Estonian merchant fleet fading away

According to a survey conducted by the Estonian Shipowners’ Association, the decrease in competitiveness of the Estonian maritime sector requires interference and necessary actions from the State. Estonian shipping companies are not receiving any state support, and more and more ships are flagging out.

The diagnosis presented in the study “Estonian marine transportation: current situation and attempts to maintain competitiveness on the international scene” is depressing – the decrease of the competitiveness of Estonian maritime sector on the international market is very real, and so is the decrease in Estonian commercial sea transport; not to mention the fact that more and more Estonian vessels are starting to sail under the so-called convenience flags, the total tonnage in Estonian Ship Register is decreasing, Estonian seamen are leaving and seeking employment on foreign ships etc.

An increase expected
The Estonian Shipowners’ Association has twelve full members and three associated members. According to Mr Enn Kreem, Secretary General, the number of associated members can be expected to increase (associated members are non-shipowners).

– They have an interest in the information obtained via us – as of last year, we are now a member of the European Community Shipowners’ Association (ECSA). But our membership is also changing, as for example Grönqvist Shipping joined us last year and Alfons Håkans OÜ is planning to join us, but BLRT Grupp left, says Enn Kreem.

In the beginning of this year, the Estonian Ship Register only had nine ships with a DWT over 1,000 left. Seven of these vessels belong to Euro-Baltic Shipping Services, and in addition to this, the company also has three more vessels sailing under the flag of Antigua and Barbuda. These are general cargo vessels, built in Germany in 1976–1985, with DWT of 2,500–3,500.

Continuing trend to flag out
Additional twelve Estonian vessels were listed in bareboat charter as of the beginning of this year, including six belonging to Estonian Shipping Company (ESCO), but the trend of ships flagging out is continuing. Mr Jaan Kalmus, Deputy Managing Director of ESCO, reveals that all the company’s ships are engaged in liner traffic. The ro-ro vessels are on the Irish Sea routes as well as on connections between the continent and British Isles, and two ships are sailing between Africa and America. Container ships continue on their usual routes, only now they are operating under the TECO Lines label and mainly under the Isle of Man flag.

Euro-Baltic Shipping Services’ Estonian-flagged “Vigo” (built 1983, DWT 2,904) in Öresund. PÄR-HENRIK SJÖSTRÖM

In their study, the Estonian Shipowners’ Association explains how important the maritime sector is for the Estonian economy and how large an impact it has on the external trade balance, and it lists the main reasons for ships flagging out. Unfortunately, such thorough explanations are necessary, as due to the discontinuation of maritime traditions in Estonia, the society, including the decision makers, are not familiar with the sphere and special features of the maritime sector.

The magnitude of the net turnover of Estonian maritime transport companies is a little over EEK 4 billion (over one quarter of a billion EUR), of which the proceeds from abroad were EEK 2.8 billion, i.e. 69.1 per cent of the total. This amount generated from the sales of transportation services is rather large a contribution to the total balance of external trade. For example, up to 80 per cent of Tallink’s overall operating income totalling EEK 2.5 billion, including both income from ticket sales and for sales during the crossing, was generated from services provided for foreigners; only in cargo transport is this percentage less than one half. On the other hand, up to EEK 1.5 billion of the operating costs are incurred in Estonia. This includes all the personnel costs, and up to 96 per cent of fuel and 70 per cent of ship provisions, which are also purchased in Estonia, the port and fairway dues etc.

According to calculations made by the Estonian Shipowners’ Association, mere seven of its members remitted the State EEK 212 million per year in taxes on employee wages alone; in addition, there were EEK 90 million of lighthouse, icebreaking and pilotage dues. Estonian shipping companies also paid port dues, of which a certain percentage is directed to the State budget in the form of dividends from a State-owned port. The total amount contributed to the State budget by these companies thus was EEK 350 million (about EUR 22.5 million). The best example of this is the social tax that was paid by Tallink in the amount of EEK 112 million, according to Mr Andres Hunt, Financial Director of Tallink. In other words, a single shipping company contributed 0.71 per cent of the total social tax paid in Estonia in the last year.

This social tax is the very reason why more and more ships are flagging out. ESCO’s calculations show that as of now, it is more profitable for the shipowners to conform with the minimum requirements of the ITF than to comply with the ones that are inherent to the use of the Estonian flag. The convenience flag will also guarantee industrial peace in all countries, which unfortunately cannot be guaranteed when the ship is sailing under the Estonian flag – there have been several cases where ships have been harassed in foreign ports for the reason that when paid pursuant to Estonian legislation, the Estonian seaman receives a net income that is smaller than the ITF minimum.

The seamen’s wages are increasing faster in Estonia than in the neighbouring countries; the collective agreement secures a five per cent increase per annum. ESCO compared the wage expenditures of this year for Estonian and convenience flag ships and found that there was not much difference between various vessel types.

The shipowners cost for crew wages to fulfil the requirements of Estonian legislation or of ITF can be seen in the chart above, which shows how the cost of patriotism can be calculated – it is more than USD 71,500 per year per ship. If only the dollar exchange rate was much higher: then patriotism would not be as expensive.

– If our seamen would receive the same wages as they now can with an ITF contract, the wage expenditure of the shipowner would increase by 33.5 per cent. ESCO would be happy to pay the same USD 44,000 in wages before income tax, as then we would not have any problems anywhere and our overall costs would be approximately the same as when paying employees according to the ITF. We would bring our ships back to sail under the Estonian flag, if we could be sure we will have no problems anywhere caused by it. Right now the ITF contract and sailing under a convenience flag will secure us the industrial peace that we need, Mr Jaan Kalmus comments.

The Estonian flag is not popular among the Estonian shipowners, because the ships are subject to high requirements, taxes are high and there are no state benefits at all. The price of fuel is also almost the same as in other EU regions, so the Estonian shipowners have pretty much lost their competitive edge. When other EU countries have been supporting the fleet sailing under their flags for years already, then Estonian shipowners have been left to their own devices. That in turn means that a shipowner of this recently independent, small country has to face the competition of the more developed countries.

//Madli Vitismann