Flagging to Sweden: What is the benefit?

The failure to provide a net wage scheme for Norwegian seafarers, as enjoyed by their Danish and Swedish colleagues, promises to have some considerable effects for a segment of Norwegian shipping. A number of companies have announced intentions to reflag vessels to Sweden in order to cut manning costs. Although Norwegian politicians have committed themselves to competitive conditions for seafarers, the track record of broken political promises is is not exactly cheering.
Introduced to promote Swedish shipping, Stockholm’s net-wage scheme has indeed strengthened its competitive position. Norwegian shipowners have cast their eyes on the scheme, which with the EU/EEA-agreement would also be open for Norwegians.
To be eligible for the scheme, a full subsidiary for registration and personnel will have to be established in Sweden. This also means that local rules and regulations will have to be enforced for vessels as well as personnel.
The process of entering ships under Swedish registry is at the moment rather intricate due to a number of special regulations practiced by the Swedish Maritime Authority. There is a conflict going on over these regulations versus EU-directives for second-hand vessels, and the adoption of the EU-directive would make it easier to obtain Swedish registration for Norwegian ships.
The issue of reflagging to Sweden does primarily concern companies with a fair number of Norwegian seafarers. These are mainly offshore supply and support shipowners operating on the Norwegian shelf and to a certain extent companies operating in coastal waters. In the coastal market NIS-registered vessels are banned, but it is open to other vessels under the EU/EEA cabotage rules, including Swedish-flagged ships.

Norwegian crew, Swedish flag?
By “going Swedish” the shipping company will have to adopt the full range of labour agreements and wage tariffs. However, according to the tax agreement, each employee domiciled in Norway will have to pay approximately 15 per cent tax. In addition, there will probably have to be organized an extra insurance to match the Norwegian standard. The shipowner would also be liable to a particular recruitment fee and also to take on trainees (which in principle could be Norwegians).
Another interesting aspect is the TAP-system – Temporarily Employed Personnel – which allows for up to 50 per cent international crew members under a collective labour agreement – and still with full EU/EEA cabotage rights.
The Swedish net-wage scheme appears quite promising for Norwegian owners. For example Nor-Cargo liner vessels in Scandinavian waters, where manning costs amount to 60–70 per cent of the total expenditure, could have benefits in both ends: Net-wage for Scandinavians as well as low-cost crews on TAP terms.

What’s in it for Sweden?
What does the scheme imply, compared with Norwegian operation?
The seafarer will maintain his net wage and working conditions under Swedish terms.
The shipping company would be able to retain its skilled personnel at a considerable discount and also have a more flexible manning policy with TAP.
Sweden will see a number of new subsidiaries with legal and certain management functions.
Norway will be losing wage tax income, but may be spared the social costs of unemployment. In the longer term, the country will be able to retain an element of skilled seafarers, but lose out in the longer run.
The potential of flagging Norwegian vessels to Sweden is hard to estimate, as much will depend on the details. However, up to 12–15 coastal liners and some 50 offshore supply vessels could be realistic, should the scheme turn out to work well and with a reasonable benefit.
Given a certain stability and success, Sweden could well be in for more. Once a subsidiary has been established with personnel functions, this may eventually lead to gathering all personnel management in Sweden. Certain management and purchasing functions may follow. In the longer run, however, Norwegian seafarers with their 15 per cent tax – in fact a cost handicap – may well be replaced by Swedes. This may apply for recruitment, training positions and employment if the right personnel can be found. Flagging to Sweden represents something essentially different from transferring ships to Liberia and Bahamas.
The Swedish net-wage system presents yet another issue we all have to face, that shipping is becoming more international. As long as every country sticks to its own maritime policy, the shipowners are free to consider these as selective opportunities under the EU/EEA-liberties.

//Dag Bakka Jr

Back to SSG 2, 24 January