. It is unlikely that this measure will lead to a transfer of ships to the UK register but, if implemented, could be counter-productive in making the employment of British seafarers on Isle of Man registered ships marginally less attractive.

FISCAL ENVIRONMENT

  As a UK-based shipping organisation, STASCO is generally supportive of any fiscal method, such as a tonnage tax or other measures, as a means of reducing the burden of UK tax to shipping enterprises and to provide a level playing field with other countries (such as Norway, The Netherlands, Germany). The aim of any such measures should be to encourage enterprises, both those currently operating in the UK and those evaluating whether to invest in, or otherwise make, the UK a key part of their shipping business.

  It is our belief that if a tonnage tax were to be introduced it should be voluntary in nature and that the transition between tax regimes should not distort the economics of ship ownership in the UK. We further believe that "shipping" is frequently an "integrated business" and that, therefore, the scope of any legislation should cover a wide range of shipping services although the operation of ships could certainly be a pre-requisite to qualify.

  Furthermore if an enterprise exercises its right to remain within the current regime and pay corporation tax under the normal rules we are of the opinion that the current rules should be amended to provide a comparable level of fiscal incentive to those parties to invest in the UK. This could be achieved, for example, through the enhancement of the current capital allowance regime (say, by allowing an additional writing down allowance of 25 per cent on a straight line basis). In addition, since the leasing of ships is an increasingly essential part of the operation of a fleet we would expect that any tonnage tax would have no effect on the current tax relief available for lessors.

GOVERNMENT SUPPORT FOR SHIPPING

  As a major UK-based international, oil and gas, shipping company STASCO currently enjoys and appreciates UK Government and departmental policies and programmes in several areas, most notable of which are:

    —  the quality and competence of UK representation at IMO, in the EC and in other fora;

    —  partnership in the campaign against substandard shipping and efforts to raise the overall quality of the shipping industry;

    —  assistance for British seafarers with their training costs through the Support for Maritime Training scheme (SMarT) scheme and for their travel costs on UK and IoM registered ships through the Crew Relief Costs Scheme (CRCS).

as well as valued advice on security and related matters.

  In addition British seafarers serving on our ships can generally benefit from the Foreign Earnings Deduction tax exemption apart from those on vessels trading predominantly in UK waters.

  In the future it is strongly hoped that the Government's current programmes will be maintained, (and where possible expanded) in order for UK-based shipping companies, such as STASCO, to be able to compete on level terms in the global arena and since any withdrawal or weakening of these could be harmful to our ability to retain a high commitment to British seafarers.

  We naturally welcome all intitatives and measures that encourage commitment to training, support employment opportunities, stimulate investment, help to provide sustainable development and to protect the environment. We firmly believe that any such programmes should support the UK-based [British] shipping industry and should be register-neutral since benefits accrue to British seafaring personnel and UK-based shipping companies and in turn the UK economy, and because the choice of register for many of the ships used is frequently outside their direct control.

  We also recognise the desire to develop measures to stimulate and promote the UK register but trust that these will not specifically discriminate against others, in particular those in crown dependencies and dependent territories (such as the Isle of Man), since these could be harmful to competitiveness and, under certain circumstances, could have the adverse effect of encouraging further moves offshore.

    Shell companies have their own separate identities. In this submission the collective expressions "Shell" and "Group" and "Royal Dutch/Shell Group of Companies" have been used for convenience where reference is made to companies of the Royal Dutch Shell Group in general. Those expressions have also been used where no useful purpose is served by identifying the particular company or companies.

January 1999


 
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