Brexit headwind may slow growth of UK Ship Register

Optimistic: UK Ship Register director Doug Barrow. Credit: Maritime London
Optimistic: UK Ship Register director Doug Barrow. Credit: Maritime London

The UK flag’s ambitious target to double in size to about 30 million gross tons by 2023 has been thrown into doubt due to uncertainties created by the negotiations over the UK’s exit from the European Union. This is despite recent improvements in the way the flag is perceived in the maritime industry.

Should the UK and EU divorce without an agreement, UK-flagged ships may lose cabotage rights at EU ports and certificates of competency issued to seafarers by the UK under the International Standards of Training, Certification and Watchkeeping Convention (STCW) may no longer automatically be recognised in the EU. Instead, the UK may have to seek third-country recognition from the EU for UK certificates.

Speaking to IHS Markit recently, the director of the UK Ship Register, Doug Barrow, acknowledged that there could be “a short-term hiatus” in the event a ‘no deal’ scenario but he doesn’t envisage any longer-term impediments, particularly regarding acceptance of UK seafarer qualifications. He does not believe that any EU country will refuse to accept UK qualifications, since they are widely acknowledged as “setting the highest of standards”.

However, as a civil servant ultimately responsible to the shipping minister, Nusrat Ghani, he echoes the official government mantra that a ‘no deal’ scenario “remains unlikely given the mutual interests of the UK and the EU in securing a negotiated outcome”.

He is optimistic, therefore, that there will be a transition period lasting until the end of 2020, during which the details of the UK’s future relations with the EU will be worked out and that the potential disruption of a ‘no deal’ departure will be avoided.

Regarding the UK flag itself, Barrow recognises that, in the past, it may have been “a popular assessment” that it was “inflexible and uncompetitive” but, he told IHS Markit, this is “a myth that no longer stands”. On his watch, he stressed, “there has been change and there will be more change”.

He said he was “reviewing all barriers to growth” but is encouraged that things have been moving in the right direction. The flag grew by more than 8% last year to 16.5 million gt, the highest gross tonnage since August 2013. He is particularly pleased with the UK’s recent move up to fifth place on the Paris MoU White List of international flags, supporting his contention that the UK is “a quality flag for quality owners”.

One of the main obstacles to growth of the UK flag has been the restrictive eligibility requirements for owners of UK-flagged vessels. Under the current Merchant Shipping Regulations, which date back to 1993, owners must, broadly speaking, have a connection to the UK. Barrow hopes that “by early next year” the regulations can be amended to allow citizens of a much wider list of countries, including other British Commonwealth countries, to become eligible. The initial goal is to create a level playing field with other Red Ensign group flags, such as the Isle of Man, Bermuda, and the Cayman Islands, which already specify less stringent citizenship criteria.

Meanwhile, Barrow is busy “knocking on doors” to market the Red Ensign to “the quality owners whose ships we would like to bring to the flag”, primarily in Europe but also farther afield. He has met with leaders of the Union of Greek Shipowners, most recently at Posidonia, where he was accompanied by the UK shipping minister and the UK ambassador to Greece, Kate Smith. The aim was to build on the success in February of attracting Piraeus-based Conbulk Shipping’s Sentosa to the UK flag.

Sentosa, a 1,200 teu Bangkok-max container vessel operating in the Mediterranean, was the first Greek-operated vessel to switch to the Red Ensign. It was also able to take advantage of the tax relief available to individual venture capital investors under the UK government’s Enterprise Investment Scheme (EIS).

Nevertheless, some shipowners have expressed concerns about bringing a vessel to the UK flag at the moment due to “noise over Brexit.” One overseas owner with offices in London and vessels trading in Europe, told IHS Markit that although it had heard some “very good things” about the UK flag recently, it had decided to hold off “joining a flag that could in any way be disadvantaged in trading in Europe”, even if the likelihood of disruption was low.

Other companies, such as Carisbrooke Shipping, which currently fly the Red Ensign, also have concerns. Carisbrooke operates a fleet of 31 dry cargo and multipurpose vessels from its offices in Cowes in the UK and Zwijndrecht in the Netherlands. Of these, 24 vessels are currently flagged to the UK, including 5,629 gt general cargo vessel Xiaoyi C, which the company recently flagged-in.

Robert Wester, Carisbrooke’s chief operating officer, told IHS Markit that, in the event of a ‘no deal’ Brexit, the company would need to consider re-flagging some of its vessels to other EU flags so they remained subject to EU tonnage tax rules or in order to avoid loss of cabotage rights at EU ports. Carisbrooke already has “contingency plans in place to switch flags, if necessary”.

Wester believes the UK flag has a good story to tell, as evidenced by its high placing on the White List. He agrees it has become far more client-focused under Barrow’s leadership, although concerns remain about its ability to cope with increased capacity while maintaining service quality, particularly in the availability of surveyors.

Nevertheless, Barrow believes London will remain one of the world’s leading maritime centres, long after the dust has settled on Brexit. He is confident that the UK government’s Maritime 2050 strategy, due to be published at the end of the year, will set out a clear vision for the future and provide the industry with the confidence it needs to ensure that the UK continues to attract more owners and operators.

“The UK is the world’s leading provider of maritime services and it is vital we have a large and vibrant fleet trading under the UK flag to complement that,” he said.

He is witness to government efforts to boost the dynamism of the UK shipping sector, including by exploiting the opportunities Brexit presents. Barrow sees trade as central to those opportunities. “For the first time in over 40 years we will be able to sign our own trade agreements. These new trading opportunities, coupled with our ongoing efforts to ensure that UK Ship Register remains an attractive, quality flag, will ensure that the UK register continues to thrive long after we have left the EU.”