For the successful conclusion of a newbuilding or a major conversion contract, shipyards have to be actively involved in the financing of the project. Shipowners require loans up to 80% of the contract price in a currency of their choosing - normally the currency of their income - with the US dollar still dominating the scene.

　

 Typically, a shipyard's annual production value exceeds its own value as a going concern, and a partly built ship is not recognised as a capital asset. With large volumes of purchased equipment, the value added by the yard's own activities amounts to the smaller part of the total contract sum, while it has to assume full liability for the entire project. Most shipowners require bank guarantees for any down payment made during the construction of the vessel, thus increasing the amount needed for the total project financing even further.

　

 A number of commercial banks are reducing their interest in shipbuilding and hence their commitment to a vital, but volatile industry. Reduced interest will lead to less expertise, which in turn accelerates this process.

　

 All these factors lead to growing difficulties for the arrangement of the ship financing, both during construction (the pre-delivery financing) as well as after the ship is delivered to its owner (the post-delivery financing). Although problems may differ depending on ship-type, they constitute a serious impediment to the competitiveness of EU shipbuilders.

　

 Three issues are crucial for the financing needs of European shipyards: guarantees covering the gap between the post-delivery financing schedule and the standard mortgage based loans of commercial banks; guarantees for the pre-delivery financing of the project, covering the working capital and the refund guarantees issued by the builder’s banks; and, a hedging instrument for the currency risk.

　

 In addressing these issues, some key principles have to apply: All instruments must be self-sustained and transparent. The applicable premiums must reflect the risk that is being run. The operation of the instruments has to be efficient, decisions should be clear and predictable. Any action proposed has to be in strict compliance with EU rules. WTO and OECD regulations should be fully respected as well.

　

 In most shipbuilding countries, state institutions provide support to ship financing, however with considerable variations. While the US Maritime Administration guarantees post-delivery loans of up to 87.5% of the contract value over a period of 25 years, and the Korean KEXIM-Bank offers complete financing packages, covering pre- and post-delivery loans and guarantees, up to a level of 90% of the contract price, only some EU member states run specialised funds.

　

 In most member states guarantees by the export credit agency (ECA) are available to finance shipbuilding projects. However, ECAs are designed to provide loans for export orders to countries that pose a political or economic risk. No such "country risk" exists for the vast majority of the shipowners ordering at European yards. In these cases an export credit guarantee is either not available or not the appropriate answer to cover the gap between the owner's actual financing requirements and the mortgage based loans available from commercial banks.

　

 It is therefore desirable to explore the possibility of establishing an EU-wide guarantee fund, to be operated by a European body in a manner that is compatible with the rules of the common market and the OECD principles. Premiums should reflect the quality of the ship owner, the type of ownership, the employment of the ship, the type and duration of its charter and other factors that might influence the risk level of the loan. To this end a system of a limited number of rating categories could be applied. Fees, which depend on the rating, shall ensure that the guarantee scheme complies with the OECD rules.

　

 A common (or approximated) standard for guarantee schemes to be implemented by all EU member states, following the key principles stated earlier, could provide an alternative solution. However, the harmonisation of such financial instruments is a very difficult exercise. In any case, tools implemented should reflect practical requirements, ensuring a fast and efficient decision making process.

　

 Concerning pre-delivery financing a similar approach could be pursued. A guarantee covering the difference between the actual cost price and the down payments made by the owner, increased by the value of the outstanding bank guarantees for down payments, is absolutely essential. Again, a European- wide guarantee instrument would be desirable, with common or approximated standards in EU member states as an alternative, albeit difficult to fully achieve.

　

 With regard to the management of currency risks the situation in the EU varies widely. Certain countries, like Germany, Belgium and Spain, no longer offer instruments in this respect, while other countries, notably France, the UK and the Netherlands, run dedicated facilities. In order to assure fair and equal conditions, also vis-à-vis non-EU competitors, an insurance covering the risks run in bidding and contracting in foreign currencies seems essential. Since banks do not provide such a facility at a reasonable cost, the export credit insurance companies, covered by appropriate re-insurance, are the obvious choice. Since the rates of exchange are largely dominated by the interest policy of the major currency controllers, a key role in the re-insurance of currency risks could be played by a European entity.

　

　

 Over the last decade the European Union has increased its profile in the fields of maritime safety and protection of the marine environment by assembling a sizeable number of laws. The EU shipbuilding and shiprepair industry has always supported the adoption of this legislation, in particular with regard to the creation of a European Maritime Safety Agency (EMSA) and the strengthening of the Port State Control regime.

　

 Industry holds the view that modern ships are designed and built to safely withstand the severest weather and that proper maintenance, undertaken by reliable yards, could have prevented recent ecological disasters. Unfortunately, the present state of affairs in the shipping and shipbuilding industries is characterised by low freight rates and a significant decrease of new building prices over the last years. These trends risk affecting the quality of new ships and the maintenance of the existing fleet. Recent ship losses have shown significant structural as well as operational deficiencies. There is a clear trend in ship design to reduce construction and/or operating costs. It needs to be analysed to which extent these changes are compromising the integrity of the vessel and its cargo in rough weather conditions.

　

 Under these circumstances, a reinforcement of the maritime safety requirements at EU and world-wide level is required to ensure safer ships, to minimise crew loss and to protect the marine environment.

　

 Against this background, four concrete lines of action for further improving shipping safety and restoring a normal competitive environment in the shipping and shipbuilding industries are proposed:

　

 The first line of action is to continue Community efforts to ban sub-standard vessels from EU waters by a mandatory policy. The European Commission's 1 proposals for, inter alia, strengthening the Port State Control regime, accelerating the phasing out of single hull tankers, reinforcing and developing the Conditional Assessment Scheme requirements for ageing tankers, will have a definite effect in this respect. The industry fully supports the new proposed EU regulations and considers EMSA's role as essential.

　

 The second line of action lies with the increased responsibilities to be faced by operators. Industry is of the opinion that, based on clear rules, irresponsible operators have to be subjected to sanctions and should be eliminated from the trade. In market terms, this action should result in the encouragement of "quality shipping" through appropriate market rewards, stimulating a trend for investing in better and safer ships.

　

 The third line of possible action is to promote a more transparent, uniform, efficient and independent system of technical surveys of vessels. In particular, the conditions under which the work of the classification societies is carried out need to be assessed and all possible measures to enhance the effectiveness of the system have to be adopted. The independence of the classification societies from commercial pressure is a necessary condition for a healthy system for ship surveys. In this respect, a strict implementation of the existing, recently amended, Community legislation on classification societies needs to be ensured.

　

 The fourth line of action is to promote a quality assessment scheme for shipyards at world-wide level. Such a system should be able to identify and rate yards that meet good industry practice and deliver vessels meeting minimum quality requirements. It would encourage higher safety and environmental standards and provide a useful guide to ship-owners, operators and surveyors indicating yards whose ships risk becoming rapidly sub- standard or suffer from high maintenance and repair costs.

　

 Safety standards for building and maintenance of ships established by the classification societies must not be used by these organisations as commercial tools, resulting in a "race to the bottom". A possible role of the IMO in this respect should be envisaged, while the proper implementation of EU legislation will have to be closely monitored.

　

 These actions shall be developed at Community level, but also in the framework of the competent international fora. Industry welcomes that the EU is willing to play a more active role within the IMO and expects that after the EU has enforced new rules, those will be quickly implemented also by the IMO. The European Commission welcomes the offer by industry to provide technical support, in particular to EMSA. To this end, a joint expert committee will be established, devoted mainly to the following tasks: To assess the industrial impact of existing or pending EU legislation concerning maritime transport and, in particular, maritime safety; to analyse possible further proposals to enhance maritime safety; and to support the EU within the IMO. First efforts in this context have been undertaken within the LeaderSHIP 2015 frame.

　

 Finally, it is worth mentioning that the shipping and shipbuilding industries together can play an important role in increasing overall European transport safety and reducing the negative impact on the environment through Short Sea Shipping (SSS). SSS and European shipbuilding can provide each other with new market opportunities. Short Sea Shipping and its inter-modal integration generally require new or specially adapted vessels and advanced and flexible ship designs that are a domain of European shipyards. The comparatively smaller size of these vessels gives an advantage to domestic yards. To fully develop and exploit this opportunity for a sustainable surface transport system across Europe, EU policy makers need to provide an appropriate framework, taking into consideration the specific conditions of European coastal waters.