Merchant Fleet

Part of Heavy Lorries – in the House of Commons at 10:30 pm on 25th November 1982.

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Photo of Mr Iain Sproat Mr Iain Sproat , Aberdeen South 10:30 pm, 25th November 1982

I am grateful to my right hon. Friend the Member for Taunton (Mr. du Cann) for raising this matter on the Adjournment. It is a matter of great concern. It is a concern that I share completely. I shall cover as much ground as possible in the short time that is available to me. I hope that my right hon. Friend will forgive me if at times I speak rather fast, but I am anxious to cover as much ground as possible on this extremely important subject.

Let me review the position briefly. The United Kingdom-registered fleet grew from 27 million deadweight tons in 1966 to its peak of 52 million tons at the end of 1975. Since then it has contracted by nearly 40 per cent. and now stands at 32 million deadweight tons—approximately its 1969 level. But the world fleet as a whole has grown from 544 million tons in 1975 to 687 million tons at the middle of this year. Our share of the world fleet has dropped from 9·7 per cent. to 5·1 per cent. over that period. We still have a large fleet—the sixth largest in the world, as my right hon. Friend mentioned, after Liberia, Greece, Japan, Panama and Norway—but its decline has been very substantial.

What is happening to our merchant fleet is not, of course, an isolated phenomenon. With the exception of a short-lived recovery in 1980, the shipping industry worldwide has been in the doldrums since the oil crisis of 1973. There have been too many ships and too much subsidised shipbuilding capacity chasing the limited cargoes generated by the slow growth of world seaborne trade. Let me give some facts: 76 million tons of world shipping is laid p—11 per cent. of the world fleet. Bulk freight rates have been cut in half since the last peak in 1980. There is twice as much oil tanker capacity as is needed to carry the world's crude oil. World seaborne trade overall is growing very slowly.

I wish I could tell the House this evening that there are many and early signs of better times ahead. But I cannot. The world recession, the growth of low-cost competition from the Far East, the limited prospects of growth in seaborne trade, the introduction of new technology and continuing subsidies for shipbuilding in so many countries provide no basis for easy optimism. The shipping industry itself expects to remain in the doldrums until at least the mid-1980s. But the Government are determined not just to stand idly by as mere spectators of this sad scene. No one could be indifferent to the plight of those who have lost their jobs.

Despite the job losses, however, the industry still employs some 65,000 people. Last year it contributed, as my right hon. Friend mentioned, a net £900 million to our invisible earnings; and this year the vital role that it can play in times of emergency was made very clear by the heroic actions of the Merchant Navy in the Falklands.

To the deep-seated problems of our Merchant Navy, there are no easy or obvious solutions, but, let me point to some areas where the Government can help. Our successful policies for controlling inflation give direct help to the shipowner in keeping down his operating costs. We have a corporation tax regime that encourages investment in shipping. We fight tenaciously for the interests of the industry in our international dealings.

I know that all sides of the industry want us to do something more. Unfortunately, if predictably, it is not always the same something.

I have received fairly recently, at my invitation, from the General Council of British Shipping and from the maritime unions detailed representations and proposals. I am extremely grateful for those responsible and constructive documents. I shall be discussing with the council and the unions all that they have proposed. I do not want to anticipate those discussions conclusively tonight, but it might help if I were to say something about five important areas—defence needs, cargo reservation, flags of convenience, competitiveness and Soviet maritime policy.

I shall deal first with defence needs. We recognise the vital dual importance of the Merchant Navy as an instrument of trade and as a weapon of defence. The ability of our declining fleet to meet the needs of the Ministry of Defence in times of emergency or war is kept under close and continuing review. The striking conjunction of the Falklands operations and the decline of the fleet naturally makes for grave concern. Our assessment is that defence needs can still be met. This matter is at the heart of our current review of what lessons to learn from the Falklands war.

With regard to cargo reservation, I believe that it would be deeply wrong to abandon the free trade principles upon which successive Governments have based their shipping policies. When times are hard the benefits of the free trading system can seem remote, especially for those whose jobs are at risk, or have been lost. But we should not allow the recession to become an excuse for adopting narrow protectionist attitudes.

The benefits of the free market, in shipping as elsewhere, are real and substantial. Were Governments throughout the world to embark upon a round of protectionism and subsidy for shipping, it could only be to the detriment of the United Kingdom industry. Some two-thirds of the industry's freight earnings—more than four-fifths for tankers—come from the cross-trades. These earnings and the jobs they sustain depend vitally on the willingness of other countries to keep their ports open to British shipping. If we close our ports and our trade to others, we cannot expect them not to close their ports and trade to us.

We and our partners in the European Community have agreed a position on the United Nations liner code that will keep the cargoes that are carried by the fleets of developed countries open to proper competition. We have to carry that forward. We must see that our European partners carry out the letter and the spirit of what they signed. We must persuade the United States of America that our action is an action in realistic defence of free trade and persuade them to uphold free trade in their own shipping relations with Third world countries.

The fact is that, despite the reduction of the fleet, Britain is still a major maritime power. London is a world centre of shipping. We play a leading role in maritime councils both at Government and industry level. Were we to be panicked into going down the protection road, I have no doubt that others would take their lead from us. The damage that would be done to this country and to world seaborne trade would be vast and irreversible.

I shall now deal with flags of convenience. Flags of convenience or open registries are regarded by many, particularly some people in the trade unions, with misgivings and hostility. They are attacked for a variety of reasons. Some of the reasons are based on a complete misunderstanding of the vital distinction between open-registry ships and sub-standard ships. The two should not be confused.

Inability or unwillingness on the part of the authorities of any maritime State to take full responsibility for ensuring that its vessels meet international safety requirements is, of course, highly objectionable, but the proper approach to deal with such problems is through international agreements on safety standards and their enforcement by appropriate port State action as necessary. In the three months since the Paris memorandum on port State control came into force in July, 1,642 vessels have been examined, 558 of them in United Kingdom ports. I welcome that, but it would be a delusion to suppose that the competitive threat from open registries could be explained away in terms of sub-standard vessels and crews.

It should not need saying, but apparently it still does, so I shall say it again: open-registry vessels are not all substandard. The British flag, indeed, is termed by some as a flag of convenience. It is indeed an open registry and no country is more jealous of its safety record than we are.

For reasons that I have already explained, I do not believe that our response should be to put up protective shutters. On the contrary, we must and we shall resist action, such as is favoured by the UNCTAD secretariat, that would undermine international investment in shipping and damage the interests of our own fleet which has, of course, been the beneficiary of substantial inward investment. The effect of adopting the measures being promoted by the UNCTAD secretariat and by some people in this country on flags of convenience would be a shatteringly damaging effect on the United Kingdom fleet. Some 45 per cent. of our Merchant Navy is beneficially owned abroad—that is, by owners who use the British flag as a flag of convenience. If one got rid of flags of convenience, one would get rid of almost half the ships and half the jobs in the Merchant Navy. It would be an insane act. I cannot understand how anybody with the interests of the British Merchant Navy and British jobs at heart could advocate such an idea for one minute. I hope that we shall hear no more of it.

Cost competitiveness will continue to be very important for the fleet. Wage costs for crews from developing countries will indeed, for some trades, pose a crippling handicap, but much of our competition is from developed countries and some of our wounds are tragically self-inflicted. Let me give my right hon. Friend a pair of interesting, illustrative figures, provided to me by an important port user. They are for a medium-sized bulk carrier and are in round terms. The sum for Hamburg, in Germany, is £10,000 and for Immingham, in the United Kingdom, £34,000. Had I time, I could give a dozen similarly worrying comparisons with British costs. We must stop damaging ourselves in this way.

My right hon. Friend mentioned the problems posed by the Soviet Union's policies. Indeed, I am grateful to him for mentioning them. The present Soviet practices are not proper commercial practices and they pose a threat to fleets such as our own, whose operations are properly commercial. I shall give the House just six examples of how the Soviet fleet does not operate on what we would term a fair commercial basis. First, the funds for shipbuilding for the Soviet fleet all come from the State, not from fleet earnings. Secondly, the Soviet State bears all the loan interest. Thirdly, the Soviet State provides the insurance. Fourthly, the Soviet State sees that bunker costs are about 25 per cent. of what our ships pay. Fifthly, Soviet wages tend to be about one-third of comparable Western rates. Sixthly, the Soviet Union always buys goods on free-on-board terms and sells them on cost-insurance-freight terms. So it is scarcely surprising—although no longer tolerable—that the balance of United Kingdom-Soviet Union shipping operations is 90 per cent.—10 per cent. in its favour.

Furthermore, in cross-trades the Soviet Union can distort trade by non-commercial under-pricing unjustified by market conditions, often, for example, pitching its prices 25 per cent. below whatever commercial rate is offered by anybody else. The Soviet Union always undercuts it because it is not operating on a proper commercial basis. In February of this year, the Government gave notice to the Soviet Union of our intention to renegotiate the Anglo-Soviet maritime treaty. Officials of the Department of Trade are now in Moscow for this year's meeting of the joint United Kingdom—Soviet Union maritime commission. I assure my right hon. Friend that they will raise, very strongly, the matter of the renegotiation of this treaty.

I have touched on only a few of the component reasons for the decline of the fleet and on some of the things that we are doing to remedy it. I can promise my right hon. Friend that I hope to come forward with some more measures in the fairly near future that I trust will do something to restore the British Merchant Navy to the position in which both he and I wish to see it.