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Merchant Fleet

Volume 32: debated on Thursday 25 November 1982

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Motion made, and Question proposed, That this House do now adjourn.— [Mr. Lang.]

10.15 pm

It would be wrong for the House to allow the serious and continuing decline in the British merchant shipping fleet to pass unremarked and without a careful attempt in debate to discover, to propose, and to agree upon, remedies. There is an irony in the fact that my right hon. Friend the Member for Yeovil (Mr. Peyton) was making almost precisely the same point some 25 years ago. I am glad to see present my hon. Friend the Under-Secretary of State, whose character and wisdom I greatly admire. I shall be glad to hear his comments on these matters.

An all-party defence study group in another place earlier this year used a telling phrase when it referred to marine transport as the free world's Achilles heel. That is true. It is a matter of the greatest concern for our nation in particular. Shipping is essential to Britain for the transport of energy, raw materials and food, for exports and for continuous reinforcement and resupply in war. All life will come to a halt very quickly in our country if shipping flows are interrupted. Britain depends totally on "the safe and timely arrival of our ships"—to use the old phrase—in peace as well as war.

The structure of our merchant fleet has changed dramatically over the past 20 years. That is inevitable. What is worrying is that the size of the British cargo fleet has declined drastically. So, too, have the numbers of seamen available to man the ships.

I shall give the House some statistics. The United Kingdom owned and registered merchant fleet totalled 27 million deadweight tonnes at the end of September 1982. That is a reduction of 23 million tonnes deadweight—about 46 per cent.—since the end of 1975. That is a frightening fall in capacity. The truth is that our merchant fleet is in crisis.

In the past seven years the number of ships flying the British flag has fallen from 1,614 to 913. Every week there are two fewer British ships. We used to have the world's biggest fleet. Now we have been overtaken by Liberia, Greece, Japan, Panama and Norway. British Petroleum, the only major British-owned oil company and one of our largest shipping companies, has decided to get rid of 16 sbips—over one-third of its fleet. Without a strong British merchant fleet, this country will inevitably become increasingly reliant on foreign ships to keep us supplied. That is unacceptable.

What of defence? Our merchant fleet and our seamen are rightly called the fourth arm of defence. The commander of the Falkland Islands task force, Admiral Sir John Fieldhouse, said at the conclusion of that campaign:
"I cannot say too often or too clearly how important has been the Merchant Navy's contribution to our efforts. Without the ships taken up from trade, the operation could not have been undertaken, and I hope this message is clearly understood by the British nation."
The fact that 54 ships of the Merchant Navy were called up to join the task force shows the vital role that merchantmen play in our defence strategy—and 31 merchant ships are still so engaged.

The Falklands campaign depended on merchant ships. It is not too far-fetched to say that it would not have been possible without BP's ships. Altogether, 12 of them were involved—six are still there—providing a vital fuel line for Royal Navy and merchant ships. Her Majesty's Government, a major shareholder in BP, seem to be indifferent to the effect that the decimation of BP's fleet may have on this country's ability to carry vital oil supplies in peace and in war.

Although statistically only 5 per cent. of our merchant fleet was requisitioned or chartered, in many cases the ships that were sent were virtually the only ones of their type with the characteristics required for a defence role—tugs, repair ships and deep-sea trawlers, for example. We used three of only nine big passenger ships that we have. The implications are ominous.

The decline of our merchant fleet, alas, is a continuing one. It involves not only the larger ships. The fishing fleet has also been decimated by the demise of distant-water fishing and the absurd failure—one can call it nothing else—to achieve a common fisheries policy within European Community waters. Fishing vessels and their crews can therefore no longer provide any substantial number of reserves to fulfil war-time tasks in minesweeping and as escorts. The situation is rapidly deteriorating. We are losing men as well as ships. The number of officers serving at sea has fallen from the peak of 36,000 in 1975 to 24,000 today—a decline of one-third. The number of United Kingdom ratings has fallen from 33,000 to 25,000 and 1,000 officers and 3,000 ratings are unemployed. From every point of view of self-interest, we cannot allow this state of affairs to continue.

Our merchant fleet is not only invaluable to our economic life in peacetime and at war as a carrier. It is a most substantial asset in other ways. It is a huge source of foreign exchange. For the past eight years, United Kingdom owned ships have made a net contribution to our balance of payments averaging £1 billion per year. Thus, United Kingdom ships are the second biggest contributors of invisible earnings to Britain's balance of payments. Capital expenditure by British shipping companies until 1978 averaged more than £l million per day. Recent years, however, have shown a considerable reduction in investment. At current prices, capital investment in 1981 was a mere one-quarter of that in 1975. That means fewer jobs. Today, 25,000 British workers are engaged in building new merchant ships. Three years ago, there were 40,000.

Another aspect of the problem is competition. By weight, 95 per cent. of the United Kingdom's external trade was moved by sea in 1980. That will always be so because no other form of transport can take the place of maritime transport in that context. Between 1979 and 1980, total imports by weight carried by United Kingdom flag vessels were constant at 31 per cent. However, exports fell from 47 per cent. to 37 per cent. By value, imports carried by United Kingom flag vessels fell from 45 per cent. to 39 per cent. and exports from 52 per cent. to 42 per cent.

Perhaps there is not much that any British Government can do about some problems—the deepening world recession and the increasing trend towards protectionism in the Third world and the United States of America—however much we may deplore them. But we should put our own house in order. Ship owners and trade unions must agree to cost-effective manning, developing the highest possible productivity in the use of a ship's crew, the interchangeability of ratings, the introduction of the unmanned engine room, flexibility in the technical and supervisory grades, and company as opposed to national bargaining. We must use the industry's seafaring manpower as effectively as possible because the industry's jobs depend upon it.

The Government must provide a fiscal regime—I say this in advance of the Budget—to encourage positive investment in shipping, free depreciation for second-hand ships and investment allowances for new ships. They will reap the benefit in a greater contribution to our balance of payments, more employment and a more adequate reserve of ships and men for times of emergency. Increased competitiveness is the key to the industry's future success. The Government have a duty to do their utmost to ensure that. Joint efforts by shipping companies, seafarers and the Government can achieve that competitiveness and yield benefits to all.

Britain has long believed in free trade; and the philosophy has served us well for more than a century. But, alas, an increasing number of our competitors now seem to take the opposite view. More countries wish to reserve a larger share of their seaborne trade to their national lines. That unpalatable practice has spread to the bulk trades. A free trading world is essential to shipping, but the difficulty of getting other countries to abide by the rules is a real one. The Government must be ready with countervailing powers if other countries do not abide by the rules. For example, the Government must resist the nationalist discrimination implied by UNCTAD. They must press to remove the legal uncertainties that will persist until the United Nations Conference on the Law of the Sea is ratified. They must make continuing representations against the extraterritorial impact of American anti-trust laws and the appallingly petty restrictions that are now being imposed in hydrography, about which I shall say something on another occasion.

Above all, the Government must expose the COMECON cost-cutting exercises for the aggressive imperialism that they are. Admiral Gorshkov, whose name will be familiar in the House, said:
"Soviet seapower, merely a minor defensive arm in 1953, has become the optimum means"
—we should note those words—
"by which to defeat the imperialist enemy and the most important element in the Soviet arsenal to prepare the way for a Communist world."
As the late Nye Bevan said,
"Why look in the crystal ball when you can read the book?"
The purpose is plain and it must be frustrated by the Government's determination to defend the interests of Britain and the free world.

We speak with pride—it is commonplace to do so—of our nation as a maritime nation. The reality is that today we are considerably less of a maritime force than the maintenance of our prosperity and our freedom require. I do not doubt that my hon. Friend will acknowledge the problem. I am sure that he is well aware of it. I call upon him, on behalf of our Government, to undertake determined action to ameliorate it and solve it, and to endeavour, in the nation's real interests, to restore our maritime pre-eminence. I hope that my hon. Friend will have some encouraging things to say to the House.

10.30 pm

I am grateful to my right hon. Friend the Member for Taunton (Mr. du Cann) for raising this matter on the Adjournment. It is a matter of great concern. It is a concern that I share completely. I shall cover as much ground as possible in the short time that is available to me. I hope that my right hon. Friend will forgive me if at times I speak rather fast, but I am anxious to cover as much ground as possible on this extremely important subject.

Let me review the position briefly. The United Kingdom-registered fleet grew from 27 million deadweight tons in 1966 to its peak of 52 million tons at the end of 1975. Since then it has contracted by nearly 40 per cent. and now stands at 32 million deadweight tons—approximately its 1969 level. But the world fleet as a whole has grown from 544 million tons in 1975 to 687 million tons at the middle of this year. Our share of the world fleet has dropped from 9·7 per cent. to 5·1 per cent. over that period. We still have a large fleet—the sixth largest in the world, as my right hon. Friend mentioned, after Liberia, Greece, Japan, Panama and Norway—but its decline has been very substantial.

What is happening to our merchant fleet is not, of course, an isolated phenomenon. With the exception of a short-lived recovery in 1980, the shipping industry worldwide has been in the doldrums since the oil crisis of 1973. There have been too many ships and too much subsidised shipbuilding capacity chasing the limited cargoes generated by the slow growth of world seaborne trade. Let me give some facts: 76 million tons of world shipping is laid p—11 per cent. of the world fleet. Bulk freight rates have been cut in half since the last peak in 1980. There is twice as much oil tanker capacity as is needed to carry the world's crude oil. World seaborne trade overall is growing very slowly.

I wish I could tell the House this evening that there are many and early signs of better times ahead. But I cannot. The world recession, the growth of low-cost competition from the Far East, the limited prospects of growth in seaborne trade, the introduction of new technology and continuing subsidies for shipbuilding in so many countries provide no basis for easy optimism. The shipping industry itself expects to remain in the doldrums until at least the mid-1980s. But the Government are determined not just to stand idly by as mere spectators of this sad scene. No one could be indifferent to the plight of those who have lost their jobs.

Despite the job losses, however, the industry still employs some 65,000 people. Last year it contributed, as my right hon. Friend mentioned, a net £900 million to our invisible earnings; and this year the vital role that it can play in times of emergency was made very clear by the heroic actions of the Merchant Navy in the Falklands.

To the deep-seated problems of our Merchant Navy, there are no easy or obvious solutions, but, let me point to some areas where the Government can help. Our successful policies for controlling inflation give direct help to the shipowner in keeping down his operating costs. We have a corporation tax regime that encourages investment in shipping. We fight tenaciously for the interests of the industry in our international dealings.

I know that all sides of the industry want us to do something more. Unfortunately, if predictably, it is not always the same something.

I have received fairly recently, at my invitation, from the General Council of British Shipping and from the maritime unions detailed representations and proposals. I am extremely grateful for those responsible and constructive documents. I shall be discussing with the council and the unions all that they have proposed. I do not want to anticipate those discussions conclusively tonight, but it might help if I were to say something about five important areas—defence needs, cargo reservation, flags of convenience, competitiveness and Soviet maritime policy.

I shall deal first with defence needs. We recognise the vital dual importance of the Merchant Navy as an instrument of trade and as a weapon of defence. The ability of our declining fleet to meet the needs of the Ministry of Defence in times of emergency or war is kept under close and continuing review. The striking conjunction of the Falklands operations and the decline of the fleet naturally makes for grave concern. Our assessment is that defence needs can still be met. This matter is at the heart of our current review of what lessons to learn from the Falklands war.

With regard to cargo reservation, I believe that it would be deeply wrong to abandon the free trade principles upon which successive Governments have based their shipping policies. When times are hard the benefits of the free trading system can seem remote, especially for those whose jobs are at risk, or have been lost. But we should not allow the recession to become an excuse for adopting narrow protectionist attitudes.

The benefits of the free market, in shipping as elsewhere, are real and substantial. Were Governments throughout the world to embark upon a round of protectionism and subsidy for shipping, it could only be to the detriment of the United Kingdom industry. Some two-thirds of the industry's freight earnings—more than four-fifths for tankers—come from the cross-trades. These earnings and the jobs they sustain depend vitally on the willingness of other countries to keep their ports open to British shipping. If we close our ports and our trade to others, we cannot expect them not to close their ports and trade to us.

We and our partners in the European Community have agreed a position on the United Nations liner code that will keep the cargoes that are carried by the fleets of developed countries open to proper competition. We have to carry that forward. We must see that our European partners carry out the letter and the spirit of what they signed. We must persuade the United States of America that our action is an action in realistic defence of free trade and persuade them to uphold free trade in their own shipping relations with Third world countries.

The fact is that, despite the reduction of the fleet, Britain is still a major maritime power. London is a world centre of shipping. We play a leading role in maritime councils both at Government and industry level. Were we to be panicked into going down the protection road, I have no doubt that others would take their lead from us. The damage that would be done to this country and to world seaborne trade would be vast and irreversible.

I shall now deal with flags of convenience. Flags of convenience or open registries are regarded by many, particularly some people in the trade unions, with misgivings and hostility. They are attacked for a variety of reasons. Some of the reasons are based on a complete misunderstanding of the vital distinction between open-registry ships and sub-standard ships. The two should not be confused.

Inability or unwillingness on the part of the authorities of any maritime State to take full responsibility for ensuring that its vessels meet international safety requirements is, of course, highly objectionable, but the proper approach to deal with such problems is through international agreements on safety standards and their enforcement by appropriate port State action as necessary. In the three months since the Paris memorandum on port State control came into force in July, 1,642 vessels have been examined, 558 of them in United Kingdom ports. I welcome that, but it would be a delusion to suppose that the competitive threat from open registries could be explained away in terms of sub-standard vessels and crews.

It should not need saying, but apparently it still does, so I shall say it again: open-registry vessels are not all substandard. The British flag, indeed, is termed by some as a flag of convenience. It is indeed an open registry and no country is more jealous of its safety record than we are.

For reasons that I have already explained, I do not believe that our response should be to put up protective shutters. On the contrary, we must and we shall resist action, such as is favoured by the UNCTAD secretariat, that would undermine international investment in shipping and damage the interests of our own fleet which has, of course, been the beneficiary of substantial inward investment. The effect of adopting the measures being promoted by the UNCTAD secretariat and by some people in this country on flags of convenience would be a shatteringly damaging effect on the United Kingdom fleet. Some 45 per cent. of our Merchant Navy is beneficially owned abroad—that is, by owners who use the British flag as a flag of convenience. If one got rid of flags of convenience, one would get rid of almost half the ships and half the jobs in the Merchant Navy. It would be an insane act. I cannot understand how anybody with the interests of the British Merchant Navy and British jobs at heart could advocate such an idea for one minute. I hope that we shall hear no more of it.

Cost competitiveness will continue to be very important for the fleet. Wage costs for crews from developing countries will indeed, for some trades, pose a crippling handicap, but much of our competition is from developed countries and some of our wounds are tragically self-inflicted. Let me give my right hon. Friend a pair of interesting, illustrative figures, provided to me by an important port user. They are for a medium-sized bulk carrier and are in round terms. The sum for Hamburg, in Germany, is £10,000 and for Immingham, in the United Kingdom, £34,000. Had I time, I could give a dozen similarly worrying comparisons with British costs. We must stop damaging ourselves in this way.

My right hon. Friend mentioned the problems posed by the Soviet Union's policies. Indeed, I am grateful to him for mentioning them. The present Soviet practices are not proper commercial practices and they pose a threat to fleets such as our own, whose operations are properly commercial. I shall give the House just six examples of how the Soviet fleet does not operate on what we would term a fair commercial basis. First, the funds for shipbuilding for the Soviet fleet all come from the State, not from fleet earnings. Secondly, the Soviet State bears all the loan interest. Thirdly, the Soviet State provides the insurance. Fourthly, the Soviet State sees that bunker costs are about 25 per cent. of what our ships pay. Fifthly, Soviet wages tend to be about one-third of comparable Western rates. Sixthly, the Soviet Union always buys goods on free-on-board terms and sells them on cost-insurance-freight terms. So it is scarcely surprising—although no longer tolerable—that the balance of United Kingdom-Soviet Union shipping operations is 90 per cent.—10 per cent. in its favour.

Furthermore, in cross-trades the Soviet Union can distort trade by non-commercial under-pricing unjustified by market conditions, often, for example, pitching its prices 25 per cent. below whatever commercial rate is offered by anybody else. The Soviet Union always undercuts it because it is not operating on a proper commercial basis. In February of this year, the Government gave notice to the Soviet Union of our intention to renegotiate the Anglo-Soviet maritime treaty. Officials of the Department of Trade are now in Moscow for this year's meeting of the joint United Kingdom—Soviet Union maritime commission. I assure my right hon. Friend that they will raise, very strongly, the matter of the renegotiation of this treaty.

I have touched on only a few of the component reasons for the decline of the fleet and on some of the things that we are doing to remedy it. I can promise my right hon. Friend that I hope to come forward with some more measures in the fairly near future that I trust will do something to restore the British Merchant Navy to the position in which both he and I wish to see it.

Question put and agreed to.

Adjourned accordingly at seventeen minutes to Eleven o'clock.