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Shipping drives Cyprus recovery - Maritime exceeds 7% of GDP

12 June, 2014

The shipping sector has proven to be a resilient force in the fragile Cyprus economy, with the primary ship-management sector growing to 5.1% of GDP and the maritime industry as a whole adding a further 2 percentage points to national output.


Ship-management, as opposed to the conventional Cyprus-flag operations by locally owned vessels, generated revenues of 417 mln euros in the second half of last year, with the bulk originating from non-Cyprus flag fleets, but managed by the 4,500 strong community on the island, half of whom are highly-educated Cypriots.
“In the past five years, ship-management has been the pillar of our sector’s growth, despite the problems faced in the international markets in 2012 and 2013, especially in the chartering sector with falling rates driving many ship-owners into trouble,” Cyprus Shipping Chamber Director General Thomas Kazakos told the Financial Mirror on the sidelines of the three-day International Shipping Chambers conference hosted in Limassol this week.
“Our industry was faced with too many ships and too few cargoes, which result in many companies and their fleets being seized by banks. However, this turned out beneficial for Cyprus as our expertise in efficient ship-management was an attraction to administrators who wanted a quick return or safe recovery of their investments and many turned to ship-management companies in Cyprus,” Kazakos said.
He explained that ship-management, in relations to GDP contributions in Cyprus has grown from 3.8% more than five years ago to 4.5% in late 2012 and 5.1% in the second half of 2013. Add to that at least two percentage points generated from Cyprus-owned vessels and other earnings for the Department of Merchant Shipping and our sector’s contribution to GDP is a steady 7.1%, Kazakos added.
“The financial viability of the maritime sector, especially within the lack of liquidity in banks, was one of the three key issues we are discussing at this week’s ICS conference, as well as the preceding summit of maritime ministers, attended by no less than shipping officials from ten countries,” he said.
Kazakos added that the other two key issues of discussion are the environment and the harsh CO2 and emission controls imposed on ships, with aims to cut these emissions further, as well as labour standards debated in cooperation with the labour organisation ILO.
Sustainable development of maritime transport was also discussed during the ministerial summit hosted by the Ministry of Communication and Works, attended by government officials and representatives of organisations.
The Cyprus Shipping Chamber is marking its 25th anniversary by hosting this year’s meeting of the ICS, taking place at the Four Seasons Hotel in Limassol.
The CSC also organised a gala dinner at the Presidential Palace in Nicosia on Tuesday night where President Nicos Anastasiades praised the creation of the Chamber 25 years ago “with a mission, not only to preserve Cyprus’ prominent position in world shipping, but also to improve and further develop it.”
“The 25th year anniversary comes in the aftermath of the recent adverse financial developments in Cyprus. In this context, as the shipping sector constitutes a crucial part of our economy and one of the main pillars of growth, there is no doubt that shipping has played a leading role in our effort for recovery,” the President said.
“Today, just over a year since the Troika Loan Agreement for Cyprus was made, I am pleased to tell you that the Cyprus economy is well under way for full recovery. We have repeatedly and timely met the obligations we have undertaken against our lenders for structural reform, restoring the soundness of the Cyprus banking system, as well as public spending.”
“The shipping operational and taxation infrastructure in Cyprus and the Cyprus flag remain intact, fully operational and very competitive.”
According to Cyprus Central Bank data, revenues from shipmanagement reached EUR 417 mln in the second half of 2013, up 3.73% from the EUR 402 mln in the first half, with the sector contributing 5.1% to the island’s GDP, the only sector that has shown stability during the troubled past year of the economy.
The revenue level was, however, the lowest in four years, indicative of some impact from the island’s economic meltdown that affected all sectors.
Some 85% of revenues from shipmanagement arose from services provided to foreign-flag ships, up from 82% in the first half of 2013.
Germany remains the biggest partner of the Cyprus maritime sector accounting for 53% of the shipmanagement business, followed by Vietnam-flagged vessels (6%), Russia (5%), Singapore (4%) and 2% each from Greece, Liberia, the Netherlands and Italy.
On a revenue basis, 48% from shipmanagement derives from Germany or about EUR 200 mln, followed by Poland (8%), Curacao, (6%), Holland (5%), Singapore (4%) and 2% each from Russia, Marshall Islands and Norway.
The preferred service provided to German shipowners is crew management (52%) which in turn accounts for 43% of all services in the sector.
Full shipmanagement accounts for 46% of business, of which 22% is from Russian shipowners, 12% from Germany and 10% from Malta. Technical management accounts for 11% of shipmanagement business, while there were no cases of chartering recorded in the second half of 2013.
In the case of expenses, the bulk of 55% of the EUR 368 mln in costs accounted for crew wages, of which 40% was paid to non-EU nationals. A further 27% of costs went to management fees and 18% to shipmanagement rates.
The costs were paid in the Philippines (22%), followed by Cyprus (20%), Poland (10%) and Ukraine (10). The costs paid to the Philippines, Poland and Ukraine were mainly crew wages.
The Chamber’s Thomas Kazakos said that the industry includes 155 major shipping companies that own or manage 2,300 vessels with an output of 50 mln gross tonnes, that ranks Cyprus as the third biggest maritime country in the European Union and tenth in the world, as well as second biggest in shipmanagement across the globe.
“We employ 4,500 people in all services and maintain about 55,000 seafarers on cargo and passenger ships around the world,” generating a steady 7% of GDP of the Cyprus economy.
“In tough economic times, such as the present, a solid income for the state, business and employees is very important,” Kazakos added.
Furthermore, Kazakos said the industry’s prospects are “at least positive,” as they are attached to the stabilisation and the imminent rise in global freight markets, as the world is emerging from the global financial crisis that started in 2008. The shipping industry will also benefit from the exploration and eventual production of oil and gas from offshore fields, with more and more energy-specific shipping companies operating or trading out of Cyprus.
“Shipping is the energy industry’s first cousin and when the industry delivers what the society anticipates, shipping will be directly linked with the transportation of gas,” he said.