Transport

The state‘s flag flying on a vessel sailing in the oceans of the world create the image of that state. Though globalisation hoisted new flags on vessels, ships and ferries carrying various cargoes flying the flag of Lithuania are still crossing the seas and oceans.
“If a state has a fleet, this means that the state may be referred to as a marine state and the economic policy pursued by that country is most often favourable to marine business“, says the Chairman of the Board of the Lithuanian Ship-owners Association Vytautas Lygnugaris.

The magazine Made in Lithuania talked to him.

- The theme of this year’s World Lithuanian Economic Forum is the creation of a competitive state. How do the vessels sailing under the flag of Lithuania create the image of a competitive state?
In these latter decades the flag of a vessel does not necessary have direct relation to the citizenship of the ship-owner or the place of registration of the Company. Globalisation that is taking place, as well as increasing competitiveness, made marine companies look for new solutions – vessels started to be registered in the countries that are attractive to navigation. New states emerged – Panama. Liberia, the Bahamas Islands, the Marshall Islands and others where the environment attractive to marine business has been created, and vessels belonging to the captains of different countries are registered in those states. There is no doubt that a large and versatile fleet of the state shows that favourable conditions for investments and activity in the navigation sphere are created in these states, and this, naturally, improves the image of the state itself and increases its competitiveness in the international space.

- How, in your opinion, would it be possible to improve the image of competitive Lithuania with the help of marine navigation?
- It is very important to understand that the Lithuanian fleet works exceptionally in international markets, that is, only for export. In this way the Lithuanian fleet increases the gross domestic product (GDP) of its state at the expense of other states. Our ships carry cargoes between the ports of other foreign countries. We do not have internal marine transportations between two Lithuanian ports because historically we have only one commercial port –Klaipėda. Of course, a significant part of import cargoes arrive by sea ferries but this is again foreign trade. It is obvious that in an economic sense, Lithuania, as a marine state, does not end at the gateway of Klaipėda Seaport. Lithuanian vessels sailing across the wide world represent our state. Seeking to promote Lithuania’s image with the help of navigation it is necessary to create a more favourable tax and administrative environment, to seek to become the regional, and even better, one of the world marine centres. We have several nice examples in the European Union. Such small states as Malta or Cyprus are justly considered to be world marine centres. The merchant navy of these states is really large, and the states themselves collect huge funds in the form of different taxes. Seeking to increase competitiveness of a state it is necessary to make use of the entire marine complex, which is navigation, seafarers, the port, shipping companies, shipbuilders, ship repairers, supply companies and others. We have all that, only a stronger impulse, healthy ambitions and joint work of all competent institutions are needed. We have to see beyond the horizon and not to limit ourselves to the coast line of Klaipėda seaport.

- After the re-establishment of independence, for a time being Lithuania had the fishing fleet that was regarded to be the largest one in Europe. Now there is nothing left of it. How did the merchant navy managed to avoid a similar fate?
- Dreadful fate befell the fishing fleet. Out of almost 150 ocean-going vessels of different size only several have remained. At the beginning of the restoration of the Independence very few statesmen understood the significance of the marine navy to the state. There were even such heads of the Government who publicly asked the following question: what for does Lithuania need such a large fishing fleet? It is natural that this was a hint to the people who were not competent in this matter that the fishing fleet was not necessary to Lithuania. The future of the merchant navy was unclear too – different models of governance and use were discussed and considered. There were fears that ships of state-owned enterprises, after passing into the private hands, would be sailed to other countries. New horizons opened up after the largest navigation companies had been privatised – huge investments brought business back to life. The largest part of ship sails under the flag of Lithuania. For example, our neighbours the Latvians failed to preserve the merchant navy they had, and the Estonians take pride in ferry lines only.
Of course, the fleet is complicated business that requires solid investments therefore goodwill is not enough. Companies, which work in the international market, have to modernise vessels, replace old vessels with the new ones constantly. Various taxes, insurance payments, funds to maintain the crews and other things constitute a large part of expenses.

- Are Lithuanian ship-owners capable of competing with the companies that register their vessels in the countries with favourable tax treatment?
- If business brought only losses vessels under the national flag would not sail in a long-term perspective. As many as 141 vessels are registered in Lithuania, their total tonnage amounts to 443 thousand tons. Prior to the crisis, the annual income of the navigation sector totalled around 700 million litas. This amount remains similar at the present time too. The state-owned Lithuanian shipping company Lietuvos jūrų laivininkystė possesses the fleet of dry freight ships and bulkers.
More than one third of the tonnage of Lithuanian vessels falls to the foreign capital company DFDS Seaways, which is successfully developing ferry business after privatisation of ships of this segment in 2001. The company regularly sails cargoes and passenger by ferries to the ports of Germany, Denmark and Sweden. The Lithuanian capital company Limarko laivininkystės kompanija is another excellent example of privatisation of a part of the Lithuanian fleet that took place in 2003, Following privatisation container ships appeared in the Company’s fleet, which the national fleet did not have at all until the year 2005. This Company also occupies about 1.2 per cent of the world market of refrigerator ships.

- How many merchant ships belonging to the Lithuanians cross the oceans under the flags of the “convenient countries” at present?
- Seafarers respect flags of all countries. The very conception of the “convenient flag” is made up by different trade unions. Another thing is taxes, which ship-owners have to pay for the ships registered here or there. Nobody is forbidden to look for the latitudes that are more convenient for business. I cannot say how many Lithuanians seeking to optimise taxes, registered their ships in Panama, Liberia, Malta, Cyprus and other regions because there is no such statistics. When analysing experience of other European Union states we see that about 20-30 per cent of merchant ships can make use of “convenient flags” whose ship-owners are citizens of Lithuania.
Vessel registration fees increase the budgets of small states. I should think that in Lithuania we should, first and foremost, create very favourable conditions for developing navigation business and to offer them to the ship-owners of other countries. In this way we could attract more foreign investments to the navigation segment. Our Baltic Sea neighbour Denmark could serve as a very good example. This small but ambitious European State, in carrying out the programme “Blue Denmark” has set itself the task of becoming the strongest marine state in Europe by the year 2015. And really there are good reasons for that because excellent conditions for developing navigation business are created in Denmark.

- During the past decade the number of merchant ships registered in Lithuania has decreased by half. Why?
- The number of ships decreased when the property of the fishing company Jūra that had gone bankrupt was sold and cut to be used as scrap metal. The Lithuanian fleet was melting away like snow until the year 2005, and later the situation started to change. Having sold several older ships the companies acquired one or two more capacious and modern vessels.
On the other hand, the Lithuanian tax system that was really unfavourable to marine business, legal regulation, sluggishness of some state institutions in solving the issues that arose to business, inhibited the development.
The tendency for a decrease in the number of ships in national fleets further remains worrying in many countries of the European Union. The danger to be left without a fleet is quite realistic. Therefore as far back as 1997, the European Commission urged these states for the first time to support companies of navigation business more actively on condition that they should comply with the standards of safe navigation and social provision of the seafarers, could assure work places for the seafarers of their countries.
Lithuania was not left aside: the legal basis encouraging the development of the fleet is constantly being improved, and several favourable tax measures are being implemented. However, this is not enough for Lithuania to be considered an attractive state to attract investments to the navigation sphere.

- In defending interest of the seafarers, the state restricted the possibilities of Lithuanian ship-owners to freely hire work force from abroad. However, the Trade Unions fear that this situation can soon change?
- There are only about 2500 work places on the vessels sailing under the flag of Lithuania, and the number of seafarers who want or can work on them is several times greater. The majority of them are made to look for work on the ships of foreign countries. The laws specify that at least two thirds of the crews of Lithuanian ships must be made of the citizens of our country or the European Union. At the present time there is a shortage of experienced highly-qualified seafarers – captains, captains’ assistants, and mechanics.
Nobody is going to violate the laws. Only one provision applied to hiring seafarers of third countries on the ships sailing under the flag of Lithuania has been amended: foreigners are no longer required to have work permits. By the way, the captain must not necessarily be a citizen of Lithuania, but he must be a citizen of the European Union.

- Are signs of economy’s recovery seen in the navigation market?
- The situation is different in different segments of navigation business. After the flows of containers and ro-ro cargoes had intensified, costs of carrying them increased. Prices of gas carrier services are rising, however, owners of the companies that carry petroleum and its products are disconcerted – the cost of hiring oil tankers are further falling. Lithuania has the largest number of dry freight ships. At the beginning of the year changes in the shipping and trade index “Baltic Dry Index” reflecting cargo carrying costs gave hopes that costs of carrying cargoes will rise. Now there are more signs of stabilisation.