South Africa: Creating an attractive Ship’s Registry - the draft South African Maritime Policy

Shipping newsletter - Legalseas

The overriding objective of the Department of Transport is to develop South Africa into one of the world's top 35 maritime nations. This bold goal is set out in the Draft South African Maritime Transport Policy of 10 August 2010. Barely a week goes by without the South African Maritime Safety Authority commenting on the need for a national shipping fleet to carry the ever-increasing quantity of cargo moving out of this country. The policy aims to increase the number of vessels under the South African flag and to create employment in the maritime transport sector.

There are currently no cargo ships of any description on the South African Register. As the law currently stands, there is little to attract any potential customers. There is also little to encourage banks or other private equity interests to invest in ships.

The maritime transport policy and the drive for a South African ships register has been hailed by many in government as a bold new dawn for the maritime industry. But many who are involved in the hurly-burly of the commercial maritime world regard it as the misguided chasing of a rainbow.

The more demure view, is that if South Africa wants to raise its maritime profile and encourage employment in the maritime transport sector, it must take a broader view of the maritime transport sector and appreciate that South Africa is in a position of strength as a supplier of cargo and ship related services, but not of ships themselves. It follows that South Africa must develop a maritime transport policy that encourages and incentivises local industry to "think South Africa", when negotiating the sale of South African cargo, and to encourage the training of South African mariners, surveyors and port authority personnel.

Having ships on the country's ship register is an emotive issue that arises out of antiquity. When a ship sails under a country's flag, it is regarded as being part of that state when it is plying the high seas. The modern day link between shipowner and the state in which a vessel is flagged is a tenuous and artificial link. Flagging a ship is a business relationship. The benefit to the flag state is the possibility of increased revenue. But in a developing country like South Africa, it is unlikely that even a moderately-sized ships register will be viable, and the cost will be the abandonment of the interests of our workers, shippers and ship suppliers.

Register does not mean employment

For South Africa to attract ships onto its register, a drastic change of regime is required, and this begs the question - why do it? We are not traditionally a ship-owning nation. The few shipowning companies that we had are no longer South African but have their head offices in Antwerp or Singapore. There is little cargo moving between Southern African ports, so even if some sort of cabotage is introduced, there is insufficient cargo to sustain it.

There is no correlation at all between ship registries and the employment of seafarers. The Indonesians have no register to speak of, but provide crew at "economic" rates to vessels flagged all over the world. If South Africa wanted to encourage employment opportunities for seafarers it needs to provide the appropriate training facilities and possibly to amend its labour laws which are applied to seafarers. The necessary amendments to the existing labour regime would probably be opposed by the labour unions and the International Transport Worker's Federation (ITF). Therefore, the focus should be on training. There will always be a demand for well-trained English-speaking seafarers, who are prepared to work for competitive wages.

How to create employment

The objective of creating employment opportunities could equally be achieved if South Africa promoted the land-based side of the maritime sector. The maritime transport policy identifies a number of employment opportunities ashore that are related to shipping, for instance, ship and cargo agents, forwarding and clearing agents, marine insurance, stevedores, and ship repair. Most of these land-based maritime sector jobs are not dependent on whether a ship is flagged under a South African or foreign flag.

For some reason, the Government believes that a vast tonnage of cargo should be carried by South African owned ships. But the reality is that ships that leave Richards Bay or Saldanha are unlikely to return until much later, given that the huge bulkers are not in any demand for a laden return journey to South African ports. It follows that South African flagged ships will still be obliged to trade in competition with other flagged vessels.

South Africa is a major exporter of bulk products, such as coal and iron ore. Furthermore, the local industry players usually export on a "Free On Board" (FOB) basis. In this instance, the foreign buyer nominates the cargo carrier and arranges for the insurance of the cargo for the voyage. As importers and buyers of cargo, local industry tends to import cargo on a "Cost Insurance and Freight" (CIF) basis. In terms of a CIF sale, it is the foreign seller who nominates the cargo carrier and insurance of the cargo.

If local industry players were encouraged to sell on a CIF basis and to purchase on a FOB basis, opportunities for employment in the land-based maritime sector would be created. These jobs would be promoted irrespective of whether the cargo is carried on a South African flagged vessel or not. The determining factor lies with who is arranging for the carriage of the cargo and dealing with the ancillary support services.

There are other maritime industries that the Government could promote that do not require a South African ship register. The prime example is the ship repair and bunker supply industry. South Africa's geographic location and supply of raw materials, places it in an inherently advantageous position to be an important supplier of ship repair and bunkering services. Ship repair services have the benefit of being a labour intensive industry. "Think cargo" and the local maritime industry will grow.

If the Government persists with its goal to attract vessels onto the South African register, a shipowner may have the following questions:

  • How are ships registered in South Africa?

Registration of ships in South Africa is governed by the Ship Registration Act 58 of 1998. This Act establishes and regulates the South African register of ships; the entitlement to register; formalities of registration; charges, levies and penalties. The Office of the Ship Registrar is created in terms of s33 of the Act. The Registrar's office is based in Cape Town.

Only ships that have a South African nationality, and ships that are entitled to be on the South African register, may be registered. Ships that are entitled to be registered are, a 'South African-owned ship' and any ship on a bareboat charter to a South African national. A South African national may be, inter alia, a citizen or a body corporate established and with a place of business in South Africa.

A 'South African-owned Ship' is one which is:

  1. wholly owned by a South African national;
  2. is owned as an undivided whole by three or more joint owners of whom the majority in number are South African nationals; or
  3. has a majority of its 64 shares owned by South African nationals as part-owners (or co-owners) in 'common'.

The facility of being able to register a ship in South Africa where the majority of the owners are South African nationals is a far reaching provision of the system created by the South Africa Ship Registration Act.

In South Africa, a company is a resident if it is incorporated in South Africa under the Company Act 71 of 2008. In terms of the Company Act, the directorship of the company must be made public and a company is obliged to have a shareholder register which is kept at its principal place of business. A member of the public is entitled under the Company Act to request a copy of the shareholder register. These provisions may be unattractive to shipowners who have favoured the development of "one-ship owning companies", in order to avoid ship arrests.

  • How would a South African shipowner be taxed?

South African shipowners are subject to the general taxation laws of South Africa. At present the corporate income tax is 28 per cent, with a further dividend tax of 15 per cent payable on dividends paid by a company. A shipowner may also be subject to a capital gains tax.

In 2005, the Government proposed introducing a tonnage tax regime. Essentially, the 2005 proposal sought to tax shipping activities at a fixed rate according to the size of the ship and not the company's taxable income. The proposed tonnage tax regime was to be modelled on the Dutch tonnage tax regime.

Recently, in the draft Taxation Laws Amendment Bill, 2013, the Government has abandoned the proposed tonnage tax in favour of an out-right exemption to pay tax for South African shipowners. The new shipping tax regime will exempt qualifying shipowners from income tax, capital gains tax, dividend tax, and a withholding tax on interest.

A qualifying shipowner must be a company that is resident in South Africa and holds at least one or more vessels that is flagged in South Africa, in terms of the Ship Registration Act, and is designed for international transport of goods or passengers for reward.

  • What law governs the employment of crew, and is South Africa a party to an international crewing convention?

In terms of the Merchant Shipping Act 57 of 1951, all South African ships over 100 tonnes must have on board a written employment agreement with each crew member. The Master of a South African ship must ensure that his crew is properly certified. The South African Maritime Safety Authority (SAMSA) has the discretion to recognise certificates of foreign Masters and officers. The Labour Relations Act 66 of 1995 will also apply on board a South African ship. In case of conflict between this Act and the Merchant Shipping Act, the Labour Relations Act will prevail.

South Africa has ratified The Maritime Labour Convention, 2006 which will enter into force for South Africa on 20 January 2014.

  • Where does a mortgagee's claim rank if ship is sold in South Africa?

The Ship Registration Act allows for the registration, transfer and deletion of a mortgage, on the prescribed form, in respect of a South African ship. No notarial bond over a ship may be registered in the Deeds office.

A 'necessaries' claim ranks above a mortgagee's claim in terms of the Admiralty Jurisdiction Regulation Act 105 of 1983 (AJRA). Therefore a necessaries claimant will receive preference to the proceeds of a vessel sold by way of a judicial auction in terms of the AJRA. Internationally, the norm is to give preference to a mortgagee's claim. The mortgagee's ranking in the AJRA is seen as a hindrance to attracting more ships onto the South African ship register.

There is proposed draft legislation to reverse the ranking of necessary and mortgagee claims and give preference to the later.

Conclusion

The proposal by the Government may well be misdirected, but the topic of an attractive domestic ship's register seems destined to dominate the agendas of SAMSA-sponsored conferences for some time to come.

The generous proposed tax exemptions for South African shipowners, are not enough to attract foreign shipowners. South Africa's labour laws will, most likely, prove too burdensome to a foreign shipowner, and the requirement to disclose the company's directorship and shareholding may be too much of a commercial risk for such a shipowner, in view of South Africa's "arrest-friendly" ship arrest provisions under the AJRA. In truth, South Africa will probably have to amend its company and labour laws before it can create a registry that will attract foreign shipowners.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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