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


Examination of witnesses (Questions 260 - 279)

WEDNESDAY 27 JANUARY 1999

LORD STERLING, MR PETER SMITH, MR JAN KOPERNICKI, DR PETER SWIFT and MR MICHAEL EVERARD, CBE

  260.  My Lord, what proportion of your vessels are registered in the United Kingdom?
  (Lord Sterling)  I am going to answer that within a short statement, is that all right with you?

  261.  Please.
  (Lord Sterling)  First of all, we certainly welcome the policy document and the Sub-Committee inquiry and, if I may say, judging from the speech the other night this is the first time that we have had a Government, in particular the Transport Ministers, strongly supportive of this industry. It is the first time that I can think of since I have been Chairman of P&O that we have had that sort of support. There have been previous reports. I was President of the Chamber of Shipping in 1990 and indeed President for three years for the whole of Europe and I think you might possibly have seen that report. It was a joint one. Very quickly on that it is just worth mentioning that it actually says: "The working party concludes that British shipping is a vital national asset and after years of contraction the industry is well placed to take advantage of the upturn". The important part is the recommendations that were made were made literally almost ten years ago. It is very interesting that although quite a lot, like on the MCA side, has been applied, we are still miles away from getting that support at a particular time. It is worth mentioning to you, just to give you a scale of what it meant, in the interests of the UK economy, which is our responsibility, the contribution in gross terms of invisibles is about five billion which is more than most industries contribute in this country. We reckon, and I certainly reckon, that if we had been given the support at that time we could have doubled that by the end of this decade. It has not happened but now we have a golden opportunity. There have been other reports as well. We are at a watershed. I think that for many of us who are totally international and, listening to the comments beforehand, it is global competition which is extremely strong, we are perfectly fit to be able to take it on. We are at a watershed and I think there is no doubt about it that if we cannot succeed this time in getting the support then unquestionably some of our European Union partners in Holland and Germany and other countries will take the lead. A little bit like the City of London is concerned what might happen with Frankfurt. We do not want to be in that position. We are internationally competitive. Fifteen years ago to tell you that we could take on the best of Germany and the best of the Far East would have been daft but today we can out-compete them, we can build ships as cheaply, we operate them more cheaply and more effectively and we really do have an opportunity. In our view, and I am not just talking about P&O now, I am talking about the whole industry which I feel very strongly about, the advantage of the tonnage tax—of course one still wants to have all the flexibility of the capital allowances because that plays a key role—is much greater. It is going to give the flexibility to build ships which, as somebody made the comment before, we can fill with British seafarers when it is necessary. We are an empire company, we have used foreign seafarers or, if you want, empire seafarers for 160 years.

  262.  Do you not call them Commonwealth, my Lord?
  (Lord Sterling)  Commonwealth, Chairman.

  263.  We have moved on.
  (Lord Sterling)  A little, somewhat. Therefore, the tonnage tax will not just be a plus for the rest of the industry apart from my own company. It is quite interesting that when you sit in London people just look at their toecaps but the further you travel abroad the more people feel the City of London is still the maritime centre of the world. I know there are a lot of Greeks, Norwegians and others and if our tax position changed, tonnage tax in particular and everything else that they have and they like living in London as well, you will find a very big increase in the number of companies which will operate out of London. I have no doubts about that whatsoever. Finally, just coming to it on the economic benefits on the jobs side, when it comes to cadets we are probably the biggest trainer by far. In the next year or so with a tonnage tax we would be training at least 300 cadets a year. There is a role for the ratings at the same time, not the old-fashioned style, pulling on ropes and swabbing decks is part of yesterday. Sam McCluskie, the old head of RMT, said that to me nearly ten years ago. Sam reckoned, and I totally agreed with him, we have got to fast stream people now to become technical petty officers as soon as possible playing their rightful role. Finally on the jobs side, which I do think is important, you mentioned something which I thought was very interesting. We are not just training people for British ships. This is a high cost country. If we can get people to add value to their own role British seafarers, British officers, and indeed pilots, aviation, are still considered elsewhere as the finest in the world and they are very, very much in demand. We have a great opportunity to be able to create value for people. It does not necessarily mean that it has to be our own ships and I think that would be supported by my colleagues.

  264.  I think that is helpful, my Lord. I have to say that I was very fond of Sam McCluskie but he did not swab a great many decks for some years before he died. Could I ask you again what proportion of your vessels are registered in the United Kingdom?
  (Lord Sterling)  One-third of our fleet. We have about 178, we operate 270 ships at sea and of that about 55 of them are registered here. I just want to make the observation that we are actively examining, as you asked and Mr Gray made the comment, if tonnage tax is brought in in a sensible fashion, and when I say sensible it has to be able to work and probably the nearest is the Dutch system, how many ships we could actually bring back, not just for this purpose but also to the actual red duster itself which emotively, romantically, call it what you want, still happens to be important to many of us. We think we probably have sufficient within our fleet, depending on the basis of the tonnage tax, where we can more than double our tonnage on the UK registry.

Mr Stevenson

  265.  That is very upbeat, Lord Sterling, very encouraging. Along with Mr Kopernicki I would like to ask you about your fleet because I think he said his was 50 per cent and your's was one-third in the UK. Do I take it, Lord Sterling, that the one-third is UK-based and not second-based in the Isle of Man?
  (Lord Sterling)  No.

  266.  Mr Kopernicki, what specifically are the advantages of the Isle of Man? You mentioned safety, high standards, quality, stability and so on. What specifically attracted you to the so-called second register of the Isle of Man and not the UK Register?
  (Mr Kopernicki)  There is one particular issue at the moment, to give an example. Under the UK rules, it is not possible to put officers on your ships who are not certificated in the UK or in some other very specific certificate countries. The Isle of Man takes a more generous view about it and I would not remotely suggest that it is lackadaisical, far from it; they are very strict, but they permit you to use other nationalities and, as a result, you can create competitively costed crews which, in our case, have a high proportion of British officers as well as others from other nationalities. Now, we cannot do that at the moment in the United Kingdom.

  267.  I am a lay person, which I am sure you appreciate, so are you suggesting that the ability to have that flexibility with officer appointments, and you did not mention ratings, is the critical factor in your registering 50 per cent of your tonnage on the Isle of Man? That seems a little difficult for someone like me to appreciate. I can appreciate tax, National Insurance, all of that, but it is a little difficult to understand that because of that one element it is so important.
  (Mr Kopernicki)  Well, the other issues are also quite relevant. There is the National Insurance benefit if you look at the technical details, and there are some minor taxation benefits, but there is actually a shortage in the world of high-quality officers for the sort of specialist ships and we operate not only oil tankers, but we operate one-fifth of the world's LNG, liquefied natural gas, carriers and we need a very highly-trained officer cadre, so we do not have the luxury of a multitude of officers we can pick from, but we actually have to go searching for them, so we need the flexibility.

Chairman

  268.  I am very interested in this business of nationality because you are not saying that you need that flexibility because other nations are better trained than the British then?
  (Mr Kopernicki)  Quite the contrary. We are very proud in marketing both our ship management and also as a company we man ships for others with British officers. In the Far East we man LNG carriers for others and one of the points that is noted by the customers in those countries, and it is a business for us, is the high quality of training and the confidence in the British officer cadre that we bring on to the ships of those countries.

  269.  Because these must be both high-cost ships and high-cost cargoes? This is not cheap.
  (Mr Kopernicki)  They cost $200 million a throw and are very technically specialised.

  270.  So are you then saying that those technically trained officers are not available in sufficient numbers in the United Kingdom? Is that what you are saying?
  (Mr Kopernicki)  Yes, we are short of officers with the appropriate skills because we train them, like Lord Sterling, and we have 140 cadets in training today, 40 odd a year going in, and we have had that for many years, but we of course have a leakage because we train for others and people get tempted away. That is life and we are reconciled to that and we remain committed, but we grow our own, we grow a substantial number of our own and our customers know that they have a cadre of people who have been right through the Shell school, have all our safety training, all the courses that we offer and that inspires confidence in them.

Mr Stevenson

  271.  I wonder if I could just ask Lord Sterling basically the same question. You said that about a third of your company's fleet is registered in the UK, but any in the Isle of Man?
  (Lord Sterling)  No, we did have, but not now.

  272.  Why not? You see the point? If the attraction for Shell is such as we have heard, one presumes it would be attractive to you too.
  (Lord Sterling)  Well, we have parts of our fleet overseas as well with the Bermudan and Hong Kong registries and again, exactly the same as Shell, we prefer with assets of that size, one feels comfortable, it may be slightly old-fashioned, having British officers in charge of an asset like that.

  273.  But not the Isle of Man?
  (Lord Sterling)  Not specifically, but we did have. We did have our tank ships there which in actual fact we sold recently. The point on the Isle of Man side is that Shell do have a specialist position where other companies are not necessarily quite in the same form and Mr Everard will obviously make his own observations.

Chairman

  274.  We will come to Mr Everard in a moment. He is being very patient.
  (Lord Sterling)  If I could make the point, I think that part of this is slightly historical. Many of us are offshore for a key factor and that is cost, competition because, without deluding oneself, otherwise you are dead and we would not even be sitting here today. I think that part of it was that the MCA, as it was, was completely out of date. I remember a particular example, Madam Chairman, which was when we bought in one of our ships and we wanted to switch it on to the UK Register and this a French-built ship, built in Chantiers d'Atlantique, one of the finest yards in the world, it had French fire-fighting equipment on board which was acknowledged to be better than British, but it had not been cleared and, therefore, we had to change it and it cost us about £100,000 or something or other for the honour of changing it. I remember specifically the case and I said that this was absolutely damned ridiculous that we were in this position. Under the leadership now of Maurice Storey, who is now heading it up, and the way things are moving, and Captain Marchant who is behind me, I would unquestionably say that things are changing quite rapidly for the better and a lot of the flexibility that we have gone abroad for, we will come back if that clears without question.

  275.  Well, we have had a lot of evidence about Mr Storey and we will undoubtedly be commenting on that. My Lord, of your 300 cadets or 400 in future, how many of them are UK cadets?
  (Lord Sterling)  All of them. They would all be UK cadets.

Mr Donohoe

  276.  You talked about foreign-flagged ships, but is it correlated that these ships will have foreign staff or do they have British staff? A more general question is what proportion of staff do you have that are foreign against those who are UK residents?
  (Lord Sterling)  Well, to give you an actual figure, we have some 4,000 officers and 15,000 ratings, of which 2,600 officers are British officers and 4,800 ratings are British.

Chairman

  277.  I want to come on, if I may, to Mr Everard. You have been very quiet and well-behaved there and I would not want you to think we have forgotten you. What proportion of your vessels are registered in the United Kingdom?
  (Mr Everard)  It is three-quarters of our business are registered in the UK. In fact the reason we actually first flagged that was that when we bought some new ships, some second-hand ships, one of our competitors had recently bought a similar ship and the MCA made them do things precisely in the way that Lord Sterling has said and we were not going to spend money unnecessarily.

  278.  Things like fire-fighting equipment?
  (Mr Everard)  Exactly, yes. They were not type approved, although they were just as good or even better on the equipment, but I think things are going to change there; I have a good feeling on that.

  279.  Yes, I think things are changing. Can you tell us a little bit about numbers. Do you train yourself?
  (Mr Everard)  We have got about 20 cadets in the system at any one time.


 
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