Corporate tax avoidance threatens your children's future

Death and taxes are life's two certitudes but global corporations have done remarkably well at minimising taxes, especially corporation tax. The scale of avoidance is incalculable, insidious and threatening to society's composure and therefore your children's future.

The recent furore over such tax avoidance, however, overlooks other, more sinister aspects which if not addressed comprehensively soon risks social breakdown and anarchy on the streets. Is that a gross exaggeration? Well, let's look at some of the facts. In 2010/2011 the UK government's total tax revenues of £551 billion included £163 billion in business taxes, of which £42.1 billion was corporation tax, or only 7-8% of the total tax take. One might think should such a low percentage be a cause for concern, especially as corporation tax rates are steadily declining and may one day be replaced by other business taxes. The answer is YES because the current uproar over corporate tax avoidance is not just about one tax; it involves others, it involves employment levels, an even playing field for all businesses and the insidious threat from emerging monopoly power. Worst of all, perhaps, is a possible future dominated by plutocracies.

The UK government is under pressure to slash the social security budget, along with its EU counterparts, and what do we see are the consequences? We are treated to an almost daily diet of TV news showing huge protests, violence and incendiarism, the last typified by London's 2011 summer riots in which looting suggests an economic connection. This is not to argue that there is no abuse and colossal waste in Britain's social security budget. Far from it and so the Government must act accordingly to expunge it but there can be no doubt that if all global corporations doing business in Britain had paid their fair share of UK corporation and other taxes the Government's coffers would have swollen by billions of pounds every year and so relieve the pressure to slash the social security budget.

CBI condemns abusive tax avoidance

What is it, however, that allows global corporations to avoid taxes on a staggering scale and what should be done to excise this canker from society? The facilitator is a complex, global web of disparate tax regimes first set down by the League of Nations nearly 100 years ago and now badly in need of root and branch reform. First, however, some definitions. There are three aspects to tax minimisation schemes: 1) Tax evasion through ploys like under declaring taxable income, which is clearly illegal, 2) Abusive tax avoidance which is legal but considered unacceptable even by the Confederation of British Industry (CBI), 3) Responsible tax management which is both sensible and necessary. There is no suggestion that largely American-owned businesses generating significant sales in Britain, like Starbucks, Amazon, Google and Microsoft, are operating illegally but it is clear that their tax planning, based on highly artificial devices with no commercial purpose, falls within unacceptable abuse. Here are a few examples of how the irresponsible schemes work.

1) Starbucks sources UK coffee from a wholesale subsidiary in Switzerland, which is commercially sensible because it is cheaper to have one team responsible for sourcing all of its coffee and Switzerland seems to be the centre of the world coffee trading business. But there can be little doubt that Switzerland would not be such a world centre if it did not charge a low 12% tax rate on the trading profits. The issue becomes even murkier still when global corporations use "transfer payments", an issue first tabled for cleansing before World War 2. Transfer pricing and payments have great scope for tax reduction because they mean global companies like Starbucks can decide how much its UK business pays to non UK companies within the Starbucks' empire for access to the US firm's brand, coffee making technology, engineering support and so on. Unsurprisingly, the overseas companies are based in low tax regimes so there is a strong temptation for a multi-national to overprice the goods and services provided. to reduce or eliminate profits, and therefore tax, in a relatively high tax country. This odious transfer charging has been used to devastating effect over many years in developing countries least able to afford multi-billion pound losses through tax avoidance by wealthy, global businesses. The benefits from these financial artifices mean that Starbucks, for example, paid only £8.6 million in UK corporation tax over the last 14 years and nothing at all in the last three years, despite clocking up nearly £400 million in sales during 2011.

2) E-commerce also eases the path for creative tax avoidance schemes and Amazon is a good example. When buying a book from Amazon, UK purchasers enter into a legal contract with and pay their money to Amazon Luxembourg where the VAT rate is only 3% -- an example of how more than just corporation tax avoidance is involved. Despite booking multi-billion pound sales in Britain last year Amazon reportedly paid no tax on the profits from these sales because they were funnelled through Luxembourg. Experts claim that if Amazon did not route sales' profits through Luxembourg it would be paying as much as £100 million a year in UK corporation tax.

3) Microsoft sells its software from Ireland or, in the case of electronic downloads, through Luxembourg, so most of the money the company makes from British customers is earned in Ireland, where corporation tax is only 12.5%, about half the UK rate. This is part of an elaborate structure that the US Senate committee described as designed "to shift and keep profits offshore."

Overly concentrated wealth threatens democracy

There are no accurate figures on how much has been lost to tax havens but the figures are undeniably staggering, one estimate being $20 trillion. Another estimate indicates that the 70 plus "business friendly jurisdictions" are sheltering between $21 trillion and $32 trillion, up from only $11.5 trillion in 2005. This, of course, includes a large element of individual tax avoidance, and along with company tax avoidance should be tackled to prevent future social disharmony. Britain' HMRC (formerly the Inland Revenue) estimates that the country is losing £5 billion every year through corporate and individual tax avoidance.

As remarked earlier, tax loss does not just harm government revenues. Aggressive tax avoidance schemes also create an uneven playing field for competitors. Whitbread, a British company for example, owns Costa Coffee and pays its fair share of UK corporation tax, unlike Starbucks and Caffe Nero, the latter reportedly having paid no corporation tax on a $40 million profit in just one year. This puts Costa Coffee at a serious disadvantage and could even lead to market domination (monopoly) as fair tax payers are driven to the wall. One could argue that Amazon's unfair tax advantage over bricks and mortar book retailers is helping to drive them out of business. Reportedly, Amazon already has a 25% share of the UK book market. What then for the future prices of books? No monopoly can ever be trusted to work in the public interest. But potentially far worse than all these is the threat to democracy from plutocracy.

Ever since World War 2 the disparity between income groups has widened, first slowly but now rapidly. A key component behind this is the growth in global tax havens. As Angel Curria, head of the OECD warned, big corporation tax avoiders  "will undermine democracy. This is about the survival of democracy." If civilization is to work harmoniously then those who enjoy its benefits must also be prepared to pay their fair share of the costs. The warning signs of failure to do so are plainly evident. Greece came close to anarchy over austerity measures brought on by rife tax evasion, corruption and crass economics. Spain is flirting with political dismemberment while the wealthier, economically more responsible EU members are tiring of subsidising fiscal delinquents. Most of their citizens believe that their governments will renege on the their debts.* If nothing is done to reform rich-world financial centres as well as island tax havens then anarchy on the streets is not a fanciful notion.

Fortunately, the right noises are now being made by governments. France has slapped Amazon with a $252 million contested demand for back taxes, interest and penalties. It has been rumoured that Google may also receive a French tax demand for one billion Euro. The UK Government is suggesting that the public sector should tie their contracts only to companies that pay their fair share of tax. This shows the huge importance of concerted power because such spending accounts for £1 in every £7 spent in Britain. It signpost the way consumers should go. Consumers hold the ultimate weapon but for it to be effective it must be concerted and sustained. No global corporation, no matter how big and wealthy, can withstand consumer action through boycott. It is every company's worst nightmare and it has already been proved against Starbucks, who have now agreed to pay £20 million in corporation tax over the next two years. But be not deceived. It is a short- term sop akin the the Roman emperors throwing bread to appease the Roman mob. Such boycotts also worked against multi-nationals using child slave labour in the clothing industry.

The likelihood, however, is that consumer protest will wane and the matter soon forgotten. That would be risky because although a global initiative is under way to clean out the Augean stables of tax avoidance it will take years to reach consensus, if ever. That is why pressure must be kept up. The public should pressure their MPs and MEPs about what, if anything, they are doing to make the tax regime fairer for all. They should themselves learn more about the main tax exploiters and be prepared to engage in peaceful, lawful protest. Apathy is not an affordable luxury. The next time you sip your Starbucks or Caffe Nero coffee ask yourself if you are sipping to your health or toasting to your descendants' angst. Is that the kind of future you wish to bequeath to your children?
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*Google my blog headline: "Good governance must prevail"

IMO's container weighing compromise shames shipping

In the world of shipping when money and safety issues clash it is money that prevails. That, essentially, is at the root of the IMO's compromise last week to an amendment to make container weighing mandatory for all the world's ports. But for compromise read bastardise for the watering down of the amendment castrates it so much as to render it of dubious, disturbing value. Consequently, more ships and seafarers, road users and port workers will continue to suffer unnecessary loss and injury at the altar of Mammon. The environment, too, can expect deleterious consequences. It is a great missed opportunity, a shameful, shabby compromise and one that will come to haunt the objectors to global, mandatory container weighing as the risks rise with the growing size of container ships.

What the IMO has settled for is the decision by its sub committee on dangerous goods, solid cargoes and containers to accept an alternative mode of verification to the mandatory weighing of packed shipping containers, much to the chagrin of the International Transport Workers Federation (ITF) who since 2007 have been lobbying for a system of mandatory weighing of containers. This serious watering down means that governments will be allowed to either choose the gold standard of mandatory weighing or the lesser measure of certifying containers based on an unformulated process of verifying the weight by adding together the different constituent parts of a container load at unspecified times and places along the transport route.

"Opportunities to implement this compulsory system have been missed and as a result the ITF has launched the container weight campaign," says ITF. What the ITF and transport unions want are: 1) An international law requiring the mandatory weighing of loaded containers, 2) A process in place to address misdeclaration of container weights, 3) The ship's master to have the ability to refuse to load un or misdeclared containers.

Other interested objectors to the compromise include the United Sates and Danish governments, The World Shipping Council, The Baltic International and Maritime Shipping Council, The Institute of Chartered Shipbrokers, the International Association of Ports and Harbours and the International Cargo Handling Coordination Association. This is curiously at odds with bodies like the Global Shippers Forum (GSF) praising the IMO for making the 'right' decision and that the compromise proposal was "the best possible outcome for shippers and the maritime industry". This apparent chutzpah, however, becomes less curious when one considers what the GSF is. It does not represent the carriers (shipping lines)  nor the governments who are routinely defrauded of billions of pounds every year through deliberate under declaration of container payloads. Carriers lose huge sums because they charge by the container not the cargo weight within and there are limits to the maximum weight allowed in them. This means that if shippers and/or their packers were honest about cargo weights they would have to hire many more containers. Governments lose heavily because their import taxes are calculated on cargo weight.

An idea of the scale of the fraud can be adduced by the numbers of TEUs shipped by sea six years ago -- 141 million, or 1,272 million tonnes. The GSF is a body representing shippers' interests, i.e. the owners of the cargoes whichever way they are transported. On their website they crowed that they had "persuaded the ILO/IMO not to introduce new regulations increasing shippers' responsibilities for the safe stowage of containers throughout the whole supply chain in favour of enhanced guidelines in the promotion of training and best practice." It went on to say that it believes the compromise proposed is "the best possible outcome for shippers and the maritime industry as it provides a flexible and workable solution which can be adopted by industry without significant cost or delays in the supply chain.

One could be forgiven for thinking that the reasons they put forward for the need for compromise  are shallow if not disingenuous. They and the IMO argue, for example, that a number of countries and interested parties had made the point that there are many ports in the world where there is not the equipment nor the finance to acquire it to weigh every container and so an alternative method was needed. This seems a shallow, if not baseless, argument because the cost of retrofitting container handling trucks with weighers and linking them with the terminal operating software is tiny when set against the extremely costly port container handling equipment. It is not, therefore, an unrealistic expectation to fit mobile port container handlers like RTGs, reach stackers and straddle carriers with weighers. Weigh bridges would not be feasible as these would be delaying choke points while ship-to-shore cranes so fitted would be too late in the handling process.

To claim it is in the best possible interests of the maritime industry would strike a discordant note with the many bodies who opposed or complained about the compromise deal. Apart from the bodies already mentioned they also include: Asian Shipper' Council, the European Shippers' Council, the European and International Freight Forwarders Association and the European and Maritime Terminals and Stevedores representative who all complained that the compromise proposal was based on insufficient evidence and would make little difference to ship operations. The European Shippers' Council went further, urging that the regulation covers only one aspect of the dangers of working with containers and so ignores others such as stacking and packing of containers and as a result will do little to enhance overall safety standards.

                                                            ITF fights on

Explaining the flaws in the IMO's compromise to the amendment, Paddy Crumlin, ITF President and Dockers' Chair, said: "We have a compromise that some countries will put in place a process that is likely to be bedevilled by the obvious questions: Who will certify, when and how?" They now seek transparency and clarity from the governments that fail to take up the safer method of how they plan to made certification work. "We are not prepared to walk away from this so we are redoubling our campaigning efforts and planning further lobbying," said Mr Crumlin. Concluding, he said: "It must be made a legal requirement that containers are weighed accurately. There must be repercussions for those who misdeclare. That's what we are campaigning for because anything less is just not good enough"

The GSF maintains that the majority of shippers act responsibly and comply with their responsibility to make accurate cargo declarations. That may be so but evidence suggests that the minority of fraudsters is so big as to pose an unacceptable, global risk to seafarers, dockworkers, road users and the environment. ITF has consistently been of the opinion that the incidence of misdeclared and overloaded containers is widespread in the shipping industry and any solution that does not require the container to be weighed before loading will be subject to abuse. They base their view on container ship loss investigations by bodies like the Maritime Accident Investigation Branch (MAIB). When the container ship, MSC Napoli, was beached in 2007, MAIB found that no less than 20% of all the on-deck containers were over 3 tonnes heavier than their declared weights and in one case the difference was 20 tonnes. This was not carelessness on the part of container stuffers; it was deliberate fraud. On this, MAIB was scathing about the marine industry's hypocrisy. "While key industry players will attest that safety is of paramount concern, evidence obtained during this and other MAIB investigations suggests that in reality the safety of ships, crews and the environment is being compromised by the overriding desire to maintain schedules while optimising port turnaround times," it said.

Only two months before the IMO watered down the amendment, the 90,000dwt container ship, MOL Comfort, broke in two, subsequently caught fire and sank, fortunately without loss of life. The insurers for the 5-year old, 8,000 TEU ship reportedly may be in for a US$400 million bill plus the value of cargo lost. Had this loss occurred close to shore its 3,100 tonnes of fuel oil would have posed a serious environmental threat. The causes may never be known but the smart money is on the longitudinal stresses induced by under-declared container weights which shippers routinely refuse to take with any seriousness. There have been plenty of other warnings about excessive container weights leading to dangerous incidents which are not always allied with adverse sea conditions. Feeder container ships have regularly been rolling over, even against quay walls. The MOL Comforts' loss also brings into question whether the construction standards of large container ships are good enough to stand the potential rigours at sea. If this writer were a shareholder in Maersk he would pray nightly that its launch of the world's largest ship, the 18,000 TEU vessel, Maersk McKinney Moller, will never mean accepting containers that have not been weighed at ports. Its loss at sea fully loaded with, say, 182 million ipads would run into billions of pounds, a thought that should also worry insurers.

The MOL Comfort loss, however, failed to concentrate minds at the IMO deliberating the container weighing issue. It is hardly surprising. Shippers' organisations have been defending their flawed position on container weights for over 40 years. It is stark testimony to the industry's overriding will to put money before reasonable safety practices, but it is tainted money that will most assuredly become blood-stained.
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Why 'green' logistics must not be ignored

Environmental issues are moving centre stage in business strategies so it is only logical that 'green' logistics  will dominate corporate thinking because of its huge carbon footprint. Any moves, therefore, to cut conventional electricity, alone responsible for 30% of Britain's carbon emissions, and other toxic fuels, will be welcomed but what are some of Britain's leading logistics companies and retailers doing to achieve that? To find out, readers could attend, or otherwise follow, the second Green Logistics Summit,* part of the Logistics Leaders Network, on September 17 at the B & Q Centre, Worksop, Nottinghamshire.

The theme will be how companies can profit from 'green' logistics strategies by saving money and helping the environment. Jaguar-Land Rover will be talking about their fleet improvement strategy reducing CO2, partly through lower mileage. B & Q will discuss steps it is taking to reduce the environmental impact of the supply chain, while others will be talking about reducing energy in the warehouse, reverse logistics, recycling and re-use of materials and fleet management, trucks, tyres and trailers. The keynote address will be all about the latest EU pronouncements on 50% of journeys within its borders not being eligible for going by road by 2030. Following the conference, there will be a tour of the large B & Q distribution centre, all of which is powered by one 2 megawatt capacity wind turbine, with enough energy left over for some local houses. The turbine reduces annual carbon emissions by 1,599 tonnes.

Whatever misgivings some may have over alternative clean power sources like wind and solar, owing to costs and their taxpayer subsidies which hit the poor much harder than the rich, the long-term cost of relying heavily on fossil fuels should convince most that there should be a hastening of clean, reusable, energy options adoption, as will become clear. However, there are other promising developments less painful to taxpayers' pockets These include dual-fuelled, gas-powered HGVs using a mixture of bio gas from waste food and liquid natural gas.

A leading pioneer in this work is the British company, Gasrec, who claims that an HGV fleet operator who seeks to lower his fuel costs and decarbonise the fleet will discover that Bio-LNG provides the optional solution. By their nature, HGV operations cover the highest mileage and use the most fuel in the logistics sector, accounting for over one third of all costs. Claimed benefits for the Gasrec  fuel are impressive. These include 25% cheaper fuel, up to 70 % cut in CO2 emissions and at least 85% in NOx. There is a 90% cut in particulates which all add up to the company's claim that environmentally speaking it is more advantageous than any other commercially available fuel.

Barriers to its adoption, like availability of vehicles, quality and availability of the fuel, are all being removed. Volvo and Mercedes are the dominant manufacturers, with Cleaner Power and Hardstaff providing conversion technology. Payback calculations for conversion can be difficult but Britain's leading food retailer, Tesco, claims a payback on converted vehicles in just over two years. Other leading Bio-LNG fuel users are B & Q, Coca-Cola, Sainsbury, UPS and DHL. Currently, Gasrec is building the UK's first refuelling network, enabling its customers to access the fuel from multiple locations on the UK road network.

Time, alas, is running out in the race to ameliorate the impact of global warming, and as indicated in my last report: "Nature threatens port centric logistics," even if the burning of all fossil fuels ended tomorrow "future generations have been irreversibly committed to a warmer world and rising seas." The cost of going 'green' may seem high for some but the cost of not doing so on a meaningful and timely scale will be incalculably higher. As hurricane Sandy showed last Winter, a perfect storm left defenceless New York with a US$19 billion damage bill but the legacy costs seem almost certain to be much more. Pity the unfortunate householders from Louisiana to New York (with west coast cities to be added by 2016) asked to raise their homes or suffer huge hikes in insurance premiums thanks to FEMA's redrawing of the country's flood maps in anticipation of future storms. But it is not just about storms. It also encompasses a combination of rising sea levels and storms. The former has risen eight inches over the last 100 years owing to global warming but the rate of rise began to accelerate over the last two decades. The consensus is that by the end of the century it will rise between 27 inches and six feet, provided the Damoclean sword of the huge Thwaites glacier in West Antarctica does not breakaway, a prospect rising sea levels enhances, for that alone would raise sea levels by 10 feet. Then the sparks would fly upwards.
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*Further details from: Peter Acton, Tel: 01737 457002. Email: Info@Gyrosgroup.co.uk

Nature threatens port centric logistics

Momentum is gathering pace to change the supply chain map of Britain, evinced by a switch to port centric logistics, but is a key factor being overlooked that could make the move disastrous without environmental preparedness? The economics of re-basing logistics parks to port vicinities look cogent. They can eliminate many return empty container trips and allow containers to be fully loaded, and so reduce transport costs and carbon emissions.  But a new, insidious threat, incalculably damaging, beckons, albeit still hedged by uncertainties --- rising sea levels.

By the nature of coastal ports they must be at sea level but the port assets, like wharfs and dock cranes, can at least be placed high enough above high spring tide levels so as to make them unlikely to flood in the next 100 years. The problem is their hinterland. These areas around the new London Gateway terminal, due to open this November, Tilbury, further up the Thames, Felixstowe, Southampton and Portsmouth are all low- lying and mostly marshy. There is nothing much that can be done with existing ports, though where they incorporate huge logistics parks, like that at London Gateway, effective bunds may be needed to counter future flood risks and any future ports might need to consider substantially raised roads and railway banks that connect them to the inland sites so that they will not leave the ports marooned by flooding.

Is the risk from rising sea levels, however, strong enough to galvanise authorities around the world into more forceful and inevitably costly action? A look at the facts leaves little room for complacency. For 2,000 years global sea levels barely changed. Then they began to rise in the late 19th century as the Earth started to warm, helped by industrialisation and its consequences for CO2 emissions and other greenhouse gases. At an eighth of an inch a year sea levels are rising twice as fast as they were a few decades ago, and there is no comforting reason why this rate of acceleration should not quicken. Over the past century the planet's temperature has risen one degree Fahrenheit and the sea level by about eight inches. Only in last May the concentrations of carbon dioxide in the atmosphere reached 400 parts per million, the highest in three million years.

Clearly there is a need for a global effort to cut greenhouse gas emissions but even if we stopped burning all fossil fuels tomorrow the existing greenhouse gases would continue to warm the Earth for centuries, so future generations have been irreversibly committed to a warmer world and rising seas. Even so, that does not negate the case for more stringent gas emission controls because without them the future would be even more intolerable. It must be admitted that in the short-term scientists are still uncertain about how fast and how high seas will rise. Estimates vary between 23 inches and six feet by 2100 and the US Army Corp of Engineers recommends that planners consider a high scenario of five feet. But what is certain is that past estimates have been too conservative, and there is a joker in the pack. This is the huge Thwaites Glacier in West Antarctica, underpinned by a 2,000 ft undersea ridge, slowing its slide into the sea. If a rising sea allowed more water to seep between the ridge and glacier the latter could detach. Such a breakaway would be enough to raise sea levels by 10 ft.

To an extent, the damage is done, and a foretaste of things to come was New York's hurricane Sandy storm surge last year that inundated a defenceless city, killing 43 and leaving a US$19 billion bill. Many coastal cities are now at significant risk, including even those like London which have built hitherto effective barrages. If one uses a conservative estimate of a 20 inch sea level rise then according to the OECD estimates some 150 million people in the large port cities will be exposed to risks from coastal flooding, along with US$35 trillion worth of property. The consequences of doing nothing more effective than at present are too nightmarish to contemplate. Rapidly developing countries like China and India who are spending huge sums on military expenditure and who have the most to lose from rising sea levels should abandon such inessentials and redirect their revenues to meet the inevitable, natural calamities to come.
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Shipping's regulatory framework shames the industry

It would not be unreasonable to ask if now is the time for the International Maritime Organization (IMO) to be administered an effective enema, such has been their egg-bound deliberations on certain maritime safety issues, which continue to exact their lethal, heavy toll. In releasing its findings on the sinking of the general cargo ship, Swanland, in the Irish Sea on November 27, 2011, Britain's Marine Accident Investigation Branch, (MAIB) commented that concerns surrounding safety and high loss rates on similar ships had been repeatedly raised at the IMO. "However, progress to address the problems appears to have been slow," said the report. It is a tardy record that over 2002-2011 saw 248 general cargo ships foundering worldwide with the tragic loss of over 800 seafarers. Some 226 of those vessels were 15 years old or more, and 139 at least 27 years old. But this is not the only issue where the IMO's apparent tardiness has been disturbing.

Structural failures on ships in heavy weather, for example, affects container ships and the key problem here is deliberate overloading of containers to save freight costs and import duties that probably amount to over £1 billion a year. The solution is a simple one and has been under IMO's consideration for some years. Making the weighing of containers mandatory at all ports is the simple solution but the lack of effective, timely action by the IMO adds daily to the risks, which can only worsen as container ships become ever-more leviathans with 18,000 TEUs or more on board.

Yet a third disturbing lack of action concerns the need to overhaul SOLAS regulations regarding lifeboat capacities on cruise ships. The wrecking of the Costa Concordia was a wake up call that seems to have fallen on deaf ears. As this column commented in previous blogs and elsewhere on shipping sites over the last six years, there is a serious shortage of lifeboat places on most cruise ships, averaging 25%, when allowance for rapid listing is factored in. It is not unusual for cruise ships to list quickly and so prevent lifeboat launching on the opposite side of the list. Almost as disturbing is the cost-cutting means cruise lines use by making use of much cheaper inflatable life craft that would be almost useless for senior citizens in a raging sea, especially if they had to jump 50 ft or so and then struggle to get on board. Had the Costa Concordia foundered many miles from shore in a hostile environment the death toll could have far exceeded the Titanic's tragic loss.

The problem of general cargo ships is clearly a regulatory one. As the International Transport Workers Federation (ITF) commented on the Swanland report: "The ITF condemns the lack of effective regulations and control in the international shipping industry that allowed the tragedy to occur. The MAIB report reveals how negligence and cost-cutting led to the sinking of the general cargo ship, Swanland.... with the loss of six Russian seafarers." ITF, therefore, is calling for:

A wholesale review of the general cargo ship safety,
Stricter enforcement of all the existing regulations,
Additional checks and safeguards to guard against the potential, precarious safety of all general cargo ships.

The Swanland sinking shows, as in many ship losses, that there was a cocktail of reasons that became lethal, almost all of which were man-made and without which even in the roughest of seas the vessel would have survived. At 2 a.m. the 34-year old Cook Islands-registered general cargo ship, (1,987 grt) experienced a structural failure when heading directly into rough seas and gale force winds (Beaufort scale 8-9) when on a passage from Llandulas to Cowes, Isle of Wight, with a 2,730 ton cargo of limestone. An underwater survey showed that the upper structure on the upturned vessel had failed in the midships region on both the port and starboard sides.

The investigation found that the major factors contributing to the structural failure were:
1) The limestone was a high-density cargo that had been effectively loaded as a single pile within the central section of the hold. As a result, significant stresses were generated in the vessel's midship section.
2) The stresses in the midship section were exacerbated by the rough seas in which the wave lengths were similar to the length of the vessel.
3) Swanland's longitudinal strength had probably weakened significantly over the previous 2.5 years through corrosion and wastage ("the maintenance and repair of the vessel had lacked focus and oversight and no structural repairs had been undertaken since 2009"), said the report.

Other contributing factors include non compliance with the International Maritime Solid Bulk Cargo code; insufficient loading information; a lack of effective safety management; poor quality of survey and audit; lack of oversight of the classification society by the flag state; and the financial pressure of operating this type of vessel in the current economic downturn. The investigation also identified several safety issues concerning the immersion suits and life jackets on the vessel and sadly none of these issues is new.

Financial exigences can also contribute to the lamentable shipping losses and the Swanland was no exception. Such pressures are common within the shipping industry and the scale of the problem is disturbing.

Swanland was only one of thousands of general cargo ships operating on small profit margins that, as they become older, they also become increasingly costly to operate. Its trading pattern was driven by the spot market, plying around the UK, northern Europe and the Baltic, carrying various cargoes like limestone, salt sand, slag and grain. In 2003 Swanland had been fitted with a self-discharging conveyor and moveable carriage to support a tractor and excavator on the port side of the main deck. Although the vessel's mortgage had been paid off it had not made any profit since 2006 and had incurred a £1 million loss since then. The pressure to cut costs, therefore, was high and so the main reason for switching its classification society from Lloyds Register to the International Naval Survey Bureau was to reduce the classification society's fee by 30%. But as MAIB pointed out, while the savings made on the cost of surveys and audit fees would have been immediate it is recognised that many ship owners also enter their vessels with non IACS societies, expecting their audit  and surveys conducted would be less robust. In effect, significant, long-term savings are possible through reduced costs of repairs and rectification of deficiencies. "It is apparent," goes the report, "that general cargo ships tend towards being entered in class and registered with lower performing societies and flag states as they near the end of their service life." This is what the ITF means when it commented: "The fact that at the time of the accident Swanland had been certified as being in accordance with all applicable statutory requirements makes a mockery of the existing regulatory framework."

Recommendations have been made to the International Naval Survey Bureau to improve the quality of their classification survey, audit and training regimes. Recommendations have also been made to Swanland's managers, Torbulk Ltd, that are aimed at ensuring solid bulk cargoes are safely carried on all its vessels and that crews are familiar with and well drilled in the use of life-saving appliances on its vessels.

MAIB says that there is no justifiable reason why the safety record of general cargo ships should be allowed to lag behind other vessel types such as bulk carriers without vigorous attempts being made to redress the imbalance. In summing up its recommendations, MAIB says: "It is hoped that the loss of Swanland and her six crew will be a catalyst for the work already being undertaken by the IMO to tackle the global issue of general cargo ship safety." If the IMO's history is any guide such a hope seems forlorn and so seafarers around the world will needlessly continue to die and for that the IMO should ask if its hands are spotless.       ------------------------------------------------------------------------------------------    

Will shipping herald next credit crunch?

All is not well in the shipping world, and by extension, the banking industry, as freight rates tumble, shipping companies enter bankruptcy protection and bankers tremble at their multi-billion pound exposures to non-performing shipping loans. The root causes include huge tonnage capacity increases, based on unrealistic world trade growth projections, at a time when the global credit crunch began to bite in 2008. The fall-out of that credit crunch and its body blow to shipping continues to restrain economic recovery today as banks struggle to clean up their balance sheets first before expanding lending to pre-crunch levels.

The ship owners desperately need a boost to world trade, partly because of collapsing freight rates but also because new accounting standards by 2017 are expected to force them to place bareboat charters and time charters exceeding one year on balance sheet, increasing liabilities/debt ratios and causing them to be in default on loan covenants. But how realistic are hoped-for boosts to world trade and, by implication, shipping freight rates? Not much, as we shall see, given the new forces at work which could stymie or weaken any recovery in freight rates long enough to pose a serious threat to world banking almost every bit as bad as the 2008 credit implosion. These forces are impossible to quantify because the future always defies certitude. Before we examine them, however, how parlous is the current shipping-banking partnership?

A perfect storm gathering?

Alarmingly, dud shipping loans are not the only worry for banks. In Britain, in particular, banks have still not come clean on their exposure to dud, multi-billion pound commercial property loans. On their own, these dud loans are containable, with patience, but when combined with huge shipping loan losses yet to be openly declared the fear is that a perfect storm is gathering in the financial markets, and all it would take to ensure it is a mismanaged exit from quantitative monetary easing, a euphemism for electronic money printing.

There is, admittedly, a glaring lack of detailed information about banks' portfolios of shipping loans but what facts can be gleaned make disturbing reading. Most of the banks heavily exposed to shipping loans are north European, including German, Scandinavian and British, and the fear is that most of them are in denial about potential losses. "It is probably the most serious commercial problem that the banks have," opined Paul Slater, chairman of the consultancy firm, The First International Corporation, of Naples, Florida. According to him banks are saying: "Give it time and it will work out," but it is not going to do that, he adds. He is almost certainly right, though for some reasons that he may not have perceived.

So how big are the shipping loan risks? German banks' exposure to them is estimated at US$129 billion, more than double the value of their government debt holdings in Greece, Italy, Ireland, Portugal and Spain. Commerzbank, Germany's second largest, has a shipping loan exposure of Euro 18.9 billion, of which the non-performing part is estimated at Euro 4.5 billion. Its second quarter profits in 2013 crashed 84% on the same period last year owing partly to a Euro 110 million loss on bad loans to build ships. The company is reportedly anxious to cut its shipping loans by 40% but it seems the bids received so far are so low that the necessary write-down would imperil Commerzbank's equity. This exposes all banks' double whammy from shipping loans --- non payment of interest and asset values far below the loans to finance the ships. According to some shipping specialist estimates, large vessels that might have sold for US$150 million in 2008 fetch only about $40 million today. Half of the cargo ships on the high seas, it is estimated, may no longer be worth as much as the debt they carry.

Another German bank, HSC Nordbank, of Hamburg, although only a mid-size lender, is the biggest lender to the shipping industry, with reportedly more than £39 billion  in outstanding loans. Other big players in shipping finance include the DNB Group in Norway, Nordea in Sweden and Britain's Lloyds Banking Group and Royal Bank of Scotland (RBS). Overall, it is estimated that global shipping loans amount to £350 billion and the growing fear is that some of the lenders have yet to confront the scale of potential losses.

The recent decline in freight rates brought on by the glut of shipping and weak global trade is alarming and has even spilled over into the oil tanker market. Rates for non-liquid cargo are half or less than the level needed for shipowners to break even, according to consultants, KPMG. Rates for the biggest crude oil carriers tumbled 68% in the past two weeks. A very large crude carrier holding 2 million barrels could expect only $7,954 a day on August 2nd, having risen to $24,493 as recently as July 12th, according to Clarkson, the world's biggest ship broker. This comes on the heels of America's largest tanker operator, Oversea Shipbuilding Group, filing for bankruptcy in November 2012.  

New constraints on sea-borne trade?

Global trade will strengthen but that does not necessarily mean a concomitant growth in freight rates that shipping and banking so desperately need to keep that sinking feeling at bay. Some of the factors holding back growth are obvious enough, like the uncertainty about banks' true financial health which fosters mistrust among institutions, making them reluctant to lend to each other, and is partly responsible for a shortage of credit for businesses and consumers. Other reasons, however, are less obvious, impossible to quantify but which only the foolish would ignore. These include:

1) Development of inter-continental, rail-based land routes
2) Super-sized container ships whose economies of scale will undermine smaller box ships
3) Trends to re-shore manufacturing back to homeland countries or nearby
4) Green issues, which in part could spawn hybrid gas/sail vessels.
5) Technical developments like 3D printing and very much cheaper assembly robots
6) Shale oil developments in major oil-importing countries.

Good examples of continental, rail-based cargo transport are the German rail operator, Deutsche Bahn AG, which has started another direct train link on the Europe-China trade route, extending its reach into a domain dominated by shipping companies like Moller Maersk and Hapag-Lloyd AG. The journey takes just 15 days compared with the 30-40 days container ships need on the Asian-Europe route. This has two significant advantages for businesses. Ships should be viewed as floating warehouses and like all warehouses they put money to sleep. If the transit time can be drastically cut then that means stock can be converted into sales so much quicker. The second advantage is that electronics and automotive companies, particularly, find that the value of goods lost during the longer sea journeys is relatively high.

The super-sized container ships of 18,000 TEU or more coming on stream add further to the container shipping glut but because of their economies of scale they are likely to undercut much smaller box vessels and drive them into the breakers' yards.

The trend to re-shore manufacturing may only be a trickle so far but it is gathering momentum and now has new allies to bolster it. In the rush two decades ago to outsource manufacturing to the Far East where labour rates were much lower, certain hidden costs, if perceived, were ignored. These include rampant, intellectual property theft, natural calamity risks that severely disrupt JIT supplies, inflexibility to react quickly enough to changes in demand, poor quality issues and long production runs. To these must now be added rapidly soaring labour costs in China which can now make even the cost of high end apparel cheaper to produce in Britain than in China.

The new allies promoting re-shoring must now include developments like 3D printing and much cheaper assembly robots. These mobile robots will be able to perform basic assembly tasks and move around humans safely for a cost of about $25,000, compared with the $225,000 or so for welding and paint sprayer robots.

All these forces could restrain world growth based on ship-borne trade, and so depress freight rates for years to come but will that be enough to herald a second global credit crunch? Undoubtedly, the huge suspect shipping loans are a worry but when combined with heavy exposure to non-performing commercial property loans they put some big banks on a knife edge. Britain's tax payer-funded RBS and Lloyds Banking may show signs of recovery but it could be a false dawn. The UK commercial property market remains a major threat, with £38 billion of the £190 billion UK book in negative equity, and £93 billion on a loan to value ratio of more than 70%. RBS and Lloyds, according to Britain's Daily Telegraph in November 2012, have the largest exposures of £69 billion and £64 billion respectively. These banks are now under regulatory pressure to come clean on their dud property loans. Meanwhile, Commerzbank has dumped the UK commercial property market by selling Euro 5 billion of holdings.

The most likely scenario is that the first credit crunch will continue agonisingly for a few more years, along with rock bottom interest rates which are key to propping up the shipping industry, domestic and commercial property. What can be in no doubt, however, is the hell that awaits shipping lines and, perhaps, ship building yards. Soon, an inevitable financial cleansing will require the financial institutions to cease hiding the real value of their assets and that, in turn, could force governments into more bail-outs. Then, as the ancient Chinese curse goes, they will live through interesting times.
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Male violence against females castrates economic development

Over decades many billions of pounds have been spent on aid to developing countries which many question as failing to be efficacious on any meaningful level, and all too often worsening a local situation. Many are the posited reasons for this tragic shortcoming, such as ubiquitous corruption at every level in the recipient countries, the curse of tribalism and sectarianism, civil and international war and the huge loss of revenues through global corporation tax avoidance, aided by an international tax regime badly in need of overhaul. Trade practices by developed countries, which discriminate against exports from developing countries, also add fuel to the fire. But one key issue that seems to have been overlooked and is crying out for robust reform is male (mostly sexual) violence against women and girls.

This age-old problem in developing countries has been highlighted by the second report from Britain's House of Commons International Development Committee, "Violence Against Women and Girls,"* released on June 13, 2013. It calls for the Department for International Development (DFID) to review its funding channels so as to raise funding to women's organisations. Additionally, it asks that DFID makes violence against women and girls a central focus of its humanitarian operations, ensuring that the protection of women and girls is a priority from the outset. It specifically asks that refugee camps be designed to be a refuge not a place where women are at risk of rape and other forms of violence. The "DFID must also get tough with multilateral aid agencies who fail to prioritise this, as too often they do," recommends the report.

Britain, says the report, can be proud of its recently increased efforts to tackle violence against women and girls overseas following its 2010 Call to Action on Violence Against Women and Girls. The DFID has a strong policy framework in place to achieve change for women's lives but the UK's international leadership is weakened by its failure to address violence against women and girls within its own borders, particularly female genital mutilation (FGM) from which 20,000 girls within the UK are at risk and 66,000 women are living with its consequences. Despite being illegal in Britain since 1985, FGM has not resulted in any prosecutions, even though there were 148 referrals to the police since 2009. To counter this lamentable record, robust action should be taken against political correctness, urges the report.

The many forms of male oppression against women add up to a colossal loss of economic output, which if eliminated would go far to reduce the need for overseas aid. FGM, for example, has afflicted 140 million females globally, according to estimates from the World Health Organisation. It is generally carried out by unskilled practitioners who use unsterilised instruments and no anaesthetics, risking potentially lethal infection. Other consequences include severe pain during urination, menstruation, sexual intercourse and childbirth and psychological trauma. The problem is not confined to the 42 or so African counties but is also widespread in some Asian countries and the Middle East.

Other forms of violence against women and girls include child marriage and domestic violence. According to a World Bank study, rape and domestic violence are more dangerous than cancer, motor vehicle accidents, war and malaria. Violence also constrains women and girls' ability to learn and flourish, to be active members of their families and communities, and to contribute to their countries' growth and development. If, instead, there was investment in adolescent girls there would be long-term benefits, as women with economic and decision-making power will tend to choose to have fewer children, have them later and invest more in their health and education.

Domestic violence against women takes many forms and among the most fatal are the so-called dowry disputes in India, leading to "accidental" kitchen fires in which the wives are deliberately immolated. Far worse is India's female foeticide and infanticide rates. One activist group estimates 8 million female foetuses were aborted following ultrasound scans over 2001-2011 simply because they were female and so considered a financial burden. India's odious dowry system, a key driver behind female infanticide, that so demeans women was outlawed in 1961 but so rampant is the practice that the law might as well not exist. The results is that the old methods of infanticide which were easily detectable have given way to a 'scientific' approach through such methods of induced pneumonia shortly after the child's birth. Figures for female infanticide are hard to come by but what is certain is that girls under one year are 50% more likely to die than boys, often through negligent homicide. Sadly, the figure for the many forms of female infanticide must run into millions.

The crass parental attitude that favours male children over female are already beginning to pose serious social problems in countries like India and China. India's ratio of girls to boys is one of the world's worst after China and its Prime Minister described female foeticide and infanticide as a "national shame."

The root causes of violence against women and girls are the same; inequalities between men and women and damaging social norms that condone or tolerate the subjugation of women and girls, says the report. Man's sins are many but few can eclipse his base treatment of women down through the ages on so vast a scale. The problem will never be fully solved unless the offending males begin to cherish women instead of treating them callously.
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*Violence Against Women and Girls", HMSO, London, £20