A global success story for decades, the Cyprus shipping industry continues to stay focused and strong in the face of unprecedented challenges to global shipping due to the Coronavirus pandemic.
Shipping is historically one of the most successful industries in Cyprus. The vibrant and resilient sector is the longest-serving generator of foreign direct investment and is primed for further growth. The country’s maritime industry contributes more than €1 billion to the economy annually, which translates to over 7% of GDP, a far higher figure than in other countries engaged in merchant shipping. Of this figure, shipmanagement alone accounts for 5%.
Cyprus has the third largest merchant fleet in Europe and the 11th largest in the world, the country is also the EU’s largest shipmanagement centre and amongst the top three in the world. With a sovereign flag of excellent quality, the country 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, and the sector employs around 3% of Cyprus’ workforce.
The country’s Shipping Deputy Ministry has had two years of successful operation since its inception in 2018, implementing new supportive measures and flexible mechanisms to upgrade Cyprus’ status as one of the most formidable maritime centres worldwide. A recent example was the reapproval of the specialised Cyprus Shipping Taxation System by the European Union, which was also unanimously approved locally by the House plenum in April 2020. This ensures the sustainability of the country’s shipping industry for the next decade – a factor crucial for the Cyprus economy. Also in 2020, Cyprus cemented its position on the Paris and Tokyo MoU ‘white lists’ in relation to the safety performance of flag administrations and joined the United States Coast Guard’s Qualship 21 list, which recognises the top performing flag states based on port state control performance.
Cyprus has proven its consistent appeal as an attractive international shipping hub with the arrival of new shipping companies and businesses offering shipping related services – underlining the local industry’s enhanced competitiveness, stability and growth opportunities. The number of Cyprus-based companies has grown by 33% over the last two years. A prime example of this was the recent arrival of a new P&I Club, Steamship Mutual Underwriting Association (Europe) Limited, which has decided to underwrite all of its European business through its Cypriot entity. Also 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.
Global shipping was one of the first sectors hit by the Coronavirus pandemic, as the majority of world trade is done with China and other Asian countries. Shipping companies were faced with difficult challenges in crewing and crew changes, approaching ports and implementing measures to minimise exposure. With around 90% of global trade transported by commercial shipping, which moves food, energy and raw materials, as well as manufactured goods, components and vital medical supplies, it is crucial to keep supply chains going and the world’s ports open for commercial ships.
The Cyprus shipping industry directly employs up to 60,000 seafarers from around the world and around 9,000 personnel onshore, more than half of whom are Cypriot graduates, attracted to the sector because of its professionalism and high salaries. With such a large number of crew on vessels facing the dangers of the COVID-19 virus, Cyprus also joined a global appeal to G20 leaders to facilitate crew changes and safeguard access to healthcare for these ‘unseen heroes’ and key workers of world trade.
Although the financial impact of the pandemic is unavoidable, throughout this crisis the Cyprus Shipping Deputy Ministry (SDM) has remained fully operational, providing high-quality services and 24/7 support without any disruption to ensure all ships registered under the Cyprus flag will continue to operate in the most efficient way possible.
Established Maritime Hub
A 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 competitive tax environment. Among the country’s other evident advantages are 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 all major international maritime conventions and has bilateral cooperation agreements with 25 countries, among them leading suppliers of labour. In 2019, Cyprus’ merchant fleet had 1,734 ships with 24.6 million gross tonnage, the number of companies increased from 168 in 2017 to 220 in 2019, with the number of shipmanagement operators rising to 50, placing Cyprus at the top of this category in the EU.
The formidable Cyprus shipping industry has flourished without any state investment, although it enjoys 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 up its competitive offering. Plans are now underway for the two associations to merge into one in a bid to create a more united front. The creation of a new and independent Shipping Deputy Ministry in 2018 made the sector even more efficient, autonomous and business focused. The timing of the launch allowed Cyprus to capitalise on new opportunities for the sector from a developing natural gas sector and Brexit. These factors coupled with the country’s competitive tax incentives, has led to the relocation of a number of shipping companies to Limassol, the country’s maritime capital.
Limassol 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. Foreign shipmanagement executives enjoy the renowned holiday country’s pleasant lifestyle and its safe and family-friendly environment. An added bonus for shipping executives comes from recent legislation providing tax incentives for high-earning expats.
Competitive Tonnage Tax
A major driver of the shipping sector’s success was put in place in 2010 when, after more than 10 years of negotiations with Brussels, Cyprus secured an agreement for an upgraded and competitive EU-approved tonnage tax (TT) system. In 2020, this agreement was reapproved by the EU, and also unanimously approved by the House plenum, ensuring the stability of the tax framework until 2030 and maintaining Cyprus’ prominent position in the shipping arena both on a European and international level.
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.
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’.
Competitiveness and Efficiency
The creation of an independent Shipping Deputy Ministry, whose head reports directly to the country’s President, was a major milestone for the industry’s development, serving to further attract quality shipping companies and tonnage to Cyprus. Based in Limassol, the Shipping Ministry is the first ministry outside the capital city of Nicosia and as such is ideally located to work with the CSC and the CUS. 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.
The SDM created a roadmap to ensure Cyprus maintains its competitive edge. Its mission is to consolidate Cyprus’ position as a world-class maritime centre, and to protect the stable and business-friendly framework provided to foreign investors in shipping by further expanding the country’s registry and maritime cluster, improving maritime safety and environmental protection, implementing a blueprint for blue development and upgrading available services.
Key to hitting these targets is to reduce bureaucracy and human error 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.
The SDM is also rapidly embracing the use of new technology, including the digitisation of many services and offering them online to allow for ship owners and operators to save time. In addition, the Ministry and the industry strongly support innovation programmes that contribute to new 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, such as blockchain.
A number of shipping companies based in Cyprus are already implementing blockchain technology during the development stage of their products and services, as it provides many practical solutions to daily business functions. Blockchain could help cut red tape and speed up prolonged procedures, such as waiting for certificates and authorisations from port authorities, and revolutionise the shipping industry with multiple benefits to importers, exporters, transporters, ship owners and governments by expediting document flows and making transactions more efficient and secure. The technology would also optimise costs, provide a more environmental way of doing business and help shipping companies avoid prolonged stays in ports that end up costing them a fortune.
Another key objective for the SDM is to keep Cyprus visible 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).
Cyprus is growing as a regional education and research hub, with maritime and marine education also gaining new momentum. There are a number of dedicated maritime institutes that promote research, technology and innovation, and contribute to shaping international policies for greener, smarter and safer shipping.
The most recent launch is the Cyprus Marine and Maritime Institute (CMMI), an international, scientific and business Centre of Excellence for Marine and Maritime Research, Innovation and Technological Development that will be driven by the needs of the industry. The project received €15 million from the European Commission’s Horizon 2020 research and innovation programme, with another €15 million from the Cyprus government. The CMMI will focus on the ‘blue economy’ and cover a broad range of subjects. The research and innovation activities of the centre will be aligned with the Smart Specialisation Strategy of Cyprus (S3Cy), as well as with European Union and global priorities in blue economy sectors. CMMI should be operating as a self-financing organisation by 2024.
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 2019, the Cyprus Foundation of the Sea (CY-FOS) was initiated by the CSC. During its inaugural meeting a new board was elected consisting of leading personalities from all sectors and stakeholders of the Blue Economy from public, private, academia, civil society, research organisations and financial and other institutions. The purpose of CY-FOS is to shape the future of the country’s Blue Economy and a number of working committees have already been established to help fulfil its vision.
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
The last few years have seen opportunities arise for Cyprus shipping in the wake of Brexit and natural gas exploration in the Eastern Mediterranean, however, the biggest trends that are already impacting the sector are rapid tech development, environmental challenges, dealing with decarbonisation and finding alternative fuel options to power global shipping in the future. Ship owners are also facing a predicament of whether to buy ships at this point, when in less than 10 years the tech and other spec requirements could be completely different – making it a costly and perhaps redundant investment.
The next five years will be most exciting in terms of satellite communication developments and disruptive tech being introduced to improve safety and efficiency in the industry. Much of core tech being used by shipping companies will be replaced by new smart tech, such as smart weather foresight, smart performance analytics and report alarms. Digitalisation is key to staying competitive, but industry experts say tech and AI will not replace humans anytime soon.
Speaking of the human element, shipping executives have voiced concerns that finding competent crew is a growing problem worldwide. It is increasingly difficult to attract young people of high calibre and ambition to choose a career at sea. Seafarers are both the heart and soul as well as the Achilles heel of the industry, and companies are acutely aware that all the tech in the world will never replace a well-trained and experienced crew. Shipmanagement giants such as Columbia Marlow have highlighted the industry’s need for more care and support of crew members whether on- or off-shore, to introduce more perks and better training opportunities and to create a safer working environment.
Fintech is also set to bring new ways to raise capital in shipping and introduce better ways of risk profiling for both investors and investments, and growing ship financing possibilities available through Cyprus banks will support the future growth and diversification of the 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. Following the financial crisis of 2013, shipping finance virtually stalled in Cyprus, but there are signs of a revival. The gap left by the once-dominant foreign banks is being filled by local banks, Greek banks with subsidiaries, and/or independent entities based in Cyprus.
Due to the smaller size of these banks, their focus is on providing a close, relationship-based service and being carefully selective of the clients they onboard. For example, local banks consider how the prospective client behaved during the downturn and assess the quality of the clients’ so-called soft assets, such as management and ownership history, with equal precision to assessing the quality of the asset itself. The majority of owners that Cyprus banks deal with are small-to-medium companies with a limited fleet of vessels, as larger companies are well catered to by big US and European banks, or Chinese leasing companies.
One improvement that shipping executives have been calling for to help Cyprus strengthen its maritime centre is to improve flight connectivity and establish more direct flights to other key hubs around the world. One historical challenge of significant impact remains for Cyprus. 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, which was unilaterally imposed in 1987 on Cyprus-flagged ships calling at Turkish 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 continue to press for the lifting of the Turkish embargo to be included in any package of confidence-building measures in reunification talks.
Riding out the Storm
Although a small economy, Cyprus’ shipping sector punches well above its weight, expertly navigating through economic storms and market fluctuations and evolving with new tech coming on stream. Recognised for its competence, safety and multiple advantages, Cyprus is clearly capable of competing on a global scale. Although the full-scale impact of the Coronavirus pandemic is yet to be unveiled, what is certain is that global trade and shipping will not emerge unscathed.
However, there is always a silver lining to every storm cloud. Maritime industry observers say these developments could also be a blessing in disguise for the Cyprus shipping sector, forcing it to fast-track reforms and speed up the introduction of advanced communications services, thus beefing up the cluster to become more efficient in a shorter period of time. With its growing registry and reformed procedures, Cyprus will emerge as a more competitive shipping hub once this storm passes – and quite rightfully stand strong as an EU jurisdiction and maritime centre full of potential and ambition.
For more information, contact Cyprus' investment promotion agency, Invest Cyprus.
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