Disrupting the Greek Shipping Industry.
Crete, December 2017
Greece is the EU frontier country with the longest coastline with more than 13,676 kilometres of coastline in a “difficult” neighborhood, bordered on the north by Albania, the FYROM, and Bulgaria; to the east by the Aegean Sea and Turkey, to the south by the Libyan Sea and to the west by the Ionian Sea, which separates Greece from Italy. This location gives it great possibilities for economic development, a situation that must be exploited.
Within European countries, is Greece the most dominant and powerful in the maritime industry. Greeks are the most impressively, large and strong shipowning community. As well, in Athens remains the world’s largest fleet, having a strong ownership position with more than 700 Greek shipowners located both in Athens and around the world.
Greek shipowners have played a vital role in the whole industry for decades. Despite their orderbooks have been cut in a half in the last year (what, regarding the remaining of the last shipping crisis, is not bad at all), they are still expected to be a strong player as well in the future. However, Greece must be aware of the rising of other important ownership cities, as Singapore, Japan, China or Hamburg in the head of the rise.
Greek owners control today approximately 18% of the world fleet, with 333 millions DWT operational fleet plus 40 million DWT on order. Besides, The Greek controlled fleet is the youngest in the world.
Despite in recent years Greek owners have tried to diversify into other shipping sectors, Greek owners have generally been specialized and focused on the “wet” and “dry” sector: the Greek fleet is largely made up of bulkcarriers (47% by GT) and tankers (35%), with this combined share hovering around 85% for most of the past twenty years. In other sectors has been some development –although limited- as in the containership (up to an 11% share) and gas carriers (up to a 4% share).
Greek owners have also been recognized as their role as vessel’s leading asset players, operating nowadays a fleet with an approximate value of $91 billion (third in rankings, behind USA due to the value of cruise fleet).
Key Issues. Main current and future regulatory trends in the Maritime shipping sector.
It is of vital importance to know them since they provide us the path of action. It must be taken into account that the shipping field is highly regulated and that the EU is increasingly taking part in its regulation as an autonomous part, which is raising discrepancies between the classic regulatory organization the IMO and the EU new policy. In this rapid world of globalization and as almost always has occurred-, regulatory aspects are behind social and market necessities. However, we can see now an increasing interest and concern in the shipping industry for reaching this necessity and “shy” attempts to try to stay ahead. The shipping industry currently faces huge important challenges for the next years that are drawing the near future in our industry. Among all those challenges, we can say that at this moment stands out the climate change agenda.
Main current regulatory trends:
-Reduction of Greenhouse Gas Emissions from Ships. (Reducing CO2. An IMO strategy for 2018. Energy Efficiency Measures for Ships.)
-Ballast Convention. Making it a success.
-Global Sulphur Cap. Preparing for 2020. Compliance options.
-Pollution Compensation. “Global regime under threat” (as we know it).
Other important challenges:
-Digitisation and Automation.
-Cyber Risk Management.
Greek economic crisis and the particular case of the Greek Maritime Shipping industry.
In the face of the aforementioned adverse global and domestic economic conditions, Greek shipping once again showed resilience retaining the first position internationally.
Despite the domestic and market crisis challenges facing the Hellenic shipping owning community, Greece has continued to strengthen its position as the largest ship-owning nation in recent years. In fact, we can say that during all the crisis occurred before, big families of ownerships have passed safe and almost intact (remember point 1 about “History of Maritime Sector” when we talk about families generation).
This is partly due to the fact the Greek Maritime Shipping Industry lives almost out of the Greek political national framework, as it plays in the international globalized world. However, is also true that this time the industry has been also partly affected by the crisis. The Greek shipping industry, which was never part of the debt crisis of the Greek state, experienced substantial disruptions to its daily operations due to the restrictions on capital movements.
Any recovery, however, will remain fragile subject to a number of factors: the volatility of the geopolitical environment, potential trade disruptions and obstruction of trade lanes due to regional power, rising protectionism and risk of consequent trade wars, rising regionalism, especially with regard to environmental issues and risk of adoption of unrealistic and ineffective regulations, contracting bank financing and increased cost of lending.
The Greek shipping community, which comprises mainly small and medium-sized private companies and embodies the true spirit of entrepreneurship, firmly supports the existence of free trade and access to markets and of an efficient international regime for a vital international industry, such as shipping. Representing the biggest cross-trading fleet in the world, the Greek fleet has a strategic role in the transportation of the trade and energy of many regions in the world, and of the EU, which relies on international shipping for 75% of its external trade and of which it is an integral part.
Challenges and risks for the future of the Greek shipping industry.
A big challenge to the Greek shipping industry can be turned around the conception that the best that can do the minister of shipping and maritime affairs is doing nothing for the shipping industry and let live the tycoon shipowners “alone”.
Although in Greece, as a paradigm, Greek competitiveness suffers the most in areas where government involvement is highest (e.g. fiscal policy and administrative infrastructure stand out as the least competitive areas, which are directly related to government intervention), this can be a misconception, as we can find other examples when a proper political intervention is not only positive but also promote a really high development (as in the case of Singapore, where without the high support and good policies of the Government, would be impossible to achieve its current position).
Important steps to follow in order for to Greek shipping industry to support the development of Greece.
There are many steps that can be taken, but here we will only name some of the most evident and urgent:
1. Nowadays, there are no large shipyards in Greece, most companies that need to build new tonnage needs to import them from abroad, mainly from Norway and South Korea.
If this changes, i.e., with the recovery of Greek shipyards, this will mean more work for Greece and improvement of the national economy.
2. The fact of lack of well-designed and appropriates facilities in ports leads to the decline of line cruise lines that call at national ports.
This is of vital importance for Greece as the national economy is mainly based on tourism (and as a consequence, loss of money). So that, it is crucial to improve and build appropriate facilities in order to not only stop the decline of cruise tourism but also to encourage growth.
3. Logistics sector. We could say we only can find appropriate logistics facilities in Piraeus.
It is of great importance to have suitable and modern facilities as this is a clear incentive to increase trade of goods.
4. Marinas. Also related to tourism, the existence of proper, modern and well-located marinas will boost recreational tourism.
5. Tax “issue”. Since 1953 the government enshrined tax breaks for shipowners in the Greek Constitution. Greece started to allow shipping companies to pay a nominal fee, known as a tonnage tax, instead of a tax on profits.
As long as tonnage tax is paid, shipping companies are exempted from any tax, duty, levy, contribution, or deduction in respect of income obtained from the operation of ships. The same exemption applies to shareholders or another type of owners (e.g. partners) of shipping companies for the income they receive from the distribution of net profits or dividends, whether directly or from holding companies, regardless of the number of holding companies between the shipping company and the final shareholder or partner.
In a nutshell, this means, that shipowners do not contribute with their real incomes. However, and despite attempts by the EU to prevent it, similar policies have been followed by most EU countries that have reformed their taxation policies and use a tonnage tax. For several countries, the introduction of the tonnage tax has been an important step in reversing the trend of slow growth or decreases in flagging into a positive trend (as for example Spain).
While it is true that government and Greek shipowners reached a “voluntary” agreement by which those were committed to paying in order to help the Greek state meet its financial obligations. The term voluntary is used in order for the levy to comply with the Constitution of Greece, which prevents any type of taxation towards Greece-based shipping companies, other than the tonnage tax. Under the agreement the UGS committed to contributing an extra EUR 420 m through the period 2014 up to the first quarter of 2017; an agreement that was extended for one more year last summer 2017.
It is not the intention of this work to enter into the tax discussion but to draw attention to the problem. The change in the tax regime is an arduous technical decision because it may end up being more harmful than beneficial with the shipowner’s exodus to another flag of convenience.
What is clear is that the Greek economy needs the entire contribution of its economy players, for which it is necessary to reach a compromise that benefits both parties equally.
To overcome this situation, the Greek government should take economic, political actions to encourage export activities.