PROFESSIONAL SERVICES SERIES MARITIME BUSINESS SERVICES

Transcription

1 PROFESSIONAL SERVICES SERIES MARITIME BUSINESS SERVICES SEPTEMBER 213

2 MARITIME BUSINESS SERVICES SEPTEMBER 213 FOREWORD FROM CHRIS CUMMINGS, CHIEF EXECUTIVE OF THECITYUK The UK is the leading international financial and professional services hub and the main global centre for maritime business services. A recent survey by Norton Rose Fulbright acclaims London as the maritime centre best able to meet the international financing needs of the shipping sector and this is a testament to the depth and calibre of maritime business services on offer from the UK. The UK s maritime business services sector plays a vital role in facilitating world trade through financing and insuring of ships (21% of international marine insurance premiums are written through London) and chartering (about 4% of the global chartering market takes place in London). English law is the most widely applied to shipping disputes, which usually involve foreign interests. London is globally dominant in terms of its share of arbitration appointments. Maritime services are also an important contributor to the UK s domestic economy, contributing 13.8bn to GDP and 263, in employment while maritime business services contribute 1.5bn to GDP and 12, in employment. TheCityUK is delighted with the high level of encouragement and support from the Government to grow the sector further in an increasingly competitive world and in the face of shifting trade patterns. This is noted particular in their recognition of the importance of a stable tax regime to encourage the establishment and growth of the shipping and related services community. TheCityUK is pleased to welcome companies from around the world to the first London International Shipping Week. By working with partner bodies, Maritime UK, Baltic Exchange, Maritime London and the UK Chamber of Shipping we seek to make it easier for companies to explore the many reasons why they should be looking to the UK to source their maritime business services and we hope you take the opportunity to discover more about what is on offer and build stronger relationships with the UK. CHRIS CUMMINGS CHIEF EXECUTIVE OF THECITYUK

3 MARITIME BUSINESS SERVICES SEPTEMBER 213 LORD GREEN, MINISTER FOR TRADE AND INVESTMENT, AND STEPHEN HAMMOND, PARLIAMENTARY UNDER SECRETARY OF STATE AND UK SHIPPING MINISTER We are delighted to support TheCityUK s timely report on Maritime Business Services, launched during London International Shipping Week. The UK has a wealth of maritime knowledge and expertise, and the sector is of key importance, not only to the life and economic wellbeing of the UK, but also to the wider global economy. The sector boasts a large and diverse range of companies which includes world class capabilities in naval shipbuilding, marine equipment, leisure boat building, coastguard and homeland security agencies, offshore oil, gas and wind farm operators and contractors, as well as shipping and port operators. These companies rely on a sophisticated and innovative professional business services sector to support them. The UK Government sees engagement with this dynamic sector as essential. So both UK Trade & Investment and the Department for Transport are working to help promote and grow the sector. The Marine Industries Leadership Council acts as a forum for industry and Government to work together on common issues such as international trade, technology and skills. Also, the Maritime Strategic Partnership, a body of senior representatives from across Government and industry, focuses on maximising growth and promoting the maritime sector whilst maintaining a stable fiscal and regulatory environment. Our quality flag, attractive tonnage tax regime, strong competitive ports, expert maritime business services such as those described in this report and vibrant maritime training programmes, together with a stable regulatory framework, make the UK a great place to do maritime business. LORD GREEN, MINISTER FOR TRADE AND INVESTMENT STEPHEN HAMMOND PARLIAMENTARY UNDER SECRETARY OF STATE AND UK SHIPPING MINISTER 1

4 MARITIME BUSINESS SERVICES SEPTEMBER 213 CONTENTS 3 OVERVIEW 5 INTERNATIONAL SHIPPING INDUSTRY 6 MARITIME BUSINESS SERVICES IN LONDON AND THE UK 13 CONTRIBUTION TO THE UK ECONOMY 15 OTHER SOURCES OF INFORMATION 2

5 sponsored by: MARITIME BUSINESS SERVICES SEPTEMBER 213 This report summarises trends in maritime business services, where London remains the leading global centre. Maritime business services make an important contribution to the UK economy, although there are concerns within the sector about the UK s future prospects as a centre for maritime business services. OVERVIEW Global market for shipping and maritime business services The international shipping and maritime business services industries have faced a period of adjustment in recent years. While world trade has recovered in the years since the downturn of 29, freight rates remain depressed by the continuing oversupply of ships although the order book has declined from its peak. Uncertainty about the global economy has also continued to weigh on shipping confidence. Contribution to the UK economy The important role of maritime business services in the UK economy is demonstrated by its direct contribution: generating GDP in 211 of 1.5bn; providing employment for over 12, people; raising tax revenue of 385m; and producing overseas earnings of 2.bn (Chart 1). While the direct contribution has been relatively stable, the tax is estimated to have declined between 29 and 211. The contribution of maritime business services is enhanced by the multiplier impact both from business procured through the supply chain and also from spending of those employed in maritime business services and the supply chain. Taking this impact into account, it is estimated that the broad contribution to GDP and tax revenue is more than double at 3.7bn and 1.1bn respectively, while employment dependent on maritime business services is increased nearly fivefold to over 56,. This contribution is in addition to that made by the UK-based shipping industry of 5.6bn to GDP and 48,2 UK jobs in direct terms and 12.5bn and 19, jobs when taking account of multiplier effects. The UK as a global maritime centre The UK is the leading centre worldwide in the supply of a broad range of professional and business services to the international maritime community, that are largely concentrated in London. Nearly 4% of over 3 international respondents in Norton Rose Fulbright s Transport survey of March 213 said that London was the centre best able to provide for their financing needs (Chart 2). New York and Singapore had much smaller shares, 14% and 7% respectively. Chart 1 Economic impact of UK maritime business services bn 2, 1,6 1, GDP Tax raised Overseas Employment earnings Direct contribution of maritime services Source: Oxford Economics, TheCityUK, Baltic Exchange Chart 2 Leading maritime centres Which centre do your regard as the best able to provide for your financing needs? % share replies by 39 international shipping respondents Other centres 28% Paris 3% 5% Hong Kong 6% Frankfurt Singapore 7% 14% New York 37% Source: Norton Rose Fulbright Transport survey, March 213 Number London 12, 1, 8, 6, 4, 2, The 2 shipbroking firms operating in the UK generated net exports of 84m in 211, up from 714m in 29, although still below the high of 948m in 29. The Baltic Exchange Dry Index (BDI) has been depressed since late 28 averaging 85 in the first half of 213, well below the peak of over 1, in Q4 27. Shipbrokers perform a key global role matching ships and cargoes, with Baltic members accounting for 5% of the tanker and 3-4% of the dry bulk chartering business. They are also involved in the sale and purchase of over half the world s new and second hand tonnage. 3

6 MARITIME BUSINESS SERVICES SEPTEMBER 213 Trading of Forward Freight Agreements (FFAs) by shipbrokers in overthe-counter derivatives market has fallen from a peak of 2.14m lots in 28 to 1.15m lots in 212. FFA trades are likely to ease further to around 1.m in 213 with.5m lots traded in the first half of the year. With 21% of premiums in the international marine insurance market in 211, the UK remains the leading centre ahead of Japan, the US and Germany. The UK is also the largest centre in the management of protection and indemnity insurance, with P & I Clubs operating in London accounting for 61% of the global market in 211. Table 1 Internat. market share of UK maritime bus. services % share, 211 Ship finance Insurance - underwriting Insurance - P&I Clubs Lloyd's Register Shipbroking (estimates) - Tanker chartering - Dry bulk chartering - Second hand tonnage Source: International Union of Marine Insurance, Lloyd's Register, Baltic Exchange, TheCityUK estimate 9% 21% 61% 18% 5% 3-4% 5% In ship finance, total commitments of $4bn from banks based in the UK accounted for around 9% of the world loan book of $422bn at end-212, down from 15% in 21. Lloyd s Register is the second largest ship classification society in the world, accounting for 18% of the world fleet. The UK is the leading centre in legal services involving over 4 law firms. English law is the most widely applied to shipping disputes, which usually involve foreign interests. There are some 1,5 students studying on marine courses at 24 universities and colleges in the UK, of whom a third are from overseas. In addition to the international firms and organisations that supply these business services, over 2 international shipping organisations are based in London, including the International Maritime Organisation, the only United Nations specialised agency to be headquartered in the UK. Several international organisations representing professionals in the maritime industry are also based in the UK. In summary, London and the UK are a leading source of capital and expertise for marine insurance, ship-chartering, shipping finance, ship classification, legal and accounting services and dispute resolution. In addition there are a wide range of other skills and facilities based there. Competitive environment for UK maritime business services Although the UK, and London in particular, remains the leading centre of expertise, the Baltic Exchange has highlighted concerns of the maritime business services industry about its future prospects. The first concern relates to the potential long term damage caused by a lack of stability and predictability of the UK tax framework, particularly as it applies to non-domiciles. The Greek Shipping Cooperation Committee, for example, has reported that a third of its membership, 5 out of 15 companies, have left the UK since the Remittance Basis Charge on nondomiciles was introduced in 28, taking 1,5 jobs overseas. The second concern relates to growing competition from other maritime centres in Asia, Europe and the Middle East. The Baltic Exchange has indicated that fiscal and other inducements are being used to develop clusters in, for example, Hong Kong, Singapore and Dubai. Chart 3 World fleet and seaborne trade Million deadweight tonnes* (world fleet) Seaborne trade World fleet Tonnes loades (seaborne trade) *Ships of over 1 gross tonnes, excluding the US Reserve Fleet and US & Canadian Great Lakes fleets Source: UNCTAD Review of Maritime Transport, Institute of Shipping Economics and Logistics, TheCityUK estimate 4

7 MARITIME BUSINESS SERVICES SEPTEMBER 213 INTERNATIONAL SHIPPING INDUSTRY Maritime business services in London and the UK provide services to an international shipping industry which, through the movement of cargoes, is vital in enabling the world economy to function. The shipping industry has been facing a period of readjustment in recent years following the downturn in the world economy. Chart 4 Seaborne trade bulk cargoes Million tonnes loaded, 212 Container 16% 33% Oil & oil products Seaborne trade There has been a strong recovery in seaborne trade since the 4.5% drop in 29 following the financial crisis and recession in western economies. Subsequently, seaborne trade has risen by 7% in 21 and by around 4% in 211 and 212 (Chart 3). During the last two years expansion in trade has largely been driven by growth in emerging markets. Overall, seaborne trade rose by 49%, 3.5% a year, from 6,127 million tonnes (mt) in 22 to over 9,mt in 212. Crude oil and oil products make up nearly a third of cargo, with the main dry bulk cargoes of iron ore, coal and grain taken together accounting for 27%, and cargo in containers about 16% of the total. Other cargoes account for the remaining quarter (Chart 4). Container traffic, measured in TEUs (2 foot equivalent units) rose by 4% in 212, down from 7% in 211 and 13% in 21. The 29 slump resulted in an 8% drop in container traffic in that year. World fleet Orders for new ships have subsided since the peak of 573mt reached at end-28. The orderbook is estimated to have halved to 28mt at end-212 (Chart 5). In the years up to 28 growth in orders was driven by the rise in seaborne trade as well as the introduction of more stringent standards, including the replacement of single hull tankers with double hull. Control The country of domicile indicates where the controlling interest of the world fleet is located. Analysis by UNCTAD based on ships over 1,gt, shows that at end-211 Greece was the country with the largest controlling interest, with 224m dwt, marginally ahead of Japan with 218m dwt, and followed by Germany, China and South Korea (Table 2). Amongst the leading domicile countries the majority of tonnage, 72% in total, is under foreign flag. Registration The registration of ships over the past 3 years has spread to open registry countries, the largest by flag being Panama, Liberia, the Marshall Islands, the Bahamas, Malta and Cyprus. Open registers, have been preferred by shipowners because of greater flexibility in manning arrangements. However, the introduction of a more sympathetic regulatory regime alongside a more favourable fiscal regime, centred on the introduction of a tonnage tax, has reversed the decline in some countries, including the UK. Other dry bulk Five main dry bulk* Total seaborne trade 9,297 million dwt in 212 *Iron ore, grain, coal, bauxite/alumina and phosphate Source: UNCTAD Review of Maritime Transport 212 Chart 5 World shipping orderbook Million deadweight tonnes*, end-year % *Ships of over 1 gross tonnes Source: UNCTAD Review of Maritime Transport 212 Table 2 Control of world fleet Greece Japan Germany China S.Korea US Hong Kong Norway Denmark Taiwan Singapore Bermuda Italy Turkey Canada India Russia UK Other countries Total domestic flag % Source: UNCTAD Review of Maritime Transport Country of domicile, million deadweight tonnes, end-211 foreign flag Total % share foreign flag

8 MARITIME BUSINESS SERVICES SEPTEMBER 213 MARITIME BUSINESS SERVICES IN LONDON AND THE UK London is the world s leading centre in the supply of a wide range of financial and professional services to international shipping including banking, insurance, shipbroking, legal and accounting services, ship classification and publishing. The nature and scale of maritime business services is systematically analysed in this section, with data on their contribution to the UK economy set out in the following section on page 13. Both of these sections draw on research undertaken by the Baltic Exchange and by Oxford Economics, as well as on other industry sources. Maritime London was set up in 2 to promote the common interests of all the activities that make up maritime service industries in London and the UK. Shipbroking Shipbrokers operate at the centre of the international shipping business, bringing together shipowners, charterers and other related parties. Shipbroking service can be divided into three main kinds of activity: Chart 6 Baltic Exchange Dry Index BDI, quarterly average, 1 January 1985= *Q2 213 up to 2 May Source: Baltic Exchange In the charter market intermediation between shipowners / operators and cargo owners who want to charter a ship. The shipbroker charges a commission of between 1.5%-2.5% of the freight cost for this kind of brokerage service. In the sale & purchase market intermediation between those wanting to buy or sell ships, either new buildings or second-hand ships. Sale and purchase activity carries a commission at about 2% of the selling price. In the freight derivative (FFA) market intermediation occurs between derivative trading principals. The commission level for this brokerage service varies between.125% and.25% of trading price on each side of the transaction. Shipbrokers are represented by the Baltic Exchange which is the world s only independent source of maritime market information for the trading and settlement of physical and derivatives contracts. The 2 shipbroking firms operating in London have an estimated $1.13bn turnover on UK operations and employ nearly 3,9 staff in the UK, of whom about three quarters are shipbrokers. The Baltic Exchange estimates that 82% of shipbrokers revenue originates from chartering, with 11% from sale and purchase, 5% from Forward Freight Agreements and 3% from other sources. The largest shipbrokers in London include Clarksons, Simpson Spence & Young, Braemar Seascope Ltd, EA Gibson Ltd, Galbraith s and Howe Robinson & Co Ltd. The Baltic Exchange Dry Index (BDI) has been at a very low level since early in 212, moving in the range of 7 to 1,2. this is a fraction of the peak of Q4 27, when BDI averaged over 1, (Chart 6). While seaborne trade has recovered from the slump in 29, freight rates have remained low following a short lived recovery in the BDI during the first half of 213. Freight rates continued to be depressed by surplus capacity and by ongoing concerns about the strength of the global economy. The large orderbook, which originates from before the market collapse of 6

9 MARITIME SERVICES MARITIME BUSINESS SERVICES SEPTEMBER , is steadily being unwound, as indicated in Chart 5. A closer balance between supply and demand should eventually reached in the shipping market. Shipbrokers have helped to establish a substantial market share for London in the chartering business, with Baltic members accounting for an estimated 5% of the global tanker and 3-4% of the global dry bulk chartering business. London also ranks as the world's foremost sale and purchase market. Baltic members are involved in the sale and purchase of over half the world s new and second hand tonnage, a market worth over $23bn in 21. Freight derivatives Forward Freight Agreements (FFAs), first introduced in 1992, are over the counter (OTC) contracts that can be tailored to individual needs and flexible as to route, size and time period. FFAs are used by larger charterers, shipowners and financial institutions such as investment banks to hedge or take a position on the future movement of freight rates. In 211 the Baltic Exchange launched Baltex, an FSA approved Multilateral Trading Facility for dry freight derivatives. This has brought the dry bulk FFA market to one central location, enabling traders, brokers, shipowners and charterers to trade electronically. While the volume of dry bulk trading expanded rapidly during the early 2s, reaching a high of 2.14m lots in 28, volumes subsequently have ebbed with trading falling from around 1.4m lots in 29 and 21, to 1.15m lots in 212 (Chart 7). Trading in the first half of the year points to a further decline in 213. Dry bulk s share of the market is typically in the region of 8%. The higher share of dry bulk in freight derivatives is due to the larger share of freight costs in its seaborne trade. The Baltic Exchange estimates that the share of trades cleared has jumped from 5% of transactions in the period before freight rates collapsed in Q3 28 to over 95% of trades in the dry market and around 9% in the tanker market in the subsequent period. Chart 7 Freight derivatives traded Forward Freight Agreements (FFAs), millions of lots *First four months of 213 Source: Baltic Exchange Chart 8 UK ship lending $bn Tanker Dry * UK office UK office shipping exposure revenue Source: Oxford Economics, TheCityUK, Baltic Exchange $m Bank finance The main providers of finance for the shipping industry include international commercial banks, investment banks and smaller boutiques, which act as arrangers or introducers of capital. The global ship finance portfolio of the 4 largest lenders, compiled by Petrofin, declined to $422bn at end-212 from $455bn at end-211. The high point of $462bn was reached at end-28. Ship finance has been impacted by capital, credit and bailout constraints experienced by many banks. Petrofin notes that some owners were caught with new building orders without finance while loan amounts available to others shrunk at delivery due to lower vessel values. Some of these constraints have eased but the major issue affecting the industry, as already indicated, remains one of sustained overcapacity. The shipping portfolio of banks in the UK has shrunk to $4bn at end- 211 from $65bn at end-29, according to Baltic Exchange estimates (Chart 8). The global market share for ship finance managed in the UK 7

10 MARITIME BUSINESS SERVICES SEPTEMBER 213 has therefore dropped from 15% in 29 to an estimated 9% in 211. As well as ship mortgage finance the Baltic Exchange s survey highlights other services supplied to shipping companies and charterers by commercial banks. These include: cash management and treasury; investment bank type services relating to equity and bond underwriting; advice on M&A and restructuring; and foreign exchange and freight derivatives services. UK revenues of banks providing shipping finance in the UK were estimated in the Baltic Exchange survey have fallen to $646m ( 43m) at end-211 from $739m ( 472m) two years earlier. About 9% of revenue, 362m, represents UK overseas earnings. Securities markets Listings NYSE and Nasdaq have attracted the largest number of shipping companies with a combined 53 listings (Table 3). Elsewhere, Singapore, Tokyo and Hong Kong each have between 12 and 16 listings of shipping companies, while in Europe Oslo has 24 listings, Copenhagen 9 and the London Stock Exchange 6. Bond issues Having slumped to zero in 28, bond issuance recovered to $6bn in 29 and a record $24bn in 21. The year 211 also is set to be a strong year for issuance with $9bn in the first half. Previously, between 25 and 27 issuance totalled at least $1bn a year peaking at $15bn in 27 (Chart 9). Historically there have been periodic surges in shipping bond issuance as well as other phases of limited activity. Insurance The London Market is the world s leading market for internationally traded insurance and reinsurance. Marine insurance is typical of the high risks placed in the London Market that cannot easily be placed in local markets. A variety of cover and range of expertise is offered. Lloyd s and insurance and reinsurance companies provide cover for hull & machinery, cargo, energy and miscellaneous risks related to contingency and liability in marine operations. P & I Clubs provide protection and indemnity insurance taken out by shipowners against third party claims. Banks Table operating 3 in UK Listings of shipping companies by exchange Number of shipping companes quoted on each exchange NYSE & NASDAQ Oslo Singapore Tokyo Hong Kong Copenhagen Bombay Taiwan London Kuala Lumpur South Korea Other centres Total Source: Marine Money Chart 9 Shipping bond issues Annual issuance, $bn * *First half Source: Marine Money Cargo, hull, energy & liability The dollar value of direct marine premiums in the London Market has grown strongly rising by 3% in 21 and 9% in 211 to reach a new high of $6.8bn (Chart 1). Previously premiums had more than doubled from $2.bn in 22. A large but unquantified volume of reinsurance business is also transacted in the London Market, as well as in other maritime centres. Overall, data collected by the International Union of Marine Insurance (IUMI) shows that premiums worldwide rose by 7% to $31.9bn in 211. The UK s share of the global market was around 21% in 21 and 211: and continues to have the largest global share (Chart 11). The share has remained above 2% in recent years despite the inclusion of China and Brazil, which together have a 1% market share, in the IUMI figures in recent years. The UK s share in 211 was nearly double that of Japan at 9% and China 7%, with other major centres for marine insurance being the US with 6%, and Germany and France both 4%, Nearly half the market was divided between a further 4 countries. Chart 1 Marine insurance premiums in London market London market*, $bn (bars) Lloyd s Companies *Excluding P&I Clubs Source: IUMI - International Union of Marine Insurance Global market, $bn (line)

11 MARITIME BUSINESS SERVICES SEPTEMBER 213 The London Market consists of business undertaken through Lloyd s of London and the company market. Lloyd s is an international insurance market which has been a major player in marine insurance for over 3 years. Lloyd s share of London market premiums has been between 85% and 9% in recent years. All of the world s top 2 insurance and reinsurance companies are active in the company market and many of these are active in marine insurance. Data from the International Underwriting Association (IUA) for the company market shows that underwriting results on marine insurance have been on a rising trend in recent years reaching 285m in 29 and 21 (Chart 12). Protection and indemnity The UK is the biggest centre for marine protection and indemnity insurance offered by P & I Clubs. Data compiled by Standard & Poor s for four of the main operational locations for P & I Clubs shows that the UK s share of this market was 61% in 211, down from 62% in 21 and 67% in 29, but in the range of 6% to 67% where the UK share has been since 24. Gross premiums of P & I Clubs operating in the UK were $2.9bn in 211, marginally up from $2.7bn in 21 and, other than the peak year in 29, higher than any other previous year (Chart 13). The next largest centres for marine mutual insurance were the Nordic countries, with a 29% share, with the balance being made up by Japan 7% and the US 3%. Insurance brokers The vast majority of marine insurance in the London Market is written using an insurance broker as an intermediary between owners and underwriters. As London is a subscription-based market, most placings are coordinated by the brokers with several underwriters, each accepting a percentage of the overall risk. About 2 firms of insurance brokers place the bulk of marine business, with business concentrated in the larger brokers. Total brokerage revenue from maritime insurance brokers was $56m in 211, up from $472m in 21 and $396m in 29 (Table 4). These estimates are based on findings of the Baltic Exchange s study which indicated that the share of insurance premiums put through insurance brokers is estimated at 9% for hull, cargo and offshore premiums and 75% of marine P & I Club premiums. Retained brokerage commission is estimated at 7% for hull, cargo and offshore premiums and 5% for P & I Clubs. Average adjusters advise on and adjust marine claims. London is the leading international centre for this profession, which has a small number of practitioners but handles a huge volume of claims. The Association of Average Adjusters based in London has international membership and support. As well as the adjusters, qualified by examination, numbering 39, there are some 3 people engaged in the profession in the UK. In total there are 35 individual subscribers based in 26 countries. Average adjusters represent a claims bridge between the London insurance market and their overseas customers and markets. Chart 11 Marine premiums market share % share of marine premiums by country *China included from 28 Source: IUMI - International Union of Marine Insurance Chart 12 Companies underwriting results Underwriting results for damage to ships and cargo, m Source: International Underwriting Association Chart 13 P & I Club premiums 25 $m, gross premiums, operational location of P & I Clubs UK Japan Germany China US % US 7% Japan 29% Nordic countries 61% UK Surveying Surveying firms based in the UK provide support to clients in P & I Clubs, underwriters, shipowners, law firms and average adjusters in claims handling and loss prevention. The Salvage Association, now incorporated within Braemar Technical Services Ltd is an international Source: IUMI - International Union of Marine Insurance based on Standard & Poor s P&I Highlights

12 MARITIME BUSINESS SERVICES SEPTEMBER 213 surveying organisation closely connected with the London Market, whose function is to take instructions from interested parties around the world. The purpose of such instructions is to investigate casualties and make recommendations for the preservation and protection of property: also to determine the extent and cause of loss when required. Legal Services London is the world's leading centre in the provision of legal services to the international maritime community. English law is applied to shipping disputes far more widely than the law of any other country. Legal services in the maritime sector are routinely required for contentious and non-contentious work relating to a wide range of matters including charterparties, shipbuilding, finance, commodities, energy, insurance, cargo, collision, salvage, general average and pollution. Many disputes are settled in the specialised Admiralty and Commercial Courts, or through various private forms of dispute resolution. Table 4 Insurance brokers Brokerage revenue, $m Underwriting Marine insurance premiums 9% put through ins. Brokers Managed by ins. brokers 7% retained commission Brokerage revenue P&I Clubs Marine insurance premiums 75% put through ins. Brokers Managed by ins. brokers 5% retained commission Brokerage revenue Total brokerage revenue Source: Baltic Exchange, IUMI - International Union of Marine Insurers Law firms The main shipping law firms in the UK, listed in Table 5, supply a service covering both the wet and dry market, with most of the larger firms also supplying finance. The interests of shipping law firms are represented through the Admiralty Solicitors Group (ASG) and the Maritime Solicitors Mediation Service (MSMS). The ASG promotes and preserves standards in the practice of London maritime law, while the MSMS is a specialised service promoting mediation in the maritime and marine insurance sector. Barristers Five barristers' chambers are listed by Chambers directory as regularly undertaking shipping work. About 2 barristers work to help resolve maritime disputes, acting in different roles as advocates, advisers or arbitrators. A survey of 2 law firms, five barristers chambers and arbitrators by the Baltic Exchange found that revenue of legal services was an estimated 32m in 211 up from 241m in 29. An estimated 9% of revenue is estimated as overseas earnings. Resolution of maritime disputes Arbitration represents an important mechanism for resolving international maritime disputes in the UK. London is globally dominant in terms of its share of arbitration appointments. Alternative dispute resolution (ADR), particularly mediation, represents a small but growing form of maritime dispute resolution. Cases involving international parties to a maritime dispute can be heard in specialised courts in the UK: the Commercial Court and the Admiralty Court. Claims to both these courts have a strong international character with about 8% of cases involving at least one claimant or one defendant that is based outside the UK. The UK s status as a centre for dispute resolution, litigation in particular, has been enhanced since the opening in 211 of the Rolls Building Royal Courts of Justice. The new building has replaced the previous facilities of the Admiralty and Commercial Court. Table 5 Shipping law firms in the UK Andrew Jackson Ashfords LLP Barlow Lyde & Gilbert LLP Bentley Stokes & Lowless Berrymans Lace Mawer Birketts Brodies LLP Clifford Chance Clyde & Co LLP Curtis Davis Garrard Davies Johnson & Co DLA Piper UK LLP Elborne Mitchell & Co Eversheds LLP HBJ Gateley LLP Hill Dickinson LLP Holman Fenwick & Willan LLP Holmes Hardingham Ince & Co Jackson Parton Kennedys Source: Admiralty Solicitors Group, Chambers Lawrence Graham Lax & Co. Lester Aldridge LLP Mackinnons Maclay Murray & Spens LLP Mays Brown, Solicitors McGrigors LLP MFB Middleton Potts & Co Mills & Co Norton Rose Prettys Rayfield Mills Reed Smith LLP Stephenson Harwood Thomas Cooper TLT LLP Waltons & Morse LLP Waterson Hicks Watson Farley & Williams Winter Scott 1

13 MARITIME BUSINESS SERVICES SEPTEMBER 213 The Commercial Court Since 1895, the High Court has incorporated a separate Commercial Court where the procedures are geared to reflect the special requirements of the international commercial community. Maritime cases in the Commercial Court are mainly concerned with disputes around contracts, insurance, carriage of cargo and the construction of ships. Total claims to the Commercial Court rose to 1,331 in 211 from 1,6 in 21, representing the largest number of claims since the late 199s (Chart 14). The Admiralty Court The origins of the Admiralty Court date from the fourteenth century. Maritime cases coming before this court are normally in relation to loss of, or damage to, a ship, its cargo or an installation. The number of claims was 214 in 211, compared with 23 and 194 in 29 and 21. This compared with a lower level of claims between 9 to 13 in each of the four previous years. Over the last six years an average of 13 cases have come to trial each year. The London Maritime Arbitrators Association (LMAA) deals with many cases where parties agree to arbitrate rather than initiate court proceedings. The annual number of appointments received by full members of the Association was 3,849 in 212, exceeded only the peak of 4,445 in 29. These appointments relate only to the Association's 39 full members. In addition, there are appointments received and awards made by 7 supporting members worldwide (a majority being barristers and solicitors), as well as non-members. One of the main objectives of the LMAA is "to advance and encourage the professional knowledge of London maritime arbitrators and, by recommendation and advice, to assist the expeditious procedure and disposal of disputes" Lloyd's Open Form of Salvage Agreement Arbitration Awards are also made under Lloyd s Open Form (LOF), the oldest and most widely used standard salvage contract, with 122 such contracts being advised to Lloyd's in 212. The number of claims has been somewhat higher in the past four years at between 16 and 122 a year, than the previous six years. Ship classification Ship classification involves the survey of vessels to establish their compliance with rules relating to structural and mechanical soundness. The insurance community continues to rely heavily on the major classification societies for the assurance that vessels meet structural and mechanical standards. Lloyd s Register (LR) based in London is the oldest of the major societies. In June 211, 162m gross tonnage was in the LR class - 16% of the world s sea-going merchant fleet, exceeded only by Nippon Kaija (Table 6). Other services Accounting services The UK provides significant expertise in the professional accounting services that are required by the shipping industry worldwide. Suppliers of services to the shipping industry include Moore Stephens and the Big Four accounting firms: Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers. The ability to offer accounting services internationally is facilitated by international reporting standards (international accounting standards) being commonly applied around the Chart 14 Commercial Court, Admiralty Court and LMAA Number of claims, appointments or awards Commercial Court claims 1 LMAA awards 5 Admiralty Court claims Source: Commercial Court, Admiralty Court, London Maritime Arbitrators Association (LMAA) Rolls Building, Royal Courts of Justice LMAA appointments The biggest dedicated business, property and commercial court in the world opened in 211. The new building in central London is helping to maintain the UK s world-class reputation as the first choice for business law. The building, called the Rolls Building, Royal Courts of Justice, provides a dedicated centre of excellence, bringing together the specialist jurisdictions of the High Court: the Admiralty and Commercial Court, the Chancery Division and the Technology and Construction Court. These courts deal with business, property and commercial disputes, including those involving maritime. The facility is believed to be around four times bigger than its nearest competitor. It provides 31 courtrooms, 11 hearing rooms (for related work such as bankruptcy hearings), 55 public consultation rooms, better waiting facilities and improved IT infrastructure for parties involved in proceedings, as well as administrative office space for staff and judicial accommodation. 11

14 MARITIME BUSINESS SERVICES SEPTEMBER 213 world and by the small size or complete absence of a local pool of shipping expertise in many countries. Maritime education The UK has a thriving maritime education sector, involving some 24 universities and colleges (Table 7). A Maritime London survey, which drew responses from 18 of these institutions, showed that over 1, students follow maritime-related courses each year. Most are at undergraduate level but some (around 1,) are postgraduate. Nearly two-thirds of the intake are from the UK, with another 8% from elsewhere in the EU and the remainder (over a quarter) from the rest of the world (Chart 15). The UK s provision is distinguished by its diversity and international reputation. The universities tend to concentrate their research and teaching on specialisms such as maritime law, oceanography, marine engineering and shipping economics. More vocational education is delivered by the maritime colleges, specialist departments of larger institutions with dedicated facilties and sometimes separate campuses, which provide a comprehensive professional training for sea-going officers. Publishing and maritime events The UK is a leading centre for the publishing of books, journals and directories for the maritime sector. UK-based shipping media companies are also world leaders in organising maritime events ranging from full scale maritime exhibitions and conferences to small scale focused seminars and management training courses. The largest firms in publishing and maritime events are Informa, IHS Fairplay and Seatrade. Research London is the leading centre in maritime research. A number of specialist firms and most of the shipbroking houses offer a statistical data service, customised reports and market information to global clients. Technical and engineering consultancy A wide range of specialist firms provide technical and engineering services to the international maritime industry, extending from traditional hull and machinery survey work into the highly specialised areas arising in certain maritime casualties such as metallurgy, fire, explosion and chemical cargo handling. Other service providers Other services supplied to the shipping industry include employment services for recruitment and crewing of ships; telecommunications; and specialist software for shipbrokers and shipping industry. Table 6 Ship classification societies Ships more than 1 gt, June 211 Nippon Kaija (NK) Lloyds Register (LR) American Bureau of Shipping (ABS) Det Norske Veritas (DNV) Germanischer Lloyd (GL) Bureau Veritas (BV) China Classification Soc. (CCS) Korean Register of Shipping (KR) Registro Italiano Navale (RINA) Phoenix Register of Shipping (RS) Indian Register of Shipping (IRS) China Corp. Register of Shipping (CR) Polish Register of Shipping (PRS) Rest in class Unknown/not classified Total Source: Lloyd's Register Number of ships Table 7 UK maritime education institutions Banff and Buchan College of Further Education Cardiff University City University, London Cranfield University Blackpool and The Fylde College City of Glasgow College Greenwich University Heriot-Watt University Lews Castle College Stornoway Liverpool John Moores University Liverpool University Lowestoft College London Metropolitan University Newcastle University North West Kent College Orkney College Plymouth University Shetland School of Nautical Studies South Tyneside College Southampton University Southampton Solent University Strathclyde University University College London (UCL) University of Bristol Chart 15 UK maritime education million gt Number of students from UK, rest of EU and rest of the world Rest of world 27% % share International organisations Many regulatory and representative international shipping organisations, other than those already mentioned, are based in London and the UK. Governmental regulatory organisations include the International Maritime Organisation and the International Oil Pollution Compensation Funds. Over 2 international shipping organisations representing the private sector have headquarters and offices in London (Table 8). EU 8% UK 65% Other international organisations representing professionals in the maritime industry are also based in London (Table 9). These institutions, which include the Institute of Chartered Shipbrokers (ICS), seek to define Total 1,5 students in UK maritime education* *Number of students estimated on full time equivalent basis, taking account of those on part-time and short courses Source: Maritime London survey, based on responses from 18 institutions 12

15 MARITIME BUSINESS SERVICES SEPTEMBER 213 standards of professional conduct and to promote and encourage professional development. ICS is the leading, and indeed only, organisation in the world providing a professional qualification to the shipping industry. Their members provide services to all sectors of shipping, including the legal sector, where they are in demand as expert witnesses and as arbitrators. Competitive environment for UK maritime business services Although the UK, and London in particular, remains the leading centre of expertise, the Baltic Exchange has highlighted concerns of the maritime business services industry about its future prospects. The first concern relates to the potential long term damage caused by a lack of stability and predictability of the UK tax framework, particularly as it applies to nondomiciles. The second concern relates to growing competition from other maritime centres in Asia, Europe and the Middle East. UK tax framework for non-domiciles The overseas community of agents and owners has contributed significantly to the prominence of London as the leading international maritime service centre. Many in this community are resident in the UK but are non-domiciled for tax purposes. The Greek Shipping Cooperation Committee (GSCC) has reported that a third of its membership, 5 out of 15 companies, have relocated out of the UK since the Remittance Basis Charge (RBC) of 5, on nondomiciles was introduced in 28. The GSCC has indicated these firms have taken 1,5 jobs overseas. They have also reduced to 1% from 15% the share of the world fleet managed by Greek shipowners out of London and the UK. Competition from other maritime centres The UK is facing stiff competition to attract maritime businesses to other maritime centres, such as Hong Kong and Singapore in Asia, Switzerland and Monaco in Europe and Dubai in the Middle East. The Baltic Exchange has indicated that fiscal incentives and other inducements are being used to develop clusters to rival London s. A Baltic Exchange study of nine shipbroking firms found that while the number of UK broking staff rose by 6% from 67 to 969 between 24 and 211, the number of staff in these firms overseas offices rose by 26% from 21 to 725. CONTRIBUTION TO THE UK ECONOMY The lack of official or market data on the economic contribution of maritime business services has left a gap which TheCityUK has sought to address - with estimates for employment and overseas earnings - in the two yearly Maritime Business Services reports which have been produced since In recent years the analysis has been supported by additional estimates produced by the Baltic Exchange for the value of business and economic contribution of maritime business services. Findings of the Baltic Exchange study were in turn drawn on by Oxford Economics (OE) in its December 212 report for Maritime UK (the coalition of UK shipping, ports and maritime business services) The economic impact of the UK Maritime Services sector. Evidence from these studies is drawn together here. Table 8 International shipping organisations in the UK Headquarters in the UK Baltic Exchange Chamber of Shipping Greek Shipping Co-operation Committee (GSCC) International Association of Classification Societies (IACS) International Association of Dry Cargo Shipowners (INTERCARGO) International Bunker Industry Association (IBIA) International Chamber of Shipping (ICS) International Federation of Shipmasters Associations (IFSMA) International Institute of Marine Surveying (IIMS) International Marine Contractors Association (IMCA) International Marine Purchasing Association (IMPA) International Maritime Organisation (IMO) International Maritime Pilots' Association (IMPA) International Maritime Bureau (IMB) International Maritime Industries Forum (IMIF) International Oil Pollution Compensation Funds (IOPC Funds) International Salvage Union (ISU) International Parcel Tankers Association (IPTA) International Shipping Federation (ISF) International Shipsuppliers & Services Association (ISSA) International Tanker Owners Pollution Federation (ITOPF) Oil Companies International Marine Forum (OCIMF) Worldscale Association (London) Limited Regional office in the UK International Assocn. of Independent Tanker Owners (INTERTANKO) Japanese Shipowners Association (JSA) Source: UK Maritime Services Directory 211/12 Table 9 Professional institutions in the UK Institute of Chartered Shipbrokers (ICS) Institute of Marine Engineering, Science and Technology (IMarEST) Nautical Institute Royal Institution of Naval Architects (RINA) Society for Underwater Technology (SUT) Source: UK Maritime Services Directory 211/12 Table 1 Economic impact of UK maritime business services Direct and multiplier economic impact of maritime services, 211 Contribution to: GDP Employment Tax raised Overseas earnings Direct contribution of maritime m Number m m services 1,5 12, , Source:: Oxford Economics, TheCityUK Multiplier impact from: Services procured through supply chain 1,3 26, Induced spending Total of economic employees impact 9 3,7 18,1 56, ,

16 MARITIME BUSINESS SERVICES SEPTEMBER 213 GVA Oxford Economics estimates that maritime business services directly contributed 1.5bn to UK GDP in 211, the same as in 29 (Table 1). OE also estimated that a further 1.3bn GDP contribution was generated through the supply chain, as well as 9m from the expenditure of those employed in the maritime business services industry and the supply chain. This raises the total contribution to GDP to 3.7bn, or.3% of UK GDP. Employment TheCityUK estimates that the main sources of direct employment in maritime business services were shipbroking 3,88; insurance 3,75; legal services 1,48; ship classification 8 and maritime education 57 (Chart 16). Banking employs 218 people while other activities, including accounting services, publishing and international organisations, together employing an estimated 1,5. TheCityUK therefore estimates total number of people directly employed in maritime business services at around 12,126. Oxford Economics estimates that a further 26,8 people are employed through the supply chain and 18,1 supported by induced spending of employees, so employment related to maritime business services totals 57,. Tax revenue Tax revenue generated for the UK Government from maritime business services was estimated by Oxford Economics at 385m in 211, down from 483m in 29 (Table 1). An additional tax contribution of 4m was raised from supply chain activities and 315m from spending of those employed in in maritimes business services and their supply chain. The total tax contribution is therefore 1.1bn. Overseas earnings Shipbrokers are the biggest contributor to UK maritime business services overseas earnings, with net overseas earnings of 84m in 211 up from 714m in 29, but below the peak of 948m in 28 (Chart 17). Significant overseas earnings are also generated by banks 362m, insurance brokers 315m and legal services 272m. Education institutions generated an estimated 1m and other activities an estimated 5m. Total overseas earnings of UK maritime business services are estimated at 2.bn in 211, up from 1.8bn in 29. UK-based shipping The UK-owned fleet has grown nearly threefold from a low point of 7.2m deadweight tonnes at end-1999 to around 21m tonnes today (16m in the registered fleet). Much of the increase is due to inward investment by international shipping companies, which have taken advantage of the beneficial fiscal and operating environment for shipping and maritime business in the UK. The UK Chamber of Shipping and Maritime UK data show that the fleet owned by UK-based companies makes a substantial contribution to the economy, with GDP turnover reaching almost 13bn in 211 (up from 12bn in 29) and a direct contribution to the UK balance of payments of 4.15bn. Chart 16 UK employment in maritime business services Numbers directly employed, 212 estimates Others Insurance Direct employment: 12,126 Source: Baltic Exchange, Lloyd s Register, TheCityUK, Maritime London & industry estimates Table 11 UK maritime business services overseas earnings Shipbrokers Banking services Insurance brokers Legal services P&I Clubs Ship classification Education Others Total Source: Baltic Exchange, TheCityUK estimates Chart 17 UK overseas earnings of shipbrokers Net overseas earnings, m Banking 218 Education 57 Ship classification Legal services Source: Baltic Exchange Shipbroking

17 MARITIME BUSINESS SERVICES SEPTEMBER 213 OTHER SOURCES OF INFORMATION Admiralty Solicitors Group Baltic Exchange Chamber of Shipping Chambers and Partners Commercial and Admiralty Courts Gallagher London Marine P&I Review Institute of Shipping Economics and Logistics Shipping Statistics Yearbook International Underwriting Association of London (IUA) International Union of Marine Insurance Lloyd's of London Lloyd s List Lloyd s Register London Maritime Arbitrators Association Marine Money Maritime London Maritime UK The economic impact of the UK s Maritime Business Services: A report by Oxford Economics for Maritime UK Menon The leading maritime capitals of the world, Norton Rose Fulbright The way ahead: Transport survey - Where are you now? Fourth report UNCTAD Review of Maritime Transport

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19 TheCityUK champions the international competitiveness of the financial and professional services industry. Created in 21, we support the whole of the sector, promoting UK financial and professional services at home and overseas and playing an active role in the regulatory and trade policy debate. TheCityUK has a global export focus with a commitment to help UK based firms grow their business in other parts of the world. The financial services industry accounts for around 8% of UK GDP and 12% of UK tax receipts. The sector currently employs 1 million people, more than 66% of whom work outside London, and underpins the businesses that drive jobs and growth. Added together with nearly one million employed in professional services, it is easy to see the importance of a sector that employs 7% of the working population. TheCityUK provides constructive advice and is the practitioner voice on trade policy and all aspects of taxation, regulation, and other legislative matters that affect the competitiveness of the sector. We conduct extensive research and run a national and international events programme to inform the debate. Our senior team regularly engages with regulators and policymakers at home and overseas, ensuring the sector s views are represented at the highest levels. We are tasked with creating a new vision for the financial services sector. We are focused on supporting policymakers and business to deliver the new policy ideas which will help deliver growth.