How to get more from maritime subsidies

Rethinking tonnage tax, domestic ship fuel exemptions and seafarer employment incentives could lead to better value for the more than €3 billion spent subsidising shipping each year in OECD countries, according to a new report.

The International Transport Forum (ITF) report, ‘Maritime Subsidies: Do They Provide Value for Money?’, finds little evidence that the three subsidies (tonnage tax is described as a subsidised replacement income tax) have achieved their stated objectives. These include encouraging registering ships under local flags, employing local seafarers and expanding short-sea shipping connections.

“Local flags and seafarer employment within the EU have in fact declined,” the authors write. “Short sea shipping connections in the EU are still fairly limited.”

Subsidies have been used in European countries to level the playing field against flags of convenience and subsidies available in other developed countries. But ITF concludes that there are limited benefits in retaining nationally flagged vessels.

The report notes further that the increased liquidity provided by subsidies may have instead had an adverse effect on shipping by increasing. By allowing some shipowners to renew or expand their fleets, the subsidies could have contributed to increased overcapacity.

“The resulting cargo peaks, increased ship sizes and subsequent consolidation of container shipping lines have had mixed impacts on ports and shore-based employment.”

Further market distortions have been found in the form of tonnage tax schemes that encompass profits from terminal operations. “This benefits vertically integrated shipping companies that compete with independent terminal operators, ship operators and freight forwarders that do not have similar tax benefits,” the report said.

The basis for some subsidies is not clear, the report finds. For example, the EU Energy Tax Directive exempts ship fuels from tax, although member states can limit the exemption. ITF suggests that this directive does not align well with EU policy on decarbonising transport and should be reconsidered.

The report suggests that subsidies should be redesigned with a focus on public policy goals including decarbonisation and reducing congestion and urban pollution. They should be explicitly tied to tangible goals and subjected to rigorous verification. Examples include the UK’s training requirements and the Norwegian and Portuguese subsidy regimes favouring cleaner ships.

The report concludes: “Reorientation of maritime subsidy policies could improve outcomes and halt a race to the bottom between subsidy regimes… The most economically distorting schemes should be the priority for reform. Overall, more transparency around maritime subsidies should lead to improvements in effectiveness in achieving overall policy objectives.”

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