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
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
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.
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
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 ShippingCharting 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 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
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
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.
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
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 fleetssee
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).
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
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.
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 organisationsthe
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.
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
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.
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.
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
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
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.