A report assessing the importance of the UK maritime services sector - including ports, shipping and professional services - estimates that the sector creates 227,000 jobs or 0.8% of total UK employment. Produced by Oxford Economics on behalf of Maritime UK, the report entitled The Economic Impact of the UK Maritime Services Sector was presented to Secretary of State for Transport on 27 April.

Other key findings of the report are that the UK maritime services sector:

Contributes GBP 13.1 bn to UK GDP
The report estimates that the maritime services sector made a direct £13.1 billion value-added contribution to GDP or 0.9% of the UK total. Therefore, the maritime services sector made a larger contribution to UK GDP than both the civil engineering and electricity distribution industries.

Generates GBP3.1 bn for the UK Exchequer
And, in addition, the maritime services sector directly generates over £3.1 billion (or 0.6% of total government revenue) for the UK Exchequer, through a combination of taxes paid by both employees and firms in the industry.

The industry also supports considerable activity in other sectors.
Service providers will source goods and services from UK-based suppliers, which, in turn, have their own suppliers (some of whom will be based in the UK) and so on. In addition, people employed by the maritime services sector and its suppliers will spend their wages on other goods and services in the UK economy. Such effects are typically referred to as the indirect and induced impacts.

Including indirect and induced effects, it supported 531,000 jobs and contributed GBP26.5 bn to UK GDP
Including direct, indirect and induced impacts, the maritime services sector is estimated to support 531,000 jobs or 1.8% of total employment. Moreover, once these multiplier effects are accounted for, the sector makes a value added contribution of £26.5 billion (1.9% of total) to UK GDP and Generated £7.8 billion for the UK Exchequer.

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Major casualties at sea continue at a disturbing level, marine insurers are warning. The number of incidents reported in 2010 followed the negative trend of the previous four years, according to the International Union of Marine Insurance (IUMI).

In it latest annual statistical review covering vessels over 500 gt, IUMI notes there have been 623 serious losses reported to date for 2010, a similar figure to 2009. This means that 2010 joins the five worst vessel loss years in the last 17. The pattern seems to dash hopes raised a year ago of a reversal in casualty experience when shipping activity had slowed as a result of recession in many leading nations.

Patrizia Kern (a senior underwriting director at Swiss Re), chair of the facts and figures committee, one of IUMI’s seven technical committees, said that even ahead of a full picture of the year from claims reports, there was no doubt that the failure to stem the high level of casualties was of great concern to insurers.

“When IUMI’s annual conference is held in September, our committee will undoubtedly report higher 2010 figures for total losses and serious losses, illustrating the longtail nature of hull and machinery claims,” she said.

The number of total losses for 2010 stands at 63, similar to the figure reported by IUMI 12 months ago for 2009. Since last year’s report the outcomes for 2008 and 2009 have deteriorated. The number of reported total losses has increased for 2008 from 89 to 96, and for 2009 from 67 to 86. This would suggest that 2010 will be similar to its preceding two years.

At this early stage of development of the book, nearly 600,000 gt has already been reported as lost in 2010, against nearly 645,000 gt in 2009. Weather continues to be the major cause of total losses, followed by groundings. The number of dry bulkers and tankers which suffered total losses continues to be low relative to the world fleet, but there appears to be a trend of losses to larger vessels.

The size of the average dry bulker lost has risen from 19,000 gt in 2008 to 23,000 gt in 2009 and 32,000 gt in 2010. For tankers, the average has risen from 8,000 gt to 11,000 gt and then to 36,000 gt in 2010.

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Changes to the tonnage rules could have dire effects of the UK-flag fleet, according to a leading shipping accountant. Maritime London member Moore Stephens says companies operating within UK tonnage tax could consider leaving the UK, as a result of HMRC’s decision to unilaterally reinterpret the regime rules.

Sue Bill, a tax partner with Moore Stephens, says: “Given the substantial increase in the UK fleet since 2000, it is widely considered that UK tonnage tax has been a success. At the outset, the regime promised clarity and stability, but HMRC’s unilateral reinterpretation of the rules could be detrimental.”

HMRC’s decision to reinterpret the legislation results from comments in the 2004 EU guidelines on state aid to maritime transport. The changes, set out in HMRC’s tonnage tax manual, focus in particular on the strategic and commercial management tests that are fundamental to qualification for the regime. HMRC says that this follows ‘ten years of experience and legal advice received’.

Ms Bill, however, points out, “The Revenue has not consulted with the shipping industry. And, although HMRC’s interpretation is widely disputed, it has not released a detailed explanation of this legal advice.”

She adds: “The UK government has emphasised the need for a stable UK tax regime to both support British business and to encourage international businesses to operate and stay in the UK. Throughout the regime’s history, it has taken care to ensure stability and to minimise as far as possible any unexpected changes, treating fairly those shipowners operating within tonnage tax. But the reinterpretation by HMRC means that some groups no longer qualify for the UK regime despite having previously received HMRC clearance.”

“These fundamental changes may have a detrimental effect on UK shipping as internationally mobile shipping groups consider leaving the UK,” says Ms Bill. They do not appear to arise from government policy, but from changes in HMRC’s views that were finalised without consultation with the shipping industry.

She concludes: “In considering their effect, HMRC needs to ensure that it continues to act fairly and reasonably by protecting shipowners who elected into the regime for a ten-year period based on the original HMRC rules and clearances, which in some cases now no longer apply, at least in HMRC’s view. HMRC should also now consult on the reasons for its changed interpretation of the tonnage tax rules. It is time for HMRC to work in concert with the shipping industry in order to safeguard British shipping.”

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The North of England P&I club has postponed the launch of its proposed fixed-premium product for hull and machinery cover “until market conditions improve”. The launch was originally scheduled for 1 July to coincide with the run-off of UK-based Marine Shipping Mutual Insurance (MSMI).

North joint managing director Alan Wilson says there were a number of factors influencing the club’s decision, including the current instability in the insurance markets and in the economy generally. It also became apparent that the MSMI premium volume transferring would be less than originally anticipated and that insufficient new business could be written at a suitable level to make the product financially viable in the short to medium term.’

According to North chairman Albert Engelsman of Dutch shipping group Wagenborg: “Having undertaken a detailed investigation into current market conditions, North has reluctantly-decided to postpone the launch of its hull and machinery product until such time as conditions improve. We have also withdrawn our offer to acquire the run-off liabilities of MSMI as the launch of the hull and machinery product was an integral part of this offer. We will be considering whether to make a revised offer to MSMI and, should matters progress on this front, a further announcement will be made in due course.”

The club's other joint managing director Paul Jennings says: “While it is of course disappointing that we are not proceeding with the hull facility at this time,we are satisfied it is the right decision. We remain firmly committed to our long-standing strategic aim of expanding North’s product range beyond its core protection and indemnity service, and will continue to consider the possibility of launching a hull and machinery product in the future.”

North currently provides P&I insurance to 105m gt of owned tonnage and 45m gt of chartered tonnage, with 4270 ships entered by 375 members. MSMI has 8m gt of entered tonnage, with 400 ships and 50 members. Directors of the 39-year-old club announced in January this year that it would cease underwriting on 30 June.

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Will changing SOLAS protect against piracy?

IMO's Maritime Safety Committee (MSC) will discuss how to respond to the increasing trend for owners to employ armed guards to deter Somali pirates this week. The MSC is expected to discuss the development of guidance on the employment of private, armed security service providers on board ships. It will also debate measures to improve compliance with the Best Management Practices (BMP) to Deter Piracy off the Coast of Somalia and in the Arabian Sea area and proposed guidelines to assist in the collection of evidence after a hijack.

Prominent UK and US maritime lawyer and maritime author John Cartner is calling for changes to the Safety at Life at Sea Convention (SOLAS). According to Dr Cartner, managing member of Washington-based law firm Cartner & Fiske LLC, under SOLAS and other laws it is a ship master’s “doctrinal duty” to protect the lives of those aboard his ship, but that he may not currently lawfully do this with private armed guards. As pirates endanger the lives of persons aboard ships, SOLAS should be amended under the tacit acceptance procedure of the Convention to give limited transactional immunity to the shipowner and master placing armed guards aboard their vessels to protect the lives of those aboard. The tacit acceptance procedure facilitates a quick and simple modification to keep pace with rapidly-evolving technology in shipping, but can also be used to deal with pirates.

Dr Cartner holds an unrestricted master mariner's certificate and has commanded tankers and container vessels. He says: “A vote of IMO members can pass a change to SOLAS which would give limited transactional immunity to any person who in good faith injures a putative pirate to protect the lives aboard. This person would be immune from prosecution by any state party or civil suit in any jurisdiction by the injured or his personal representative if the injury occurs in an area declared by the IMO Secretary General to be one known to be frequented by pirates. The language would cover any party including owners, managers, operators, insurers, armed guards and their hiring entities, masters and officers and ratings.”

However most IMO observers feel it is unlikely that there will be a change to SOLAS. A International Chamber of Shipping (ICS) spokesman told London Matters: “At ICS our expectation is that IMO might consider issuing some kind of guidance to flag-states that would run parallel to BMP.”

He added that ICS continues to advise strict observance of BMP as the means to passive defence against pirates.

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It emerged on Monday that BMT Marine & Offshore Surveys, a wholly owned subsidiary of BMT Group, went into administration on 26 April and has now by been sold to Braemar Group for GBP2.4m.

A BMT spokesperson said: “BMT Marine & Offshore Surveys faced a number of fundamental challenges including litigation that it could no longer afford to defend.”

BMT said: “The Board of BMT Marine & Offshore Surveys concluded that there was no other choice and BMT Group accepted its decision.”

Peter French, chief executive of BMT Group, commented: “Although it was with sadness that we lost BMT Marine & Offshore Surveys from the BMT group, I am very pleased that the future of both the business and the employees will be protected through this sale. I would like to wish the staff every success for the future, in the strong belief that they and the business will thrive under the new ownership.”

Announcing the acquisition from the administrator, Deloitte, of the business and certain assets of BMT Marine and Offshore Surveys Limited, Braemar CEO, Alan Marsh, said: “This is a very exciting development for the technical division of Braemar Shipping Services Plc Group, enabling us to deliver a truly global service to our clients.”

A Braemar statement said: “The cash consideration for the transaction was GBP2.4m, paid on completion. In its financial year to 30 September 2010 BMTMOS reported a normalised EBITDA of GBP0.9m, and at that date the book value of assets acquired was GBP3.5m.”

BMTMOS provides Hull and Machinery, P&I and Marine Warranty survey services around the globe; clients operate primarily in the insurance, shipping and offshore industries. The company has 94 employees, most of whom are marine surveyors, who operate from 21 offices around the world.

Going forward the business will join with the established marine survey operations of the group’s technical division and will trade under the Braemar name.

Braemar has also reported preliminary results for its financial year ended 28 February. Revenue, at GBP126.1m is up from last year's GBP119.0m but pre-tax profit before amortisation, at GBP14.8m is down slightly from the previous year's GBP15.0m. Among it year's highlights the company notes shipbroking profits were up 7% and that there had been a successful consolidation and relocation of its businesses in Singapore.

Company chairman Sir Graham Hearne said: “Our markets in shipping and oil and gas services have had a turbulent year and against this backdrop the performance of the Group has been robust. Braemar, across all divisions, is a first-class company and among the leaders in its various markets; it is this that underlies my confidence that Braemar will continue to play a leading role in the markets in which it operates.”

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Cleartrade Exchange and Drewry have launched the WorldContainer Index, a global index assessed by Drewry, which can be used by physical and derivative market participants to manage freight risk. It will be available to all users of the container freight market including shippers, carriers, forwarders, banks, brokers and clearing houses and will be published weekly on Thursdays.

The index will report individual market prices on major East-West container shipping routes. Initially prices for11 individual routes and a composite index will be reported each week. These will cover trade in both directions between Asia, North America and Europe. The index data will be generated by Drewry’s team of industry analysts from multiple market sources including carriers and intermediaries and published by WCI Marketing Services, a 50-50 joint venture with Cleartrade Exchange.

Drewry and Cleartrade Exchange believe that the new market price indices fill an important gap in the market, offering wide geographical scope as well as the inclusion of 'backhaul’ routes from an independent trusted research house.

Richard Baker, ceo of Cleartrade Exchange, said, “This is a big step forward for the container freight derivatives market, providing a robust set of indices on trade routes that reflect substantial physical volumes. We estimate the physical volume in 2010on these 11 routes was 37m twenty-foot container moves. The potential for hedging and trading that freight risk is obvious.”

Philip Damas, director- liner shipping and supply chains, Drewry, said, “The World Container Index assessed by Drewry brings a new level of depth and integrity to an emerging derivatives market that has huge potential for a number of participants along the trade chain. The extreme market volatility in the last three years and the shortcomings of the annual contract system have highlighted the need for greater predictability of container shipping rates and the need for hedging.”

Brian Nixon, president of the Container Freight Derivatives Association, said, “The CFDA welcomes the launch of the WCI assessed by Drewry and applaud this initiative to bring further liquidity to the container freight derivatives market. The association is on record as saying that its members support the development of new indices which are seen by the market to be fair, trustworthy and transparent. The development of these new indices by the WCI should bring new trading and hedging strategies along with increased liquidity to market participants wishing to manage their risk on a specific route and index."

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