Impact of Chinese Slowdown and Greek Financial Crisis on Greek Shipping

By Aiswarya Lakshmi

Tuesday, July 07, 2015, 4:22 AM

 Though international analysts like Morgan Stanley said that the Greek crisis will not have a direct impact on shipping companies, Greek shipping companies listed on U.S. stock exchanges sank on Monday.

Greeks overwhelmingly have said No to austerity terms imposed by international creditors, which could have led to the releasing a package of fresh financial aid which could help in the long battle to keep Greece afloat. 

The vast majority of ship-owners and other members of the maritime community will have voted “Yes” as the outcome least likely to harm hopes of a return to stability and the country’s standing in Europe.  All well-to-do people of course voted YES, while the poor Greeks or people with no jobs voted No- basically, they had nothing to lose.

The voters’ decision though has increased concern within the Greek shipping industry, across the board.

Some analysts say that an avalanche of negative economic indicators out of China, rather than Greece, is what’s spooking marine shipping investors, according to a report in WSJ.

Shrinking Chinese demand for imported commodities, and fewer exports from its factories, would be devastating for companies that own container ships, oil tankers and other vessels. 

If Greece exits the euro, it doesn’t mean they’ll stop shipping iron ore to China, aid Kevin Sterling, an analyst covering the big shipping lines for BB&T Capital Markets. Besides, the Greek owners have registered the majority of their ships under foreign flags (such as Panama or Liberia) to take advantage of tax breaks.  

Basically the Greek ship owners took interest-free loans from the Greek government about 70 years ago after the WW II and then pretty much screwed the country by refusing to pay taxes.  They also hired very cheap laborers from Pakistan and other Asian countries.  The tax-avoidance is the reason that most of the Greek ship owners are among the wealthiest people on earth;  remember, Onassis, Niarchos, Vardinoyannis, etc.?

Athens-based holding company DryShips, Inc., which owns a fleet of about 40 cargo carriers, 10 tanker ships and several deepwater drilling ships, saw its shares fall 9.2% to $0.54. Diana Containerships Inc. fell 5.3% to $1.95, while containership owner Danaos Corp. fell 2.8% to $6. Costamare Inc., a lcontainer ship owner, fell 1.7% to $18.10.

The Morgan Stanley report said that the closure of the Greek banks would not have a major effect on the shipping companies, as most keep money in non-Greek banks.

But the shipping companies would not be spared from an overall impact of the country's economic downturn on the global economy, he warned.

The tax threat has ship owners looking at alternative tax regimes, including Cyprus. Interest is also being shown in London, Singapore, Dubai and even Switzerland.

Greek owners make up 20 per cent of the global commercial shipping fleet and the industry has been a major income source for the country, as it accounts for around 7.5 per cent of the Greek economy.  However, the greedy Greek ship owners have been avoiding paying taxes by registering their ships to offshore tax havens and essentially screwing their own country.  

In addition, the corrupt "New Democracy" right wing party that has been ruling Greece for decades has been giving the Greek ship owners huge tax brakes, costing the country billions of dollars every year.  They basically bled Greece dry over the last 70 years or so.  And of course the middle class and the poor people pay the price, as the recent events show.

//--------------------//

Greek tax changes will affect shipping companies

There is a new requirement for Greek shipowners to pay tonnage tax on ships operating under flags other than the Greek flag which are managed by companies based in Greece, or offshore companies which have a branch in Greece, operating under Law 89 of the Greek constitution.

Michael Kotsapas, a partner with the Moore Stephens shipping team, says, "This new requirement to pay tonnage tax, effective from 1 January, 2013, mirrors that which is already in existence for the Greek-flag merchant fleet. A large part of the Greek fleet currently sails under foreign flags, and therefore is impacted by the new tonnage tax regulations. 

Management companies are jointly liable with shipowning companies to pay the tax. Any foreign tonnage tax paid can be set off. Shipowning companies operating vessels under a foreign flag are exempt from any other taxes on profits derived from the operation of the vessels outside Greece, similar to exemptions available for operating Greek-flagged vessels."

A new range of levies has also been introduced for companies providing services to the shipping sector in Greece. These changes affect shipbrokers, insurance brokers, agents, average adjusters, charterers and others, irrespective of whether they provide services to ships under Greek or foreign flag, but exclude ships trading on purely domestic routes and some passenger ships. Shipowners and ship management companies are exempt.

The new service-related charges will be imposed on remittances of foreign currency, based on the following scales: 5 per cent on remittances up to $200,000; 4 per cent on remittances between $200,001 and $400,000; and 3 per cent on remittances over $400,000. The charges are annual and will be made for a four-year period, beginning retrospectively from 2012. In addition, service company profit distributions, either as dividends or as bonuses to directors and staff, are now taxed at a flat rate of ten per cent.

Michael Kotsapas says, "Shipping remains a key industry for Greece, and an important source of foreign currency. In recognition of the need to maintain the attractiveness of Greece as a base for companies engaged in the shipping industry, these service-related charges have very recently been reduced to 50 per cent of the figures included in the original legislation."