UK shipowning needs to move with the times – Sir Michael Bibby
Sir Michael Bibby, vice-president of the UK Chamber of Shipping, writes on how British shipping should evolve, not cling on to nostalgia.
Bibby is one of the UK’s last remaining family-run shipping companies, but that’s not a fact I’m sentimental about. In fact, the way the Bibby Line Group has evolved shows just how critical it is that we look forwards – not backwards – in developing not only British shipowning and the wider UK sector. We need to think practically and move with the times.
The mid-twentieth century created a lot of problems for Britain’s shipping industry, as Bibby can attest. Our company serviced the UK to Burma and Ceylon trade during the 1800s, and during the world wars we carried troops around the world for the British government. Burma and Ceylon (now Myanmar and Sri Lanka) gained independence from Britain in the 1940s and there was little trade with the UK as their economies shrank dramatically. In the 1960s, army troops began to travel the world by air.
As the empire faded, British shipping companies really struggled to adapt their businesses to the environment, which resulted in a lot of market share being taken over ultimately by foreign competition. This teaches us how difficult it is to make major transitional change in your business and adapt as market circumstances change around us – we’ve got to be realistic. A lot of the companies that survived and are still around today are hugely successful businesses that have grown and developed in new markets and have really served the needs of their customers.
We mustn’t get sentimental about British shipowning being in “decline” – because it isn’t. Most modern British shipowners are structured as large corporations, which have the economies of scale to market their services competitively. Certain wealthy individuals still own substantial stakes in many of these businesses, even though the companies are floated publically. That’s one way in which British shipowners have moved with the times.
When we talk about UK shipowning, it’s important to differentiate between putting vessels on the UK flag, having vessels owned within British companies and supporting the whole professional and service infrastructure behind that – as opposed to just British people owning ships.
The ships that are registered under the UK flag are often ultimately owned by foreign owners but they’re still British ships registered under a British flag and often managed by British companies. In terms of shipmanagement, the UK’s skill base is managing ships technically and commercially and providing the professional services to support that. This business is still thriving – whether it’s in Glasgow, the City of London, Liverpool or wherever. The skill base is still there and is still doing really well, and is recognised internationally as a leading player in the sector.
Smaller entrepreneurs aren’t investing in shipowning mainly because it’s a large capital sum and there is significant risk attached. Traditionally, you used to have a seven-year shipping cycle: you’d have two years of boom followed by five years of bust. This cyclical structure made the market extremely risky and the average return on a ship investment over its lifespan was pretty low to justify that risk.
For these reasons, it has become quite difficult for shipping companies to survive in the long term and it is pretty risky to invest in the short term. To succeed, you have to find a niche where the barriers to entry are so high that people can’t just come in and build lots of ships and dump them in your market – unless you have the massive scale from Day 1 to compete on a cost-plus basis.
Companies with a large number of ships can protect their position to some extent because they are basically gambling on future values and the highs and lows of asset prices. It is basically a residual value asset play, which means you are best to come into the market for a relatively short period of time, before selling up, getting out and then getting back in again.
To stay in shipping over the longer term, owners need to find individual niches where they have a particular skill set that allows them to sell more of a service to customers. You can see this in the renewables sector at the moment and you can see it in offshore to some extent, where there are some particular skill sets that have built up.
Bibby, for instance, has invested in the saturated diving business because there were more barriers to entry in that sector. We’ve developed our more niche marine specialities – we’re building a vessel to service deep-water offshore windfarms at the moment, which is a specialist vessel that will be harder to be replicated, so it will be more difficult for new players to come in and trash the price.
For a new entrepreneur to come in and make money in shipping, there has to be an angle where they can add value and establish a foothold in the market. At the moment, that’s probably not going to be in bulk carriers or traditional tankers or some of the commodity shipping markets - the container market is already saturated. Opportunities lie in some of the really niche activities as new markets develop, for example, in offshore wind farms and before that in the offshore sector, or on particular trade routes – maybe with ferries that can offer a particular type of service to meet specific local demands.
At the moment, there isn’t a major incentive for government to make legislation that will support UK investors in shipping. There were previously some pretty big UK tax incentives where you could invest in shipping and cover a lot of your losses. Today, there aren’t that many tax relief schemes for investment in this area on a significant scale.
Nevertheless, it will be interesting to see if the government’s attitude changes after Brexit. Certainly, there will be some changes because a lot of the government’s actions are determined by EU competition policy at the moment. That also makes it a good time for UK shipowners or those with British shipping interests to lobby the government to make policy changes that will benefit this country’s maritime industry.
Historical events have prompted Bibby to shift its strategy over the years and adaptation has made us stronger. The UK’s shipping sector is in the midst of another transformational time in history as Britain negotiates its exit from the European Union. This need not be a negative thing – in fact, by liaising closely with government we may be able to tip the scales in our favour. The UK Chamber has an important role to play in achieving this.
History and tradition aren’t things to cling on to – they’re a series of lessons from which we must learn and grow. UK shipowners will do well to stay on their toes, be agile to change and look for opportunities to get ahead of the crowd.
Sir Michael Bibby is the managing director of Bibby Line Group.