None of the new European Union Commissioners-designate have yet claimed the portfolios for the maritime manufacturing industry or (ocean) shipping. This does not bode well. Yet, these are portfolios in which there would be much to do and achieve. The environment, much-needed innovations to keep our industry competitive, and the preservation of high-quality technical jobs in Europe should all be on the agenda.
Yes, as the future “green pope”, Frans Timmermans has announced that he wants to crack down on polluting shipping in order to force it to emit less CO2. But where is the Commissioner-designate who is working hard to strengthen the European shipbuilding industry? It appears that we will have to wait until 1 December, when the new European Commission actually takes office, to see who will be involved in this.
Where is the Commissioner-designate who is working hard to strengthen the European shipbuilding industry?
How much longer will we have to wait until the vast majority of European commercial shipbuilding has completely disappeared to Asia and, apart from naval vessels, there are hardly any cargo ships built in European shipyards left to be seen? After all, despite all the ambitious policy objectives proclaimed by successive European Commissioners in recent years, a genuine policy of incentives has not taken off, and the shipbuilding industry in Europe continues to be in a state of decline.
The large ferries are only the latest category of merchant ships for which almost all newbuilding orders have recently gone to Chinese shipyards. In addition to the large cruise ships and super yachts, there are hardly any other categories of larger merchant ships that are still being built at European yards.
There are hardly any large merchant ships still being built at European yards
Active Political Support in Asia
It is not only the lower costs of labour of the Chinese and Korean shipbuilders that allow them to acquire the vast majority of orders ahead of their European competitors. The wide range of financing possibilities for the construction of ships in Chinese and Korean yards is also very important. Furthermore, they receive active political support: Korean shipowners are subsidised when they have ships built at Korean yards. Where European banks, by order of the European Central Bank (ECB), have had to significantly reduce their shipping portfolios, China provides cheap financing.
Because unlike Europe, China does see the importance of maintaining and strengthening the maritime manufacturing industry. In fact, they just want to be the best at it. Belgian professor Jonathan Holslag, an authority in the field of China and special advisor to current vice-chairman Timmermans, has pointed out China’s economic ambitions to become market leader in high-tech shipbuilding and marine equipment by 2025 on several occasions. This policy has been enshrined in a number of recent documents such as “Made in China 2025”, “China Manufacturing 2025” and “One Belt, One Road”.
China does see the importance of maintaining and strengthening the maritime manufacturing industry
Money Thrown Away
The conclusion of a study published by the International Transport Forum (ITF) on 17 September that all the billions in subsidies, which the developed industrial states associated with the OECD (Organisation for Economic Cooperation and Development) put into shipping each year, have basically been thrown away, is all the more worrying. The ITF is an intergovernmental organisation with sixty members and is administratively integrated with the OECD, but is politically autonomous. It acts as a think tank for transport policy and organises an annual summit for transport ministers. The ITF is the only global organisation covering all modes of transport.
The billions in subsidies have basically been thrown away
The ITF has calculated that in OECD countries at least three billion euros are spent annually on just three subsidy schemes for maritime transport: tonnage tax, tax exemptions for inland waterway fuels and fiscal measures to reduce seafarers’ labour costs. The systematic data gaps mean that the picture of the real level of maritime subsidies is incomplete and could therefore be considerably more.
Favourable Tax Treatment
The tonnage tax, which also applies to the Dutch merchant navy, is one of the most important maritime subsidies. The ITF sees this as an implicit subsidy, because this tax, based on tonnage, replaces ordinary corporate tax. The result is a more favourable tax treatment for ships than other investments in, for example, buildings or machinery.
The ITF estimates average tonnage tax expenditure in OECD countries since 2000 at one billion euros per year. The scope of these subsidies has been extended in recent decades. The ITF notes that the eligibility conditions have become broader and the range of activities has expanded. The exemption from taxation of marine fuels is a second important maritime subsidy. In 2016, the figure for domestic shipping in the OECD countries alone was approximately one billion euros.
According to the ITF, the nature of current maritime subsidies nowadays is more defensive than strategic. They have grown in response to two developments: open shipping registers in developing countries (“flags of convenience”) and subsidies in other developed countries. For example, maritime subsidy schemes often include the concept of tonnage tax as a way to level the playing field for developed countries’ industries and compete with flags of convenience. EU countries may use such schemes to promote maritime transport interests in their competition with non-EU shipping registers.
According to the ITF, impact studies do not show how effective these shipping subsidies have been in achieving the objectives set. In recent decades, the number of ships flying EU flags and the employment of EU seafarers have even decreased. Meanwhile, the ITF states that the number of short sea connections in the EU is still rather limited. On the other hand, maritime subsidies could have increased the liquidity of shipping companies, allowing some of them to renew or expand their fleets, especially in the first decade of this century.
In recent decades, the number of ships flying EU flags and the employment of EU seafarers have even decreased
The only question is how well the latter has worked out for Europe. Many European shipowners building a lot of new ships has contributed to the increased overcapacity, while the majority of these new ships have been built at Asian yards. The resulting cargo peaks of thousands of containers flooding terminals all at once, the increasing size of vessels and the resulting consolidation of container shipping companies have had a significant negative impact on ports and shore-based employment.
The ITF notes that OECD countries are spending a lot and ever more money on maintaining national shipping, a highly globalised and mobile sector. See the enormous competition between Hamburg, Rotterdam and Antwerp with billions in investments in new ports and terminals. However, research data from the ITF show that the benefits to the national economy of maintaining ships under a national flag are limited. Therefore, there is every reason to redesign the subsidies so that they contribute more efficiently to the broader objectives of public policy.
Reducing CO2 Emissions
This government policy could, for example, be aimed at reducing CO2 emissions from transport and reducing congestion and pollution in cities. Also, according to the ITF, more attention should be paid to reaching a broader international agreement on common rules to reduce harmful tax and subsidy competition.
The ITF makes the following recommendations. Clarify the objectives of maritime subsidies so that their impact can also be better measured. Make maritime subsidies more dependent on positive effects such as the use of cleaner ships and/or more jobs for Europeans. The Norwegian and Portuguese tonnage tax rewards cleaner ships and the British one requires the training of British staff. Design maritime subsidies in such a way as to prevent market distortions caused by unfair competition. Improve the transparency of maritime subsidies, which can increase their effectiveness.
Make maritime subsidies more dependent on positive effects
EU Maritime Policy
All in all, good recommendations for a new EU Commissioner. In particular, the challenge is to improve the coordination of the tax systems of the different EU countries. Competition should not be between EU Member States, but as the EU with China and South Korea. Maintaining shipping and, in particular, shipbuilding in Europe should be a common European interest.
Competition should not be between EU Member States, but as the EU with China and South Korea
Where shipowners will be less happy with the ITF’s findings, they are greeted ‘with great interest’ by the European shipbuilding industry, united in Sea Europe. Sea Europe endorses the fact that all fiscal facilities and subsidies have brought considerable (financial) benefits to European shipping. At the same time, the organisation takes note of the findings of the ITF study that all these subsidies have not necessarily led to a return on investment for other European maritime segments, such as shipbuilding and those of maritime suppliers.
Therefore, Sea Europe states that it is in the interest of the EU to define an adequate strategy with effective policies, programmes and instruments that recognise the strategic importance of the European maritime cluster as a whole and promote its competitiveness (including through the use of European R&D funds for green and smart shipping).
Picture: Will superyachts and cruise ships become the only ships still being built in Europe? (picture of Project Cosmos by Heesen Yachts, from SWZ|Maritime September 2019).