SA Shipowning Company: A work in progress

In November 2022 the Department of Transport (DoT) revealed its intention to create a state-owned company (SOC) to own and operate merchant ships when it released what it described as a pre-draft Bill for comment. The pre-Bill contemplated the registration of a new SOC that would purchase, own and operate cargo vessels in competition with existing shipping lines as well as take over the ownership and operation of other vessels like the Department of Environment’s coastal patrol boats and the DoT’s pollution control vessels. Our initial comments on the pre-Bill can be found here. It transpires that the DoT was using the pre-Bill in order to elicit comments from interested parties that would help them draft an amended new bill to be circulated for formal comment and for debate in Parliament. As set out in detail below that process is underway, but it seems unlikely that we will see a state-owned South African merchant fleet for several years to come.

Several reasons have been advanced by the DoT for the establishment of this company including: ensuring that the revenue derived from the massive imports and exports to from South Africa accrue to South African companies; our fiscus derives the benefit of the tax on this revenue; South Africa and its citizens benefit from the skills and employment opportunities created by this company; South Africa will have a fleet of merchant ships under its control in the event that they are needed for strategic purposes; all the other BRICS countries have state-owned merchant fleets; and it will assist in driving transformation in shipping.

As pointed out in our original comment, the Comprehensive Maritime Transport Policy and the pre-Bill it created ignores two significant economic issues namely: competition in international shipping is fierce and purely profit driven and dominated by several huge and long-established corporations with massive institutional and industry knowledge and skills; and South Africa’s SOCs have almost universally failed financially. The immediate reaction from the shipping industry focused on these issues. To its credit, the DoT recognised these challenges, probably in advance of publication, even if they could not express those reservations publicly.

They have now established a task force to look at all the preliminary comments received and to provide guidance on changes necessary to the legislation to allow the putative shipping company to succeed. The task force consists of the CEO of South Africa’s largest shipping company, an economics professor who specialises in transport, and a senior manager from within the DoT with extensive experience in shipping.

The DoT is well aware that shipowning is an adventure that requires massive capital investment and significant skills and resources to run successfully. As part of its phased approach the DoT is concentrating on getting the Merchant Shipping Bill through parliament. This process will not be completed during the current sitting of Parliament which has been curtailed by the 2024 national elections. Finalising the Bill into an Act is said to be a priority of the next administration.

The Merchant Shipping Bill is important amongst other things because it contemplates the need for special permits for any ships engaged in voyages solely between South African ports and it empowers the South African Maritime Safety Authority (SAMSA) to establish a division or a separate company to take over the ownership and running of a fleet of offshore coastal patrol boats. These will be used in support of protection of our fisheries and in the monitoring of and response to pollution incidents. At present the operation of these vessels has been subcontracted by the relevant government departments to privately owned companies. Owning and operating this relatively small fleet will allow the DOT to accumulate skills and knowledge and help in determining the final structure of a state-owned merchant fleet.

The permit system, which is cabotage by another name, will probably require all coastal cargo to be carried on South African owned and flagged ships. The existing shipping lines have pointed out that there is very little pure coastal cargo. It is restricted mainly to sugar from Durban, the transport of fuels, and the transport of a relatively limited number of containers of consumer goods and vehicles between our ports. Imports discharged at a container hub port such as Durban and then carried by smaller vessels to the other South African ports do not constitute coastal cargo to be subject to the permit system. The system is accordingly unlikely to produce any meaningful investment in South African flagged ships so will not give the DoT any significant cargo volumes to support their merchant fleet ambitions.

Given the lengthy gestation period, the DoT should have the opportunity to identify and deal with any areas of concern regarding the establishment of an SA state-owned merchant fleet. We anticipate that they will have to deal with the fact that South Africa’s labour legislation is viewed as hostile to employers. This is why most shipping lines flag their ships in countries with no or little labour legislation. It seems likely that an exemption for merchant ships on foreign voyages will have to be granted if the state-owned company is to survive. Whether the new administration has the political will to get this past its union allies remains to be seen.

The DoT’s cautious and phased approach to the finalization of this legislation and project is to be welcomed.