Tag: shipping

Shipping (Maritime) and Offshore Drilling (Oil & Gas) Industries and Uses of Offshore Companies

AlexShippingA Glance at the Offshore Industries

The global increasing demand for energy has led the growth of the two major offshore industries. The global offshore oil and gas and the offshore wind energy. Key role in the Oil and Gas industry’s’ Exploration and Production (E&P) phases, plays a specialized category of the shipping industry which is broadly recognized as the offshore shipping industry. These Offshore ships are the vessels which are particularly set to support the offshore industry (oil drilling or wind). They are the main means of transportation for carrying supplies and personnel to the huge oil stations deep inside the ocean or for example, drill ships which are used as offshore platforms in the oil and gas E&P cycle.  Offshore ships can generally be categorized into PSVs (Platform Supply Vessels), AHTS vessels (Anchor Handling Tug Supply vessels), CSV’s (construction support vessels), offshore barges, with all the other types and sub-types of these specialized sea vessels. The offshore shipping industry, despite the challenges, has kept up well with many technological developments that have taken place through the years. It is a well-known fact that these capital intensive businesses are called to operate in a very tough environment. Offshore operations are inherently difficult to execute and the smallest error could be proven disastrous, whereas at the same time the investment at stake is significant. In the case of a failure in the operations, the environmental, human and economic cost is huge. Another important fact is that as the offshore shipping industry players grew in number, so did the competition.  Therefore, it is crucial for the offshore shipping companies to attain the highest level of effectiveness and efficiency without compromising their success and at the same time by keeping the standards of environmental and economic sustainability high.

The Impact of the Regulatory Framework

There are many factors that contribute to the prosperity of this industry and one of the most substantial of them has to do with the regulatory framework and the tonnage tax regime under which the offshore shipping companies operate. In the conventional, standardized shipping industry (bulkers, tankers, and passenger vessels) major changes took place in the past 25 years and basically this happened in parallel with the introduction of the commercial friendly regimes in the shipping industry. However, there is no uniformity in these regimes, especially when it comes to a specialized category of shipping like that of the offshore shipping. As it is understood, the jurisdiction of the company plays an important role here and the research that has been conducted on the matter shows that the regulatory framework in many countries is outdated or not focused enough on the offshore shipping industry.

The difference on the jurisdiction’s friendliness is primarily due to the particular tariff regime followed like for instance, if it is a tonnage tax regime, a tax efficient regime but without any incentives for shipping companies, or a regime that is based on specific shipping benefits and incentives. However, the overall tariff and legislation framework is also affected by the specific type of offshore business. The business types of Oil and Gas Drilling, Ocean Wind Farms and the Offshore construction industries, also define the tax environment in a great extent. From an onshore perspective (i.e. the jurisdictions that cannot be purely characterized as offshore despite their beneficial taxation structures), there is a positive correlation, between most of the countries and their respective offshore business types that offer an advantageous and constructive environment for offshore shipping operations. Thus for international shipping companies the process to select the proper location from where they will conduct their business operations, is a demanding one. Tonnage tax regimes – are based on the tonnage of the vessels should be carefully observed as they can differentiate between different vessel types or they are phased out in certain regions. Taking into consideration several variables, starting from the qualitative capabilities of the company’s ship management and the accurate matching of the company’s specialized operations with the respective tariffs framework, to cost efficiency and financing decisions along with the whole capital and operational structure.

Going Offshore and Public at the Same Time

Due to the fact that both financing and tax-regime selection decisions are crucial for a company’s growth, there are companies that combine a going public strategy with headquartering in their Stock Exchange listed entities or their subsidiaries in offshore jurisdictions of good and long-established reputation. There are numerous companies headquartered in offshore jurisdictions like Bermuda, Marshall Islands, and the British Virgin Islands, in various sectors and industries, represented in major and non-major stock exchanges worldwide like London Stock Exchange, NASDAQ, NYSE, OSLO, Singapore, Hong Kong and others. From the Energy, Minerals and Industrial Services sectors, there are companies in the Oil and Gas production, Contract Drilling, Engineering and Construction, Oil and Gas Pipelines, Oilfield Equipment and Services and Mining. From the Transportation sector the Marine Shipping industry (mainly Deep Sea Freight Transportation, Marine Cargo Handling, categories of shipping) which are largely represented in the international stock exchanges. In the Financial sector with the industries of Banking, Investment Management and the Insurance sector with Property and Casualty Insurance at its core, these also are represented in the stock exchanges. In conclusion, despite the complexity level of decision-making in the offshore shipping industry, there are alternatives in relocating or repositioning offshore and being publicly listed on a stock exchange as well. These alternatives are friendlier towards some businesses in this industry. Companies operating in this industry face frequent risks and challenges as they operate in difficult and demanding environments thus every factor should be carefully weighted.

Legitimate Uses For Offshore Companies: Past and Present

Offshore financial facilities have evolved remarkably due to economic globalization, political and economic instability, technology advances and evolution in telecommunications. These dimensions have led to a significant increase in the demand for offshore operations. The offshore company industry has developed into a major international business, linking all regions, comprising, in one way or another, roughly half of the world’s international lending and deposits by value. However, despite the fact that we live in a globalized and open economy that offers numerous options for investments and capital mobility, still offshore companies and offshore financial structures are often in the middle of worldwide controversies, attracting considerable attention which eventually harms the reputation of these financial and trade facilities. The undisputable fact is that these low- tax overseas jurisdictions are an important and indispensable part of the global financial system and the reason, of course, is not their illegal use by some entities. Nevertheless, before seeing the real reasons that offshore companies have legitimate and important uses in the global trade and economy we will first take a look on the origins of these tax-efficient economic zones.

Old Map Light Blue

Historically, in order to boost trade, increase capital movement, and secure trade gains, free-tax economic zones were developed, since the 2nd century B.C. in the Mediterranean region and especially in the area of Greece with the Delos island playing the role of the special economic zone. The type of trade that was taking place there, was free of customs duties and it faced no taxes. Important role to this economic regime of that time, played of course the geographical positioning of the island. Throughout the history, the generation of low-tax states always serviced the needs of traders and seamen.  From the medieval period to the industrial revolution, the need for friendlier towards the commerce regimes never stopped. The important fact here is that most of the times these beneficial economic zones existed in islands and ports, the places where the real risk takers, the seamen traders were living and working when they weren’t in the sea. By reaching the 19th century and the 2nd industrial revolution with the respective expansion of capitalism, these tax-friendly jurisdictions also grew. It was after the First World War that European and United States tax rates started rising. This, combined with the increased global uncertainty of that period and the easy methods of incorporation in the offshore jurisdictions, led to the growth of these jurisdictions like for instance the ones in the British overseas. In a post-colonization era, and as the economy was becoming more interconnected and the foreign direct and indirect investments grew, the demand for international financial services increased. The Demand for global offshore financial facilities also grew in the 1970s, partially because of the substantial amount of money that petrostates needed to reutilize after OPEC effectively raised oil prices. Moreover, the downfall of the Bretton-Woods system also increased the risks from the exchange rate fluctuation. The international nature of cross-border businesses led to the increase of cross-currency transactions in all the quarters of the world and the need for international management of cash and tax planning by the companies, made the need for offshore companies and offshore structures and financial services to flourish. Of course, in the course of history, there were entities that misused these business friendly offshore facilities in order to promote illegitimate practices and this is something that can only be regulated with global efforts and cooperation between countries. However, there is a global legitimate use and need for these jurisdictions that make the global trade easier and more efficient, especially in a period where the global economic, political and geopolitical risk is elevated.

There is a variety of reasons for the utilization of offshore companies and structures both for legal and physical entities. The focus of this article is on the corporate users of the offshore companies and facilities.  

From Holding companies to royalty and intellectual property companies, major financial institutions, shipping companies, middle market companies that seek international expansion, multinational corporations, and conglomerates, they may need at some point of their corporate structuring to conduct their operations through offshore entities that will facilitate the specific characteristics of a particular business need. For instance, it is common practice in the shipping industry to use constantly offshore companies in order to facilitate its global trade and banking needs in the most efficient way particularly when there is the need for a ship registration or for a Flag of Convenience. Another example has to do with treasury management operations. The ultimate goal of treasury management is managing the firm’s liquidity and mitigating its operational, financial and status risk by concurrently taking care of the investment and funding activities. The treasurers of corporations often allocate their money market instruments and cash resources between their subsidiaries which as a process, is regularly carried out through offshore facilities and structures. It is also common for International joint ventures to be often structured as offshore companies when the parent entities want to keep the venture as jurisdiction neutral. Other important legitimate uses for offshore companies is that they can be used as asset holding companies where risky assets are held isolated from the main entity, thus reducing any unnecessary risk transition to the rest of the group. In the case of a company having non-risky assets that it wants to protect from a politically unstable environment where the rest of the firm operates, then with the use of an offshore company can accomplish that goal also. Investment companies also use offshore companies at a great extend in order to invest in derivatives and securities trading without facing regulatory limitations for their investment and trading undertaken risk. Finally, companies expedite their capital raising needs both in equity and debt capital markets, by forming offshore companies. This usually happens as in many occasions, a more efficient and simple structure may be needed or the existing legal framework of the main country of operation, may not support or help the company raise capital in a non-conventional way.

Energy Efficiency Initiatives in the Shipping Industry

CargoShipThere’s no denying the importance of the shipping industry. According to the International Chamber of Shipping (ICS), the shipping industry carries food and different goods all over the globe and contributes to around 90% of the world’s trade. Without shipping, people wouldn’t be able to get what they need to survive at an affordable price, and technology and business would come to a screeching halt.

There are over 50,000 cargo ships in the world, transporting a vast array of goods from point A to point B. With all of these ships moving to and fro across the oceans, the time has come to put effective energy efficiency initiatives into action.

The International Maritime Organization is committed to the safety, security, and carbon emissions of the shipping industry. During the IMO’s Marine Environmental Protection Committee’s, it was decided that a strategy to reduce carbon emissions would be put into action in 2018. Across the entire shipping industry, energy efficiency tactics must be adopted in order to reduce greenhouse gases.

What can be done?

It seems like a monumental overtaking, but there are smaller steps that each shipping company can take in order to be more energy efficient. One such step is to regularly polish propellor blades. When propeller blades are properly polished, it helps the ship run smoother and can reduce emissions by about 8%. Shipping companies are at tight deadlines most of the the time, but slowing the ship down can also reduce emissions by as much as 30%. Additionally, investing in autopilot, more efficient pumps, and cleaning the hull all increase energy efficiency by varying percentages.

Rolls-Royce starting to design unmanned ships as an answer to the energy efficient problem. These autonomous ships offer greater energy efficiency than the ships of today, and would be safer than having a crew of people on board. There would be no need to include the sections normally reserved for housing the crew, meaning the ship would only store cargo. This additional room for goods actually makes the ship about 5% lighter and would use less fuel than today’s ships.

Newer ships will also be equipped with more energy efficient features that include improving the design and shape of the hull to increase hydrodynamics and technologies onboard to improve engine efficiency.

It is now mandatory for crews of ships 5000 tonnes and over to keep track of each type of fuel oil their ships. This data will then be used to decide future policies regarding energy efficiency requirements. Since many initiatives have already been started, the future is sure to hold a more energy efficient shipping industry.

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