SHAW SAVILL AND ALBION COMPANY, LIMITED

Press, Volume XC, Issue 27442, 31 August 1954, Page 14

SHAW SAVILL AND ALBION COMPANY, LIMITED

Chairman of Directors, Basil Sanderson, Esq., M.C, Extract from the Chairman’s Report to the Annual General Meeting of the Shareholders of the Company held in London, on 30th August, 1954. * •

British Shipping Companies since 1945 have been confronted with one common and major problem, and today that problem looms larger than ever in all their calculations and plans for the future—they are faced with the necessity of scrapping vessels built 20 to 35 years ago and replacing them with new vessels costing four ft> five times as much at. today’s prices. In each case the accrued tax-free depreciation only goes 20 to 25 per cent, of the way towards meeting the cost of the new vessel, and the balance has either to be obtained by borrowing or alternatively out of profits subject to tax deductions approximating to 10s in the £. As to borrowing, there is considerable misconception in many minds. New capital can only come from savings, and in these days of high cost of living and high taxation the amount out into savings is necessarily small. Were industry as a whole to try and raise capital to the extent required to finance the replacement of depreciating assets there is simply not the volume of savings to meet the position; Were, however, one Shipping Company to attempt to “beat the pistol” by being first “off the mark” the support would be strictly limited. At the present cost of building new vessels the return to the investor would not be likely to attract him to place his money at risk. The Shipowner must, therefore, look primarily to trading profits for fleet replacement, and “ploughing back” of profits into the business is traditionally the basis, on which - the fleets of modern times have been built and services extended to foster and to meet trade demands: but today, quite apart from any question of extension of services, the Shipowner is being rapidly forced, by the impact of high taxation and increasing costs, into a position where he will find it an economic impossibility to replace existing ships. The system of taxation in the United Kingdom under which depreciation allowances are based upon the original cost of the vessel with no regard to any subsequent rise in the cost of building is out-dated, and pernicious, especially in a country where taxation is as high as in ours. Shipping competitors under many other flags enjoy better terms, one of these being in a number of countries the ability to write up their vessels to realistic figures for taxation purposes. This allows them, when times are good, to obtain substantially more tax relief for depreciation, and the cash balance so accrued can be devoted to further building before the price of the new article has grown to the pitch where it bears little relation to the cost of the original. Added to these handicaps of the British Shipowner is the major one that there is scarcely a foreign competitor, suffering such high taxation on profits. The cumulative effect of these disadvantages is crippling in an industry which is unsheltered by being open to the strongest international competition. The foreigner has the wherewithal to replace his older vessels regularly as the appointed time falls due, whereas his British competitor must lag behind as he is suffering from ever dwindling resources.

It is therefore a considerable tribute to the British Shipowner that notwithstanding all difficulties, he has, to the limit of his resources, replaced older tonnage and war losses with fast modern vessels • capable of giving the shipper and'travelling public'services which bear .favourable comparison with ships under other flag. But the stark fact is that these new ships must earn depreciation and interest on a capital four or five times as high as the older ships which they have replaced.. It is true that in thif year’s Finance Act the Chancellor of the Exchequer has introduced a measure designed to improve the lot of companies faced with the replacement of wasting assets. In the case of this Company the present rate of Wear and Tear Allowance for a n,ew refrigerated cargo liner works out at 5.6 per cent, (approximately) per annum on first cost for 18 years—the new Investment Allowance in effect increases the average annual Capital Allowances to 6.7 per cent, (approximately) making the total relief from taxation 120 per cent, of the cost of a new vessel over the years for which Capital Allowances are granted by the. Revenue Authorities. In effect this concession, however, will only benefit the British Shipowner in 20 to 25 years’, time—when ships built at high cost today become due for replacement—it does not even scratch the surface of the problem which faces him today, and for many years hence, of replacement costs four to five times higher than the vessels which, of necessity, have to be scrapped. To increase rates of freight beyond a point is no solution. Rates are largely ruled by the open market and in trades where this factor does not immediately apply yet a similar and related restriction exists—namely that the goods themselves have international competition to face and increases in freights, such as might possibly be justifiable to meet the British Shipowners particular financial problem, would so raise the cost of the goods themselves as to price them out of their intended market. There is only one clear solution to our common problem and that is to review the oppressive system of taxation now existing in Great Britain and particularly the archaic system of assessing depreciation allowances, based upon the historic cost of the article without any regard to its replacement value. Failing some such review, nothing is more certain than that the size of the British Merchant Navy must dwindle at an alarming rate, until not only will it be unable to bear its part as the biggest earner of invisible exports iff the, economy of these islands, but it will Tail in its strategic role of feeding Great Britain in the event of war. P.B.A.