The Shipping Industry: EEC Competition Policy

HL Deb 24 November 1983 vol 445 cc369-99

4.35 p.m.

Viscount Rochdale rose to move, That this House takes note of the present situation of the shipping industry and of the Report of the European Communities Committee on EEC Competition Policy: Shipping (3rd Report, 1983–84, H.L. 23).

The noble Viscount said: My Lords, in moving that this House takes note of the present situation of the shipping industry and at the same time takes note of the report of your Lordships' Select Committee on competition policy as applied to shipping, I am underlining a problem with which the sub-committee who considered the draft regulation, of which I had the privilege to be chairman, were immediately confronted. The problem, we found, was that there were so many important matters involved which were quite external to the commission and yet had a considerable bearing on the draft regulation that we had to go much wider in our investigations than merely confining ourselves to the content of the draft regulation. That is why the Motion that I proposed to your Lordships is worded in the way that it is. I shall be referring to some of the external matters to which I referred as I go along.

The regulation seeks to apply the competition rules in Articles 85 and 86 of the Treaty of Rome to the liner shipping conferences in which the Community states may in one way or another be involved. I understand that this regulation had been under discussion for a number of years. The commission discussed the matter with Governments, shipowner organisations and shipper organisations.

Perhaps I should say something about the word "conferences". Conferences are undoubtedly cartels. The word "cartel" is one which I know suggests to many people lack of competition. It is therefore open to a degree of suspicion—in this case suspicion, perhaps, from shippers of goods who need the services of ship owners and suspicion from shipping lines, particularly those of the emergent third world who may want their new shipping lines to be able to become members of closed conferences but sometimes feel themselves barred from getting in. However, to label a conference as being a cartel which is a matter for suspicion is not at all a balanced point of view. It is by no means the whole story.

The idea behind conferences (which I suppose in the last century was a British idea) is to fulfil a definite and important practical function, particularly where a shipper is not in a position to charter a whole ship. A conference is there to help shippers to see that their goods are correctly and economically carried and to help ship-owners to provide the services that the shippers want. Conferences can provide regular services at stated times between stated ports at stated charges, with assured adequate shipping capacity and performance. To do that involves considerable capital investment. Unless that can be undertaken within the framework of a large organisation—in other words, a conference—and with some obligation on the part of the shippers of goods to use that conference (here I refer to the vexed question of loyalty agreements) it could be that essential investment might not be forthcoming. Therefore I hope your Lordships will agree that the idea of conferences is not, as is sometimes hinted, merely for the benefit of ship-owners.

The value of conferences is recognised by most countries of the free world, and in the interests of their own shippers and of their own trade most countries in the free world exempt conferences from their national monopoly legislation. The United Kingdom is no exception. But the notable exception is the United States of America, with its anti-trust legislation. There, conferences—and, in particular, closed conferences —and indeed shippers' councils' are illegal.

What is much worse, this situation can be the cause of severe embarrassment, if not bitterness, because in some cases American legislation is in effect exported to other countries who trade with America, such as the United Kingdom. This is obviously intolerable, and has in recent years resulted in protective legislation. Your Lordships may remember one such piece of legislation which went through this House in 1980, the Protection of Trading Interests Act.

That apart, there are some hundreds of conferences throughout the world, and it would be unrealistic to expect that there would never be an occasion for some criticism or complaint. Indeed, liner conferences have been a matter for argument over many decades, leading up to the United Nations code of conduct for liner conferences in 1974, the history of which, and the background to which, is discussed in some detail in paragraphs 14 and 15 of our report. The code was due to come into force six months after the minimum stated number of member countries representing a certain minimum tonnage had been adhered to. In effect, the code came into force last month, on 6th October.

Without going into details, which are set out in the report, I would say that the code recognises the value of conferences, but it also includes certain other provisions. In particular, it establishes the right of countries at either end of a conference route to claim up to 40 per cent. of their own traffic coming in and out of their own ports. This latter provision is not in accord with Article 85 of the Treaty of Rome, and therefore creates a problem. However, when the code was passed by the United Nations—by UNCTAD—most Community members adhered to it, but not at first the United Kingdom or Denmark, because adhering to the code placed member states at odds with the Treaty of Rome. However, to rectify that situation, an earlier regulation was passed in 1979 qualifying the code for Community members only. That regulation is generally known as, and is referred to in the report and described as, "the Brussels Package".

Today, all members of the Community have accepted the code. The question that occurred to us was: why should the regulation be introduced just now? The ostensible reason we were given was that, as the present draft regulation was under the Treaty of Rome, the commission had an obligation to introduce some such regulation in order to comply with the Treaty of Rome. In fact, there had to be competition rules for all forms of production and movement of goods. For most business, and, indeed, for inland transport, that had already been carried out; but not in the case of shipping, which was still outstanding. The commission also seemed to doubt whether liner conferences operated against sufficient competition to keep them honest. Therefore they felt that they must get on with a regulation for dealing with liner conferences. So the question of the timing of this regulation was an important one to us.

It seemed difficult to us on the sub-committee to understand why, having waited for so many years, it was necessary to bring in the regulation just at this moment when the United Nations code, with its quite uncertain effects and repercussions around the world, is getting under way. Was it fortuitous, as we were urged to believe, or was it not? It is this question—why now?—that really conditions our main conclusions and recommendations, to which I shall return in a moment.

Naturally, we also addressed ourselves to whether there was really any lack of competition for liner conferences. From all the evidence received, the committee had no difficulty in coming to the conclusion that lack of competition was not by any means proven. Generally, however, whatever may sometimes have been the case in the past, and whether or not at times there may have been cases where the dominant position of ship-owners created an unfairness in relation to shippers, we came to the conclusion that today competition was considerable and generally on the increase. I shall quote from one piece of evidence we received. It is written evidence from a body which calls itself CENSA, which is the Council of European and Japanese Ship-owners' Associations. On this very point the council, in its evidence, stated that, competition against liner conferences has never in their history been so fierce".

It is true that since the report went to press, I have been informed of a few cases of agreements which have been arrived at between certain liner conferences and specific outsiders, establishing what they term "tolerated outsiders". Without going into the details of that, all I can say is that I realise that to the small extent that agreements exist, they could in some ways reduce free competition, but only on a few particular routes.

The reasons for this increased competition are discussed again in considerable detail in our report. They may be economic (in which I include currency rates); they may be commercial; they may be social; they may be political; or they may be technological. But I want to mention just one item, which has greatly strengthened the degree of competition for conferences. It is the disturbing growth of Soviet shipping, which today numerically, though not in tonnage, comprises the world's largest merchant shipping fleet.

Some of your Lordships may have seen a publication published this summer entitled, The Challenge of Soviet Shipping. That publication contains 12 articles by an international team of experts. It is published jointly, in this country by Aims of Industry and in the United States by the National Statutory Information Centre, in New York. There is a copy in the Library, and I would commend it to those of your Lordships who are interested in the impact of Soviet shipping on world shipping and on the shipping of the free world.

In the report itself there are a number of matters referred to which I shall not dwell on in my speech this afternoon because I want to deal primarily with our main recommendation. The points I have in mind are very important ones. They are such things as shipper-shipowner relationships—very important indeed—loyalty agreements as between shippers and conferences—quite a contentious matter—shipowners'response to shipper applications when they apply to be relieved—no doubt for good reason—from their loyalty agreements; disparity in rates charged. These are all important matters. I am not going to refer to them in detail this afternoon. They are in the report, and in fact at the end of the report in paragraphs 79 to 93 we have suggested a number of detailed amendments that refer to these points as well as to others.

What I want to move on to is our major recommendation to which I referred a moment ago; I will now talk about that. It deals with the question of the timing of the draft regulation. In order to do that, I must ask your Lordships to take account of the present difficult situation in the shipping world. Shipping, I think we can say fairly the world over, is in a state of flux and depression. New technology, changing trade patterns, world recession, unilateral national legislation, cargo and market reservation, new entrants, whether from the third world, Soviet Russia or anywhere else, land bridges, pipelines, aircraft and the high cost of fuel, are all making their contribution to the difficult situation of British shipping today. Britain is as vulnerable and as affected as any other country, and in some respects—with its historical pre-eminence in the shipping world and its high involvement in the cross trades—more so than most.

Some of your Lordships may have come across the July-August edition of the journal of the Chartered Institute of Transport. If you have, you will have seen on the outside cover a lovely coloured glossy picture. What you would have seen would have been what I am sure we all thought it looked like, a cage in which you might expect a wild animal to be put in at the zoo; but looking further behind the bars of the cage there is a beautiful model of a British cargo ship, and the caption underneath is "Endangered species". I do not want to overstate my case, but I think that that picture and the article related to it tells the story very cogently.

There are figures to illustrate this in our report. I will quote two or three, because I think that they are important. In 1973, admittedly a time which followed a time of considerable shipping building, the British merchant fleet consisted of 1,686 ships of somewhere near 44½ million deadweight tonnes. In 1982 that figure had dropped 868 ships of about 24½ million deadweight tonnes. The latest figure that I have, for July of this year, is that it has dropped still more to 794 ships of 23 million deadweight tonnes. In other words, between 1973 and now our British merchant fleet has more than halved. One other figure: much of our tonnage is laid up and not in service; 17 per cent. of the British tonnage is laid up today, and that is higher than the world average, which is only 13 per cent. So that the British fleet needs very careful looking at.

I need not emphasise to your Lordships how important a really substantial and competitive British merchant fleet is to this country. It is an essential part of our commercial and industrial structure, our overseas trade structure, serving both shippers and ship-owners, who have to provide the facilities for shippers. It is important also as a substantial earner in its own right of overseas currency, and valuable as a potentially important customer of our shipbuilding industry, and, as we all saw so clearly last year, it was a vital partner with the Royal Navy in the Falklands crisis. And that is to say nothing of the employment the shipping industry can give to our seafarers, with all their maritime traditions, their skill and their dedication.

The draft regulation which we were called on to consider is directed to liner conferences, and that includes both ferries, we think, but not the bulk trades. It would lay down certain competition regulations and controls which, set against what today is the quite uncertain effect of the United Nations code, could result not in helping matters but in a very serious further brake on the much needed recovery of our shipping fleet. I very much hope my noble friend Lord Lucas, when he comes to reply, will have something to say on this general situation, which, to my mind, is of the greatest importance.

So far as the regulation is concerned, the committee took the view that, until the full worldwide effect of the United Nations code became clearer—different people have different views on its effect but obviously those views must be subjective at this stage—nothing should be done which might perhaps have the effect of restricting the most efficient operation and redevelopment of the merchant fleet and in particular of the liner conferences in which the British merchant fleet plays such an important part. This is most important to shippers, and, although in my life I have been connected in one way and another with shipping, my interests have been primarily in manufacturing industry and therefore primarily associated with shippers. Dare I say that, unless the situation can be improved, one can perhaps hardly blame shippers when sometimes they have to look elsewhere for carriers?

One is being critical of the regulation, and I understand that in Brussels, in the Community, some serious doubts exist and that it is currently a matter for further thought. Our main recommendation, therefore, was that the draft regulation should be deferred. Your Lordships will, however, have seen that our report goes further. It proposes that an interim regulation with a minimum life of five years should be enacted until the need for a substantive regulation is clearly estabished. I realise that this latter part of our recommendation is open to argument. It may be that some argument against it may even be suggested this afternoon. But the sub-committee felt that in all the circumstances the proper course was to bring to an end the present state of legal uncertainty and provide a firm base from which the provisions of the code could be monitored, and monitored in considerable detail.

It does not, of course, necessarily follow that the administrative and procedural provisions of an interim regulation would be the same as those in the present one, which are included in Articles 9 to 28 of the present draft. The most important point which we saw was, first, that the present regulation should be deferred and, secondly, that the operation of the code should be carefully monitored. There is precedent in Brussels for monitoring.

We also thought it important to fill another gap and to include in this provisional regulation the bulk trades, which are excluded from the draft we were considering. But those should be included with unconditional exemption—that is, following Section 3 of Article85, where under some circumstances certain activities can be made inapplicable. We wanted a very clear definition of what is meant by "bulk".

Coming to the end of what I have to say, I want to make three points which are to my mind very important. The first deals with the question of jurisdiction. Article 8 of the draft regulation clearly recognises that the regulation might conflict with the regulations of other countries. The article therefore makes provision for this by providing for discussions between different countries as a means of resolving difficulties. One can hardly fault the idea, but if one bases one's opinion on the experience of such discussions, say, with the United States of America over the past 20 years, there is no encouragement to success in that direction. However, I understand that discussions are currently proceeding between the United States of America and CSG—the Consultative Shipping Group on shipping matters and I should be the last to say anything that might prejudge or prejudice the successful outcome of those discussions. All I know is that the discussions are continuing and I hope they may lead to something.

My second point refers to the trade unions in the shipping world. They made the point in their evidence that a regulation devoted to competition would be incomplete if it omitted an area where competition is singularly unfair; namely, the great variation worldwide in the wage levels of seamen, of manning scales and other related social matters. To that, I add substandard ships. This is a very difficult area. It is not included in the draft regulation. It is one of great importance, as we tried to explain in our report, but it seemed to us to be outside our remit, so we did not feel that we could pursue it in detail. However, I want to make the point very strongly that here is something that should be realised and looked into by the Commission, although I understand that it would involve another Brussels Directorate than DG4, which deals with competition. I was very glad to note a recent Motion for a resolution in the European Parliament along those very lines. I hope that will bear fruit.

As my third and final point, I emphasise that, for reasons that I hope have become apparent, we could not confine our inquiries within the United Kingdom. We received written evidence from the European Shippers' Councils and oral and written evidence from CAACE, a body which represents the ship-owners' associations in the Community. However, as the implications of the regulation went further still, we had to go outside the Community and we also consulted a body to which I think I have already referred, CENSA, which covers the ship-owners' associations of the whole of Western Europe and Japan.

That leads me to my conclusion. I wish to thank all who were involved in the inquiry: my colleagues on the sub-committee, our specialist advisers, our clerk and all those organisations, trade unions and individuals, including officials of the shipping policy division of the Department of Trade and Industry—now, I understand, the Department of Transport, to which my noble friend belongs—all of whom went to such enormous trouble to provide the evidence we needed. It is all in the report to be read. Generally, the effort, the interest shown and all the evidence were most impressive. This indicates the importance placed on the whole subject and the anxiety shown by so many people, both at home and abroad, to contribute to what I hope will be a useful report.

In closing, let me illustrate that with one telling example of the interest and co-operation. A moment ago I referred to CENSA. When we took oral evidence from its representatives, we had with us, apart from the British delegate, a delegate from Hamburg, West Germany, and a delegate from Paris, France. A delegate from Milan was, unfortunately, partially through ill-health and partially through a strike of air traffic controllers, unable to be with us. We also had a delegate from Norway, a Mr. Werring, who is a very eminent shipowner. It so happened that Mr. Werring was on holiday in Miami, a long way away. Yet he felt that the importance of coming to this country to give evidence to your Lordships' Committee was so great that he took the trouble to travel all the way from Miami to do so and went back afterwards. I think that speaks for itself. I beg to move.

Moved, That this House takes note of the present situation of the shipping industry and of the report of the European Communities Committee on EEC Competition Policy: Shipping (3rd Report, 1983–84, H.L. 23).—[Viscount Rochdale.]

5.9 p.m.

Lord Underhill

My Lords, it is a pleasure and a privilege to follow the noble Viscount, Lord Rochdale. Any noble Lord who did not already know of the noble Viscount's great interest in shipping would have appreciated it from the speech we have just heard. It is what one would expect, bearing in mind that he was chairman of the committee of inquiry into the shipping industry in 1970, the report of which bears his name. I also rise with some trepidation because I was not a member of the sub-committee which presented this report and there are a number of other noble Lords to speak who have associations with the shipping industry. I congratulate the noble Viscount on his excellent summary of the whole report and his views on the future of the shipping industry, and on this report itself. I found it, as he said, a useful report, a fascinating report, although not one that I recommend to re-read, as I did, for bedtime reading.

We must not overlook the fact that the 1982 Merchant Shipping Act, the Third Reading of which was supported from these Benches, implements the United Nations Liner Code as adapted by the Brussels package, to which the noble Viscount has referred. The draft regulations confirm that Brussels package and, as the noble Viscount has pointed out, would exempt liner conferences and limited agreements from the bar of restrictive practices under Articles 85 and 86 of the Community treaty. It also includes a number of conditions which, as has been pointed out, could conflict with the United Nations code.

May I just comment, in passing, that it is interesting to note how very easily the Commission can set on one side articles of its Treaty when it considers it is necessary to do so, and that is what it has done in the case of the Brussels package.

Various sections of the report and the evidence presented to the committee deal with this question of restrictive practices; but it has to be kept in mind that liner conferences have operated for some hundred years, and if not actually restrictive practices, surely they do take the form of cartel. The loyalty agreements are also surely a form of discrimination in trade. I am not attacking liner conferences; I am not attacking the loyalty agreements; but I must stress that surely these are examples of managed trade which are not just left to the market to sort out.

The report sets out various developments in shipping practices and operations and it mentions some: it mentions the container revolution, newcomers in the form of outsiders coming in, development of consortia and also development of new national shipping lines. Paragraph 44 of the report observes that all these changes work towards the erosion of conference power. That is important in the light of the main recommendations of the committee.

For these reasons, and also the points made under international repercussions in paragraphs 71–78 of the report, the conclusion of the committee not to support the draft regulation would seem to be the right course. As argued in paragraph 95, just to maintain the status quo could present problems, and the noble Viscount intimated that there could be possible legal repercussions if the status quo situation was adopted.

The second course of action suggested by the committee, the adoption of a provisional regulation to last for a minimum period—the committee suggest five years—which would provide exemption for liner conferences, loyalty and other agreements between shipping lines and shippers, would enable the position to be reviewed during the interim in the light of all the many changes in shipping that may take place, to which I have referred and to which the noble Viscount also referred in his speech.

The paragraphs under the state of British shipping refer to the startling decline in the size of the British fleet over the last decade during which there has been a substantial increase in the world shipping fleet. I was very pleased that the noble Viscount gave actual details and figures (which saves me repeating them) to show how alarming is this decline. This serious situation was also referred to in the report by the evidence from the Department of Trade, the General Council of British Shipping, the British shippers councils and also the two main seafaring unions. They all emphasise this alarming decline in the British shipping industry.

The Motion before us does not deal with just taking note of this report. As the noble Viscount has said, it also takes note of the present situation in the shipping industry, and as supplements to all the evidence in this report—if one needed any supplements—I found it useful to refer to two other publications: one is British Shipping Heading for the Rocks, which was produced by the National Union of Seamen in December last year, and the other is the British Shipping Review 1982, published by the General Council of British Shipping only as recently as September this year; and I shall refer in my subsequent comments to some points made in those documents. The two documents reflect different approaches and solutions but both would seem to be directed to the same end: to retain Britain's share of the world shipping; to maintain shipping receipts; to assist in the balance of payments; to assist Britain's export trade, and to look to the interests of seafarers. Note that the last point is included.

The report, in paragraph 37, refers to the fall in competitiveness, particularly in cruising and dry bulk fleet, where the report says: Competitors, notably ships manned by Far Eastern crews, have lower manning costs than United Kingdom operators". This point was taken up, I noted, by the National Union of Seamen, who claim that ship-owners have looked to cut costs by lower wage agreements, reduced manning and more inflexibility, and some have transferred ships to flags of convenience. Similar points were made in evidence given by the Merchant Officers' Association. The General Council of British Shipping countered that the use of flagging out as a term of abuse conceals the fact that a shipping company, to stay in business—and I am quoting from the general council's view— must be free to put its ships under the flag most likely to serve the success of the enterprise and an owner must decide whether to own ships under his country's flag or under another country's flag or by charter". If we were left with that statement, that, I would suggest to your Lordships, is very alarming. The General Council of British Shipping has urged that the Government should interest a company in having a ship placed under a British flag by providing a favourable fiscal régime and should give positive political support against the activities of foreign Governments.

There is, I think noble Lords will agree, increasing concern about the growing penetration of the British fleet by foreign owners, and I understand that the Department of Trade itself estimated that at the end of 1980 some 40 per cent. of the United Kingdom registered fleet was controlled by foreign interests. That statement was clearly made in one of the documents to which I have referred. The National Union of Seamen argue that changes in the British shipping industry in terms of size, structure and control mean the industry is facing a precarious future. They urge simple protectionist and, I would say, interventionist measures, as an interim step to a longer-term policy of preservation and development of our shipping industry.

The General Council of British Shipping observe in their document—and I hope the Minister may have something to say about this, that the Government is totally opposed to any form of direct assistance to the industry, even the limited fiscal incentives which the General Council has advocated. There is to be no subsidy, no control, no protectionism. The industry will have to stand on its own two feet and prosper or decline as a result of its own efforts". I have taken that quotation from the General Council of British Shipping's own document; not a socialist periodical.

Is not the National Union of Seamen correct in arguing that worldwide shipping does not operate in a free market? In fact, it is doubtful whether it has ever operated in a free market. I am almost tempted to refer to the speech of the noble Lord, Lord Boyd-Carpenter, yesterday, but I will not.

Price fixing is well established either through liner conferences or multinational company manipulation. Virtually every fleet receives some form of subsidy and many countries follow various forms of protectionism such as reserving coastal trade to the vessels of the nation's own fleet and the reservation of Government generated cargo to national flag vessels. Britain has avoided these two measures, but our main competitors and European partners do not. The United States, Japan, Greece, France, West Germany and Italy, for instance, follow those two practices.

The United Kindom has continued to honour trading principles laid down in GATT, but, again, our competitors have begun to conclude bilateral agreements that take the form of trading discrimination. The Merchant Navy and Airline Officers' Association states that United Kingdom workers in the industry are concerned about the way in which competition in shipping is distorted by other member states of the Community through failing to accept international conventions, operating under non-Community flags, employing non-Community seafarers at cut rates and receiving either direct or indirect financial assistance from their Governments. Every one of those measures would appear to be not in conformity with the aims and aspirations of the Community treaties.

The Select Committee has made clear that it saw no reason why regulations should not include social factors such as wages, general conditions and manning. I am pleased that the noble Viscount stressed this point in his introductory speech. Why is it not possible, when the United Kingdom is considering a regulation dealing with a particular industry, for social factors to be included in that regulation, whatever the industry, shipping or any other? When the question of conditions not being observed by all nations is so important, this would appear to be a particularly important factor in any regulation dealing with the shipping industry.

Words and aspirations about leaving freedom in shipping are not enough when our competitors and our Community partners do not follow that course. It seems that we are in a situation where there is general recognition that the shipping trade must be regulated and not left to the market. If measures of temporary protection or, if I may so express it, intervention or even management—management may be the better word—are not to be followed, I must ask what positive action is to be taken internationally before British shipping suffers further decline.

This decline has taken place at a time when there has been no holding back due to restrictive practices. According to general philosophy, there have been no restrictions. There is one encouraging feature. The unions hold the view that British shipping has always been able to compete in technical efficiency, scale economies and general high standards. They have emphasised that these factors must not be allowed to slip back. The General Council of British Shipping has offered the two largest unions the opportunity to work out jointly broad lines of support that the industry should seek from the Government. That is encouraging. I hope that this course will be followed by the General Council and the unions concerned. If the conclusion of the Select Committee is adopted and there is an interim regulation instead of the draft regulation proposed, that will give a breathing space to look at all the issues involved.

I conclude by expressing my impression that this extremely useful report is not about a free market. It is really about planning and managing the shipping trade. That was also evident from the speech of the noble Viscount.

5.24 p.m.

Lord Greenhill of Harrow

My Lords, it was a great privilege to sit on the committee under the chairmanship of the noble Viscount, Lord Rochdale. His long and authoritative connection with the shipping industry, far from breeding prejudice, enabled us to reach conclusions of a very fair-minded kind, conclusions with which I fully agree and which I believe are generally accepted. I shall speak very briefly and confine myself to two points prompted by the report; first, the role of the Commission in this matter, and, secondly, the chilling paragraphs 34 to 38 headed, "State of British Shipping".

First, the role of the Commission. The Commission has a very difficult role to play in the affairs of the Community. It would be remarkable if it could from time to time escape justifiable criticism from one quarter or another. It has the duty to try and ensure that the Treaty of Rome is implemented. It has the legal duty to do this. It is a duty that it must, and does, take very seriously indeed. But, at the same time, it would be best if it exercised its zeal selectively. The treaty was drawn up in certain political and economic circumstances, and the treaty naturally reflects these circumstances.

The circumstances are now vastly different, and it seems to me that members of the Commission are sometimes a little insensitive to the changes that have taken place and plough on in a bureaucratic way doing things that they could, with advantage, leave alone at least for the time being. Competition in shipping is just such a case. The proposed regulation which the report examines could very well have been conveniently left on one side with a saving of a certain amount of trouble. The priority target in the Community transport world is surely European air fares where there is an obvious distortion of competition to the great and continued detriment of the consumer.

There is no such urgency in the matter of shipping competition, and the advent at long last of the United Nations code, however unsatisfactory it may be to developed countries, was another decisive fact, the consequences of which require monitoring over a reasonable span of time before appropriate EEC regulations are introduced. This is what the report recommended. We need the help of the Commission in the reform of the operations of the Community. All that I ask it to do is to deal with first things first.

The second point that I wish to make is entirely different and more important. It is the state of British shipping. Nobody could listen to the witnesses without being conscious of the appalling decline of our merchant marine. The reasons are plain enough. Some are beyond control. Others cry out for remedy. The decline of the merchant marine must also mean the decline of those activities which are dependent upon it and in which this country has traditionally played a major role. The names of certain noble Lords participating in this debate have been household words in the shipping industry for more than one generation. But, unlike some of our traditional industries, even its strongest critics could not reasonably claim that it has not moved with the times. It has a very enterprising and innovating record since the war. I have never had any commercial connection with it. However, during the last war I had a great deal of experience with the movement of men and material by sea in support of our forces. At that period the merchant marine served the war effort magnificently, as I saw at first hand in all the main theatres of the war. It may be for those reasons that the value of a powerful merchant marine for the purposes of defence of this country bulks unduly large in my mind.

Of course, it is hard to envisage another war which would impose a comparable burden on our shipping, and the capability of movement by air is a new and vital mitigating factor. But I think it would be beyond dispute that this country needs a strategic reserve of shipping for defence purposes. The extent of this reserve must be a matter of professional judgment but it must contain vessels of all kinds and, in particular, short sea and coastal shipping. The creation of this reserve needs the co-operation of both the private sector and the Government. For example, sales abroad of certain types of ships should be closely controlled. It may be that this matter is already in hand following the lessons of recent history. I hope that the Minister can assure us that this is so.

Leaving aside defence requirements, let me now turn to the normal role of the merchant fleet, which has to meet our commercial needs and which has always been a substantial earner of foreign exchange. Paragraph 38 reports the General Council of British Shipping's estimate that the fleet will be down to 600 ships of 16 million tonnes deadweight by 1985, that it will stabilise there and will be well placed to profit by the upsurge in demand following the world recession. The brunt of the reduction will be borne by tankers and bulk carriers. This optimistic picture is contradicted in part by the evidence of the seafaring unions. I am glad that both the previous speakers referred sympathetically to this union evidence which I commend to Members of the House.

Whether 600 ships of a rather specialised kind, including a greatly reduced tanker fleet, are sufficient to protect our commercial, let alone our defence, interests is a question that I cannot answer. I doubt it, and I have an uneasy feeling that the future will demand far greater Government participation in the protection of our merchant marine and a much higher priority for the shipping industry in the Government's consideration. But suppose the optimism of the general council about the future proves to be misplaced. I do not see how far greater Government intervention in the industry can be avoided unless we are to see a further weakening. The document that the Maritime League have circulated to many of your Lordships proposes much increased Government activity in international bodies to protect our interests. Certainly the full negotiating strength of the EEC must be mobilised and greater European co-operation is certainly a part of the answer—so are joint ventures with developing countries. But all this takes time. For example, the United Nations code took 12 years. While we are consulting, discussing and arguing we must take care that our British industry does not sink beyond the reach of rescue.

The Maritime League talk about a Minister of Shipping or at least a Cabinet committee—preferring the latter. Neither would be of value, in my opinion, unless the Government have the will to put things right by according the industry its rightful place in national priorities and coming to its aid at the proper time. We may be able to afford to allow the foreign competition to wipe out our motor-cycle industry, but the fate of our merchant marine cannot be left to market forces or to the mercy of subsidised competitors.

A strong merchant marine together with a modernised shipbuilding industry and efficient ports are not optional for this country: they are indispensable. We must surely will the means to create and maintain them. I cannot visualise it being done without additional Governmental intervention which is, of course, entirely contrary to the present Government's policy. I hope this policy can be reconsidered with a view to selective modification.

5.35 p.m.

Viscount Runciman of Doxford

My Lords, I apologise to your Lordships for intervening at this stage. I should explain that my reason for doing so is that my noble friend Lord Inchcape had intended to make certain points which represent to some extent the feelings of the General Council of British Shipping, but he has found himself unable to address your Lordships this afternoon and has asked me to do my best to make his points for him. Therefore, I can only try.

I suppose that I ought to declare an interest, as no doubt my noble friend would have done. For some 60 years, with the exception of seven or eight years in the middle of that period, I have been more or less directly concerned with the ownership and management of British shipping. Indeed, I remain a director of a company which still, I am happy to say, owns a few British ships manned by British seafarers. In the course of that time there have been a good many ups and downs. However, I should like to emphasise one of the many matters which my noble friend Lord Rochdale raised this afternoon in his masterly and masterful exposition, which really covered the ground so admirably that it is almost indecent to rise following him.

The depression which we are now experiencing is very much the worst that has occurred, certainly in my lifetime. It is different not only in extent, but also in kind, from those that went before. During the 1930 depression I had the task of trying to shepherd through a fleet of about 18 tramp ships without complete annihilation, and I am thankful to say that we succeeded. We had the advantage of capital commitments being spread over a larger number of units. So if we could not make a job with one ship, we stood a fair chance of making it with another. I suppose that today that fleet would have been covered, in tonnage terms, by about six bulk carriers—if indeed it took as many as that—all at very much higher capital cost.

You cannot effectively split a large ship into two when you do not have enough cargo for one big ship. That is one of the reasons why I say that this depression is entirely different in kind from those that went before. The other reason is the immense growth in the number ships, most of which are well built and competently manned by people from places such as Hong Kong, or even Korea. Their conditions of employment are such that they can run them a great deal more cheaply than we can in this country, in particular in the bulk trades.

The liner trades have also suffered. As my noble friend Lord Inchcape was going to say, the situation has been just the same for them—too many ships chasing too few cargoes. Those who invested prudently, as well as those who speculated rashly, have suffered a drastic decline in income.

Shippers may gain—and I think to some extent probably have gained—by the fact that under these conditions freights have been very much lower than they would have been had there been a smaller over-supply of tonnage, or even no over-supply. Liner rates have gone down, too. But, as has already been said, tankers and bulk carriers have carried the real knock. When one considers a state of affairs where a half million tonne tanker, costing 100 million dollars seven years ago, has been scrapped for 7 to 8 million dollars, one gets some measure of the catastrophic decline which has taken place.

It has already been said—and I can only emphasise it—that competition has never been stronger than it is today, and that there is competion just as much in the liner trades as there is elsewhere. The developing countries, in particular in the liner trades, have wished to assert their right to carry a large part of the trade, and it was that assertion by them which started in about 1974 and finished in the code to which reference has been made this afternoon.

British ship-owners did not like the code—I am not sure that even now we like it very much—but over the years they began to think that an international code of reasonable and reasonably limited effect was better, or at least less bad, than individual Governments adopting their own measures independently and probably competing to see which could do best for themselves and worse for their competitors. That really explains the origin of the code.

I should like to say very forcefully indeed—as, I know, my noble friend should have wished to do—how strongly we agree with the conclusion of the committee that the regulations should not be proceeded with until the code has had a fair run and has been fairly monitored.

I do not think that I can usefully say any more than that. Of course, there are many aspects which were touched on by the noble Lord, Lord Greenhill of Harrow, but I am a surrogate(or whatever the right word is), and I should not wish to detain your Lordships longer than to say what my noble friend Lord Inchcape would himself have said; namely, how very strongly he from within, and I from without, the committee support its findings and hope that they will meet with the approval which they deserve.

5.44 p.m.

Lord Hill-Norton

My Lords, I intend to devote most of my time this afternoon—and a short time it will be—to the first part of the noble Viscount's Motion: namely, the present state of the shipping industry; because it is in a parlous state which requires urgent and decisive action by the Government if it is not to become irreversibly worse, even terminal. I should like to make one or two brief observations on the report of which your Lordships are asked to take note.

First, may I refer to the economic climate in which the shipping industry has to operate, and against which the EEC Commission's proposals should be considered. As other noble Lords have said, the effects of the world trade depression and recession have been compounded by the pursuit of protectionist policies in a significant and growing number of trades. Shipping companies are also subject to severe competition from both commercial and non-commercial competitors.

Of course, competition is an everyday fact of business life and no one would deny the benefits that it brings. But there are disturbing signs that genuine competition is being increasingly precluded by protective legislation in developing countries—the non-commercial or dumping services operated by the Soviets in particular—whether it be in normal trading or in the cruise ship market, and by other threats to the free-trading system.

Sadly, even among some of our oldest and closest neighbours within the European Community and in the North Sea, our short-sea and offshore shipping companies are faced with restrictive governmental practices, discriminatory fiscal treatment, and unnatural competition from heavily subsidised operations, to which the noble Lord, Lord Underhill, referred.

Against that background, I believe that the noble Viscount's committee is to be warmly commended on an admirably commonsense approach to the Commission's proposal to apply the EEC competition rules to shipping. Because there is a certain, though obviously not total, similarity of purpose between this proposal and the UN Liner Code Convention, to which other noble Lords have referred, and because that convention came into force last month and will shortly be ratified by Her Majesty's Government and other EEC states, it seems entirely logical that Community member states should live for a while with the realities and workings of the code before a decision is taken on this new proposal. The shipping industry has welcomed the committee's recommendation that further consideration of the proposal should be postponed for five years, and I share the view of the noble Viscount, Lord Runciman, that this must be right in the circumstances.

However, I am less happy with the further recommendation by the committee—this was also recommended in the speech of the noble Viscount, Lord Rochdale—that an interim regulation should be adopted in the meantime which would provide conferences with a widely-defined exemption from the Community's restrictions on monopolies. I see dangers here which require very careful weighing up, for the adoption of an interim regulation of the type proposed could produce even greater uncertainty than at present exists. I am aware that the GCBS is on record as firmly opposing this part of the report, and there are already other systems of monitoring, notably the mechanism which exists for monitoring non-commercial, and particularly Soviet, competition in certain trades. There would, therefore, seem to be no pressing need to cobble together some temporary Community regulation for monitoring the code.

There is only one other point in the noble Viscount's report which I should like to mention. I should like to add my voice to those of other noble Lords who have welcomed the recommendation of the noble Viscount's committee, that no artificial restriction —such as a limitation to 70 per cent.—should be placed on the traditional right of ship-owners and shippers to negotiate freely whatever loyalty agreements may seem to them desirable.

May I turn now to the present state of the shipping industry, which I have described as "parlous"—and all noble Lords who have spoken today have reinforced my point. On the harsh facts there can be no doubt that the word is both justified and appropriate. There can equally be no doubt on the same facts that the remedial action so desperately required can only be taken by the Government, and the noble Lord, Lord Greenhill, referred to this. It gives me no pleasure to remind your Lordships that Ministers collectively have so far shown little public sign of being aware of the dangers staring us in the face, much less of any inclination to take action to avert them.

What are these harsh facts? It is necessary for me to be very brief on this occasion, so much must be left unsaid. At the very least, it must surely be common ground that a thriving maritime economy is in the interests of everyone in Britain, from the housewife to the chiefs of staff. Without it, our trade and security, our commerce and industry, and perhaps our very futures, are directly threatened, even in peace-time. As the noble Viscount, Lord Rochdale, has said today, during the last seven years alone our ocean fleet has halved from over 1,600 ships to under 900. It is neither subsidised nor protected. But world shipping has increased in the same period from 440 million tonnes to 680 million tonnes today, and this is because subsidised shipyards the world over are pumping out new tonnage, and there are always speculative, subsidised or protected owners willing to buy at these knockdown prices.

In the same way, in the last three years our fishing fleet has declined from 45 distant water vessels until today we have less than a dozen. It is not too fanciful to say that the Red Ensign is today flying at half mast. The same story is true of shipbuilding. We taught the world how to build ships. Less than 30 years ago we built more ships than any other country in the world, but today we are sixth in the shipbuilding league, and going down. I need not, I think, continue this dismal catalogue, but it must be said that years of indifference, neglect, wishful thinking, and taking it all for granted, are largely responsible.

What do those alarming figures that I and other noble Lords have given today mean? Given that British merchant shipping has proved in the past to be a major source of national revenue, its present reduced state, resulting in a reduced contribution, coupled with its continuing steep decline, and the defence considerations mentioned by the noble Lord, Lord Greenhill, which I shall leave alone today, must give cause for major national concern.

The causes are largely outside the control of British ship-owners. They include the worldwide recession, already discussed, coupled with excessive and mainly political ambitions on the part of the developing world and COMECON. The international shipping market has become chaotic and not subject to normal commercial activity. In addition to a serious loss of revenue, our home trade is falling increasingly into foreign hands, and our cross-trading is threatened. The reduced size of our merchant fleet has important strategic implications too, not only for the supply and security of the United Kingdom base but in distant operations as well.

In line with the merchant fleet, the number of qualified seafarers has sharply declined, and the training base which provides them has been run down. This latter point could not only well be the governing factor in the fleet's recovery, but it also sharply affects the number of trained men available for the Royal Navy in emergencies. Once lost, few, if any, of these maritime enterprises and their supporting industries, their shore facilities, educational and training establishments, may, I emphasise, ever reappear.

As a densely-populated island nation whose prosperity depends so critically on its industry, the United Kingdom more than any other country, except perhaps Japan, needs a substantial and continuous flow of imports and exports. The volume was 157 million tonnes and 108 million tonnes respectively last year, and 99 per cent. of those cargoes must come and go by sea, and must always come and go by sea. You would agree, my Lords, I am sure, that we cannot sensibly allow any part of that trade to be dominated either by an economic competitor or by a potential enemy. Yet, unless the various declines in our merchant fleet are soon arrested and reversed, this is precisely what is inevitably going to happen.

There is, quite plainly, no sudden cure; nor is there a single cure for these quite separate, though related, ills. There is one underlying factor, however, and a common factor which could be dealt with at once, and with dramatic advantage. It is clear that there is today no co-ordinated national maritime policy. It is my view, my Lords, that, to find out why this is so, we must look very hard at the actual management by the Government of the whole "sea affair", as Churchill called it.

Shipping is currently the responsibility of the Secretary of State for Transport. It is also of concern—in some instances to a major degree—to no less than 13 other departments of state: Defence; Foreign and Commonwealth; Exchequer; Agriculture, Fisheries and Food; Trade and Industry; Education and Science; Employment, and I could go on. But there is no single effective national body with the information and authority needed to reconcile the conflicting interests of all those diverse Government departments and to formulate a national policy which would stimulate the growth and prosperity of shipping and the related British maritime interests.

Other countries have tried to solve this problem through the appointment of a single commission. They have failed because such a body lacks the necessary clout to deal with the more powerful and older-established departments. From my many years in Whitehall, I have no doubt that nothing short of a Maritime Policy Committee of the Cabinet, as powerful as the Defence and Overseas Policy Committee, would have the necessary authority to draw all these threads together and then make, and drive through, a coherent national maritime policy to avert the dangers—indeed, perhaps even the disaster—that have described.

5.57 p.m.

Lord Mottistone

My Lords, it is always a pleasure to follow the noble and gallant Lord, Lord Hill-Norton, in his trenchant remarks, with which one so often has deep sympathy. I should first like to thank my noble friend Lord Rochdale and his subcommittee for their most useful report, and indeed for the helpful introduction that my noble friend gave to us. It was also a pleasure to find unexpectedly my noble friend Lord Runciman addressing us with his great experience of shipping, about which we all know.

As are many other noble Lords, I, too, am profoundly disturbed at the state of the shipping industry, whose decline over the past 20 years has been so dramatic. An endangered species, my noble friend Lord Rochdale called it, and that is very true. Of course, as a sailor my heart is with the Merchant Navy. I spent most of the last war escorting convoys, and therefore am particularly concerned for their future. I admired greatly the efforts that they then put in. However, for this debate I have to declare an interest being in the employ of two food-processing trade associations, and being responsible for exports on their behalf. I shall thus put a rather different view from other noble Lords, which I hope will add to the debate; the view of exporting manufacturers. I have been advised in particular by the British Shippers' Council.

In listening to the noble and gallant Lord, Lord Hill-Norton, it struck me that the point that he made about a special committee was a sound one, but it crossed my mind that perhaps it is unfortunate from the point of view of exporters and traders, whose views I shall try to put to your Lordships, that the responsibility for shipping has been moved from Trade to Transport, because it will emphasise yet more the difference that there is between how the Government look at shipping and how the Government look at trading.

Twenty years ago conferences could call the tune in their dealings with shipper customers for export from the United Kingdom, because collectively they had a monopoly position, and they used it. Since then demands by British trade unions, on which the noble Lord, Lord Underhill, commented, however well justified from their point of view, have made British shipping so uncompetitive that it is becoming increasingly difficult for even the most patriotic trader to justify using it. It is a sad thing to have to say, in view of what other noble Lords have said, but it is a fact, especially so when overseas competitors are subsidised. But even without that added burden, how can a ship be competitive if its crew has to have five months' leave during the year, when a Taiwanese crew, for example, has only one month? It means, in effect, two crews for every ship. I cannot see how we can continue that way if we want the British shipping industry to survive.

It is against that background that one considers the report of the Select Committee. From the point of view of traders the report is profoundly disappointing, because its very tenor shows a bias towards the interests of the shipping companies. I appreciate that it would be a disaster with probable strategic implications for Britain to have no merchant fleet. The noble Lords, Lord Hill-Norton and Lord Greenhill, mentioned that. It would be an even greater disaster if British exports, on which our survival as an independent country absolutely depends, were to be priced out of the world market to preserve a declining shipping industry.

I am forced to the conclusion, therefore, to which both the noble Lords, Lord Greenhill and Lord Hill-Norton, came, that in the end there must be some sort of subsidy. If there is a strategic need to retain the merchant fleet—and I believe there is—it has to be subsidised out of defence funds, like its principal rival the Soviet merchant navy. It is an inescapable solution for shipping. Perhaps then it might be able to present reasonable rates to shippers, to the traders who would like, if they could, to use its services, provided that they were competitively charged.

In examining the report's summary of conclusions in detail, I turned to pages xxxii and xxxiii to pick out particular points on which I believe the committee went in the wrong direction. The first is in the general conclusions in sub-paragraph 100(k), which says that any regulation must take full account of the United Nations code and its effect on competition. Of course, it has to do that in the sense that the regulation is written for that purpose. But that is not comparing like with like because the UNCTAD code relates to sharing cargoes and continuing the cartel and conferences, and Article 85 of the Treaty of Rome is all about ensuring competition and protecting consumers or customers by prohibiting cartels and price-fixing agreements and prohibiting abuses arising from a dominant market position.

The noble Lord, Lord Greenhill of Harrow, said that there is this great difference and therefore we should wait to see what the code produces and should not rush into producing regulations. But the trouble with doing so is that, in the meantime, the traders may find that they cannot compete in the market. Traders must trade, and traders cannot trade if the competition rules are stacked up against them.

Because of this I suggest to my noble friend Lord Rochdale that perhaps his committee should have paid more regard to its own sub-paragraphs 100(i) and 100(j), which I support. I should perhaps remind your Lordships of what those paragraphs said. Paragraph 100(i) says: Although the draft Regulations would not lead to any immediately identifiable legal conflict with foreign rules, there could be undesirable political repercussions". Yes, indeed there could. We are having all sorts of trading difficulties, particularly in food trading, with all sorts of threats from the United States against practices which the EEC adopts. This is growing rather than diminishing. I should have thought that the balance of the report should have given greater regard to that. Paragraph 100(j) goes on to say: There is a risk under the draft rules that Community lines will be penalised more than foreign lines". Yes, indeed, there is that risk. It needs saying more forcefully in covering the general conclusions.

Turning now to the points of disagreement. I pick up sub-paragraphs 100(d) and 100(e). Paragraph 100(d) says: A mandatory rule limiting loyalty agreements to a fixed proportion of a shipper's business would be unenforceable in practice". That is the point that the noble and gallant Lord, Lord Hill-Norton, touched on briefly.

I am absolutely convinced by the arguments that have been presented to me by the British Shippers' Council that it is not the case that a mandatory rule limiting loyalty agreements to 70 per cent. would be unenforceable in practice. For a start, 80 per cent. of the United Kingdom exports are made by only 150 trading companies whose operations can be readily monitored. The remaining 20 per cent. of exports is spread over some 6,000 to 7,000 smaller concerns, each of whose custom accounts on average for a very small proportion of the cargo carried.

Also relevant is paragraph 3 of the British Shippers' Council's written evidence on page 50 of the report, especially the last sub-paragraph at the top of page 51. I will not bother with the detail of that but your Lordships may wish to turn to it. I mention it in that sense because I have a feeling that the committee, in producing its report, was carried away by the other evidence from other people who perhaps did not give sufficient consideration to the information provided for them by those who represented the customers.

I dislike saying this, especially in these days of containers, but ships are rather more like lorries than they used to be. We are talking about whether the lorry drivers should be the people to be given major consideration or whether it should be the people who provide them with the goods to carry on which their livelihood depends. I suggest to your Lordships that it is the people who provide the goods to carry whose view deserves greater weight than it has been given in the report.

Paragraph 100(e) of the Summary of Conclusions reads: Measures to counter disparities in rates would not be appropriate". On the contrary, some action is essential if the competitiveness of the British exporter vis-à-vis his continental rival is to be fair and equal. In touching on this point in his recent speech to the General Council of British Shipping at their annual dinner, my right honourable friend the Secretary of State for Transport said, among other things: We want all markets to remain open. Our exporters and our importers must remain as they now are, free to ship their goods with the carrier of their choice because the marketing of our exports and the cost of our imports both depend upon it". It seems to me that my right honourable friend the Secretary of State recognises that to trade successfully an exporter must have fair competition. The circumstances which led to the production of this report are tending not to give him that fair competition. For that reason, I believe that the reasoning in paragraph 87 of the report relating to the question of disparity in rates appears very weak. A better line of approach would be that in the British Shippers' Council's recent submission to the Department of Trade on this subject, at the foot of page 53 and the head of page 54.

In view of the fact that I feel that the balance in the report is wrong, it distresses me somewhat—as the splendid reports of the Select Committee, which are now highly regarded throughout Europe, are well read in the Commission and the European Parliament, and indeed, I believe, by Governments of other member states—that this report will in fact be read by them but they will not get copies of Hansard, so they will not have the opportunity to read that there is another point of view in which the balance of the argument perhaps might be shifted a bit towards the people who are the customers of the shipping lines. It would be helpful if my noble friend on the Front Bench could tell me whether an attempt to convey a different opinion on a report of this nature is an effort which the Government would feel they could put across to our fellow members of the Community and to the commission.

In conclusion, I repeat that the survival of this country and of our EEC partners as independent nations depends absolutely on competitively priced exports. This essential truth must dominate consideration of any study, such as the report we are debating, which has a relevance to exporting.

6.12 p.m.

Lord Greenway

My Lords, may I join other noble Lords who have already expressed a welcome to the report of the noble Viscount, Lord Rochdale. We all know of his great experience in the shipping world and the extremely hard work that he has put into the shipping industry over the years. In explaining his sub-committee's report, he casts his net very wide, and very sensibly, to bring in the general overall situation existing in shipping today. As it is not often that we have the opportunity of a fairly general debate on shipping, I find it doubly welcome.

We are all aware of the cyclical nature of the shipping industry. The noble Viscount, Lord Runciman, has referred to the depression in the 1930s. The same thing was happening a hundred years ago. These depressions affect everybody, big and small, in the shipping industry. If I may, I will recite the recent history of a well known large Danish company, DFDS. It might give your Lordships some indication of how quickly things can change in the industry. About 10 years ago, this company was going through a very bad period and they brought in new shipboard-management concepts which broke down the former centralised structure of the company and which in the course of five to seven years, proved to be very profitable to such an extent that last year DFDS, narrowing it down to the confines of their North Sea operations, had taken over almost all the competition and, in fact, had a virtual monopoly of North Sea passenger and railroad traffic. The position today, only a year later, is totally different. The company obviously overreached itself and is now going into a very speedy retrenchment, selling off ships left right and centre. Only today I see in the paper that they are thinking of selling off another part of their operation.

It has been said time and again that shipping and politics do not mix; but, with protection and subsidy as it exists today, the position cannot be said to be any different now from the days of, say, Christopher Columbus and Francis Drake. On top of this, shipping has changed dramatically in the last 20 years with the advent, for instance of containers, and unforeseen circumstances such as the dramatic increase in oil prices. These in turn have brought massive waste to the shipping industry. Take, for instance, the advent of container ships. They displaced literally hundreds of comparatively new cargo liners, the finest of their type ever built, which were sold off to other countries which did not necessarily want them and did not necessarily know what to do with them either.

These container ships which were then built—and very expensive ships they are, too—were subsequently affected by the oil price rise, so that their steam turbine engines had to be ripped out and replaced by the more efficient diesel engines, leading to more waste. The recession brought about by the oil price rise has affected the tanker market enormously. We have the instance the other day—a record, perhaps—of a four-year-old very large crude carrier, or VLCC, sister of the ill-fated "Amoco Cadiz", being sold for scrap after only four years. And I do not think that this waste is necessarily going to end just like that.

We have heard from many noble Lords of the disastrous situation, the over-tonnaging and so on, which is facing shipping today, but, on top of that, we still have instances of certain companies ordering yet more ships. I may cite an example in the dry bulk trade, which is already highly depressed. They were the last of the trade to be so affected, but there is a company in Japan which recently placed an order (or is thinking of placing an order) for 100 bulk carriers. That can do nothing but exacerbate an already very alarming situation. It is not a happy situation.

May I digress, my Lords, to say a brief word about manning, which the noble Lord, Lord Underhill, brought up? I think that perhaps here ship-owners are beginning to learn through their own experience that using cheaper foreign crews to man their ships is not necessarily a cost-effective operation. I should like to cite one example about which I heard recently, where an experienced seagoing man took passage on a new chemical tanker. He was awoken in the middle of the night to find all hell broken loose and he felt that the ship was breaking up around him. He scrambled up to the bridge as fast as he could, where he found the master grim set and determined, looking out of the bridge windows and the ship steaming into a force 10 gale at revolutions which would have given her her normal maximum surface speed and she was in fact making only two or three knots. This gentleman asked the master what he was doing. The master walked over to a corner of the bridge, pulled out a massive tome and thumbed through it. He eventually arrived at the passage he was looking for and displayed it. It said: Masters must use utmost diligence in ensuring the speediest transit times between ports". That is only a small example, but it shows the sort of thing that can occur when ship-owners choose to use foreign crews.

What are the Government going to do? I suspect not very much. A recent shipping Minister confided in me not very long ago that he was anxious to help ship-owners but he found it very difficult because they could never agree on precisely what they wanted. I suspect that that is due to the very complex nature and diversification of the present-day shipping industry. One thing is certain: more restriction and legislation such as the EEC proposals are not necessarily going to help and can only lead to further inefficiency in the longe term, which is of benefit neither tonor shipper.

On the subject of inefficiency, I am brought round to the Soviet and COMECON merchant fleets, which have already been referred to by several speakers. There we have perhaps the biggest bureaucracy in the world, and bureaucracy leads to inefficiency. That is a saving grace, as far as we are concerned in shipping. If the Red fleet were as efficient as ours we should be in trouble. They are competition indeed, but far more worrying—and I am sure the Government are aware of this—is the competition from the aggressively efficient outsiders: companies such as Taiwan's Evergreen and Yang Ming. The former is soon to start a new round-the-world container service which will include a North Atlantic leg, thus further adding to the confused and over-tonnaged position there already.

Perhaps at this stage I may add a tiny tongue-in-cheek rider, if I can find it in my notes, from today's issue of Fairplay, which I found in your Lordship's Library. It refers to the recent comments of Mr. John Eyre, the former chief executive of Canada's last foreign-going deep sea merchant fleet. He made a speech recently in which he drew attention to Canada's foreign shipping policy, the finest shipping policy of all—that of a zero deep sea merchant fleet. He said it was perhaps tough luck on the handful of deep water seamen but, with rates depressed, a huge surplus of shipping and a shortage of cargo, the majority of Canadians—farmers, manufacturers, miners and paper mills—enjoyed excellent shipping services and low rates. It is this, rather than the erudite theories of UNCTAD which he feels will eventually carry the day in favour of the traders, even though it takes a little time.

"Time" is the critical word there. I certainly am not suggesting that our Government should adopt such a policy, but I think some of the developing countries would do well to take note of the implications. They are learning the hard way at the moment—and especially today, when I read that Nigeria is thinking of cancelling an order for new ships because the banks will not give them the necessary finance. In conclusion, I think the committee's suggestion of the deferment of the draft regulation is a wise one. Time will produce the answer, as it always has done in the past.

6.24 p.m.

Lord Geddes

My Lords, like my noble kinsman the noble Viscount, Lord Runciman, I have to declare an interest in that I hold office in a British shipowning company. Indeed, one of our ships has recently returned from duty in the Falklands after 15 months—the second longest continual period of service by a merchant vessel in that area.

The noble Viscount, Lord Rochdale, and his sub-committee have clearly done this House a great service in providing this report and I very much echo the comments that have been made already in that respect. The task of the sub-committee was to address itself to competition policy, shipping. It did so with great skill but only with regard to liner shipping, which of course includes container shipping, bulk shipping and ferries. There are, as has already been pointed out, other areas of shipping, also important to our country and to our owners. I will restrict my comments, if I may, to an area not so far coverd in the debate today; namely, the offshore support vessel industry.

My noble friend Lord Lucas will, I am sure, know that the General Council of British Shipping has had discussions with a number of relevant government departments on the specific subject of the United Kingdom offshore support vessel industry. Indeed, I am aware that on that subject the president of the GCBS wrote last month to my right honourable friends the Secretaries of State for Energy, Transport, Scotland and Trade and Industry. It would be entirely wrong for me to draw your Lordships' attention to the detailed context of such correspondence, but I hope your Lordships will allow me to paraphrase what I personally have said at three recent ship launches in this country over the last year.

In the context of fair competition in the offshore support vessel industry, offshore exploration and support is an international business, and surely we would not have it otherwise. But "international" does not seem to mean the same thing to all people. If we look at the statistics as they affect the activities and employment of the 289 offshore vessels currently in the North Sea, your Lordships will see how fair or unfair the position is. Of the 289, 32 are currently laid up and a further 30 uncommitted, leaving 227, if my mathematics are correct, employed on charter. Of those 227, 86 are Norwegian, 82 British, and 59 others. "Others" covers a fascinating variety of Dutch, Danish, German, American, Panamanian, Cypriot, Singaporean, and Bermudean.

So far so good; but when an examination is made on a sector-by-sector basis the following situation emerges: 142 vessels are employed in the British sector, of which apparently—and I shall return very carefully to that word in a moment—55 per cent. are British, 25 per cent. are Norwegian and 20 per cent. other. In the Norwegian sector there are 49 vessels employed, of which all 49–100 per cent.—are Norwegian flag. This sector flag disparity is not a new phenomenon but it has become exaggerated as the economic depression has deepened.

The problem appears to be three-fold: first, Norwegian versus British tax regulations, which encourage consortia of Norwegian private individuals to own ships; secondly, the Norwegian Government's credit terms are available, to the best of my knowledge, only on ships built in Norway and allow a three-year moratorium on loan capital repayments; and, thirdly, there is compulsory pilotage for non-Norwegian flag vessels operating into Norwegian ports on average every other day—whereas all vessels operating similarly at United Kingdon ports require a pilot regardless of their flag.

The effect of those factors is to give positive encouragement to the Norwegians to have off-shore support vessels built in Norway, and they enable such Norwegian owners to offer their ships at rates which have been calculated as at least £1,000 per day less than United Kingdom owners on otherwise like-for-like bases. Your Lordships will perhaps appreciate how catastrophic this is for the British off-shore supply vessel owners, when I say that this week one of our British built, British flag, British owned, British Government financed, British crewed vessels was employed at £1,200 per day gross, about half her break-even rate—hardly a climate to encourage British ship-owners to invest their money in British ships built, one hopes, in the United Kingdom.

That is not all. Such has been the conscience of both international charterers and Norwegian owners that, under pressure from the United Kingdom Off-shore Supplies Office, a number of Norwegian owners have recently set up—quite legitimately, I hasten to add, under existing legislation—brass-plate subsidiary companies in the United Kingdom and have switched their vessels from Norwegian to British flag and crew. By so doing, they have satisfied the current brief of the Off-shore Supplies Office, which under present legislation is restricted to the promotion within the United Kingdom sector of British flag and crew. It makes no reference to ownership.

While that is good news for British seafarers—and I genuinely applaud that—and indeed good news for Her Majesty's Exchequer, assuming that a taxable profit is made, it gives no lasting benefit either to the United Kingdom as a country, or to the United Kingdom's shipping industry, since in the example that I have given the ultimate owner remains Norwegian. He can retain his favourable finance terms and tax advantages, and leave United Kingdom ownership at will when he wishes. Such "flagging-in", as it is called, is pure window-dressing.

I earlier described the apparent statistics of national flag vessels in the United Kingdom sector as being 55 per cent. British, 25 per cent. Norwegian, and 20 per cent. other. If flags of United Kingdom brass-plate companies are put back to their ultimate owners, those same statistics for vessels in the United Kingdom sector become 38 per cent. British, 33 per cent. Norwegian, and 29 per cent. other; and, not surprisingly, the Norwegian sector statistics remain at 100 per cent. Norwegian flag. To put it another way, the Norwegians have one-third of the work in our sector, and we have none in theirs—hardly a chance happening.

May I comment that we, as British ship-owners, are proud to be British. We are confident of our ability to match, or better, ships of any other flag, provided that "all's fair". In the offshore support vessel industry, it is not. I urge my noble friend the Minister to ensure that the letters from the GCBS are read and understood, and that urgent action is taken not only by the four relevant departments, but also by the four Secretaries of State themselves. We are only 37 days away from 1984. I entreat my noble friend the Minister to ensure that all animals are indeed equal, and that the Norwegian husky is not more equal than the British bulldog.

6.34 p.m.

Lord Lucas of Chilworth

My Lords, at the outset I, too, should like to extend my thanks to my noble friend Lord Rochdale and his committee for the work which they undertook in the production of the report that we are discussing tonight. May I also add my thanks to him for his very clear explanation of the conclusions to which his committee came. While I am on the "thanking" side of our debate, may I thank him for his very kind remarks which were particularly directed towards officials in my department, when he was discussing the evidence which they gave. I wish, first, to respond to the report, because so very many points have been made that I think it will be helpful if I do that; and then, given sufficient time, I shall attempt to respond to the points made in the wider context of this afternoon's debate.

We have heard that the proposed European Community regulation is concerned with liner conferences. Liner conferences exist because Governments worldwide have been prepared in varying degrees to exempt shipping from the anti-cartel laws that apply in other industries. In the United Kingdom, this is reflected in the Restrictive Trade Practices Acts. It was put rather differently by my noble friend but that, in effect, is what it is about. This is a long-standing policy and it was, as we have been reminded, endorsed by my noble friend in his very important report of 1970, the Rochdale Committee report. It remains Government policy today, although of course it has inevitably become more controversial. However, there is one very important condition: conferences must not merely be Government-sanctioned monopolies. They are acceptable only as long as they are exposed to competition from any shipping line that chooses to compete with the conference on a commercial basis. Governments have favoured what has been called the "closed conference in the open trade".

My noble friend Lord Mottistone spoke at some length on the UNCTAD arrangements—the 1974 Code of Conduct on Liner conferences. Following ratification by Germany and the Netherlands earlier this year, the code entered into force last month between those countries which have ratified it. The Merchant Shipping (Liner Conferences) Act 1982 will allow the United Kingdom to accede. The main purpose of the code is to give the shipping lines of developing countries a right to share in the business of conferences. Community countries, however, are acceding on the basis of the "Brussels package", which my noble friend Lord Rochdale described to us. This is designed to ensure that, whatever protection may be given to developing countries, developed OECD and Community countries will be able to participate in the rest of each conference's business on an essentially non-discriminatory basis.

However, pressures continue from many developing countries to go well beyond the code and to apply cargo-sharing not just to that part of the trade carried by conferences, but to all liner cargoes; in other words, to suppress competition in liner shipping altogether. This would clearly run counter to our national interests: first, because we are a major cross-trading nation and our direct freight earnings alone on cross-trades account for two-thirds of our shipping revenues—something of the order of £1,540 million a year; and, secondly, because, as a major trading country, we are dependent upon the efficient and competitive carriage of our own exports. The right to compete, if necessary outside the conference, is the only effective guarantee of these interests.

It should therefore be clear that the Government do not accept the conclusion of the committee, that the code says all that needs to be said about competition and that all the European regulation needs to do is to endorse the code. That would be a blank cheque to the conference system. It would not, we believe, even be acceptable to the least liberal of our Community partners. The UN code is not primarily about competition at all. In particular, it provides no solution to the grave problem posed when foreign Governments attempt to eliminate independent lines from our shipping routes, and impose monopolies depriving our traders of commercial choice of carrier.

The Government believe the Community competition regulation must allow us to oppose those pressures and must find ways of restoring competition when a foreign Government tries to suppress it. So this is one way in which the Government believe that, certainly in the international sphere, the Community's regulation must be able not merely to endorse the code but to preserve and foster competition.

The domestic environment, however, is just as important. The Government, in their evidence to the committee, pointed to the concern felt by exporters: that they appeared to face substantially higher rates for the shipment of their goods than those faced by their continental competitors. The British Shippers' Council considered that competition appeared to be generally more vigorous on the continent, and argued that "loyalty agreements", which are often less well observed there than here, could be a significant factor. In their evidence last year to the committee, and also in a parliamentary reply on 20th October of last year in another place, the Government said that they considered that loyalty ties should be limited so that they may not pre-empt more than 70 per cent. of any one shipper's business. This has proved controversial, and we have heard this afternoon from a number of noble Lords that this is so.

I should make it quite clear, however, that the Government are in no doubt that the general exemption of liner conferences from both national and Community anti-cartel legislation should continue. Nor is there any question of banning loyalty ties, as the United States Congress may be on the point of doing. It is a question of balance, and the Government remain open to persuasion on this matter from both sides. I take this opportunity to assure the House that my honourable friend the Parliamentary Under-Secretary of State is taking a very close and very personal interest in it. Under his direction, exporters' views are being sought through the British Shippers' Council and the British Overseas Trade Board on whether the disparities in freight rates still cause undue and widespread concern. Clearly it is essential that the Government's information on such a vital point should be up to date. And while arrangements for the enforcement of loyalty ties are essentially a commercial matter to be worked out between conference and customer, the Government stand ready to help if the two sides wish. Meanwhile, the British proposal for a 70 per cent. limit on loyalty ties remains on the table in Brussels. But I repeat that we are open to any new arguments or evidence that ship-owners or shippers may wish to bring forward.

These, then, are the Government's views on the general issues covered by the noble Viscount's committee. As to the specific conclusions in the first part of paragraph 100 of the report, many of those conclusions are shared by the Government. The Government agree with the committee's conclusions on bulk shipping; on the unacceptability of retrospective annulment by the commission of conference agreements; on currency adjustment factors; and on passenger ferries where the return of collective price-fixing would not be welcome.

May I now turn to some of the points which have been made in the debate. Noble Lords will, I am sure, appreciate that it may not be possible for me to cover every point, but I have taken note of those which appear to have been raised on more than one occasion. In particular, nearly every noble Lord who has contributed to the debate has discussed in part, if not in whole, the decline of the fleet. My noble friend Lord Rochdale began by referring us to the CIT publication, the picture on the front of which is entitled "Endangered Species". The noble Lord, Lord Underhill, mentioned two other publications. But the facts are perhaps not quite so dramatic as either noble Lord has set out. There is no argument that the United Kingdom merchant fleet, measured by its total tonnage, has fallen by nearly a half since its all-time peak in 1975. For many years tanker tonnage has been predominant in United Kingdom tonnage, and the decline in that tonnage accounts for the major part of the decline in the United Kingdom fleet. The high-earning container fleet has increased in tonnage since 1975. We have the third largest container fleet in the world. Only those of the United States of America and Japan are larger.

I could debate with your Lordships some of the reasons which have contributed to the decline, and perhaps it would be helpful were I to note one or two: the weakness of demand, partly due to world recession; other consequences of the oil upset nearly 10 years ago; changing trading patterns, and so on. But the overriding reason is that which the noble Lord, Lord Greenway, mentioned in his very interesting speech; namely, wastage. There is a huge wastage of shipping. The fleets of the developing countries which have come into the markets have contributed to this decline.

It would not be true to say that the Government cannot have any influence on these factors, but it is broadly true to say that the Government cannot influence them sufficiently to make a major difference to the situation which the fleet faces. The Government have to consider what they should do in the national interest, by looking at the role and prospects of the fleet in the environment which exists today. We have to ensure that the markets remain open to our fleets in these days of creeping protectionism, both by the developed countries, with existing fleets, and by developing countries seeking to promote their national lines. We have to make strenuous efforts in international negotiations to secure the maximum amount of open access for our vessels.

It was the noble Lord, Lord Greenhill of Harrow, who asked me to respond to his plea that the Government should change their policy. I have to reject the noble Lord's plea this evening. I repeat: our belief is that we should attempt by negotiation to keep markets open to British shipping. We shall not succeed in doing so if we adopt a protectionist attitude towards the industry. My noble friend Lord Mottistone quoted from the speech of my right honourable friend the Secretary of State in November to the General Council of British Shipping, when my right honourable friend emphasised this point. He was responding to what the president of the General Council of British Shipping had said in his presidential address in May of this year. To paraphrase, the president said that he did not want protectionism; he did not want to become another arm of government and to be spoonfed with money; he did not wish to be the nurse at the dripfeed of resources; but wanted to represent an industry which was alive, very efficient and earning its own living.

The noble Lord, Lord Underhill, the noble Lord, Lord Greenway, and my noble friend Lord Mottistone raised questions loosely under the heading of manning. The noble Lord, Lord Greenhill, said that manning levels and their cost were perhaps one element, but that there were other relevant factors. He outlined some of them. The noble Lord, Lord Greenway, said that cheaper crews were not necessarily the answer to a less expensive operation in the long term. As usual, my noble friend Lord Mottistone reminded us in his pragmatic way of the different holiday entitlement of crews from various countries.

A number of noble Lords referred to defence requirements, and it is important that I say something about them at this stage. Whether or not a declining merchant fleet can match defence requirements is a question frequently asked. The Falklands operation examplified merchant shipping's defence role. It may not be generally realised, however, that the capability of the Government to proceed with last year's rapid mobilisation of merchant shipping for the Falklands Task Force depended in part on the regular peace-time monitoring of the merchant fleet's defence capabilities—undertaken then by the Department of Trade and now by the Department of Transport.

As a result, the department knew what ships were available when the requirements were declared. The monitoring of the fleet capability to which I have referred is now done by the Department of Transport, and it is a continuing monitoring. We are always informed of relevant shipping requirements by colleagues at the Ministry of Defence. The Government's view continues to be that the United Kingdom merchant fleet can currently meet all foreseen requirements.

I will touch very briefly on the contribution of my noble friend Lord Geddes, who spoke about the offshore industry. Many want to see the United Kingdom make the distinction, as others have made it, between deep sea trades, on the one hand, and coastal and offshore trades, on the other. While there is certainly a higher degree of protectionism worldwide in the latter trades, in terms of voyage in United Kingdom coastal trades, only 17 per cent. are accounted for by foreign flags; two-thirds of that by EC flag ships.

There is no evidence of any protection of its North Sea sector by Norway. The tax rates received by Norwegian shipping companies, to which my noble friend referred, and to which the noble Lord, Lord Underhill, also referred, are perhaps no more generous than those received by our own. It can be very dangerous to treat financial benefits received by foreign companies as a reason for keeping their ships out of our own markets. What conclusions would those competitors come to? I can assure my noble friend that I am aware of the General Council of British Shipping's recent papers put to some Secretaries of State. I can assure him that they are being most carefully looked at. All the papers are under active consideration now and he would not, therefore, expect me to give any further views on that topic tonight.

The noble and gallant Lord, Lord Hill-Norton, spoke at some length of the United States and extraterritorial difficulties. I believe it would be more helpful if I were to leave that matter and turn my attention instead to his vigorous plea for a Ministry of Sea. I would have to reject his suggestion. Government departments direct their efforts in the main to meeting objectives. When objectives have been totally identified and have been collected together, it is then decided which department is best able to meet those objectives. It would be rather odd—would it not?—if we decided on a Ministry of Sea to look after the Royal Navy; what would the Ministry of Defence then do? Would it look after just the Army or the Royal Air Force alone?

We try to group objectives and have them dealt with by the most appropriate department. We believe that the present arrangement, whereby the Secretary of State for Transport has the leading role in coordinating maritime policy while other Ministers continue to have the primary role for some specific fields, if necessary, is the most satisfactory one.

My noble friend Lord Rochdale drew attention to the USSR fleet, as did the noble Lord, Lord Greenway—who also drew attention, which had not been done before, to other new entrants into the maritime industry. He sounded a warning note; not only to the House tonight, but I suspected also to some of those new entrants. The only point I would make in the Soviet context is that in our bilaterial shipping relations with them, the Government have made it quite clear to their authorities that the Government are not prepared to see United Kingdom cruise operators damaged by non-commercial competition from Soviet cruise ships. In our bilateral trade, the Government's objective is to correct the long-standing imbalance in general cargo carryings with the USSR. Some progress has been made in all those areas and discussions continue. It is interesting to note that Soviet ships carry 1½ per cent. only of British trade; and two-thirds of that is direct between the United Kingdom and the USSR.

I have probably left a number of questions unanswered. If I said that this has been a useful debate covering a number of important shipping topics, I would probably be under-estimating the value of the two and half hours or so that we have spent on it this afternoon and evening. On the main issue before us, I hope that I have been able to give your Lordships a convincing explanation as to why the Government do not feel able simply to accept all the arguments of Lord Rochdale's Select Committee's report.

I hope, too, that I have been able to carry some conviction in expressing the regard which the Government have had, and will continue to give, to the arguments of the committee. As I have said, the other issues raised have covered a wide range. I shall obviously study Hansard tomorrow and if there are any points I can usefully answer in greater detail, noble Lords can be assured that I will be totally willing to do so. If any noble Lord feels that I have missed any point completely, then I do hope that he will get in touch with me.

Finally, I turn to a matter which I consider to be not more important but certainly of great importance; the report itself. I should tell your Lordships that next month the transport Ministers of the Ten will probably be invited to agree upon some of the less controversial aspects of the proposed regulation in Brussels. It is likely to be a good time yet before the regulation as a whole is adopted. Once the regulation passes into Community law, it is likely to remain in force for a very long time. It will not be easily revised; a fluid situation will have frozen. So the regulation we have debated has to fit, to serve the interests of shipping lines and their customers. It has to do that well into the future—in good times and in less than good times. The Government will be making every effort to ensure that the Community gets it right when it is finding agreement.

Viscount Rochdale

My Lords, may I first thank all noble Lords who have taken part in this debate, and thank also my noble friend Lord Lucas of Chilworth for covering such a wide field. I was particularly interested in his last remark concerning the meeting of transport Ministers in, I believe, a month's time. I only hope that our report will be of some use when those discussions take place.

With such a very wide field as shipping, with so many very complex issues, obviously there are bound to be many different points of view. I personally would like on some occasion—but not this evening—to take issue with my noble friend Lord Mottistone and some of his points. But it has been a very useful debate. There has been an encouraging degree of agreement on many issues and I am most grateful.

On Question, Motion agreed to.