Looking into the Maritime Future
Britain and the Sea Conference
Plymouth University, 4–5 September 2012
Keynote Address by Julian Parker OBE FNI FRSA, Chairman, Maritime Foundation
Where there is no vision the people perish
When thinking about my brief for the key note address, this proverb came to mind. However, it is one thing to conceive a vision, and quite another to achieve it. In terms of the vision we may wish to achieve, I thought it was reasonable to assume that the speakers and delegates at the ‘Britain and the Sea’ conference would want to see a stronger and more productive focus on maritime capability. After all, the United Kingdom is an island nation with great maritime traditions, and we are dependent on the sea for the vast majority of our imports and exports, not to mention our energy, our fish and many of our other resources.
So the main focus of this paper is to look at the networks and organisations currently shaping the way for ward, and to consider some of the wider economic and political issues which impact on the way decisions are made.
Looking at the wider picture, is it most productive for the UK to follow the globalisation model, obtaining marine products and services wherever they are cheapest, because this increases competition and benefits the consumer? Alternatively, should the emphasis be on developing better marine products and services within the UK itself, to promote employment and improve the balance of payments?
Within the maritime sector there are conflicting interests, and time and again a working balance has to be achieved – for example between exploiting resources and protecting the environment, between a good fisheries harvest and sustainability, between outsourcing and encouraging inward investment, between long-term projects that contribute to infrastructure development and short-term profitable activity.
Can these issues be resolved without government intervention? If not, what should be the focus of government policy? Should government seek to enhance companies through inward investment and foreign ownership? Who arbitrates between exploitation and conservation, industrial development and environmental protection? What measures can be taken to align fiscal measures with world markets? And how is the balance between employment and immigration going to be reconciled?
In a world which is already open to trade and the spread of ideas, how can the UK improve quality with innovative solutions and create competitive new products? Does this require highly educated marine personnel who can carry out research and development as well as operate and maintain systems in a worldwide supply chain? If so, where are they to come from?
Perhaps from these few introductory paragraphs it is clear that the development of commercial activity across the spectrum of maritime endeavour is multi-faceted and open-ended, and dependent on the prevailing cultural outlook. Solutions are likely to be varied and interactive, and this makes strategic management more complex. There is no signpost pointing the way to ‘opportunity ’, and so questing qualities, an international outlook and a working relationship with government become essential when considering the way forward.
It is not my intention to cover naval or fisheries matters in detail, as these are the subjects of other presentations to the conference. However, investment in naval procurement leads into a discussion of industry, and fishery regimes impact on marine equipment, boat building and maintenance.
This paper has been written in association with colleagues in the Maritime Foundation, but the content, the analysis and the conclusions are my own.
The maritime constituency
It is not easy to define all things maritime, but they share one common attribute, and that is the sea – catching fish within it, sailing on the surface or under the surface, making equipment for use at sea and making the ships and craft to transport people and goods, and all the associated links, whether commercial or strategic. And related to all these activities, of course, are research, education and training, and the shore links with the sea in the shape of our ports, terminals and marinas.
More specifically, the maritime sector embraces the Royal Navy, shipping and shipping services, ports, ship building and repair, fishing , aquaculture, offshore energy, trade, oceanography, marine biology, consultancy, design, marine equipment manufacture, leisure craft building, yachting and marinas, tourism, museums and heritage, recreational activities, cruising, defence and defence systems, maritime security, diplomacy, law, finance, safety, search and rescue, sea training, education and research. The list could be extended almost indefinitely.
Britain developed as a trading nation, and its wealth is largely founded upon the sea. So there is no doubt that we have a maritime past. But when preparing this paper I asked myself whether it was in fact meaningful to talk about a maritime future. The concept implies that there is a guiding influence, but with such a diverse range of activity nobody can say with certainty what the future holds. Paradoxically, I think this is a strength – because opportunity is unbounded. But, as I stated earlier, whether the opportunities are seized upon depends upon the prevailing cultural outlook.
Certainly maritime industries deserve the same level of support as other industries ashore, and the Maritime Alliance, which speaks in partnership with the Society of Marine Industries, is making a strong case to government. But the public also need to be aware of their dependence on the sea, and this requires more media involvement – which the Maritime Foundation is positively promoting – and, furthermore, young people need to be told about the range and scope of employment opportunities available within the maritime sector.
Some of this essential public awareness is indeed there, but most people’s understanding of the maritime world is derived from history, from which they learn that the ascendancy of Great Britain was derived from the supremacy of the Royal Navy and the wealth generated by maritime trade with our colonies. This stimulated the Industrial Revolution and gave the nation an unassailable economic advantage until the devastating impact of two world wars, after which the independence of former colonies and repayment of war loans changed our economic position in the world.
It has been said many times before that by 1900 nearly every family in the land had a maritime connection. London was the world’s largest seaport, and the Clyde and the Tyne were the rivers on which most of the world’s ships were built. This country had the largest navy and the largest merchant fleet in the world, employing hundreds of thousands of seafarers, and the British fishing fleet was the largest and most advanced anywhere.
Most of Britain’s institutions, even some apparently unlikely ones such as the Bank of England, were established on the profits generated by maritime activity – and so we should not be surprised if the golden perspective colours the wish to regain past achievements. History may tell us who we are, but as N N Taleb remarked in his book Black Swan, history is not much use in telling us what will happen in the future.
Future economic factors
The naval and commercial interface
The Royal Navy remains the largest single maritime employer in the UK, with the largest procurement programme. The Strategic Defence and Security Review states that the dark blue personnel will plateau at 30,000, but on top of this there are perhaps four times as many civilians in dockyards and other establishments, in supply and in government.
As I have said, it is not my intention in this paper to discuss strategic issues, but it is important to note that, from the perspective of UK plc, naval investment in research and development, education and training, and procurement has a major contribution to make in sustaining employment, transferable technologies and transferable skills. Complementary are defence sales, naval equipment and consultancy. The navy has the largest construction programme, and the investment of £3 billion (and possibly more) in each of the two aircraft carriers currently under construction has a major impact on employment. But what of the future? With £6 billion invested in just two vessels (Cunard’s new flagship Queen Mary, by contrast, cost about £1/2 billion) the public has some right to expect that there will be a lasting legacy after the ships have been launched.
This paper is primarily concerned with Britain’s wealth-creating activities in maritime industries and commerce, but it is worth reflecting on the interface between naval and commercial activity. The organisational approaches of both seek effective solutions to perceived problems, but industry, unlike the Navy, is a conglomeration of independent competing companies. Each one has the potential to raise its own finance, outsource, merge, work in partnerships and so on, in an attempt to provide a profitable response to market opportunities. Companies’ performance is ultimately measured in monetary terms through profit and loss.
Military strategy, on the other hand, is more centralised and is related to perceived threats, the containment of risk, disaster relief and the projection of power. The costs of supporting the armed services are known, but it is much more difficult to present a reliable and quantifiable measure of success or failure. Deterrence and the absence of conflict adds greatly to world stability and confidence to trade but can only be factored in indirectly. The armed services are funded through the exchequer, but it is largely industry which provides the wealth to support defence. This synergy is often obscured by political priorities, but the maritime sector is one where naval and commercial interests can become more complementary.
Global and national outlooks
In the book Megachange: the World in 2050, published by The Economist earlier this year, the argument is put forward that globalisation will increase world trade substantially. The driving force is the growth of emerging economies. More affluent societies make greater demands, but by the same token competition to provide these services increases due to the higher levels of capability within those economies. This means more goods transported by sea in an ever more interdependent ‘just in time’ transport network – but British industry will have to up its game to stay competitive.
Sir Mervyn King , Governor of the Bank of England, in an article published in the Mail on Sunday on 12 August this year, stated, ‘First we have to be reminded that an objective that is worth attaining , like a gold medal, requires years of hard work . That is true of our economy as well as sport … and it means focusing on improvements in education and skills so that we are equipped to face the challenge from our competitors around the world.’ This theme will be picked up later in the paper.
Many competitors at the London 2012 Olympic Games remarked on the positive uplifting influence of the spectators. In a stadium, all is played out before them. In maritime affairs, by contrast, so much is not visible, and perceptions are formed primarily from reports in the media. It is well recorded in the UN that the number of service personnel lost in combat has consistently fallen over the last 30 years. But this trend is hard to assimilate when the television news projects scenes of violence most evenings. Psychologists say that bad news carries four times the impact of good news, and so it is a real uphill struggle to project the maritime scene in terms of success. Journalists need to be more aware of the contribution made by the Royal Navy and the commercial maritime sector. This is the main focus of the work of the Maritime Foundation, but media interest needs more and constant refreshment.
One other area of interface concerns the security of maritime trade. All the indications are that globalisation will continue to expand and global trade will increase and become more interactive. From a global perspective, covered later in this paper, the question has to be asked whether the cost of maintaining the freedom of the seas should be shared more equitably amongst all countries that are dependent on sea transport, and not borne just by the few.
When it comes to shipbuilding, if we look first at the down side, Jim Davis, Chairman of the International Marine Industries Forum (IMIF), wrote in the Trinity House Journal, ‘It is 100 years since the Titanic sank. At that time Great Britain built 68% of all world ships. Today’s figures are Korea 38% (including the new RFAs), Japan 29%, China 19%, and UK 2%’.
On the more positive side, shipbuilding left a legacy of marine engineering, naval architecture and many successful companies that manufacture marine equipment. The Marine Industries Leadership Council set out their aspirations in a 2011 policy paper entitled A Strategy for Growth. The Council covers shipbuilding, marine equipment production, boat building and a wide range of specialist companies. In 2010 it was reported that the sector contributed £10 billion to the UK GDP, employed 90,000 people and earned £3 billion in exports. The report outlines the key areas where the Council wishes to project its influence through the general media, via government, and internally by coordination and cooperation. Its objectives are to:
- promote a strong image
- seek support for technology and innovation
- secure a well-educated and trained skills base
- improve the efficiency of the supply chain
- gear up for a sustainable future
- work to improve the marine environment
- seek a realistic and less burdensome regulatory framework
- set an ambitious target of 4% per annum growth in output across the sector
Readers with a strategic outlook might question how closely government policy matches these laudable objectives, given the recent award of the contract to build four new Royal Fleet Auxiliary tankers to Daewoo in Korea.
Richard Sadler, Chairman of Lloyd’s Register, speaking at the inaugural press conference for the Marine Industries Leadership Council in May stated that large-scale routine shipbuilding in the UK is a thing of the past. More efficient and advanced facilities have been developed elsewhere. However, the design and the outfit of the RFA vessels remains under British direction and this is the area to focus on for the future. An imaginative system of designing and building warships remains, as modules are completed in different yards and ferried to an assembly building facility either in Barrow for submarines and frigates or in Rosyth for the two new carriers.
Dick Oliver, Chairman of BAE Systems, recently commented that there has been a myth that the UK does not really make anything any more. In fact 2.6 million people are employed in manufacturing, and output is 59% higher than it was in 1990. Oliver wants to put manufacturing growth power at the heart of government strategy and apply a ‘growth test ‘ to every aspect of government policy. Foreign policy must, he said, help sustain the UK’s influence and global ‘ brand’. When it comes to exploitation of the nation’s strengths Oliver recognises the value of our universal trading language and points out that the UK has excellence in innovation.
Keith Cochrane, Chief Executive of the Weir Group, a company which has its roots in marine equipment manufacturing, argues that manufacturing excellence in highly engineered products can differentiate the UK from its competitors. He wants to rebalance the economy from financial services to making things, stimulating employment and building global excellence in certain sectors. He would like to see the government providing R & D incentives to de-risk and spread the innovation load across all sizes of manufacturing companies.
Shipping, ports and services
Maritime UK, the trade association for shipping, ports and shipping services, published its Manifesto in 2010, laying out its plans and aspirations for the future, not only for companies within the sector but also covering the organisation’s relationship with government.
A study by Oxford Economics in 2011 demonstrated that the contribution of the ports industry to the UK GDP is £16.9 billion. The ports sector provides 337,000 jobs and raises £5.7 billion in tax revenue. The shipping industry contributes £12.9 billion to the UK GDP and supports a further 268,000 jobs, generating £3.7 billion in tax. The City of London marine services contribute a further £3.8 billion to the UK GDP and support 64,000 jobs while raising £1.4 billion in tax.
According to the Annual Report of the UK Chamber of Shipping, the UK flag fleet at the end of 2011 was 1352 ships (including non-cargo vessels such as offshore support ships, dredgers and tugs). In terms of beneficial ownership the UK fleet was 18th in world ranking, with 1244 ships. What was not recorded in the report was the successful ship management sector, which is largely based in the Glasgow area. These companies operate ships on behalf of owners, generally providing crews, maintenance and ship operations. According to the Ministry for Transport, the additional number of ships managed from the UK as of the end of 2010 was 1261 vessels.
Maritime UK has the following policy objectives:
- create a strong business climate by maintaining the tonnage tax regime, and the present system of capital allowances
- maintain a favourable fiscal climate
- commit to the preservation and expansion of maritime skills
- work with government organisations to improve environmental performance by supporting coastal shipping
- make infrastructure planning and construction simpler and less costly for ports
- work to reduce the threat of piracy
- develop a regulatory approach to maritime security regulations appropriate to risk
- reduce the burden of light dues
- repeal obsolete regulations
- facilitate passenger transfer in British ports.
In a recent study by the Centre for Economics and Business Research, figures were given for the level of trade. Currently Britain exports £233 billion worth of goods by sea and imports £345 billion. Currently British imports and exports are quite ‘flat’, but the UK has to be mindful that competition from the rest of the world is still increasing, so making it more difficult for the UK to expand its manufacturing base. It is estimated, based on the trends before the financial crash, that by 2030 UK exports and imports will rise to £1.63 trillion and £1.93 trillion respectively. The volume of Britain’s external trade is likely to grow by 207%, thereby creating a substantial need to invest in port facilities and to ensure the security of sea lanes. The report shows that world trade has quadrupled over the past 20 years. Developed Western nations are having to adjust to the economic ascendancy of the East, a shift from labour to capital, a shift from consumption to savings, a shift from unskilled to skilled work, and a shift from finished goods to primary products.
Globalisation has radically transformed the world economy and made the UK much more dependent on trade. Britain now has a large number of sectors totally dependent on imports and exports.
The Sea Fisheries Statistics of the Marine Management Organisation for 2009 show that the UK had 6500 licensed fishing boats, of which 5021 were less than 30 metres and 1479 over 30 metres. There were 12,212 fishermen. The combined fishing fleet landed 581 thousand tonnes of sea fish (including shellfish) with a value of £674 million. Peterhead remains the largest fishing port, where the majority of pelagic fish are landed, including 103,000 tonnes caught off the west coast of Scotland and 68,000 tonnes caught in the northern North Sea.
As far as aquaculture is concerned, the Scottish Fish Farm Annual Production Survey for 2010 showed that Scotland produced 154,164 tonnes of salmon, with a market value of £539.6 million; and according to the Sea Fish Authority the total quantity of cultivated shellfish in the UK is 27,500 tonnes with a market value of £22.7 million.
Professor Callum Roberts, in his newly published and authoritative book Ocean of Life, reviews the pressures on the marine environment and ecosystems and concludes that ‘It is essential for ocean life that we transform ourselves from being a species that uses up its resources to one that cherishes and nurtures them.’
To give just one example of the adverse effects of over-fishing, the World Bank recently published a report entitled The Sunken Billions, with the subtitle The Economic Justification for Fisheries Reform. The opening paragraphs state that ‘The contribution of the harvest sector of the world’s marine fisheries to the global economy is smaller than it could be. The lost benefits are estimated to be in the order of $50 billion annually … By 2004 75% of the world fish stocks were under-performing … Most of the world’s most valuable fish stocks are now either fully exploited or overexploited.’ The study demonstrated that ‘the current marine catch could be achieved by approximately half the current global fishing fleet. The excess fleets competing for limited fish resources result in stagnant productivity and economic inefficiency.’
Over-fishing , the ‘ bye-catch’ debate and difficulty in sustaining a common fisheries policy in the UK’s coastal waters means that there will be significant changes as fishing perforce becomes more cooperative, with fishermen taking responsibility for ensuring sustainable yields.
Monty Halls, the BBC ‘Fisherman’s Apprentice’, advocates that it is also time to educate the public about buying fish direct from the fishermen. This will ensure a minimum supply chain, resulting in a good deal for the shopper and a better deal for the fishermen.
It is now being suggested that wind-turbine pylons should be used for anchoring offshore fish farms, and that the remains of decommissioned oil platforms will provide havens in which to breed wild fish stocks. There is hope. The Marine Management Organisation is introducing marine conservation areas in which fish will be able to breed without being disturbed by bottom trawls, thus in effect providing sea nursery areas. Negotiators in Brussels are being forced to acknowledge that current EU fisheries policies are unsustainable.
UK energy industries account for 3.9% of UK GDP, with 207,000 employees engaged in continental shelf activities. As regards UK consumption, it is interesting to note how energy is used and how the politics of energy are not always self-evident. Industry accounts for 17.5% of energy consumption, transport 35%, the domestic sector 35%, others 11% and manufacture 6%.15 Offshore wind farms are set to grow, and already they employ many people. Research into seabed turbines is evaluating prototypes and tidal current generated electricity is getting closer.
The new liquefied natural gas (LNG) terminal at Milford Haven is set to handle almost a quarter of the country’s demand for LNG imports. Most of the cargo comes from Qatar – which illustrates a need for secure shipping routes. It is noteworthy that Qatar Gas has the most comprehensive environmental chartering policy, putting quality of operations before all else. The aim is sustainable long term delivery.
Specialised maritime activity
Maritime heritage and nautical archaeology are making major contributions to the nation’s understanding of maritime history as well as providing a strong focus for tourism. The leisure sector involves not only sailors and surfers, but all who cater to their needs, from the designers, builders and managers of marinas, to those who run a network of yacht clubs and provide support for racing and cruising.
Marine sciences cover the biosphere, and oceanographic research studies the physical condition of the oceans. The British Antarctic Survey has been looking at the impact of climate change, whereas the UK Hydrographic Office, the world’s largest hydrographic organisation, plays a leading role in providing the data for navigational charts and electronic navigational systems.
The UK has the world’s largest and most influential number of marine papers and journals. Organisations such as ship brokers Clarksons and Gibsons also undertake economic research and publish much valuable analysis of shipping statistics.
The UK has the top three international professional marine associations, and the UK’s maritime colleges and universities are recognised internationally as well.
The role of government
Capitalising on this complex series of maritime interactions surely demands a greater role for government. This was the theme of a major debate organised by the Greenwich Forum in 2004 under the title ‘This House Believes there should be a Minister for Marine’. It was a good debate, but ultimately the motion was defeated, primarily because the well-informed invited audience could not see what such a minister could do that was not already covered by the Department of Trade, Transport, Defence, Environment, Heritage, Food and Fisheries, Energy, Employment, Education, Work and Pensions, and so on. The main argument deployed for the motion was that a Minister for Marine could promote maritime activity better by joining up these different functions.
To explore this theme further, the Maritime Foundation sent two observers to the Prospect conference on Regenerating the British Economy; Manufacturing , Investment and Growth, held in London on 1 March 2012. Our purpose was to discover how different sectors within the UK’s industrial framework saw the role of government.
It was apparent to all participants that, during the turbulent 1970s and 1980s, when part-nationalised firms such as British Leyland, British Coal, British Shipbuilders and others were engulfed in crises, the government became badly burned supporting ‘lame ducks’, and policy directives changed from providing subsidies to creating a business environment in which private enterprise could flourish. Efficient companies would succeed, others would disappear. In addition, EU legislation made it illegal to compete in the common market by using subsidies. It was stated at the Prospect conference that there is an aversion in central government to ‘trying to pick winners’, a policy that had proved unsuccessful.
So what should be government policy to industry? The delegates, who included an influential group of businessmen and women, wanted government to provide a strong supportive role in which it could work in partnership with industry to reduce developmental risks, facilitate finance and help with global marketing. In particular, they wanted government to:
- share risks through supporting research and development
- encourage funds to flow into productive investment, particularly SMEs
- share the risks of major industrial development by underwriting firms seeking major contracts – the train manufacturer Bombardier was cited as a lost opportunity
- provide incentives to banks to lend to industry
- reward companies for investing in long term growth rather than requiring short term paybacks
- ensure a level playing field with international competition
- reduce barriers to growth by repealing obsolete and inappropriate legislation
The role of government is identified as a key element of success by economist Dani Rodrik in his book The Globalization Paradox. He puts forward the argument as follows:
Replacing our economic world on a safer footing requires a better understanding of the fragile balance between markets and governance. First markets and governments are complements not substitutes. If you want more and better markets you have to have more and better governance. Markets work best, not where states are weakest, but where they are strong. Second, capitalism does not come with a unique model. Economic prosperity and stability can be achieved through different combinations of institutional arrangements in labour markets, finance, corporate governance, social welfare, and other areas. Nations are likely to and indeed are entitled to make varying choices among these arrangements depending on their needs and values.
He goes on to say:
Democracies have the right to protect their social arrangements, and when this right clashes with the requirements of the global economy’ it is the latter that should give way.
In his wide-ranging analysis, Rodrik emphasises two main points about unbridled globalisation. The first concerns the nurturing of indigenous enterprise. Commerce is best served by having diverse commodities to trade, but to establish a leadership role there needs to be a measure of nurturing protection. Japan, China, India and America have all protected their fledgling industries during the period of development.
Secondly, Rodrik argues that it is dangerous to use capitalism as the means to exploit, for example, overseas agricultural production to the benefit of a few land owners and traders while the workers are held in the vice of low wages and there is no money for the government and entrepreneurs to be able to generate alternative employment through the development of other outlets and industry. Sooner or later this imbalance (which incidentally is also affecting aspects of the social fabric in the UK) will lead to conflict. Capitalism, he argues, must serve not only the few but the many – and that is the challenge post financial crisis.
There are many who argue that the maritime industries will stall if there is no inward investment from overseas sources, and that the free flow of capital is as vital to maritime industries as it is, for example, in the automotive industry. But where to draw the line? Investment is one aspect, speculation to take over maritime assets is another side to this freedom of exchange. The main point made by Rodrik is that development has to be nurtured, and this can only be done in a stable environment. Curious, isn’t it, that those concerned with the marine environment have come to exactly the same conclusion.
The European Union is deeply involved with the maritime sector. Fisheries policy is not part of my subject, but the wider issues are covered in the European Commission’s report on Guidelines for an Integrated Approach to Maritime Policy. This document, along with other publications from the EU, invites governments to develop a strategic approach to maritime policy at national level, embracing the special attributes of coastal regions and local decision makers, to engender stakeholder participation, to generate more efficient links at regional and sea-basin level, to enhance offshore governance (for example, coastguard and surveillance activities), and to formulate a definitive approach to maritime spatial planning.
Of particular interest is EU support for setting up local maritime clusters, with a view to making the most of maritime resources, enhancing integration and supporting synergies. Maritime clusters, particularly where UK government funding has been made available, mainly in less advantaged areas, have been very successful. The Merseyside cluster in the northwest of England, for example, has made good progress, enhancing maritime industries and contributing to an increase in employment. Some other clusters that have not been funded have had difficulties in sustaining momentum.
It is not my intention to comment in detail on these EU initiatives, except to say that many maritime functions are better coordinated on a regional basis. Two current examples which have a direct bearing on sea transport are the Motorways of the Sea and MONALISA projects.
Motorways of the Sea is a 22.5 million-euro-funded European project designed to facilitate intermodal logistics chains in European waters. The intention is to create coastal shipping highways which will be more environmentally friendly and more fuel-efficient, and which will ease the congestion of road transport. There are four areas where these links are being evaluated: the Baltic to western Europe, western Europe to the Iberian peninsula, Iberia to the western Mediterranean and western to eastern Mediterranean. For these corridors to work they need viable volumes of freight, connecting intermodal links, optimally designed ships, services, ports, terminals and quality control.
Alongside this, the MONALISA project is designed to provide eco-efficient e-navigation solutions, starting in the Baltic region with a view to expanding the services more widely throughout European waters. MONALISA has a direct feed-in to the EU conceptual transport architecture relating to ‘Green Transport Corridors’. The intention is to provide optimum route planning, voyage monitoring and information services. In doing so there are estimated to be savings of between 5 and 10 per cent in enabling more exact voyage planning – thus leading to optimal fuel consumption, which will have a considerable impact on exhaust emissions.
European-led legislation also affects many other decisions relevant to the maritime sector. Competition law, employment law and environmental standards are just three of the areas that impact directly on maritime enterprise.
Economic and political considerations
When planning for a future, some permanent assumptions must be made (even if the assumption is that there is no permanence). Sound planning assumptions are critical for industry, where planning horizons can be as long as 20 years. This lead time is necessary for developing new technologies, skilling a workforce, setting up global trading, putting capital plant in place and acquiring a network of suppliers capable of producing components to the required standards just in time.
In a business sense, of course, if the enterprise cannot be made profitable and the risks are too unknown, then investment will not be forthcoming and failure is likely. A public limited company has to show a return to investors and demonstrate growth for the future. In large companies, investor preference has a major influence on ownership. Today the preference is almost impossible to predict, as was seen in the case of Kraft taking over Cadbury’s – no matter that the bid was highly leveraged by significant investments from hedge funds intent on securing a short-term profitable gain for their investors.
This subject has been discussed in a revelatory book by Alex Brummer entitled Britain for Sale, published earlier this year. Brummer casts his eye over the whole spectrum of British industry, citing the demise of ICI, Pilkingtons, the Dorchester Hotel, Corus, Rolls Royce cars, various football clubs, BAA, Abbey National, Southern Cross care homes, most utility companies, nuclear power, energy suppliers, and many more.
Turning specifically to the maritime sector, I need to draw attention to the foreign ownership of ports and shipping companies. P&O Cruises and Cunard are now wholly owned subsidiaries of Carnival Cruises. As long ago as 1991 the Hong-Kong-based company Hutchison Whampoa bought out Felixstowe port, and more recently, in 2006, Associated British Ports, a thriving industrial group, was sold to buyers including the investment bank Goldman Sachs. Forth Ports was sold in similar fashion to a little-known European investment firm supported by Germany’s Deutsche Bank.
P&O Ports was a highly successful and profitable global company with ports in the UK, Pacific, Middle East, and the USA . It was sold to Dubai Ports for $6.8 billion, mostly funded at the time by borrowed money. The problems emerged during the financial crisis, when investors had different priorities from the port operators. It may be re membered that the USA blocked the takeover of their ports, keeping them under US control.
As Brummer observes, ‘the financial free-for-all of the past few years has essentially been funded by unstable debt.’ He argues that in the best interests of British industry the government must revisit its industrial policy, especially as the buying spree does not just end with private finance. Another vehicle making inroads into all aspects of industry and property is the sovereign wealth fund.
In 2011 Qatar became the largest investor in Canary Wharf. The Kuwait Investment Authority owns a 22% stake in BP. Gazprom attempted to secure a dominant holding in the European energy market and a Russian state-owned bank has secured a 5% stake in EADS, the European Aeronautic Defence and Space Company. China similarly is investing strongly in strategic mineral resources … The list goes on.
The main point of this discussion is to demonstrate how difficult it is to make any future predictions about the development of British industry while the doors are left wide open to foreign share owners. Their priorities for investment may only be short term, with an emphasis on capitalising on assets and not on the future potential of innovative industrial development. In this context there can be genuine conflicts of interests between shareholders and boards of management.
Brummer firmly believes that the stable door is too wide open, and that a degree of political control is needed to protect the ownership and management of strategic assets such as ports, infrastructure, energy supplies and transport. He argues that a commission should be formed to review foreign takeovers, and that terms and conditions should be scrutinised when bids are made.
There can be another side to foreign ownership. In the case of my old company, the Blue Funnel Line, it became a public company and evolved into Ocean Trade and Transport; then it became the Ocean Group, from which it further evolved into a logistics company, taking over Exel, and a few years later the company was taken over by DHL, and it is now owned by the German company. It has been argued that although foreign companies operate in the UK they take their profits overseas. This may be so, but my pension is now paid by DHL and there is nothing to stop investors investing in DHL if they want a share in the profits as a stakeholder.
Similarly, the London Gateway project, which is turning Thurrock into a major container terminal in the Thames estuary, is funded by Dubai Ports; and Germany’s biggest freight-train operator, DB Schenker Rail, plans to run 2300-foot long trains four times a day linking up the port to the European rail network through the Channel Tunnel.
I started looking at this subject with a sense of lost pride in what I thought was an erosion of all that stood for British values, but as the study progressed I realised that in a global sense it was not unreasonable to outsource production to more advantageous locations overseas and where excess wealth exists it was reasonable to seek worldwide investment opportunities. After all pension funds from developed countries all have investments in foreign companies. This interdependency probably adds more to global stability than might at first seem to be the case. However I do share the view of Mr Brummer that it is a governmental responsibility to ensure such investments are monitored for adverse commercial or strategic influence.
Trained marine personnel
There remains one key area which is related to the above where the Maritime Foundation has concerns – and that is the provision of enough qualified mariners to man the UK and foreign fleets, but more significantly to operate ports, to provide pilots, and to work in marine services, manufacturing and regulator y organisations.
In 1989 the Foundation commissioned a study into critical manpower levels. The lead researchers were Professor David Moreby of Plymouth University and Peter Springett. The study concluded that it was necessary to recruit at least 1330 cadets a year from 1989 to ensure a minimum base of 3019 officers (sufficient to man a fleet of 181 vessels) and to continue to supply 1092 officers a year to the wider maritime infrastructure ashore. In reality there was a considerable shortfall against this intake target and, as a result a training grant scheme was introduced under the new tonnage tax regulations.
With such a varied industrial infrastructure, compounded by the government’s cap on immigration, there is once again emerging a shortfall in the supply of competent and experienced sea staff for executive functions ashore. Recently a director from one of the largest marine insurance organisations wanted to recruit a suitable mariner to join their ship vetting team but was unable to attract any suitable applicants. The Foundation believes that a new critical levels study needs to be undertaken, and is seeking sponsorship to pay for the work to be done.
There is a major problem in recruiting trainees to the ship-owning industry if the long-term intention is to employ them in ancillary services ashore owned by non-ship owning companies. Up to now there has been virtually no contribution made, for example, by the ports industry towards the cost of acquiring trained marine personnel. It might therefore now be time to consider enlarging the Merchant Navy Training Board to embrace the entire maritime service sector, so linking up the graduate programmes now available with support for career planning.
With so much competition from other sections of industry and government services, youngsters will not necessarily choose a seagoing career, so the value of marine qualifications has to be sold. In this context it is worth mentioning Seavision UK, whose aim is to facilitate a stronger recruitment and training base in the UK.
Seavision deploys a trident-like strategy on the internet, with one of its three prongs focused on careers advice for the whole maritime sector. The second prong is to engage youth in learning about the opportunities for a fulfilling career in the sector via ‘new media’ on the web using Twitter, Facebook and other social media. The third prong is to get maritime examples into the school curriculum again, and to engage parents and teachers more directly in understanding what the maritime sector can offer.
As things stand, Seavision is a short-term funded project, but the Maritime Foundation sees it as essential that the service should be maintained and kept sustainable in the long term.
Research and development
During the Industrial Revolution of the nineteenth century, industrial innovation was largely a private matter, but the development of universities in the twentieth century, and their expansion in the 1960s, has led to a new balance in the way that knowledge is transferred. The Cambridge Fen model is producing excellent results in modern technologies, and similar centres of exchange are being considered for the maritime sector.
For example, Lloyd’s Register is investing heavily in Southampton University to create an interactive site for maritime research and development. Newcastle University has deep roots in marine engineering, Plymouth in marine surveying and marine biology, Strathclyde in offshore technology, while other universities cover security, strategic planning, maritime history and archaeology, international law and maritime commercial law. This interaction provides an effective way of using resources to develop a leadership role in innovative maritime applications.
What do we want?
Not long ago it was thought to be second rate to carry out applied research for industrial development, and pure research was considered superior. Organisations are proud of their autonomy and do not want to share their time with others because they are too busy chasing their own goals – but I hope I have shown that we are living in a very different world from the one of even 50 years ago.
And this poses a different question, one which was considered in particular detail by psychiatrist Iain McGilchrist in his book The Master and His Emissary. His main thesis is that we derive meaning through a complex web of interaction in the brain, and preferences are embedded by cultural norms which are intuitive and form tendencies in an individual’s outlook. Decision making is about seeking a solution to a perceived problem, but doing this engages hidden inbuilt tendencies which are not always self-evident. According to their personality type, some individuals may prefer to focus on individual elements while others only see the big picture and overlook the detail. People may also come to different conclusions based on whether they prefer to think outwardly through induction or inwardly through deductive thought processes.
In McGilchrist’s words, ‘How internal conflicts are resolved by freeing some aspects of myself and suppressing others will have a fundamental effect on how I use and sustain my external freedoms.’ So, as maritime folk, what freedoms are we seeking? The answer to that question is by no means self-evident. Environmentalists might not have a natural instinct for marine insurance risks, just as naval personnel might not always choose business as a second career.
It was to address this very issue that the International Futures Forum was created, to engender a ‘planetary ’ view of the way for ward . The Forum is primarily an educational tool, and participants in exercises are typically asked to take into account some 12 elements when making decisions about the future, all of which impact on long-term sustainability. These elements are listed as a world view, wellbeing, food, trade, energy, climate, biosphere, water, habitat, wealth, governance and community. Some may see this approach as irritatingly irrelevant while others will see the opportunities it presents, particularly if they can work with partners in other countries to secure new outlets for their services and products.
Predicting the future is uncertain, but Britain remains a maritime dependent nation with excellence in many marine disciplines. The transition from global economic power to a globally dependent nation means that the relationship between industry and government will need to change and those working within the maritime sector will have to work harder to get their voice heard both in the media and to demonstrate how maritime enterprise contributes to the national economy and deserves more national recognition.
The age of continental empire was sustained by sea trade and protected by warships; but with the finite resources of coal and later oil, technologies advanced until war and competition redefined the nation state and ushered in the transformation to a global economy.
For the modern investor, identifying comparative advantage provides the key to profitability, and so globalisation is still gaining in momentum, trade is growing and as a result is becoming more interactive than ever before. Shipping, ports and services have to reflect this trend.
While trade has an almost fluid quality, finding its levels according to demand, countries and their populations are relatively fixed geographically – and it is this complex relationship between flexible demand and productive activity which has to be managed by politicians.
If free trade is seen as an absolute priority in policy terms, then governments have to encourage industries and services to be innovative to gain competitive advantage, otherwise foreign competitors will become dominant. This realisation demands continuous investment in research and the development of new technologies supported by people who are skilled and imaginative in a neutral fiscal environment, where goods and services can be delivered without incurring penalties that competitors do not have to meet.
The role of shipping and shipping services needs to be strengthened to secure the foundation from which to develop more innovative and competitive solutions in the manufacture of equipment, shipbuilding, logistic and transport services. The growth of international trade demands that all trading nations, not just the few, should contribute to the security of trade routes.
The shape of the maritime sector has changed dramatically over the past 30 years, suggesting that career development programmes within the maritime sector should be more integrated. A study needs to be undertaken to ascertain the likely demand for skilled maritime personnel for the whole sector, and this study should examine whether, for example, the remit of the Merchant Navy Training Board could be expanded to include apprenticeships in related disciplines, graduate programmes and even the coordination of maritime training for disadvantaged groups.
Maritime awareness, reaching into families and schools, needs to be positively promoted, and the role of Seavision in providing maritime educational and career information needs to be supported by industry and government as a long-term developmental programme – just as the steps taken to form the new Marine Industries Leadership Council need to be supported, and government involvement encouraged, to develop an innovative and competitive maritime sector.
Nostalgia can colour judgement in many ways, and it is not always easy to be objective about Britain and the Sea. However, there are certainties which contain the kernel of maritime opportunity as we look to the future.
First there are the fixed assets. Britain needs efficient ports and an effective transport infrastructure. In terms of moving goods, the country needs to be serviced by knowledgeable shippers and provided with well-coordinated logistics.
The demand for shipping worldwide is increasing, so new and innovative ways of transporting cargoes and passengers present designers and engineers with opportunities. Similarly, maritime law, finance, broking and insurance can all benefit from the growing volume of trade.
With fisheries there is a complex balance to be struck. It is desirable to achieve an optimal yield from migratory species and to provide fishermen with a properly rewarded living, but also to ration the catch of a finite living resource, and this will present real challenges for the Marine Management Organisation.
As a modern trading nation, Britain is more dependent on the sea than ever before. The seaborne supply of consumer goods from China maybe evident from its label. Less obvious are the foreign-made components in such things as cars and complex machinery. And exporters need to ship what they have assembled in Britain to foreign markets. Manufacturing, at an international level, is becoming more interdependent.
There are choices. It is possible to encourage foreign companies to undertake all Britain’s sea transport and logistics, and this might appear to be an effective way of minimising costs and supporting the hard-pressed consumer. Such a policy, however, would eventually erode the capability to capitalise on innovative opportunity as support for maritime business falls below critical levels. The problem is similar to that faced by the fishing industry, but in a commercial environment.
Companies have to make decisions that are profitable in global markets. Governments have to provide and ensure reliable services and support for their constituents at home. The maritime sector has not been actively promoted by government for decades, and the tide is ebbing. Maintaining appropriate critical levels across the maritime sector will bring positive returns in equipping Britain to exploit maritime opportunities in future. The challenge now is to turn the tide, and to turn the vision into reality.
[message type=”custom” width=”100%” start_color=”#F5F5F5″ end_color=”#F5F5F5″ border=”#C5C9D4″ color=”#313337″]
Looking into the Maritime Future, Britain and the Sea Conference, Plymouth University, 4–5 September 2012
Keynote Address by Julian Parker OBE FNI FRSA
Chairman, Maritime Foundation
Download in PDF (2.2MB)
About the Maritime Foundation
The Maritime Foundation is a not for profit organisation promoting Britain’s interests across the entire maritime sector.
Its purpose is to inform and raise public and parliamentary awareness of the importance of Britain’s maritime industries, commerce and defence through education, training and research, as well as through the Foundation’s annual Maritime Media Awards.