The maritime industry is full of opportunities, delegates at the Second Cayman Islands Shipping Summit heard. Cayman’s location close to North and South America, as well as the Panama Canal, in combination with tax benefits could be a strategic fit for marine services companies. But high costs and other factors could have a limiting effect, panelists warned.
Ninety percent of world trade is carried by sea, with cargo ships carrying just under 10 billion tons of goods. Demand for maritime transport is expected to increase in line with global trade growth.
Cayman’s location close to the expanded Panama canal, the Americas and shipping routes to Europe, should give it a geographical advantage to bring a share of the shipping business to the islands, panelists said at the Second Cayman Islands Shipping Summit on March 11.
Government is putting in place a framework that will prove shipping is welcome in Cayman, said Maples and Calder lawyer Sherice Arman.
This framework, announced at the conference by Premier Alden McLaughlin, aims to provide incentives for the shipping industry to set up a physical presence more cost-effectively in the Cayman Islands.
The exact details are still unclear, but incentives could be provided through a special economic zone marine services park. Government is in negotiations on how best to deliver the benefits to marine services companies with Cayman Enterprise City, Cayman’s knowledge-based special economic zone.
Zone companies can typically take advantage of Cayman’s tax benefits in combination with reduced red tape, lower registration fees and no work permit fees.
A few caveats
However, not all types of shipping services are suitable for the islands. Arman noted that Cayman does not have the land mass needed for major transshipment operations, nor does it have deepwater ports. Meanwhile different ports in the region position themselves to take advantage of their location to attract shipping business.
“These countries have things we don’t have: landmass, deepwater ports, storage and logistics facilities. But they have an average tax rate of 25 percent,” she said.
Cayman’s strengths are in particular an understanding of money, access to capital through bank borrowing, bond issues, private equity and other means, and service providers that understand the shipping industry and are used to multijurisdictional transactions. Thus, Cayman has the ability to attract the shipping industry, but it will be different, niche types of marine services.
Arman believes the types of services that could be offered from Cayman include ship management, crew management, crew staging, provisioning and human resources combined with high value and knowledge based services such as marine insurance, ship brokering and maritime offshore engineering.
“We would provide more efficiency in terms of process and procedure, a physical place where businesses can place their staff, world class communication and IT facilities, world-class financial services and banking facilities and a safe and pleasant place for people to live,” she said.
But delegates also sounded warning bells and raised issues for the industry that could limit the opportunities to offer those services.
Costs and regulation
George Tsavliris, principal at Tsavliris Salvage Group and chairman of INTERMEPA, an international environmental protection association, called for a balance between regulatory standards and market forces, and warned that compliance with regulations, such as the requirement to reduce CO2 emissions, will carry a cost that has to be paid for. He estimated the cost of regulation for the industry could total a half-trillion dollars between 2015 and 2025. “We have to pay this bill,” Tsavliris said.
Peter Tsantrizos, president and CEO of Terragon Enviromental Technologies, in turn highlighted the progress that has been made in terms of energy efficiency as a result of regulation. “People will benefit from this new technology,” he said. “Every time there is a cost, there is also an opportunity.”
Tsavliris called on Cayman not to make the same mistakes that the industry is making elsewhere. He specifically referred to a number of recent shipping accidents where no country was willing to provide a safe harbor for the stricken vessels to enable a ship to ship transfer of the cargo for fear of an environmental disaster close to port.
Nicky Pappadakis, chairman of A.G. Pappadakis & Co, said that shipping simply does not carry the same weight as the aviation industry, where it would be unthinkable that a plane in distress would not be allowed to land.
Few people understand how shipping affects their lives, he noted, and as a result the industry does not have any lobbying power. Shipping regulation is not going to affect voters but the industry, he added.
The cost of energy is another big issue faced both by the industry and the Cayman Islands. The cost of fuel, which has jumped from $87 dollars per metric ton in 2000 to $600 today, is “one of the game changers” in the industry, Pappadakis said.
For the Cayman Islands, where more than 90 percent of goods have to be imported and direct costs are incurred, the question of energy costs is going to be vital, he said.
Other panelists noted the high cost of living in Cayman, which might also influence the ability to establish a cost-effective presence on island.
Tsavliris also raised as an issue the availability of contingency plans in Cayman, for instance in the case of a cruise ship fire. Former chief fire officer Kirkland Nixon said Tsavliris “touched upon a recurring nightmare” he had in his old role. Nixon said there are few ports in the world that could deal with a cruise ship fire and Cayman is no different from other ports in the region. “Just dealing with the debarkation of the passengers would be a stretch for us,” he said.
Technically addressing a ship fire is incredibly complex, he noted. One of the issues is that in case of a marine fire, extinguishing the fire is not enough. The water used to douse the flames will also have to be pumped off the vessel to avoid its capsizing and potential sinking.
But he argued, Cayman had experienced the grounding of a vessel before and has a contingency for this kind of incident. He referred to the cruise ship Rhapsody, which ran aground near George Town on March 28, 1984. It took 72 days to refloat and tow her to Galveston for repairs.
Tsavliris suggested that at a minimum Cayman should invest in a reasonably sized salvage tug with enough power to hold a ship in place, as well as ensure sufficient personnel with the necessary expertise to deal with such an incident is in place.
Tsavliris stated that in the shipping industry, everything that can happen will happen, and there are no cookie-cutter solutions. To attract the shipping industry, Cayman will have to think outside the box, he argued.