Committee Reports > List of Committees > Joint > 1981 > Committee on State Sponsored Bodies > Report No. 15 - Irish Shipping Limited

MIONTUAIRISC NA FIANAISE

(Minutes of Evidence)

Dé Máirt, 9 Nollaig, 1980

Tuesday, 9 December, 1980

Members present:

SENATOR EOIN RYAN in the chair.

IRISH SHIPPING LIMITED.

Mr. Perry Greer, Chairman, Mr. W.A. O’Neill, General Manager and Director, Mr. A. McElhatton, Financial Controller, Mr. D. O’Neill, Chartering and Operations Manager of Irish Shipping Limited called and examined.

Chairman.—Gentlemen, we are sorry for being so late in starting. We are now on tape and the procedure is that members of the Committee will direct their questions to your Chairman, Mr. Greer. and he can deal with them himself or pass them on to the members of his team, as he sees fit.

1. Senator Cooney.—In their submission the Company stated that their objective was 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. Are your present objectives placing more emphasis on the profitability of other commercial activities and less on the provision of a strategic fleet?

Mr. Greer.—No. I do not think you can really separate them. Our mandate is to maintain a strategic fleet. We have added to that mandate in our own objectives in that we will do it within the framework of a profitable company. We have to provide a fleet and we have set ourselves the task of doing it within the framework of a profitable company.

2. Senator Cooney.—Do you need the two?

Mr. Greer.—I think we do.

3. Senator Hillery.—Do you think that the mandate to operate a strategic fleet is relevant to 1980?

Mr. Greer.—Presumably the Government consider it relevant. It is still our mandate. I am not an expert but nevertheless I still can see the reason for a strategic fleet for emergency purposes in a conventional war. There is no reason to believe that a conventional war may be much different from the last conventional war in which a fleet was certainly necessary but unfortunately the country did not have one. If you postulate a nuclear war you are getting into something which, happily, is not in our experience. We should bear in mind that our deep-sea fleet is scattered around the oceans of the world. This means that there is a probability, almost a certainty, that a number of the ships will be unaffected by something which might affect Ireland. Each ship is self-contained. It is like a town or a small city. It has its own electrical generating capacity. It can produce fresh water from salt water. It has its own sewage treatment system. Of course it has disciplined men in charge of it. It is a small entity. It could come home and, in the early days of an emergency, be a focal point from which local Government could operate. As things returned to normal he fleet would resume its normal job. We hope this would never happen and it may seem a bit far fetched, but I think it is a real possibility.

4. Chairman.—How binding are your charter commitments? On the one hand there is a strategic fleet to ensure that supplies would be brought to this country in a major emergency but, on the other hand, the charterers may not care if there is a war in Europe.

Mr. Greer.—In all our charter contracts we have the legal right to repatriate our ships in the event of war.

Mr. McElhatton.—We would as well have experienced crews to do it.

5. Senator Cooney.—Is that a standard clause in all charter contracts?

Mr. Greer.—Yes.

6. Senator Keating.—Does the concept of a strategic fleet influence the composition as well as the number of ships? In the context of the war 40 years ago a rather small number of different categories of ships would do, but that would not now be the case. Have you developed an expertise in, for example, liquified natural gas carriers or something like that? What is your attitude to a new area which would be crucial with the growing complexity of the world economy?

Mr. Greer.—With the passage of time ships have become larger and the type of ship we operate would be perfectly suitable for the deep-sea ocean trade and absolutely suitable for a strategic effort. At the same time we have chosen ships which are as economically viable as possible in ordinary conditions.

7. Chairman.—From the purely strategic point of view, are you not to some extent putting all your eggs in too few baskets in having seven or eight ships of about 25,000 tons? Would it not be safer to have 15 ships. each of 12,000 tons?

Mr. Greer.—It would be totally uneconomic at present. The ships we now have are also the types of tonnages it would be sensible to have in a time of emergency.

8. Senator Cooney.—The size and composition of the fleet is reviewed from time to time by the Minister for Transport. When was it last reviewed and when did you last have a consultation on this matter?

Mr. Greer.—We have no reason to believe that the Department is not constantly reviewing this matter and we think it is. The last time it was reviewed and we were given instructions was at the time of the Second Economic Programme in 1964.

Mr. W.A. O’Neill.—I believe there is a continuing review by the Department. If they feel we should do something different they would let us know.

9. Senator Cooney.—Have there been any instances of that recently?

Mr. W.A. O’Neill.—No.

10. Senator Cooney.—There was an NESC report some time ago which was critical of the relationship between parent Departments and State-sponsored companies. It said that this relationship tended to stifle initiative. How do you see your relationship with your parent Department?

Mr. Greer.—We believe that the proposals contained in the NESC report are what is required for State-sponsored bodies operating commercially, such as ourselves. However, we continue to have good relations with the Department of Transport and all Departments. At one time we were dealing in theory with two Departments. Transport and Finance. Now we have the Department of the Public Service as well. In the old days there were delays in decision-making. To have to go to two Department is obviously a seriously delaying factor. and to have three Departments, each putting their oar in, is not on. Perhaps Mr. O’Neill might say something about the effect of delays.

Mr.W.A.O’Neill.—We enjoy an exceptionally good relationship with our parent Department. It has been a very happy relationship for as long as I can remember. What Mr. Greer said was correct—the only time we find fault is at the point of decision-making. If you run into a series of Department, one acting after the other, you can run into massive delays. On one such occasion the delays cost us as much as £500,000 per ship.

Mr. Greer.—Two million pounds.

Mr. W.A.O’Neill.—There was a delay in making a decision, which was probably never in doubt, but because it had to go through an official chain the price kept clocking up as rates were rising on the markets.

11. Chairman.—Did the price of ships increase?

Mr. W.A.O’Neill.—Yes, by as much as £500,000 per ship, which cost the company about £2 million.

12. Chairman.—When was that?

Mr. W.A.O’Neill.—About seven years ago.

Mr. Greer.—This is why we harp on the NESC reports. Why appoint a board of directors to operate a company—people who were apparently chosen for their business acumen and ability — and why delay sanctioning their decisions when such delays may lead to an increase in prices? Everybody knows that business decisions have to be arrived at and put into practice promptly, and delays make matters more difficult. Do not let that be construed as if we have any crib with our Department: we could not have a better relationship.

13. Chairman.—Was it a technical or financial delay? In other words, was there delay in providing finance or did the Department consider you were getting the right kind of ships?

Mr. Greer.—We did not know. I think the delay was caused by going through channels. They did not alter the decision in the end.

Mr. McElhatton.—Even the credit behind that order was supplied in the United Kingdom under their ECGD schemes. We were not looking for assistance of any kind nor were we looking for loans of any sort.

14. Senator Cooney.—Why did you need. sanction when you had your own finance? What is there in your Articles of Association which requires you to seek sanction?

Mr. Greer.—We do not see why this should be. We think that having laid down our objectives and having been given our instructions, that should be it. Our task is to use our talents and get on with the job.

15. Senator Keating.—The Departments insisted on having their say in that specific instance, that is. in the purchase of ships. Your technical expertise on the appropriate type of ship, and whether the design is right and so on, is greater than theirs. Therefore why do they have to have an opinion about it?

Mr. Greer.—They sought our advice.

16. Senator Keating.—The money was furnished by ECGD. How did that come about? Is it part of your establishing legislation that the Departments have a right to offer their opinion on these matters, or is it something they have succeeded in claiming to themselves because of their power in other areas?

Mr. Greer.—I think it is habitual.

Mr.W.A.O’Neill.—Within our Articles of Association we are under the control of the Minister for Finance, and therefore decisions involving investment go to the Department of Finance. That is in process of being changed to the Department of Transport——

17. Senator Keating.—But will it still be within the Department of Transport?

Mr. W.A. O’Neill.—We hope so, but at the moment the Department of Transport have to consult the Department of Finance.

18. Senator Cooney.—Is there a specific legal requirement in your Articles of Association to get ministerial consent?

Mr. W.A.O’Neill.—Yes, from the Minister. who is at present the Minister for Finance.

Mr. McElhatton.—Our capital expenditure is treated as part of the capital expenditure of the Government.

Mr. Greer.—We do not understand why this should be when we are providing our own funding.

Mr. W.A.O’Neill.—Before we move on to other matters may I revert to the question of the strategic fleet and war considerations. The operation of a fleet is not just concerned with the fleet itself, it also presupposes expertise to build and run ships. It is important that we have this expertise. Even if there were a war and some of our ships were blown out of the water early on, we would have the expertise to do something about that. The skill is just as important in a strategic context as the ships themselves. In addition and at times when there is no emergency for this country, the company, by a decision of the Board, has set itself the objective of running this strategic fleet at no cost to the economy.

Mr. Greer.—May I point to our objectives and policies? Policy No. 5 is to finance all development by the use of the company’s own money, its own liquid resources, or borrowing powers, and no additional Government capital would be sought. In other words, we seek to operate, with no charge to the taxpayer. These objectives were drawn up by ourselves and have been submitted to successive Ministers and to the Department. Nobody has ever commented on then and we have assumed, since the middle sixties, that they were accepted policies.

19. Chairman.—You said that apart from delays of this kind, you have not found that intervention by Government Departments interfered with your activities. Is this so?

Mr. Greer.—Another aspect of this is the control of chief executive’s salary. I will not harp on this, but the Board have the responsibility of running the company. We are adamant that the determination of the chief executive’s salary should be a matter for the Board. We have been doing that, but always taking note of guidelines.

20. Senator Hillery.—How do you view the importance of conventional shipping as part of your total turnover in the immediate future?

Mr. Greer.—We think it remain the same though we may be expanding the base.

Mr. W.A.O’Neill.—We would not foresee our total revenue from shipping diminishing significantly in terms of our total operation. certainly in the immediate future. But we hope a widen our base because one of the planks on which we have based much of our thinking that in periods of depressed freight rates -unless one has such a base as a hedge against depression — then there is nothing a lipowner can do because it is not possible to ctate the level of the international tramp market. This is certainly not possible for a small company or indeed for a small country. If one’s objective is to remain profitable then it is essential to have a base which so allows and which ensures that that base itself is not impinged on by what is happening to international freight rates. Shipping will remain our dominant activity for as long as anybody can foresee and certainly will remain so long after our lifetime — if indeed it was ever to be changed, and hopefully it would not.

21. Senator Hillery.—On that point, is the company restricted by legal provisions or by Government policy from pursuing other paths, say, diversification?

Mr. W.A.O’Neill.—No, we are not.

Mr. Greer.—We have not been so far, on the other hand, we are certainly not going to open a factory to make sausages or something like that. We look for opportunities which are largely related to our business.

22. Chairman.—Have you ever experienced any restriction in your terms of reference which would preclude you from going into activities which you consider suitable?

Mr. Greer.—No.

23. Chairman.—As we are talking about ancillary activities, could you give us a general breakdown as to approximately how much of your profit comes from conventional shipping and how much from other activities?

Mr. W.A.O’Neill.—Some of our ancillary activities are carried out in conjunction with private enterprise and we do not publish such figures. Basically our profit stem from both our associated companies and from the parent company. The significance of our associated companies’ results vary directly in relation to the international freight market. When the freight market is in a period of severe depression our associated companies’ results become much more important to the total. When freight rates are in a boom period then the shipping results are the dominant factor. To give the Committee some idea of the scale of this in the period from 1970 to 1980, associated companies, at the lowest, would have been approximately 9 per cent. They peaked, as in 1976 — which was the start of the really severe depression which has continued almost non-stop since then. The rate would vary from a low of about 9 per cent to a high of about 50 per cent. But, the average over the whole period might be approximately one-third coming from associated companies. This is a rough estimate which directly reflects what is happening on the international freight market.

24. Chairman.—Are all your ancillary activities profitable?

Mr. Greer.—The answer is “yes”.

25. Chairman.—There are no skeletons in the cupboard?

Mr. Greer.—No.

26. Deputy L.Lawlor.—When this Committee reported on the B & I Line we suggested that any new services to the Continent should be introduced only following consultations between the two State-sponsored bodies. Would Irish Shipping see co-ordination with the B & I Line as being a viable step forward?

Mr. Greer.—I must say I did not really hear the Deputy very clearly. I understood that he was asking about co-operation, or something like that, with the B & I. We do co-operate with the B & I very much but we must bear in mind that our ocean-going fleet is absolutely strange to the B & I. It has absolutely nothing whatever to do with the business that the B & I carry on. That is in respect of the deep-sea fleet. Therefore. there is absolutely no overlap there.

If one mentions the ferries then the proposition is that we run our ferries on long trips, from Rosslare to the Continent over the roughest stretch of water probably in the world — the chops of the Channel and the western approaches — and we must have ships suitable for that. We must have ships suitable for long passenger occupation. 20 hours or more. Such ships would have cabins very different from those on ships, say, crossing the Irish Sea. In addition, because we bring tourists in and out of Ireland from the Continent. there is a tendency for our passenger make-up to be more affluent. I do not mean to say that the B & I do not have the affiuent passenger but our proportion would be greater. Therefore we see that whereas our ships can do the B & I business, the B & I ships are not really appropriate to our type of business. An example of real co-operation between the companies is that at this time our St. Patrick is working for the B & I; they have had a breakdown and our ship is running for them. That is an indication of where there is co-operation.

Mr. McElhatton.—A point that should be made is that between 1968 and 1971 there was a company called Normandy Ferries which operated a service between Ireland and France. At the end of 1971 they pulled out. At that time the Minister for Transport asked the B & I and Irish Shipping if they would start a service. I understand that the B & I declined, maintaining that it would be unprofitable. Irish Shipping started a service in 1973 and found it was highly profitable. The B & I appear to be saying now that they made a mistake, and that if they could now start a service to the Continet then everything would be fine. The facts are that we have two ships operating; we did it; we did it quickly and profitably. Therefore what is the point of the B & I now going into competition with us when they rejected the idea seven years ago?

Mr. Greer.—There is another point which probably is not well known, that is that the Minister asked us to re-establish a ferry which we did. The B & I said that it would be unprofitable. In setting up the company to do it we retained 40 per cent of the shares for other Irish companies. We offered part to CIE and part to the B & I. CIE took up their shares; the B & I did not; thus the B & I had the opportunity to be in this business from the beginning and they did not avail of that opportunity. Therefore, we think we have bent over backwards to co-operate with the B & I and we will continue to do so.

27. Deputy L. Lawlor.—In the drive for exports from Ireland, in the main the fleet has done a sound business throughout the world. Do you feel Irish Shipping are playing their full role and part in aiding Irish exports? From time to time we have had difficulties on certain lines to the Continent in particular. Irish Shipping is obviously carrying a lot of cargo in other parts of the world. There have been criticisms, fair or otherwise, from Irish exporters vis-à-vis the shipping services available. Comment?

Mr. Greer.—Could we separate the two fields of activity, namely, the ocean fleet and the ferry? Generally speaking in non-emergency conditions—in peace time—cargoes from Ireland and to Ireland are not co-ordinated as they would be in times of emergency. That is to say, in peace time every manufacturer, every miller, or grain importer, or whatever, does his own thing. The fact that we do not operate our ships to Ireland means that we are taking in “other people’s laundry”. We are operating abroad carrying other people’s goods and earning foreign currency in doing so. At the moment, apart from the ferry, Irish importers or exporters do not have sufficient cargo in bulk lots to enable a deep-sea fleet to operate profitably. However such considerations would not apply in times of emergency when our fleet would be at Ireland’s disposal.

Mr. McElhatton.—Basically Irish exports are not bulk commodities. Irish Shipping has bulk ships. The ferry moves a lot of exports, mainly meat. A lot of Irish export, and especially recent export, such as grant-aided computer soft wear, pharmaceuticals etc., are not bulk commodities and usually go in small containers or in part containers. Our basic unit is a 15 metre lorry. One of the problems we have is that, by and large, the bulk exports from Ireland are meat and fish and virtually nothing else. The imports are much more varied: cars, agricultural machinery, and things like that. A good deal of the recent growth in exports has been more in air traffic because it is small and highly priced or in part containers. I do not think any exporter is being denied access to our ferry.

28.—Deputy L. Lawlor.—As we move in this country towards downstream processing industry such as vacuum packaging and processed cheeses and butter, does Irish Shipping see itself keeping in step with that kind of development to provide Irish exporters, with a service?

Mr. W.A. O’Neill.—The Deputy is, I think, confusing different types of shipping and Irish Shipping as a whole. The big ships we operate are too big for the kind of cargoes that move in and out of Ireland with any frequency, Indeed, we would have no future if we had to deal with Irish cargoes only. We have had to seek our solutions elsewhere. You know about the ferry, and the fact that it plays a role in exports and imports between this country and the Continent. We have a big agency division which handles shipping in the smaller lots for all manner of exports and imports. So far as bulk commodities are concerned, there is not the movement in this country — but there is a growing hope that there soon will be and we would like to see our ships coming here more often. There is the new Irish petroleum company which will be bringing in oil and we hope there will be a role we can play. We acted as shipping advisers to them when that Company was being set up. We have handled their early shipping for them. There is also the question of coal as we move into another energy era; We hope that will give us an opportunity to bring cargoes direct to this country, for instance, for the ESB. We are having useful discussions in that regard. It is a very mixed battery of shipping we are talking about. They are all a bit different. We have B & I and a lot of small Irish companies which were not there during the last war. There are now 42 Irish-owned ships under the Irish Flag plying the short sea trades and we have endeavoured not to compete in that area. We feel we are pursuing the right cargoes because otherwise Irish Shipping would end up competing with other Irish companies.

29. Chairman.—How many Irish owned ships are operating?

Mr. W. A. O’Neill.—I think there are 42 ships now.

30. Chairman.—Are these all small ships?

Mr. W.A. O’Neill.—Smaller ships. There are all types and sizes from small bulkers and tankers to container ships and car ferries. I think that now 42 are Irish-owned and registered under the Irish Flag.

31. Chairman.—Would they be plying mainly between here and the Continent or would they go further afield?

Mr. W. A. O’Neill.—They go a bit further afield. They go down to the Mediterranean but they are basically smaller ships and they do not trade worldwide.

Mr. D. O’Neill.—The smaller vessels trade in winter time down as far as the north Spanish coast. They are confined to Europe.

32. Deputy L. Lawlor.—I am aware of your bulk carrier activities which have been very successful. You mentioned a possible diversification into oil. Is it the policy of Irish shipping to stay out of the smaller Irish trade and leave it to the private operators?

Mr. W. A. O’Neill.—With the exception of the development of our ferry. We would see an on-going development there, but we would not compete across the channel or in the local trades because we would be duplicating something that is already there.

33. Chairman.—You have been carrying on your business successfully for the past number of years? Is the future looking good? You talk about booms and slumps and so on. What is your prognosis at the moment?

Mr. W. A. O’Neill.—There has been a very severe slump since 1976. The shipping industry is subject to cycles of boom and slump. Mostly they are slumps unfortunately. The slumps are getting longer and the booms shorter but there is now a modest lift in freight rates. The gap between supply and demand of tonnage is a worldwide problem. The prospects for the immediate years ahead are somewhat better than they have been over the past four or five years. With our record up to now we feel that we should be looking ahead with some confidence to enhancing our profits over the next few years.

34. Chairman.—Are you satisfied that you have the right kind of ships to take advantage of that?

Mr. W. A. O’Neill.—As of now—yes.

Mr. D. O’Neill.—We spent many years in the planning stages for our vessels. They were aimed at what I would call miscellaneous bulk trades: steel, lumber and phosphates. They are quite capable of carrying grain or coal. These vessels are as good today as they were the day we bought them. They are far more valuable now. We have had bad times over the past few years. We have had a reasonably good year this year up to now. So far as I can see the fourth quarter will be the best quarter this year. As for the future, we constantly receive reports on the movement of cargoes. In 1975 it was reckoned that 850 million tons of dry cargo were moved and it is expected that by 1985 this figure will rise to 1,400 million tons. Coal and are will figure to a great extent and it appears that for the right type of vessel the bulk carrier business will be good over the next decade. There are always political problems such as in the Arabian Gulf but it looks well for the future.

Mr. W. A. O’Neill.—A week may be a long time in politics but a year is a hell of a long time in the kind of shipping in which we are engaged.

35. Senator Hillery.—Are you continually on the look out for new marketing opportunities?

Mr. Greer.—Certainly, Mr. D. O’Neill is the expert and is in touch with charterers all over the world. He travels extensively and in January he will be visiting Hong Kong, Manila and “all stations east.” As has been mentioned, we foresee that large quantities of coal will be required in this country for the generation of electricity. We have already been in touch with the ESB to see what we can do to carry their coal. It will be four years before the coal will be coming here but we are already negotiating for it. The INPC intend to bring in oil and we have acted as their shipping advisers and seconded a man to them. These are examples of looking to changes in trade.

Mr. W. A. O’Neill.—Because our trading extends over virtually the entire globe it is a feature of Irish Shipping and of all deep-sea shipping companies that expertise and ability to attract profitable business is built up over time. We have access daily to the markets in London, Tokyo and New York. Although we are a small company representing a small country, we are as well known as the bigger ones in all these markets. We are in contact with our markets all the time and we are aware of what is going on. The same applies to the ferry people. They known what is happening and are as well known in Scandinavia as they are in Ireland and France. It is a feature of the way the company is run. Business will not come to us; we must go out and get it.

36. Chairman.—Will the ship you are getting from Verolme be earmarked for coal?

Mr. Greer.—It would be ideal for carrying coal and that is one of the reasons we acceded to the Government’s request to build a ship. We had not intended to build a ship at present and would have waited until our current loans were run down before entering on another obligation for a ship. However, at the request of the Government we are having a ship built and one of its capacities, although not the only one, will be the carrying of coal. This will of course depend on where the ESB obtain their coal. This ship is the maximum size for transit of the Panama Canal and has the appropriate draught for the coal ports on the east coast of America. On the other hand, if the coal were obtained in Australia, a 120,000 tonner would be better. The ship we have in mind is being built with an eye to carrying coal but not exclusively.

37. Senator Cooney.—How is it to be financed?

Mr. Greer.—We had intended to develop without any demands on the taxpayer but on this occasion it is being done by the Government in order to help Verolme. The price in Verolme will be substantially greater than abroad, probably twice as much. Verolme will not give fixed price contracts and therefore it will be subject to inflation and, if there are delays, more inflation. Verolme also require sums of money in foreign currencies which is not generally known or understood. The arrangement is that the Government are at present increasing our authorised capital to enable them to increase our equity by between £5 and million and £7 million. The rest will be raised by a loan through normal shipping finance facilities which we will repay from earnings.

Mr. McElhatton.—In the seventies we spent £50 million on ships without recourse to the Exchequer. We would still prefer to operate on that basis but when there were political demands from other sectors of the economy there was no other way.

Mr. W. A. O’Neill.—We could not fund the entire ship, but the agreement which we believe will emerge is that we will fund half the price of the ship and get an injection of capital to deal with the other half.

38. Chairman.—In the long run it will be part of your balance sheet but will it place you in a slightly less favourable position than might otherwise be.

Mr. McElhatton.—Depending on the profitability of the new vessel. It is possible that it could generate profits to maintain our return on capital.

39. Chairman.—You say the ship will cost twice as much from Verolme. Approximately how much will it cost?

Mr. Greer.—Abroad we were quoted £11.5 million for a vessel of maximum size for passage through the Panama Canal. Verolme have given a figure of between £17 and £18 million plus escalation and our estimate is that escalation will bring the figure to £24 million.

40. Senator Cooney.—What will you be getting towards the cost of the ship?

Mr. Greer.—We have said we do not want a subsidy in any form and what we understand the Government will do by whatever means available to them is subsidise the Yard or in some way cover the difference in cost. Whilst negotiations have not yet been finalised we understand that we will be getting a ship for a figure between £11 million and £14 million and that between £5 million and £7 million will be by way of equity. We will borrow, pay interest on and repay the rest.

41. Chairman.—Will you get it at market price?

Mr. Greer.—We expect to get it at or near market price.

Mr. W. A. O’Neill.—We may not get it at market price. Verolme’s problems will have to be considered by the Government.

42. Chairman.—Could you have got this ship abroad without any escalation price?

Mr. Greer.—Yes, and with more favourable interest rates on loans.

43. Senator Cooney.—But you would not have gone for it at this time?

Mr. Greer.—No, it does not suit our planning. We have a plan and this purchase is somewhat out of phase.

44. Senator Cooney.—To compensate for that, are you getting your equity increased by £5 million?

Mr. Greer.—Yes.

Mr. W.A. O’Neill.—On which we will have to show a return.

45. Senator Hillery.—Apart from that £5 million, have you any additional plans for further equity requests?

Mr. W. A. O’Neill.—The opposite is the case. We would sooner not have to increase it at this time.

46. Deputy L. Lawlor.—This £5 million is a cash payment. Is there any repayment on it?

Mr. Greer.—The £ 5 million to £ 7 million or whatever sum is finally decided is equity capital. The remainder we will borrow, pay interest on and repay.

47. Deputy L. Lawlor.—But not on the £5 million?

Mr. Greer.—No, it is share capital.

Mr. W. A. O’Neill.—We have funded something like £53 million worth of ships in the last short period, including starting up a ferry without recourse to the Exchequer.

Chairman.—We saw that figure; it was very impressive.

Mr. Greer.—We had set our face against extra money.

Senator Cooney.—You will be the envy of other State-sponsored companies with capital being thrust upon you.

48. Chairman.—I understand your debt equity ratio will be down to something like 35 per cent next year. Is that correct?

Mr. McElhatton.—Yes, It has come down from 110 per cent in 1978, it should be about 35 per cent by March next but we have other plans. The £7 million borrowings will increase that and we expect to replace the St. Patrick with a bigger ship, which will involve extra capital expenditure. It will not be at 35 per cent for long. With the extra £5 to £7 million for the Verolme ship and the replacement of the St. Patrick, the debt equity ratio could go up to 50 or 60 per cent, which is the maximum it should be. We exceeded that in 1978 when we purchased the St. Killian. That was a good investment for the company.

49. Chairman.—Would you have started buying again at the end of next year?

Mr. W. A. O’Neill.—We would have started seriously thinking about this within the next year, and probably the following year we would have set about purchasing——

50. Chairman.—You are being pushed by a year or two — is that the position?

Mr. W. A. O’Neill.—Yes. You will note from the 1980 balance sheet that our net current assets are in an adverse position. That is because we have been meeting all our obligations under our loans and even accelerating the repayment of some. In that way we are different from many other European shipping companies which have had to seek moratoriums for deferment of payments and their Governments had to come to their aid. Conversely, we have been successful in lowering our loans quickly and have done so because we anticipated that interest rates would rocket during the past year thus saving ourselves and the country a considerable amount of money.

51. Chairman.—You did this voluntarily?

Mr. W. A. O’Neill.—Yes.

Mr. McElhatton.—When we purchased the St. Killian it was a secondhand ship and we did not have normal ship credit terms. We had to finance it at open market rates. When the rates started to increase we started to accelerate our repayments. This current asset deficit will be reversed this year. It is not uncommon in shipping circles that fixed assets are huge — they buy units of £12 million. The position is healthy and it will be healthier at the end of this year.

52. Chairman.—Is liquidity position, therefore, not as tight as it appears?

Mr. McElhatton.—It has been tight all along—

53. Chairman.—To some extent, have you not brought that on yourselves by accelerating your repayments?

Mr. McElhatton.—Yes, but it was a wise commercial move.

54. Chairman.—I agree, but looking at your accounts it appears that your liquidity position is unhealthy, but that is not necessarily so. Comment?

Mr. McElhatton.—This is a position we watch every day. It is all right now and it will improve by the end of March 1981.

55. Senator Cooney.—Your net current assets were positive in 1979; they were negative in 1978 and 1980. Do you hope to have a positive position this year?

Mr. McElhatton.—Yes.

56. Senator Cooney.—What is the difference between 1979 and 1980?

Mr. W. A. O’Neill.—We repaid something of the order £1½ million faster than we are required to do.

57. Senator Cooney.—You mentioned that your fixed assets have gone down in the three years 1978, 1979 and 1980. What does that reflect?

Mr. McElhatton.—We purchased our last ship in 1978. There was an increase in 1978, and then there was depreciation — we write the ships down. In fact, those ships have appreciated. We know that from the market list. We write off so much every year.

Mr. Greer.—That is the only reason — we have been depreciating our ships.

58. Senator Cooney.—You say your ships appreciate in value but is your method of historic cost depreciation all right in relation to the peculiar characteristic of your main asset?

Mr. Greer.—It may not be in full, but we have never yet sold a ship at a loss.

59. Senator Cooney.—For less than you purchased it — is that what you mean?

Mr. Greer.—No. We always make a profit on the depreciated value.

60. Senator Cooney.—Is that difference sufficient to justify your depreciation policy?

Mr. Greer.—Our depreciation policy is, and has been, depreciating at 5 per cent over 20 years. That is a general figure in the trade. We have one thing in our favour — we do not allow for any residual value on the ships. Thus we are to that extent over-depreciating.

61. Chairman.—The asset should have disappeared in 20 years, but it has not. Is that so?

Mr. Greer.—No. Their market value has always exceeded their written down value.

62. Chairman.—Can you give any idea of the inflow of foreign exchange from your activities?

Mr. W. A. O’Neill.—Our net inflow of foreign exchange on last year’s figures was of the order of £12.6 million. These are foreign earnings — £25 million, less our payments to foreign sources.

Chairman.—Over a five-year span? Perhaps you might send these figures to us.

63. Senator Cooney.—Would you like to see any of your equity offered to the public?

Mr. Greer.—I have not really thought that out very much. There could be a problem for a public partner in the fact that we have a strategic fleet which we shall call for the moment — probably appropriately — our social obligation. Of course we have undertaken a very large social obligation in expenditure on training. Indeed our officers and crews can be found on every ship in Ireland, from the B & I to Irish Lights. Therefore, what it amounts to is that we are undertaking these social obligations and that is what we are there for. We believe that if there were other partners they might be looking at those obligations and saying: those are reducing our profit. That is the only point I would make.

Mr. W. A. O’Neill.—Of course, it would not be a matter for us finally anyway. From the country’s point of view there are other options, provided we can maintain our profit record — which now obtains for approximately 15 years — we prefer to consider shipping in five-year terms, rather than in single year terms, because of the see-sawing of the market and, because one cannot envisage in any one year what the Ayatollah or anybody else is going to do, and in what way one may get caught. However with the passage of time, when we are in an even stronger position, we could perhaps give back to the Government quite a slice of our share capital monies, so that the country might own a fleet, with very little public investment. That might be the most desirable thing from the country’s point of view of though not necessarily from the point of view of Irish Shipping as a company. But, within broad parameters, yes, we could be floated, or part floated, or consider paying back the maximum possible so that the country might own a superb fleet at virtually no cost. Indeed we claim that there is a dividend even at the moment in that the strategic fleet is being provided at a profit to the nation.

Mr. Greer.—There has been a secret desire to do so. That is perhaps why we are disappointed about the extra £5 million to £7 million.

Mr. W. A. O’Neill.—It will now take a bit longer to realise our hopes.

Senator Cooney.—You should have been here for our interviews with other State-sponsored bodies to get another perspective.

64. Senator Hillery.—What plans have you to adopt current cost accounting in your published accounts?

Mr. McElhatton.—We are considering it. Basically a lot of shipping companies have severe doubts about this. Mr. W. A. O’Neill has some recent observations made by other shipping companies, so perhaps he should tell the Committee about those.

Mr. W. A. O’Neill.—The whole question of current cost accounting is a vexed one. It is not everybody who agrees with it by a long shot, even if the Institute of Chartered Accountants agrees with it. There are many views on it. There are companies as significant as GEC, Imperial Chemicals and Bowater who have very grave reservations about this whole exercise. The General Council of British Shipping, who have considered this, are of the opinion that it is inappropriate for tramp shipping companies. It may well be appropriate for shipping companies working on fixed routes against measurable volumes of cargo. But for a deep sea tramp shipping company it is probably inappropriate and the Council has so represented to the Institute of Accountants. A final decision has not yet been reached. The Chairman of London and Overseas Freighters issued by a very interesting paper on it recently. They are amongst the biggest of the United Kingdom tramp shipping companies. Quite rightly he made the point, for example: whose inflation does one use when one is trading all rounds the world, when one is paying a lot of one’s costs — stevedoring, bunkers and so on — in other countries where other rates of inflation apply? What index does one use to value one’s ships? There is no such thing as an index for tramp ships. A good example would be the owner of a tramp tanker who, say, a couple of years ago bought a large tanker and had to put it straight into lay-up — as many of them had to do. That tanker might have cost him at that time £25 million. If he was to use CCA in his accounts the replacement cost of that tanker — which never carried a dollar’s worth of cargo — would be about £40 million. But besides his ship in lay-up in a Norwegian fjord, he could buy a sister ship for £16 million. Therefore, which of those figures would he use? It is not at all a simple issue.

Interestingly enough in the Guardian of yesterday there was a very interesting article about this whole subject, entitled “How Inflation Accounting makes you pay higher taxes without your realising it”. It was concerned not with shipping but with airport authorities — specifically Heathrow Airport — because the British Government have said that companies like the British Airports Authority have to show a 6 per cent return on the current value of the assets that they are employing. It looks as if they are going to impose an 80 per cent increase on the airlines. The airlines can do nothing about that except pass it on to their customers. It is living in cloud cuckoo land to say that one can absorb an increase like that in an industry which is being battered very badly at present: jack up the fares and one will get the money! One will not. The concluding paragraph of this article is interesting:

“At the moment most of the private sector is suffering so badly from the recession that it could not possibly go over to inflation accounting, while in the public sector inflation accounting has become a political device to raise taxes by another name. Maybe the time for action has now come — before operations at Heathrow become grounded in a fog created by accountants and civil servants.”

Therefore, there are other views about inflation accounting.

Mr. McElhatton.—That is a case of inflation accounting being inflationary in itself.

Mr. W. A. O’Neill.—There is no simple answer to that question. Certainly, we are considering it; we are undertaking a study at present.

65. Chairman.—In regard to stevedoring there was a recent decision by the Dublin Port & Docks Board to have a single stevedoring company. Does that affect you in your ancillary activities?

Mr. W. A. O’Neill.—The Dublin Port & Docks Board are proposing the establishment of a single stevedoring company. At present there is disagreement as between the stevedores and the Dublin Port & Docks Board on just how this will be done. One is hopeful that agreement will be reached, and that the parties will come together to do the thing that is best for the port as a whole. We are soldiering on in the belief that that will obtain in the end.

66. Chairman.—So you are not seriously concerned?

Mr. McElhatton.—I should like to point out also that this is not a significant part of our overall activities.

67. Senator Cooney.—With regard to the Irish Continental Line there were a number of reports that you lose money over the winter, is that so?

Mr. McElhatton.—Yes, that is correct. We do lose almost £1 million in winter.

Mr. Greer.—Let me just say that the Irish Continental Line, despite the blockade, has already made a profit of over £1.4 million this year. Therefore, at this moment, it has made its profit and met its budget for the year. I think any losses should be talked about against that background.

Mr. McElhatton.—We expect to make an overall profit this year, quite a modest one, which was affected by the fishermen’s blockade which was very costly. Another factor has been that, since October, fuel prices have risen by 45 per cent. By and large, freight is down approximately 20 per cent on last year—very much to do with the recession. The trade in freight on the ferry has always been very much agriculture based: meat out, machinery in, and so on. They are operating at a very low level. Last winter we broke even. This winter we will lose. Overall the service will make a profit this year. Another point I should like to make is that since we started in 1973 the price of fuel has gone up 15-fold. It used to take £500 to pay for the fuel from France to Ireland. Now it takes £7,500. General costs have gone up by 450 per cent over seven or eight years. This is partly to do with national wage agreements, shorter working hours and devaluation. The service has had to cope with massive increases in costs. Obviously it will be a worry to us if prices go up any further.

68. Senator Cooney.—How can you cope with these things? Will you increase fares?

Mr. McElhatton.—We are very high consumers of energy. Because it is a long voyage we have to go at maximum speed. To give you an idea, the St. Killian takes 40 tons of heavy oil to get to France in 21 hours. She was on charter last year to do eight hours both ways and she burned 16 tons. To maintain your schedule you are going at a very high speed. If the price of oil continues to go up at that rate I suppose long haul ferries will become uneconomic. It will not be peculiar to us. That is the danger with a 15-fold increase in eight years. The other factor is that we started the ferry the year we joined the Common Market and the number of tourists coming to Ireland more than trebled between 1973 and 1978. There has been virtually no increase from the Continent since 1978. This is partly to do with the fact that Ireland is an expensive place to come to and stay in. That is a worrying fact. While the service has been highly profitable in the past there are now question marks.

Mr. Greer.—It is not without hope. For example, one could lengthen the ships. That would decrease the unit cost per passenger or per unit of freight. In addition a longer ship can travel at a higher speed with the same amount of fuel.

69. Senator Cooney.—What proportion of your freight is meat? Have you any idea?

Mr. McElhatton.—Of our total outward cargo it is about 80 per cent. One of the problems with the meat trade is that everybody wants to go out on Saturday. No one wants to go out on Sunday or Monday. It is a very highly peaked traffic which is not good for a ferry operator. If we had more mixed cargo and general cargo not bound for a particular day, then we would get a better utilisation of the ship. As I mentioned already, many exports coming on stream now are of small bulk and high value and they are more suited to air freight or part containers. That is another problem.

70. Chairman.—Would you like to comment on industrial relations? You seem to have a very good record.

Mr. W. A. O’Neill.—It is right to say we have a happy industrial relations scene in Irish Shipping. That has been inherited from our forbears to some extent. Those of us who now manage the company inherited some of it. The nature of our business is very helpful in that regard and so too has been the constructive attitude of our staff and their Unions. The deep-sea ships are away for four to six months at a time. There are small groups of men who work as a very united team under a master. Our masters are rather special because they are in charge of assets valued at £12 million. That is pretty massive. They are a long way from home. They have to be men of inventiveness and courage. They have the characteristic that they work well with their own team. They have a small team to work with and so you get a harmonious position on the ship. Added to that we train all our own people and have done so for a very long time. We have a very successful training scheme. The evidence is that our sea-going staff, both officers and men, are of a very high calibre and can hold their own anywhere in the world. As a company, Irish Shipping tend to be a united family. Many of the shore-based staff have been there since the company was formed. We operate with very low overheads. We have not got a big shore-based staff. When you are dealing with smaller numbers it is easier to communicate better. We have advantages which help. It is a very happy position and long may it last.

71. Chairman.—Approximately how many crew have you on these ships?

Mr. W. A. O’Neill.—We would be running a crew of about 34 on a 27,000 tonner. In 1960 we would have had 44 on a 9,000 tonner. We reckon that productivity has gone up by about 400 per cent over a measurable period. We operate with low overheads and we have a small shore-based staff. However, our staff numbers in general have increased dramatically because of the widening of our base and the insistence on profitability at each centre. Each time you make something work and it is profitable, it creates its own employment. In total numbers our staff has gone up in the following way. In 1970 we had 470 seamen and we now have 670. We had 108 shore-based in 1970 and we now have over 500. In total the group staff has gone from 580 to 1,252 in a ten year period.

72. Chairman.—Would this be because of ancillary activities?

Mr. W. A. O’Neill.—Things like the agency division which we treat as quite a separate section. They are expected to pay their way and they have to report back.

73. Chairman.—Will there be any significant increase in the numbers employed?

Mr. W. A. O’Neill.—I would like to hope that if I were talking to you again in 1990 I would be saying our figures had gone up from 500 in 1970 to something like 1,500 or 1,600. We have no specific plans for that at the moment. The most immediate increase will arise from this new ship when the staff will go up by about 50 persons.

Mr. Greer.—In case a wrong idea is given, some years ago we employed 150 people shore-based to run the fleet. That figure is now about 50. Nobody has been declared redundant. Profitable work has been obtained through ancillary activities for 100, together with the extra people mentioned by Mr. O’Neill.

74. Senator Cooney.—Have you any new ancillary projects in the pipeline?

Mr. Greer.—No, not at this moment. To show you that opportunities are availed of constantly, prompted by management of course, recently we formed a very small firm at Rosslare, an engineering firm, to do on-board ship repairs. It is known as the Rosslare Ship Repairs Company. We can undertake engineering work. We would not do Verolme work of course. We can undertake repair work during a voyage so that the ship can be on schedule. That will in due course, we hope, take in work from B & I and British Rail. It is a small beginning but something which can grow.

75. Senator Cooney.—Which is the most profitable of your subsidiaries?

Mr. McElhatton.—We have only one trading subsidiary.

Senator Cooney.—And associated companies?

Mr. W. A. O’Neill.—Within the shipping context ICL has been easily the most profitable venture. As regards the associated companies. the Insurance Corporation of Ireland is the jewel in our crown and is very important to us.

Chairman.—That is merely an investment. You do not have any direct involvement.

Mr. McElhatton.—Except that Mr. Greer is the chairman.

Chairman.—That is another matter.

Mr. W. A. O’Neill.—We talked about injections of capital and what might happen to the company in the future. In the past, when we were trying to build the company into a profitable one, we had to accept for good and valid reasons that we would not be given the normal conditions under shipping investment grants schemes that were given to every other ship-owner. Similar schemes applied under different names in Britain and throughout the world and were aimed at aiding ship building rather than ship owning. In our case, having ordered a number of ships on which we were due grants, the then Government found that there was pressure on State funds for other essential projects and suggested that we could manage without them, which we did. In addition there was another occasion when we built a ship in Cork and got another one for them and having done so we were told that we could not have the normal credit because we were doing so well. The totality of that amounts to £10 million which of course worsens our current balance sheet figures by that amount, so here again I think we are paying a fairly handsome dividend. Had we got what would be considered normal commercial treatment we probably would not need any additional capital now.

Mr. Greer.—May I make a further point which is that we do not now adopt leasing of ships because the Minister for Finance told us he would not like us to do so any more. Private companies can do it but we cannot. We had done so twice but we have been told not to do it any more. I presume that is in the interests of not losing tax but it is not in the interests of Irish Shipping.

76. Chairman.—A few points may arise later. You are going to send us some details of foreign exchange earnings, the earnings of the ancillary — or associated —activities and of conventional shipping. It may be difficult to divide it up into great detail but it will give us some idea of the contribution made over four or five years.

Mr. Greer.—Thank you for your courteous hearing. In conclusion, I would like to repeat what I said in my submission to the Committee, that thanks for the success of Irish Shipping are due to our very fine team of management and to the masters and crews operating our ships all over the world without the “benefits” of a board of directors at hand to guide them.

Chairman.—Thank you very much. gentlemen.

The witnesses withdrew.