APRIL 4, 2013 — Though German shipowners control the world's third biggest merchant fleet, the President of the German Shipowners Association (VDMA), Michael Behrendt, says it is uncertain how many of them will survive until a predicted uptick in world trade increases demand for shipping services.

VDR President Michael Behrendt

To help them through the months ahead, German shipowners are headed for an annual maritime conference organized by the Federal Ministry for the Economy and Technology (German acronym: BMWi) with a list of demands for Government action.

This year the conference will be held in Kiel on April 8 and 9 and high on the VDMA's priorities is speedy action on the issue of insurance tax on shipping pools. At the end of last year, out of the blue, the Federal Central Tax Office suddenly declared that shipping pool income was generally liable to 19 percent German insurance tax. After heavy protest from the shipping industry and members of the German Parliament, this new interpretation of the German tax law, which in its original version dates back to 1922, has preliminarily been shelved.

Shipowners want to see it officially declared dead. The VDR says the additional tax payments would mean "certain liquidation" for many shipping companies.

To be able to operate their ships in a volatile market, the majority of German tramp owners bundle ships to form pools in which the pool members' revenues are distributed among one another. Pools have been a common practice for decades in the German as well as in the international shipping community.

"There is a political consensus that shipping pools meet neither factual nor legal prerequisites to apply an insurance tax but we still await clarification by the German government," says VDR President Michael Behrendt, who is Chairman of the Executive Board of Hapag-Lloyd AG. "The German government needs to solve this matter as soon as possible."

Shipowners also want to see regulations issued covering the deployment of private security teams on board German-flagged sship.

"We continue to believe that the best way to protect seafarers on board our ships sailing under the German flag would be to employ sovereign forces," says Mr. Behrendt. For a plethora of legal and practical reasons, the German federal government is not prepared to actually take this step, he says.

"To defend our seafarers against pirates, the only solution shipping companies therefore have is to enlist private security services," Mr. Behrendt says.

The Bundestag (Germany's lower house of parliament) cleared the way for private protection teams to be deployed on board in December 2012,but the necessary regulations have yet to materialize.

The planned approval process for security companies must be compatible with the approaches chosen by other flag states and should therefore be geared to IMO guidelines.

"Our seafarers will not be helped if German special regulations prevent market access by foreign companies, meaning that security firms will not be available on the market in sufficient number," says Mr. Behrendt.

German shipowners say that another competitive drawback for the German flag is "the complicated and still insufficiently attractive flag state administration in Germany."

"From the perspective of a German shipowner we need a modern flag state administration in Germany which is competitive especially with its European counterparts," says Mr. Behrendt. "The large number of public authorities that need to be contacted and long processing times of the German administration do not meet the needs of a 24/7 shipping industry that is active throughout the oceans of the world."

The VDR is calling for good accessibility to the flag administration and speedy response times. It is also demanding a central point of contact for all shipping sector interests.

"We aren't calling for privatization," says Mr. Behrend, "but we believe that the German administration still has a lot of room for improvement when it comes to service-orientation and efficient flag management. With other European flags currently paving the way to a modern and efficient administration, the German authorities must face this competition and be appropriately structured and equipped as soon as possible."

The VDR also says that the Federal government must ensure the medium term continuity of shipping subsidies.

In 2012, the maritime sector together with the German government agreed to promote vocational training and employment in Germany to the tune of a total of 90 million euros a year. That means solidifying subsidies at a level of just under 60 million euros.

German shipowners are contributing 20 million euros annually to promote the vocational training of junior maritime talent. That money goes to the trust fund of a new foundation aimed at promoting Germany as a place for maritime business ("Stiftung Schifffahrtsstandort Deutschland"). Another ten million euros comes from a charge imposed on vessels owned by German companies but sailing under foreign flags.

"By providing 30 million euros, German shipowners are – in spite of the crisis – making a substantial contribution towards ensuring to keep maritime expertise in Germany," says Mr. Behrendt. "We now expect a clear signal from the federal German government that it will adhere to its share of the agreement in the years beyond 2013."

"Many shipping companies feel a bound to the German flag and would actually like to bring more vessels under it," notes Mr. Behrendt. "However,we would need to achieve the improvements mentioned in terms of the competitiveness of the German flag state administration before the shipowners can take this step."

With freight and, particularly ,charter rates continue to stagnate, German shipowners are making an effort to reduce overcapacity.

Since the beginning of the financial and global economic crisis of 2008/09, they have virtually ceased ordering new ships and scrapping of old tonnage has increased significantly. In 2012, the German merchant fleet contracted for the first time in decades with the number of ships under German management declining by over 100 vessels, compared with 2011, to just under 3,700 ships.

However, with the IMF predicting that global trade will grow by 3.5 per cent this year and by 5.5 per cent in 2014, Mr. Behrendt says that "supply and demand are clearly converging once again, if you compare this growth in demand with the shrinking order portfolio and rising scrapping activities worldwide."

With the world's third biggest merchant fleet, German shipowners stand to benefit from this trend. But Mr. Behrendt says it is uncertain whether the shipping companies – particularly small and medium-sized with only a few vessels – will be able to bridge the coming months.

"Policymakers have so far turned down many of our pragmatic proposals to solve the problems, and this must change at the Conference," he warns.