High Shipping Costs Are Here to Stay, Says Bloomberg
By Henry Ren (Bloomberg) Stubbornly high shipping expenses for businesses are getting sealed into contracts for the next 12 months, forcing companies to pass the extra costs on to consumers....
LONDON/ATHENS, Jan 30 (Reuters) – While Greece’s new leftist government seems set on a collision course with the European Union, it is likely to steer clear of confronting the country’s critical shipping industry.
The Syriza party of Prime Minister Alexis Tsipras, which swept to power last Sunday, once promised to take on shipowners and their generous tax allowances. But in recent months, it went quiet on tackling an industry which, along with tourism, is one of the few in which Greece remains globally competitive.
Since forming a coalition, Syriza has confronted fellow EU governments with radical plans to renegotiate Greece’s debts, overturn austerity policies and cancel privatisations. Its stand on shipowners, by contrast, has been decidedly conciliatory.
“We are here to solve problems, not to create new ones,” said Economy Minister George Stathakis, who oversees the shipping portfolio. “There will be dialogue, discussion, and we will look for the best possible solution,” Stathakis, an economist who comes from a shipping family, said during a handover ceremony at the shipping ministry.
This attitude may reflect realities of the industry. While Greek shipping magnates generally operate from the Athens suburbs or the port of Piraeus, their companies are largely registered in the likes of the Marshall Islands and the Turks & Caicos. The firms are often listed on stock exchanges abroad and their ships often fly foreign flags such as Liberia’s.
Any attempt to impose heavy taxes after decades of virtual fiscal freedom could provoke an exodus of oligarchs and businesses which are major employers, further damaging an economy that has endured years of crisis.
Symeon Pariaros, chief administrative officer with Athens-run and New York-listed shipping firm Euroseas, said he doubted the government would rapidly make major changes affecting shipping.
“My feeling is we will not see anything dramatic in the next months,” he told Reuters, citing meetings between Syriza and the Union of Greek Shipowners. “I don’t feel even this leftist radical government would dare to put at risk such an important industry in our country.”
Greeks operate some of the world’s biggest tankers and bulk carriers. According to former finance minister Gikas Hardouvelis, they account for 43 percent of the European fleet and 15 percent of the global total.
While the government badly needs more revenue and a lower debt burden, it may resist the temptation to milk the cash cow.
“In my discussions with people in high places, in business and politics, they assured me that the government has other interests to tackle such as debt forgiveness,” said John Faraclas, a London-based shipping commentator and independent ship broker.
“The people who will lose if the government attacks Greek shipping in its entirety will be the seafarers and the people who work in the offices,” said Faraclas, who was an aide to a former Greek shipping minister. “No Greek government will do this. There are offshore investments too, employing a great number of people all over the country.”
The Union of Greek Shipowners did not respond to requests for comment. The new government is expected to outline its plans during a vote of confidence early in February.
LIBERAL TAX REGIME
Greek shipping has been part of the national economic lifeblood for thousands of years. More recently, some of its tycoons became international celebrities such as Aristotle Onassis, who married the widow of assassinated U.S. President John Kennedy.
Today the industry accounts for about 7 percent of national GDP. Many Greeks work in other areas connected to the sector such as insurance and finance.
While the tycoons benefit from the liberal tax regime, their commercial attachment to the country may not be taken for granted. “Greek shipowners have to be very competitive in the global scene. If the situation in Greece becomes uncompetitive, they can relocate along with their key employees,” said Alexandros Argyros of Axia Ventures Group, an independent investment banking boutique focused on shipping and Greece.
“They are not bound by their assets which are floating around the world and that makes it a lot easier than for any other businessman,” he said.
While Stathakis is considered a more pragmatic voice within Syriza, a government official said the finance ministry rather than the shipping ministry would deal with any tax issues.
“Shipowners are protected by the constitution – which means that if they were to be further burdened, a constitutional revision would be required,” the official said. However, the official added: “Shipowners would be very welcome to contribute, depending on their potential, and help boost the economy.”
After announcing a halt to the privatisation of the port of Piraeus on Tuesday, for which China’s Cosco shipping group and four others had been short-listed, the government indicated it would put the whole programme on hold.
But shipowners were not too concerned, with one describing this as “a populist move that is so far neutral for shipping”.
Nevertheless, Greek shipping sources say many companies have contingency plans to relocate to jurisdictions such as Monaco or London. “If they come in too aggressively, the threat of a flight from Greece is real,” one shipowner said.
While shipping has experienced one of its worst downturns, the owner acknowledged the scale of Syriza’s victory. “There is room for additional contributions by shipping to public finances. It has to be a measured contribution that takes into account that it is a global business,” he said. “If they do it in a measured way, people will pay.” (editing by David Stamp)
© 2015 Thomson Reuters. All rights reserved.
Join the 67,549 members that receive our newsletter.
Have a news tip? Let us know.