Committee Reports > List of Committees > Joint > 1980 > Committee on State Sponsored Bodies > Report No. 15 - Irish Shipping Limited

APPENDIX 1

SUBMISSION BY IRISH SHIPPING LIMITED

1. THE WAR YEARS 1939-1946

On the outbreak of war in 1939 the Irish merchant fleet had been reduced to a total of 41,105 gross registered tons by the transfer of a number of ships from the Irish Register. The remaining Irish fleet consisted mainly of small vessels trading on the Irish Sea and to the near Continent.

By December 1940 Ireland was virtually blockaded. When the Germans broke through in the west the U-Boat campaign in the North Atlantic intensified and substantially reduced the tonnage available to the British Government. That Government was either unable or unwilling to maintain supplies to Ireland. Of the small number of ships on the Irish Register nine had been sunk, and essential supplies had begun to run low.

Irish Shipping was incorporated on the 21st March 1941. The statement released by the Government Information Bureau on the 24th March 1941 stated: “The Company has been formed with a view to taking the fullest advantage of any opportunity that may be available for providing shipping facilities for the importation of essential commodities to this country”.

It is a matter of history of which those involved in the Company at the time can be justly proud that the Company operated fifteen vessels during the War years, and in the first five years of its existence brought into this country 1,127,000 tons of essential commodities consisting mainly of wheat, fertilizers and foodstuffs.

Of the fifteen ships, which had an aggregate carrying capacity of 77,851 deadweight tons, nine were purchased outright and six were taken on longterm charter. All of the ships were very old, as is indicated by the following Table:

The management of the Company’s fleet during the war years was divided between Wexford Steamship Company, Limerick Steamship Company and Palgrave Murphy Ltd.

II THE POST WAR YEARS 1947-1951

Although hostilities ceased in August 1945, shipping did not return to normal until about June 1946. Having regard to the experience in relation to shipping during the war, the Government decided that Ireland should never again be dependent on foreign tonnage for essential supplies. It was decided by the Government that the Company should remain in existence and should take over the management of its own fleet and that a fleet sufficient to keep Ireland supplied in an emergency should be one of 250,000 deadweight tons (the strategic fleet). About this time the organisation necessary to enable it to do so began to evolve. Two of the six vessels on time-charter during the war had been sunk by belligerent action. The remaining four chartered vessels had been re-delivered by August 1946. The nine old vessels which had been bought remained as the Company’s fleet. It was clear that they would have to be replaced fairly quickly, and accordingly the first building programme was commenced. It included seven ships of which the first was delivered in July 1948, and the last was delivered in March 1950. A second building programme was initiated in October 1950. It comprised five ships. The first of these was delivered in 1952, and the last was delivered in 1957.

By December 1949 the Company had disposed of the last of the old vessels of the wartime fleet, and was then operating a fleet of seven new ships with an aggregate carrying capacity of 46,100 deadweight tons. During this period Irish business was re-stocking after the war, and consequently there was a considerable volume of general cargo traffic moving from North America and the Baltic to Ireland. The Company’s vessels were largely engaged in Liner trade on the North Atlantic, and from the Baltic. It was clear that if the Irish merchant fleet was to expand to attain the strategic goal then it would have to compete for a part of the seaborne commerce of other nations. The Company’s first venture into the time-charter market was with the m.v. “Irish Plane” which was chartered immediately on her delivery from the builder’s yard on the 22nd December 1949. As the Company’s fleet expanded the additional vessels were, as envisaged, engaged in tramping rather than Liner services because there was not enough traffic to and from Ireland to support the increasing tonnage.

The accumulated financial results of these years was a loss of £47,662.

III THE YEARS OF ACCELERATED FLEET EXPANSION 1951-1963

In November 1951 when the Company had a fleet of 46,000 deadweight tons with a further 31,000 deadweight tons on order, the Government because of world conditions, (the Korean war), asked the Company to accelerate the rate of fleet expansion, and instructed the Company to order the six ships which comprised building programme No. 3. The aggregate carrying capacity of these six ships amounted to 49,300 deadweight tons. The Company’s resources were already heavily taxed to meet its commitments in relation to the first two building programmes. It was recognised that it was unlikely that the Company, which at that stage had an Issued Share Capital of £200,000, would be able to carry the financial burden of this additional programme without help from the Exchequer. It was therefore agreed that the Government would take up Shares in the Company to the extent that it could not meet the cost of these building programmes entirely from its own resources.

After the completion of these six ships the Company continued to build ships until it attained the strategic figure. Between 1951 and 1963 the Company took delivery of nineteen new vessels. When allowance is made for the new vessels and the sale of some of the older ships, the Company ended the period with twenty-one ships with an aggregate carrying capacity of 195,000 deadweight tons.

The rapid expansion of the Company’s fleet changed the pattern in the trade. The Liner service now comprised but a small part of the trading pattern. Most of the ships were operating on the international tramp market, which in 1957 went into the worst depression experienced in the shipping industry since the ’30s. The shipping industry did not recover to any extent from this depression until 1970.

The accumulated financial results of these years was a loss of £1,949,985.

IV THE YEARS OF TRANSITION 1963-1967

From the earlist days all concerned hoped that the fleet would be able to operate at a profit and generate funds sufficient to provide for replacement of the Company’s vessels when this became necessary. Nevertheless, up to 1963 the emphasis was rather on the achievement of the strategic target than on profitability.

In the five years to the 31st March 1963 the Company had lost £2 ½ million. The international tramp shipping market was in the middle of a depression which lasted from 1957 to 1970. The Company’s capital and reserves had practically disappeared.

In the early 1960s the Board of the Company realised that it could not continue in existence whilst making continual heavy losses and decided that plans should be made to correct the situation. This would require a complete reorganisation of the Company. The first step was to make changes in the Top Management, and a new Assistant General Manager (Designate) was appointed.

During this period the Government’s Second Programme for Economic Expansion was published, the main effect of this being to reduce the size of the strategic fleet from 250,000 deadweight tons to 155,000 deadweight tons. (Primarily because modern ships travel at higher speeds and therefore a smaller fleet could cope with the same volume of cargo). It was however agreed that additional ships could be added to the fleet on a purely commercial basis.

In 1966 the Company defined its detailed objectives for the first time together with its major policies. They were stated as follows:—

Objectives

“Within the framework of a profitable company to provide, maintain and operate efficiently and economically a basic Fleet of vessels under the Irish Flag, together with the necessary organisation, management and personnel to run this fleet. The aggregate size and composition of the basic fleet to be reviewed and agreed from time to time with the Minister for Transport & Power.”

Policies

1.To ensure that the strategic portion of the Fleet is at least reasonably economic during the periods of low freights.

2.To maintain overheads and shipboard costs at the lowest, and operational efficiency at the highest possible levels.

3.To operate, in addition to strategic types, other commercially viable vessels.

4.To broaden the basis of trading by engaging in profitable projects or services ancillary to conventional shipping so as to have profit areas of activity not subject to cyclical freight depressions.

5.To finance all development by the use of the Company’s own liquid resources or borrowing powers, (no additional Government capital would be sought).

6.To enter into co-operation with private interests at home or abroad, in shipping or related projects, which are commercially profitable. The Company would not, however, initiate any major activity in direct competition with Irish private or public enterprise. (The Company would not be deterred from the full development of a project (entered into on justifiable policy grounds) where, to realise the projects’ best potential, there would inevitably be a degree of competition with other Irish interests).

7.To give priority in employment to Irish citizens and to organise for them on and off the job training schemes so as to provide worthwhile career opportunities in shipping.

8.To foster (having regard to the Company’s resources) schemes or projects designed to assist Irish maritime development.

9.To assist Irish industrial development by purchasing Irish goods or using Irish services where reasonably economic for the Company to do so.

With the co-operation of the Unions representing seamen, a work study team, including a Union representative, trained by the Company, studied the work load on the Company’s vessels. Manning scales at sea were reduced in consultation with the Unions. The shore staff was reduced and overheads were cut. The results for the five years 1961/62 to 1965/66 were analysed in great detail and the probable results for the five years 1967/68 to 1971/72 were projected to show what would happen if no major changes took place.

It become clear that the composition of the Company’s fleet and its trading pattern would have to be radically altered. Plans were drawn up for the gradual elimination from the Company’s fleet of ships which were clearly uneconomic. It was apparent that the losses resulting from the North Atlantic Liner service could no longer be sustained. The need for diversification into commercial ventures which would provide a cushion against the periodic slumps to which the shipping business is notoriously vulnerable was identified. A profit plan was prepared and the new Management team set about implementing it.

The accumulated financial results of these years was a loss of £2,256,192.

V THE COMMERCIAL YEARS 1967 TO DATE

The success of the measures taken can be judged by a comparison of the projected results, if no remedial measures had been taken, with the actual results for the five years 1967/68 to 1971/72.

In short, potential losses of £2,756,700 were converted into actual profits amounting to £2,468,982, i.e. a difference of £5,225,682.

This dramatic change had been brought about by the elimination of the losses on the Liner service, the reduction in overheads, the gradual elimination of unprofitable ships from the fleet, and the rigorous control of costs.

When it became clear that the Company had achieved its first aim of breaking-even at low levels of freight it was felt that the emphasis should be shifted to reorganisation for growth and adequate levels of profit commensurate with the Company’s capital structure. Potential levels of profit for the five years ending on the 31st of March 1980 were projected early in 1975. The following table gives the projected and actual results for these five years:

The fleet now consists of six bulk carriers with an aggregate carrying capacity of 159,467 tons deadweight, to which must be added the two car ferries, “Saint Killian” and “Saint Patrick”, in aggregate 12,413 gross registered tons, which are operated by the Company’s subsidiary Irish Continental Line, and which in a relatively short time will pass into the ownership of that Company. Two of the six bulk carries are on time charter, and four are in the Celtic Bulk Carriers Pool engaged on contract business between Europe and North America.

Celtic Bulk Carriers

Celtic Bulk Carriers is a consortium formed by Irish Shipping with Reardon Smith Line of Cardiff. It has at its disposal eight sister-ships each of about 27,000 deaweight tons, four of which are contributed by each member. This constitutes a pool of shipping with a carrying capacity in excess of 200,000 deadweight tons. Celtic Bulk Carriers therefore is able to quote contract rates to shippers of large quantities of bulk cargoes, such as steel and timber. It has enabled the partners to do what neither would be able to do alone. Because Celtic Bulk Carriers controls a large volume of cargo through its contracts with these large shippers of bulk cargo the earnings of its vessels are substantially in excess of those which could be achieved by each of these vessels operating on the spot market. The operations of the pool have been so successful that Celtic Bulk Carriers now operates as time charteres of other people’s ships, thus adding to the pool of ships available. The total results accruing from these operations are divided equally between the partners. Celtic Bulk Carriers now is probably the biggest shipper of steel from Europe to the United States, and of timber from the United States to Europe. Participation in this pool has considerably enhanced the earnings of the Company’s ships.

The accumulated financial results of these years was a profit of £17,969,684.

VI DIVERSIFICATIONS

The objectives to which the Company is working at present were set in 1966 as set out earlier in this report, i.e.: “Within the framework of a profitable Company to provide, maintain, and operate efficiently and economically a basic fleet of vessels under the Irish flag, together with the necessary organisation, management and personnel, to run this fleet. The aggregate size and composition of the basic fleet to be reviewed and agreed from time to time with the Minister for Transport.” The objectives recognised that a profitable company could not be attained on shipping activities alone. The shipping industry in general, and tramp shipping in particular, operates in a very volatile market. The pattern has always been a succession of booms and slumps. The booms tend to be of short duration, and the slumps tend to be prolonged. To ensure that the country will have available to it the strategic fleet without placing an excessive burden on the taxpayer the Company decided, when it defined its objectives, to pursue a policy of diversification and we wish to deal with these diversifications.

(1) Insurance

Irish Shipping’s involvement in the insurance business was not directly concerned with its trade. Early in November 1939 the Government of the U.S.A., then neutral like Ireland, ordered its ships not to enter the war zone which was defined as the area east of a line from the north of Spain to Ireland: Lisbon became the terminal port for cargoes from America. To get the goods to Ireland it became necessary to tranship them at Lisbon. Often these goods lay at Lisbon awaiting transhipment for quite a long time. The London insurance market was reluctant to cover these goods awaiting transhipment except for a short period. In these circumstances the Company decided to provide the necessary cover to enable traders to continue to use this method of importation.

In April 1942, because of the high rates being quoted by foreign underwriters for war risk cover on neutral ships and because of other difficulties in obtaining sufficient cover, Irish Shipping Ltd. decided to carry the war risk on its own vessels.

In September 1942 the Company decided to underwrite war risks on cargoes carried on its own vessels and later extended this to cargoes carried on any Irish vessel. From that it was a logical step to underwrite war risks on Irish ships belonging to other owners.

By the end of the war the Company was underwriting most classes of marine insurance. It became clear that a separate organisation was needed to handle the insurance business. Negotiations with the Insurance Corporation of Ireland Ltd. followed. Satisfactory arrangements were made for the transfer of the Company’s insurance business to I.C.I. with effect from the 1st January 1946 in return for a substantial block of shares in I.C.I. The shares have grown considerably in value in recent years and were valued at the 31st March 1980 at £5,783,000. It is no exaggeration to say that the Company played a large part in the establishment of the Irish marine insurance market.

(2) Car Ferry

Before the B & I was acquired by the State, Irish Shipping had ambitions to provide the first car ferry service to and from Ireland. With Limerick Steamship Company and Wexford Steamship Company, Irish Shipping incorporated in 1963 a new company, Southern Development Ltd., to provide a car ferry service between Ireland and Great Britain. The Company however was later instructed by the Government not to proceed with this development, but was informed that there would be no objection to the provision of a car ferry service direct to the Continent. It later became obvious that the reason for the Government’s decision was that the initial moves had been made for the acquisition of B & I by the State.

By 1968 the first car ferry service direct to the Continent was introduced in conjunction with the French company Societe Anonyme de Gerance et d’Armement and the British Company General Steam Navigation, both of whom were partners in Normandy Ferries. A limited service was provided between 1968 and 1971, but there was no service in 1972 when Normandy Ferries withdrew their ships from the Irish service at short notice. The Government, fearful of the effects which the withdrawal of the service would have on the tourist industry, asked the Company to find some way of restoring it. The service recommenced in 1973. The ship was the m.v. “Saint Patrick” which was registered in Ireland on delivery from the builder’s yard in Germany. The Company owned 50% of the vessel, the other 50% being held by Norwegian and Swedish interests. A new Company, Irish Continental Line, was formed to operate the service.

In February 1977 the Company bought out its Scandinavian partners, and in 1978 acquired a second car ferry, m.v. “Saint Killian”. Irish Continental Line Ltd., which is now 100% Irish owned, operates a daily service between Rosslare and Le Havre/Cherbourg.

(3) Stevedoring

In 1970 the Company merged its stevedoring activities in the port of Dublin with those of R.A. Burke Ltd. On the 1st of November 1970 the Company, Port Services Ltd., was incorporated. In 1978 the stevedoring activities of George Bell & Company were merged and a new company, Associated Port Terminals, was incorporated. This venture has been highly successful and is an example of what can be achieved by collaborating with private enterprise when all parties are motivated by commercial considerations.

(4) Agency Division

When the Company decided to withdraw its ships from the North Atlantic Liner service the jobs of those employed in the Liner Department were in some jeopardy. In an effort to save those jobs and to provide a service for Irish exporters and importers the Agency Division was established as a new profit centre to act as agents for other shipping companies operating services to and from Irish ports. Since its establishment the Agency Division has contributed substantially to the profits of the Company, and it includes amongst the principals for which it acts some of the biggest Liner companies in the world. The Agency Division now employs more people than the Headquarter staff, and it has been decided in principle that it should now be formed into a separate company which will be a wholly owned subsidiary of the parent, Irish Shipping. The Agency Division employs not only those who formerly worked in the Liner Department, but also many of those who lost their jobs when Hibernian Transport, (Palgrave Murphy and Limerick Steamship Company), went into liquidation.

(5) Cork—Irish Mainport Holdings Ltd.

From its earliest days the Company maintained a small office in Cork in which 15/20 people were employed. The main function of this office was to act as agent for the Company’s vessels, particularly those engaged in the Liner service when they called to Cork. The office at best broke even in occasional years, but normally produced small losses. Repeated attempts to widen the scale of activity were frustrated by the opposition of local interests. In the Autumn of 1973 the Company formed, with P & O and Fitzwilton, an Irish Offshore Service company with the intention of participating in oil service operations, etc., which was called Seahorse Ltd. In due course, Seahorse Ltd. acquired the interests of a firm of ships’ agents in Cork and Cobh, James Scott & Co. The business of the Cork office of Irish Shipping Ltd. was merged in Seahorse/James Scott & Co.

Early in 1976 Irish Shipping purchased the shares in Seahorse which had been held by P & O and Fitzwilton. Seahorse therefore became a wholly owned subsidiary of Irish Shipping, and by August 1976 the entire shareholding in Seahorse involving as it did control of James Scott & Co. was transferred to Irish Mainport Holdings Ltd. for a 20% stake in that company. Irish Mainport Holdings Ltd., through its many subsidiaries, are engaged in coastal shipping, stevedoring, warehousing, haulage, and offshore servicing of the oil and gas industries operating from Cork and Waterford and Tralee. The profit record of Irish Mainport Holdings has been quite impressive, and there is no doubt but that the Company made a very wise decision in merging its interests in Cork with those of Irish Mainport Holdings.

(6) Property

In 1963, in order to provide the extra accommodation which it would require in the future, the Company acquired a site at Merrion Hall. With a view to developing the site and providing for further diversification into the property field. The Property Corporation of Ireland was incorporated on the 27th of June 1972. The shares in the Company were divided equally between Irish Shipping and Insurance Corporation of Ireland. The Property Corporation of Ireland has successfully developed the office block at Merrion Hall. This development has proved to be a financial success and the Company is now seeking further opportunities for investment.

(7) Consultancy Services

One of the by-products of the creation of a company such as Irish Shipping has been the generation of skills which are rare, not only in Ireland but elsewhere. Many of its staff who joined Irish Shipping as young men are now recognised internationally as experts in the fields of maritime law, marine engineering, nautical science, chartering and shipbroking. This expertise has been made available to the Government and others on a consultancy basis. We have been very gratified by the retention by the Department of Defence of our Technical Department as consultants in relation to the construction of the new vessels for the Irish Navy since 1971. We have made available to the Department of Transport during the enquiry into the disaster at Whiddy Island members of our technical and seagoing staff. The Department of Transport has been generous in acknowleding the value of these services. The Government has been represented at international conferences on maritime law by a member of our legal staff, and at conferences of the International Labour Organisation Irish delegations have included members of our personnel staff. We act as representatives in Ireland for most of the big Protection and Indemnity Associations which insure shipowners against liabilities they may incur arising out of a wide variety of risks. These consultancy activities produce an income by way of fees which help to defray the overhead costs of the departments concerned.

(8) Ship Management Service

In 1979 a Ship Management Division was established with a view of providing management services for other shipowners. This Division is now managing a number of small ships for Irish shipowners. The success of this new enterprise to date leads us to hope that eventually it may be able to sell its services to foreign shipowners.

VII EDUCATION

(a) Navigating and Engineering Apprenticeship

In 1943 a Cadet Scholarship scheme was established with a view to training the Navigating Officers of the future to the standard required by the Company. Subsequently a similar scheme was introduced for training Engineer Officers. The products of these schemes are now the Masters and Chief Engineers of vessels of the Company’s fleet, and indeed have provided the Officers for many other Irish shipowners.

The methods of selecting the apprentices to be trained have been the subject of very favourable comment in the British shipping press. The success of these methods of selection is evidenced by the outstanding performance of the young men chosen as cadets in the Institutions to which they have been sent. Many of our cadets attending the School of Navigation in Plymouth have been singled out by the Institution as outstanding amongst their contemporaries. It is also evidenced by the number of prominent British owners who have attended during the selection of candidates, and who have been prepared to accept some of those rejected by the Company. A number of young ladies recently have won scholarships as cadets, and no doubt in years to come will take command of Irish ships.

(b) Follow-the-Fleet

In an effort to inculcate in Irish children an awareness of the sea and its importance for an island people, the Company in 1967 introduced its Follow-the-Fleet scheme for schools. The participating schools receive a map of the world and each week they receive a bulletin which gives the movements of the vessels in the fleet, the cargoes which they are carrying, and the ports which they are visiting. The children are invited to plot the position of the ships, and to follow their voyages. Each year a competition is organised and prizes are awarded for the best projects submitted by schools in connection with the Follow-the-Fleet scheme. Since the scheme was established in 1967 well over half a million school children have taken part in it. Many of these are now adults who are more aware of the role of Irish Shipping and our national deep-sea fleet than they would have been if they had not followed the fleet as school children. Teachers have been generous in their praise of the scheme.

VIII FINANCIAL STRUCTURE

The Company had been incorporated with an authorised Share Capital of £200,000 and borrowing powers up to £2,000,000. The shares were held as follows:—

In July 1942 the shares held by the three Irish Shipping companies were transferred to Grain Importers (Eire) Ltd. so that the Share Capital was then held as follows:—

In October 1943 the shares held by Grain Importers (Eire) Ltd. were transferred to the Minister for Finance who then held all the shares and has continued to do so since.

The authorised capital was increased to £5,000,000 by the Irish Shipping Act 1947. The issued share capital, however, remained at £200,000 until June 1955. The issued share capital gradually increased as payments, of the vessels then under construction, fell due, and the share capital, all held by the Minister for Finance, reached £5,000,000 by the end of April 1958.

The authorised capital was increased again by the Irish Shipping Act 1959 to £12,000,000. The issued share capital rose from £5,000,000 to £11,427,479 between June 1959 and April 1963. There has been no further issue of capital since the end of April 1963. Since then the Company has built nine bulk carriers at a total cost of £36,000,000, and has acquired two car ferries at a total cost of £17,000,000. All of this investment, amounting to £53,000,000, was financed by the Company without any call upon the Exchequer.

IX PROFIT/(LOSS) RECORD

Note: Figures in brackets denote Losses.

X THE FUTURE

Because of the high Capital cost involved in the purchase of the current fleet of deep sea vessels and the car ferries, all without recourse to the Exchequer, our borrowings reached a peak of £23.2 million in 1978.

As a matter of Board Policy it was decided that further expansion of the fleet would be curtailed until the level of borrowings had been reduced to more reasonable proportions. In the period 1978 to date and in spite of the very low level of freights on the International Market we have traded profitably through the period and have met all our financial commitments as indicated by the Table below:

Our gearing is thus much healthier now than it was in March 1978 and further expansion of the fleet can again be contemplated.

In this regard we have been instructed by the Government to place an order with Verolme Cork Dockyard to help with the potential unemployment problem in the Dockyard. Negotiations are presently taking place with a view to complying with the Government’s wishes. The very high capital cost of new tonnage, coupled with the continuing depressed freight markets, are of course a matter of deep concern to the Company, but we are not without some degree of confidence that we will find reasonable employment for the vessel in the short term and we are hopeful that she will eventually be at least partially gainfully employed on the shipment of coal for the E.S.B. when the new Power Plant at Money Point comes on stream in 1984 or 1985.

We also expect to move to large size vessels on the Continental Ferry Service during the next few years, probably by acquiring second-hand tonnage or jumboising the existing ships, but do not anticipate any difficulty in handling the financial implications involved because of the ability of Irish Continental Line throughout its existence to be both profitable and self-financing.

On the wider front of the future a Deep Sea Tramp Shipping Company Trades in perhaps the only truly free market left in world trade, and in a market which is highly volatile marked more by severe depressions than booms. It is, therefore, of the utmost importance to remain flexible in regard to planning. There are unfortunately all too many examples of shipping companies going to the ‘wall’ because of the rigid adherence to fixed plans and their commitment to replacement tonnage.

We see our future in the continued ability of the Company to seek out new and profitable schemes for ship employment. This will include partnership with overseas owners, an increase in the number of chartered-in ships, the purchase of second-hand tonnage from time to time, in addition to the building of new vessels as the Company continues to increase its profit performance and thus its capacity to undertake additional capital commitments.

The current year ending in March 1981 will see a further increase in the Company’s profits when the year-end results almost certainly will exceed those for last year.

CONCLUSION

It will be appreciated by the Committee that for many years the Management and many others in the Company have displayed extreme endeavour, enterprise, loyalty, and have put in a lot of sheer hard work in achieving the results outlined in what is notoriously one of the most difficult businesses—Shipping.

The successive members of the Board and those members of the present Board join with me in expressing gratitude and appreciation for all this selfless devotion.