Developments in UK shipping: the tonnage tax

The new UK Government, elected in May 1997, came to power with a commitment to reverse the decline of the UK shipping industry and enhance the employment prospects of UK seafarers. The Government commissioned Lord Alexander of Weedon to investigate the case for a tonnage tax. In this paper, the economic arguments for supporting the UK shipping industry are reviewed. There is some evidence that the UK holds a comparative advantage in world markets in key sectors of the shipping industry and on-shore maritime related activities, but is being undermined by lower foreign taxes. In the absence of government support, the UK shipping industry is likely to continue to decline, and, by further reducing the supply of qualified UK ex-seafarers, put at risk the successful on-shore activities. Various measures that might be used to support a national shipping industry, e.g. a tonnage tax, are considered. The paper concludes by discussing the likely impact of the tonnage tax on the UK's shipping industry.     

UK tonnage tax: subsidy or special case?

Following the introduction of tonnage tax for UK-based shipping companies in 2000, the industry now has the opportunity to opt for a tax regime that is beneficial in contrast to the corporation tax applied to most other sectors. This paper aims to summarize the tonnage tax scheme and then to go on to assess whether its introduction was appropriate. In doing so, it assesses whether the benefits it brings to the UK shipping industry are in fact fiscally justifiable in terms of the advantages that have been suggested recently by a number of commentators. These are claimed to derive from the comparative advantage of the UK shipping industry, the need for more skilled on-shore shipping staff with sea-going experience, and in terms of sustaining the maritime cluster typified by the maritime activities of the City of London.     

The subsidization of seaports: an alternative approach

The introduction of the tonnage tax for shipping companies has been a response to the declining fleets in many European countries. There are strategic and commercial reasons why a maritime presence is desirable, not least of which is to maintain an important skill base. Although regimes have differed they all offer some form of preferential rates of tax for those ships on the register. In certain cases this tax subsidy has been linked to a requirement to train seafarers, notably in the UK. This article analyses the impact of the tonnage tax system and its success in achieving its objectives of fleet expansion and employment with particular reference to the UK.     

Tonnage tax: is it working?

The introduction of the tonnage tax for shipping companies has been a response to the declining fleets in many European countries. There are strategic and commercial reasons why a maritime presence is desirable, not least of which is to maintain an important skill base. Although regimes have differed they all offer some form of preferential rates of tax for those ships on the register. In certain cases this tax subsidy has been linked to a requirement to train seafarers, notably in the UK. This article analyses the impact of the tonnage tax system and its success in achieving its objectives of fleet expansion and employment with particular reference to the UK.     

Estimation of capacity utilization in world shipping

The surplus of tonnage which has characterized the shipping industry for over a decade has severely affected profitability and investment opportunities in the industry. This has prompted various schemes to reduce the surplus. A proper assessment of the size of the surplus is an essential requirement for sound policy measures. This paper, which focuses on the tanker sector, examines selected methods used to compute surplus tanker tonnage and proposes other methods. It observes that methods currently used give estimates of surplus tonnage which are basically identical to those obtained by using alternative methods. It concludes that while from 1984 the surplus tanker tonnage has been declining, from 1986 the decline has been rather small and the volume of the surplus is likely to stabilize in the next few years at more or less current levels. However, the paper points out conceptual and practical problems of determining the appropriate base periods or base operating conditions upon which surplus tonnage may be computed.     

US shipping policy under conditions of a new world economic and political environment

The maritime policy of the US has evolved over more than 100 years from the support of US shipping through mail and fleet auxiliary contracts before the turn of the century, to the present array of direct and indirect Government aids and regulations based on the assumption that a strong maritime industry composed of both US-flag shipping and US-shipbuilding capacity is essential for the economic well-being and defence of the country. Notwithstanding massive direct and indirect aid to the US merchant marine, amounting to well over a billion dollars a year in recent years, US shipping and shipbuilding has declined dramatically and now comprises less than 3% of world shipping. Only 2.8% of US foreign trade by volume and 6% by value is today carried in US flag ships. Government aids constitute well over 33% of total revenues of US-flag shipping.

The traditional argument for US Government support has been the need for cost parity to permit US-flag shipping to compete effectively in international trade against foreign shipping serving the same routes with presumably lower operating costs. This argument is difficult to sustain today, as vessel costs of many other industrialized nations are now about equal to those of US-flag ships.

In 1970 the US enacted a new, vastly more liberal, maritime act for the support of the US maritime industry. Notwithstanding its even more liberal terms and elimination of the strict cost-parity interpretation, the US maritime industry continues its decline. The recent bankruptcy of two old, established subsidized shipping companies has caused tremors in the industry, yet no new ideas, policies, or plans seem to be forthcoming. It is the objective of this paper to study the development and effects of various historic US Government policies relating to the support of the US maritime industry, and evaluate the positions taken by proponents or opponents of the maritime policy leading to the policy development.

The decision processes are studied by evaluating literature on the evolution of Congressional, administration, industry, and labour interest and positions on the issue of Government aid to the maritime industry. The impact and effectiveness of various elements of past and present US maritime policy is evaluated in relation to the stated objectives. The alternatives to these policies are reviewed in the light of the changing US position in international trade, military strategy, and political objectives. In addition the effectiveness of the present and alternative policies is evaluated as it is and will be affected by changing technology in use, composition of ownership, and operations of US-flag shipping and shipbuilding.     

[What is the cost of increasing taxation?] (Oslo: Statistics Norway: Oekonomiske analyser no 8). [In Nowegian].

Zero taxation is today the rule in the international shipping industry. The absent income tax on profits is translated into an equivalent reduction in freight rates. Countries and companies which are net purchasers of shipping services gain, while the treasuries of countries providing the equity lose. Equity investors in shipping obtain no more than the internationally required after-tax profit level. The private income distribution effect, therefore, should not give rise to political concern. By eroding the tax base, zero taxation gives rise to an economic cost by shifting taxation to other sources. The effect on resource allocation through too high volumes shipped is shown to be insignificant. In countries where profit taxation is still levied, shipowning cannot remain competitive. Forcing inherently competitive operators to close down or move to a zero tax location is likely to cause a significant economic loss. Short of ordinary taxation of shipping internationally, the second best solution may be a more consistent lifting of tax obligations.     

Assessment criteria for the sustainable competitive advantage of the national merchant fleet from a resource-based view

To determine the competitive advantage of the national merchant fleet, based on the resource-based view, we collect competitive advantage assessment factors from literature, and use the analytic hierarchy process methodology to compare the importance of assessment dimensions and variables. The article's conclusions include a recommendation that the government review the current allocation of resources and implement measures to reinforce the national merchant fleet. This study's findings can be summarized as follows: (1) Criteria dimensions are ranked in the order of competitive strength, organizational capability, tangible assets, and intangible assets. (2) Criteria variables can be ranked in the order of freight revenue, cargo loading ratio, accuracy of shipping schedule, dead weight tonnage, number of vessels, standard of customer service, reputation of shipping company, cargo transportation volume, gross tonnage, sailing frequency, shipping knowledge, fleet specialization, number of crewmen, and fleet technological level. (3) The government should review existing maritime regulations and measures in order to formulate specific and transparent policies, and seek to adopt optimal alternatives from other countries concerning such issues as tonnage tax, bilateral income tax reduction or exemption agreements, second-registration mechanisms and shipbuilding basis, etc.     

产业关联度视角下上海港航运业增值税改革研究

在国务院扩大交通运输业营业税改征增值税试点范围之际,对上海港航运业增值税改革进行探讨。分析港航业产业与配套产业关联度,阐述上海港航运业增值税改革的效应。在此基础上提出相关政策建议。     

Explaining variations in national fleet across shipping nations

Many studies on national shipping attribute the declines in national fleets of developed economies to the lack of comparative advantage, but little has been done so far to identify factors contributing to countries’ shipping comparative advantage using a systematic approach. Although shipping markets are highly international and competitive, it is not clear whether tonnage owned by countries is governed by country-specific factors. This paper seeks to explain variations in nationally owned fleet across shipping nations. The main variable of interest is national fleet tonnage owned by country of domicile as opposed to registered tonnage. The results of econometric analysis using data from 84 shipping nations indicate that various country-specific factors do indeed contribute to variations in fleet tonnage across shipping nations, albeit at different levels of significance. Financial market development, external trade, ship registration, shipbuilding and shipping history appear to have the most significant impact, followed by the level of development and technology and maritime policy. Based on the results of analysis, implications for policy and future research are also discussed.     

'Government preference' and its influence on the shipping industry in Korea

The author suggests the existence of 'government preference', which has changed the structure of the Korean economy from that of a light-goods industry to one of a heavy and chemical goods industry; and which has affected the formation of an export-dependent economy. 'Government preference' has also affected the shipping sector which was favoured as a foreign-exchange earner, not as an income generator. Korean shipping expanded through market forces in its earlier developmental stage where tonnage of the Korean fleet grew moderately and profitability was reasonably good; and by 'government preference' towards shipping externalities (balance-of-payments effect and support for export industry) which became a prime concern of the government in later years where the fleet expanded rapidly in spite of negative profitability. It follows that under circumstances of 'government preference' which is strong enough to work and which prefers shipping's external effect to value added generated by shipping. Korean shipping might well record a poor performance in terms of profitability. This means that Korean shipping companies' prime concern lies in 'survival' not in 'profit'.     

Development of and prospects for cruising in Europe

This paper evaluates the development of prospects for cruising in Europe. It examines this within the broad framework of economic theory and maritime economics. Initially, the market structures and relationships applicable to cruising are considered with particular attention being paid to the linkages between the shipping markets and tourism and leisure. This conceptual analysis suggests that whilst cruising has a strong shipping element it does not fall exclusively within the classic framework of maritime economics but draws from both shipping and tourism and leisure. For reasons of clarity, a number of definitions are also provided covering maritime tourism and leisure, cruising, and supply and demand, as it relates to cruising. Following this, an overview of the cruise industry is included. This focuses primarily on the growth in the demand both world wide and at regional level. In particular, the analysis places the development of cruising in Europe in market perspective. Subsequently, the development of cruising in the UK is examined as a case study. Initially, UK market growth is analysed and it can be seen that the UK is now the second largest cruise market in the world after North America. Projections of the growth in UK demand to 2003 are also provided. The growth in supply is also studied and the UK targeted fleet is identified. In addition, the question of ownership is addressed. The prospects of employment for UK seafarers within the cruise industry are also considered and results obtained from the analysis suggest that it should be possible to increase the participation of UK and other European seafarers within the cruise industry at all levels and in all departments. In the final section of the paper, the position of UK ports as terminals and destinations is evaluated. It is concluded that the fundamentals of the cruise business remain strong, and continued growth by the industry should be possible for the foreseeable future.     

It's all about economics!

Due to the capital-intensive nature of the modern shipping industry, loan finance plays a major role in vessel-acquisition cost. In this paper, J. B. Yolland discusses government-guaranteed finance, ancillary and commercial new building finance and finance for second-hand tonnage. He also examines a new source of funding found in the Euro-market.     

Development of and prospects for cruising in Europe

This paper evaluates the development of prospects for cruising in Europe. It examines this within the broad framework of economic theory and maritime economics. Initially, the market structures and relationships applicable to cruising are considered with particular attention being paid to the linkages between the shipping markets and tourism and leisure. This conceptual analysis suggests that whilst cruising has a strong shipping element it does not fall exclusively within the classic framework of maritime economics but draws from both shipping and tourism and leisure. For reasons of clarity, a number of definitions are also provided covering maritime tourism and leisure, cruising, and supply and demand, as it relates to cruising. Following this, an overview of the cruise industry is included. This focuses primarily on the growth in the demand both world wide and at regional level. In particular, the analysis places the development of cruising in Europe in market perspective. Subsequently, the development of cruising in the UK is examined as a case study. Initially, UK market growth is analysed and it can be seen that the UK is now the second largest cruise market in the world after North America. Projections of the growth in UK demand to 2003 are also provided. The growth in supply is also studied and the UK targeted fleet is identified. In addition, the question of ownership is addressed. The prospects of employment for UK seafarers within the cruise industry are also considered and results obtained from the analysis suggest that it should be possible to increase the participation of UK and other European seafarers within the cruise industry at all levels and in all departments. In the final section of the paper, the position of UK ports as terminals and destinations is evaluated. It is concluded that the fundamentals of the cruise business remain strong, and continued growth by the industry should be possible for the foreseeable future.     

Ship finance and Euro-markets

Due to the capital-intensive nature of the modern shipping industry, loan finance plays a major role in vessel-acquisition cost. In this paper, J. B. Yolland discusses government-guaranteed finance, ancillary and commercial new building finance and finance for second-hand tonnage. He also examines a new source of funding found in the Euro-market.     

The decline of the UK merchant fleet: an assessment of government policies in recent years

This paper attempts to outline the evolution of UK shipping policy since the mid 1980s, in the context of the decline of the UK Merchant Marine. It provides an analysis of the action, or inaction, of the UK government during the period up to 1991, and assesses whether a coherent and logical policy has been developed. In so doing it evaluates whether the UK is in line with the actions of the EC and its other maritime competitors in the field of shipping policy and whether, as a consequence, the decline of the Merchant Marine has been actively hindered or helped. An assessment is also made in the light of continuing political developments in the UK, and those predicted for the coming months.     

Competition in ship handling: a study of market turbulence in North European harbour towage

This paper addresses the issues of an increasingly competitive towage industry in Northern European ports. Enhanced competitiveness reflects the trends in the global mobility of capital, labour, enterprise and management within the context of deregulated port markets. Up until the early 1990s, the long term trend in major North European ports had been towards market concentration. Many small towage firms have been taken-over, bought out or merged. Alternatively, a pattern of consortia has emerged with co-operation and market sharing seen as preferable to ruinous competition. A contrasting trend has occurred in the 1990s, with new entrants into hitherto stable markets. In a number of ports—Antwerp, Rotterdam, Bremerhaven, Hamburg, Southampton, Thamesport, Bristol Channel—new fleets have brought competitive challenge to the incumbent towage fleets. The process of enhanced competitiveness raises questions of safety, reliability, investment and professionalism. The movement towards an openly competitive shipping industry has been in evidence from the 1960s onwards. The momentum of a dynamic shipping industry, with its competitiveness sharpened by the use of global supply factors, has intensified from that period. The movement in European tonnage towards flags of convenience and global labour supplies began in the tanker and bulk carrier markets; more recently this has spread to deep sea liner, short sea and even cabotage trade shipping. The towage industry is the last North European shipping sector to make this transition, following the trends towards port deregulation in the 1990s. From this perspective, this paper considers the impact on the towage market of global mobility and deregulation in North European towage markets—the impact of increased competition on the traditional operators and the likely effect on operational towage standards.     

Competition in ship handling: a study of market turbulence in North European harbour towage

This paper addresses the issues of an increasingly competitive towage industry in Northern European ports. Enhanced competitiveness reflects the trends in the global mobility of capital, labour, enterprise and management within the context of deregulated port markets. Up until the early 1990s, the long term trend in major North European ports had been towards market concentration. Many small towage firms have been taken-over, bought out or merged. Alternatively, a pattern of consortia has emerged with co-operation and market sharing seen as preferable to ruinous competition. A contrasting trend has occurred in the 1990s, with new entrants into hitherto stable markets. In a number of ports Antwerp, Rotterdam, Bremerhaven, Hamburg, Southampton, Thamesport, Bristol Channel new fleets have brought competitive challenge to the incumbent towage fleets. The process of enhanced competitiveness raises questions of safety, reliability, investment and professionalism. The movement towards an openly competitive shipping industry has been in evidence from the 1960s onwards. The momentum of a dynamic shipping industry, with its competitiveness sharpened by the use of global supply factors, has intensified from that period. The movement in European tonnage towards flags of convenience and global labour supplies began in the tanker and bulk carrier markets; more recently this has spread to deep sea liner, short sea and even cabotage trade shipping. The towage industry is the last North European shipping sector to make this transition, following the trends towards port deregulation in the 1990s. From this perspective, this paper considers the impact on the towage market of global mobility and deregulation in North European towage markets the impact of increased competition on the traditional operators and the likely effect on operational towage standards.     

Maritime economics in a Post-Expansion Panama Canal Era

Government recently introduced the Transport Law Reform Bill, which if passed by Parliament, will allow foreign vessels to uplift and discharge cargoes and passengers along the coast of New Zealand. Coastal shipping is part of the domestic transport industry, which has benefitted from deregulation and considerable restructuring over the last decade. This paper provides a brief review of the coastal shipping industry in New Zealand and an overview of international cabotage laws. An alternative open coast shipping policy proposed by the New Zealand Shipping Federation, which is based on ‘level playing fields’ principles, is presented. The scope of cost benefit analysis is outlined and the potential costs and the potential costs and benefits of the Government's open coast shipping policy are summarized. Despite the potential costs to New Zealand of an open coast policy appearing to be considerably greater than the potential benefits. Government officials have not undertaken an empirical cost benefit analysis. The paperr concludes that hte clauses of the Transport Law Reform Bill relating to an open coast policy should be withdrawn and a full empirical cost benefit analysis should be undertaken to determine the best coastal shipping policy for New Zealand.     

Shipping and investment incentives: a trilogy Part 3. The effectiveness of investment incentives for shipping—the UK experience 1950-1987

This paper concentrates on the determinants of investment and examines both theoretical and empirical work on the investment function. The major determinants are considered and a case study of the United Kingdom shipping industry in the period 1963-1987 is undertaken. The analysis is unable to find any real link between the value of the investment incentives packages available to the UK shipping industry and the size of the UK fleet during this period. The conclusion follows that while financial factors (e.g. favourable credit arrangements) or individual components (e.g. investment grants) of fiscal packages may influence the decision to invest, the total package has not affected the level of shipping investment in the manner expected.