TOWARD A SOUTH AFRICAN SHIP-OWING EMPIRE – THE BOOST SA’S SHIPPING INDUSTRY NEEDS?

Monday, April 04, 2016
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Growing the oceans economy is one of the key messages promoted by Government and was mentioned in both this year’s Budget speech and State of the Nation address.

The swift establishment of a South African commercial fleet is one way Government hopes to achieve this. The significance of national registration of vessels lies in the fact that these vessels will carry the South African flag and will be legally and fiscally linked to South Africa insofar as their activities are concerned.  But what is our history and experience in the realm of merchant shipping and will this particular initiative really serve to boost the blue economy in measurable terms?

South Africa’s maritime industry has developed around its plentiful mineral reserves and favourable geographic location between major trade routes, meaning that, aside from commodity export purposes, vessels often call here to refuel and take on supplies. Our ship register has never been overly popular with merchant cargo ships. During the late 1990’s, of the approximately 85 merchant ships that operated out of South Africa only four were registered here.  This is mainly due to the previous inflexible registration regime, which obliged all ships wholly owned by South Africans to be registered here while offering little to no benefit or incentive to ship-owners for doing so. Owners soon began structuring their corporate affairs in such a way as to circumvent the legislation and enable the registration of the vessels in more “owner-friendly” countries. Countries such as the Bahamas, Cyprus, Liberia, Marshall Islands and Panama (also known as “flags of convenience”) are attractive to vessel owners in that they offer registration regimes with minimal links between vessel ownership and nationality, very competitive tax benefits and relaxed labour laws as far as crewing is concerned.

South Africa’s new registration regime sets the groundwork for building a more attractive register by doing away with compulsory registration and allowing foreign parties to own shares in South African vessels. In addition, it is no longer necessary to own the vessel on the register: a ship on bareboat charter (similar to a lease) may also be registered in South Africa. Recent tax amendments have also sought further to incentivise the local flagging of merchant vessels. This approach seems to be bearing fruit, with three merchant vessels having registered in the last six months after a long spell of no registered cargo ships whatsoever. Notwithstanding the tax incentives, areas which will likely continue to reduce attractiveness for foreign interests include issues such as BEE compliance and liberal labour legislation.

Returning to the question of the economic advantages to be derived from a national merchant marine, (aside from the obvious indirect benefit to the industry as whole from an increase in home port tonnage) it seems that many of the advantages are perceived rather than guaranteed. One of the few direct advantages of South African-flagged vessels is the increase in availability of training berths for South African maritime cadets, something which has been sorely lacking in recent years. Insofar as employment of crew in general is concerned, there is presently no obligation that a South African ship employs a national crew.

A popular theory behind an active merchant marine is the benefit our economy will derive by having national vessels bringing in foreign exchange in the way of freight or hire payments. This will require placing local importers and exporters in a position to nominate the vessel that carries the cargo in any given case. Assuming that they would choose to nominate a South African-flagged ship, exporters would have to agree to charter (lease) the vessel on which their goods will be shipped. While such negotiations can be encouraged, there is no telling whether this will regularly occur in practice. This is even more pronounced in the context of the present commodity rout and depressed state of the global dry bulk market, where it may be cheaper for a foreign buyer to ship the goods himself. In order to make the theory viable, Government may initially be required to step in with some form of freight subsidy so as to make the local lines more competitive.

If Government continues to push the growth of a merchant marine in competition with other fleets, it would likely need to consider introducing a number of other protectionist practices, such as cargo reservation and reduced port costs for South African ships. In the absence of concrete gains, this approach may prove to be more trouble than it is worth.

At the end of the day, the dream of a globally competitive merchant marine (while perhaps suitable as a long term goal) ought not to detract from other more urgent and less speculative methods of boosting South Africa’s shipping industry. South Africa has established itself as a refreshment station for vessels and this is what our shipping industry was built on. However, in recent years port calls for bunkers, provisioning and repairs appear to be declining, with owners opting instead to call in other nearby (and presumably more favourable) jurisdictions.

In addition to obvious concerns such as the upgrading of existing port infrastructure, it is important that issues such as availability of suitable bunker fuel, increased port efficiency, service delivery and revised tariff schemes receive the emphasis they deserve. A significant amount of revenue can be generated by increased vessel calls in South Africa.

This article first appeared as the Shipping Matters column in Sunday Tribune Business on 20 March 2016