The Cyprus shipping sector is propelling towards a strong future thanks to the industry’s strategic focus on steering the key economic sector towards new levels of growth.
The Cyprus shipping industry has been a global success story for decades. Today its registry ranks as the third largest merchant fleet in Europe and the 11thlargest in the world, the country is also the EU’s largest shipmanagement centre and amongst the top five in the world. The island has become a preferred base for global shipping operations. Companies present in Cyprus today are some of the largest of their kind in the world and manage around 20% of the world’s third-party managed fleet. For example, two of the industry’s most highly respected privately-owned shipmanagement companies, Columbia Shipmanagement and Marlow Navigation, both based in Cyprus, merged in 2017 to form Columbia Marlow, making it one of the world’s largest ship and crew-management companies.
In the last few years, the sector has seen a further boost reaching new levels in terms of its register’s tonnage capacity, in the number of companies basing operations on the island and in the number of people employed by the industry. Cyprus’ merchant fleet exceeds 23 million gross tonnage, the number of companies increased from 168 in 2018 to over 200 in February 2019, and the sector employs around 3% of Cyprus’ workforce. New interest in the Cyprus registry has been sparked in the wake of prolonged Brexit negotiations with many shipping-related companies seeking a safe EU harbour on the island to successfully continue their business.
International Maritime Centre
The vibrant and resilient shipping sector is the longest-serving generator of foreign direct investment and is now primed for further growth. Cyprus’ maritime industry contributes more than €1 billionto the economy annually, which translates to over 7% of GDP, a far higher figure than in other countries seriously engaged in merchant shipping. Of this figure, shipmanagement alone accounts for 5%. In the second half of 2018, industry revenues from shipmanagement companies reached €528 million, recording an increase of €22 million when compared with the first half of 2018. The main exporting destinations for the services of the shipmanagement industry include Germany, Switzerland, Singapore and Malta.The industry directly employs 55,000 seafarers from around the world and 9,000 personnel onshore, more than half of whom are Cypriot graduates, attracted to the sector because of its professionalism and high salaries.
Notable for its independence, this formidable industry has flourished without any state investment, although it enjoys continuous and strong state support. Cyprus’ two dynamic shipping associations – the Cyprus Shipping Chamber (CSC) and the Cyprus Union of Shipowners (CUS) –work closely with the state to constantly upgrade the maritime administration and to build its competitive offering. The creation of a new and independent Shipping Deputy Ministry in 2018 made the sector even more efficient, autonomous and business-focused. The launch was well-timed to capitalise on new opportunities for the sector that arise from Cyprus’ emerging natural gas sector and Brexit, and the new Deputy Ministry fully focused on shipping, coupled with the country’s competitive tax incentives, has led to the relocation of a number of shipping companies to Limassol, the island’s maritime capital.
Competitive Tonnage Tax
A famous seafaring nation since antiquity, Cyprus began building its modern shipping industry in the early 1960s when it established its shipping registry and introduced legislation providing ship managers and owners with a more tax-efficient business environment. Among the country’s other evident advantages were its strategic location at the crossroads of maritime transport lines between East and West, low operating costs, a highly educated, multilingual workforce and its sophisticated professional services industry. Cyprus is also signatory to numerous international maritime conventions and has bilateral cooperation agreements with 25 countries, among them leading suppliers of labour.
Foreign shipmanagement executives enjoy the renowned holiday island’s pleasant lifestyleand are reassured by statistics that show it is one of the safest places in the world to raise a family. Limassol, where the vast majority of shipping companies are based, has undergone a major transformation in recent years. Bustling cafes and restaurants fill its revamped historic old town while its long coastal road is now flanked by cycle paths, pedestrian walkways and prestigious, high-rise residential developments.An added boost for shipping executives comes from new legislation providing tax incentives for high-earning expats. But the major driver of the sector’s success was put in place in 2010 when, after more than 10 years of negotiations with Brussels, Cyprus secured agreement for an upgraded and competitive EU-approved tonnage tax (TT) system.
The main benefit of the TT regime is the certainty it provides companies on their annual tax obligations, enabling them to do their business planning accordingly. While other jurisdictions might have less expensive TT regimes, Cyprus’ incorporates all three types of maritime activities – ship owning, shipmanagement and chartering, making it unique in the EU where other jurisdictions might specialise in just one or two of these areas. In the past six years there has been an increase of more than 65% in the number of shipping companies that have registered with Cyprus’ specialised shipping taxation system, boosting the sector’s revenue by 25%. In 2019, the Shipping Deputy Ministry has plans to ramp up the global promotion of the TT system to attract more ships to its register and companies to its shores, and introduce new tax incentives and simplify shipping fees.
The TT regime has ensured the country’s status as an attractive jurisdiction despite the Turkish embargo, which was unilaterally imposed in 1987 on Cyprus flag ships calling at Turkish ports. The Cyprus flag is also considered one of the highest quality EU flags available today and ranks at the top of various Port State Control Agreement ‘White Lists’ – including the Paris and Tokyo MOUs.
The creation of an independent Shipping Deputy Ministry, whose head reports directly to the country’s President, was a major milestone in 2018 for the industry’s development, serving to further attract quality shipping companies and tonnage to Cyprus. Based in Limassol, the Deputy Ministry is the first ministry outside the capital city of Nicosia and as such is ideally located to work with the CSC– the voice of the resident industry – and the Cyprus Union of Shipowners. These influential associations have played a key role in developing the industry through their lobbying efforts and expert advice to the government, with which they cooperate closely. The expertise and proactive approach of maritime specialists in both the private and public sector have long been the driving force of the local maritime cluster, which has supported the development of Cyprus into the world-class maritime centre it is today.
A year after its establishment, the Deputy Ministry has created a roadmap to ensure Cyprus maintains its competitive edge. The goal is to protect the stable and business-friendly framework provided to foreign investors in shipping by further expanding the island’s registry and maritime cluster, strengthening international relations, improving maritime safety and environmental protection, implementing a blueprint for blue development and to upgrade available services.
Key to hitting all these targets is to secure Cyprus’ competitive tax policy, to reduce bureaucracy and to launch a single service centre for shipping companies. In addition, Cyprus has plans to expand its presence in leading ports around the world, and is looking at establishing a permanent representation in Asia due to the importance of China and Japan in world trade. The move would complement its current list of offices in Hamburg, Rotterdam, London, Piraeus, New York and its permanent representation in Brussels.
Technology is also front and centre in efforts to upgrade services, with, for example, plans to implement more automation in the ship registration process. In addition, the Ministry and the shipping industry support innovation programmes that contribute to shipping-related tech solutions. The country’s start-up and innovation sector has been growing in recent years, with many companies in Cyprus launching new technologies that could be integrated in the shipping industry, according to the Ministry.
On the World Stage
The shipping industry is showcased internationally at the biennial ‘Maritime Cyprus’ in Limassol, which attracts hundreds of shipping executives and professionals from around the world. Growing in prestige since it was first held in 1989, the event now serves as a leading global forum that influences maritime policy, regulation and shipping trends. The resident industry’s voice is also heard abroad through Cyprus’ active participation in various shipping-related fora, such as the International Maritime Organisation (IMO), the International Labour Organisation (ILO) and the European Commission, the International Chamber of Shipping (ICS) and the European Community Shipowners’ Association (ECSA).
Navigating the Future
Cyprus boasts a thriving education and research sector that also contributes to tackling issues facing the shipping and maritime sector. There are a number of dedicated maritime institutes that promote research, technology, innovation, sustainability, and focus on training and educating those employed in the shipping industry.
The Maritime Institute of Eastern Mediterranean (Mar.In.E.M.) is a Cyprus-based non-profit organisation founded in 2010 to promote research, training and technology. Cyprus also hosts a DNV GL Maritime Academy, while Bernhard Schulte Shipmanagement has its own specialised maritime training centre in Limassol.
In 2016, the University of Nicosia, an independent institution, launched the country’s first Maritime Academy, which offers training in nautical science and marine engineering in collaboration with renowned shipping companies. The Academy’s aim is to support the industry in Cyprus and globally by providing qualified officers for vessels.
In another landmark for the sector, classes began in 2018 at the new Faculty of Marine Sciences and Technology in Larnaca, which is part of the University of Cyprus, a prestigious Nicosia-based public institution. Instruction is in English and, according to Lloyd’s Register, the faculty is set to provide the local and global maritime industry with high-quality human capital and research capabilities. The private educational sector is also helping to build a workforce for an industry that is embracing rapid technological advances.
Opportunities and Challenges
Although global shipping is still feeling the effects of the international financial crisis, with oversupply of vessels and banks tackling the weight of bad shipping debts with repossessions to cover losses, there is recovery on the horizon which also presents a silver lining for Cyprus. The flag is growing, and the country’sshipping industry is ideally placed to capitalise on the discovery of large natural gas fields in Cypriot, Egyptian and Israeli waters. There are six LNG carriers in the Cyprus fleet and plans to add many more under Cyprus’ new gas strategy which embraces the LNG market.
A more immediate opportunity for the country’s maritime sector comes from Brexit. UK-regulated ship insurers have identified Cyprus as an attractive jurisdiction for an outpost or base amidst fears that the EU-exit will hinder their access to the bloc’s financial market. For example, the major global shipping insurer, London P&I Club, announced in July 2018 that it was setting up a ‘post-Brexit subsidiary’ in Cyprus, while several Greek ship-owners previously based in London have already relocated to Cyprus. Prompted by uncertainty in the Greek economy, other Greek shipowners and shipmanagement companies have also transferred some of their operations to Cyprus. Another coup came in early 2019, when British shipping firm P&O Ferries decided to register its English Channel operating fleet under the Cyprus flag to take advantage of the benefits and security it provides.
Growing ship financing possibilities available through local banks will support the future growth and diversification of Cyprus’ shipping sector. Although the banks’ portfolios are still comparatively small, this development will not only increase the size and scope of the maritime cluster and create opportunities, but expand the expertise in this area within Cyprus’ financial services sector.
The size of the world fleet has doubled over the last two decades, but currently the Cyprus industry is prevented from realising its true potential by the Turkish embargo on Cyprus-flagged vessels entering its ports. A settlement of the Cyprus problem would immediately resolve this and dramatically boost the size of the country’s commercial fleet. Pending a settlement, Cypriot officials will press for the lifting of the Turkish embargo to be included in any package of confidence-building measures in reunification talks.
A Global Shipping Power
Thanks to its geostrategic position as a trading centre since antiquity, Cyprus has a long history in shipping. Its status as a hub for shipping activities has gone from strength to strength, expertly navigating through economic storms and market fluctuations – always staying at the top of its game. Although a small economy, Cyprus’ shipping sector punches above its weight. It is estimated that approximately 5% of the world’s fleet and around 20% of global third-party shipmanagement activities are controlled from Cyprus. Of the companies established in Cyprus, some 87% per cent are controlled by EU interests, including Cypriot. Recognised for its competence, safety and multiple advantages, Cyprus is capable of competing on a global scale. With its growing register, upgrades and reforms, new opportunities arising from Brexit and natural gas discoveries in the East Med, Cyprus shipping is set to grow in coming years.
For more information, contact Cyprus’ investment promotion agency, Invest Cyprus.
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