European hub bounces back with state by its side

Cyprus’ shipmanagement scene goes from strength to strength after near-death experience four years ago

Looking at the new high-rises along Limassol’s promenade, it is easy to forget Cyprus came close to financial collapse four years ago.

“It’s just a bad memory now,” says Dieter Rohdenburg, a vice-president with the Cyprus Shipping Chamber, who has lived on the island for 27 years as chief executive of Intership Navigation.

The crisis, following the collapse of two major banks in 2013, struck at the heart of the island’s role as Europe’s biggest shipmanagement hub.

Simple bank transactions were frozen. “Companies couldn’t pay crews’ wages over Catholic Easter,” one player remembers. Sums exceeding €100,000 ($120,000) in bank accounts were threatened with confiscation as Cyprus’ international lenders imposed haircuts as part of a bailout.

It is a measure of the lobbying powers of Cyprus’ shipping scene that it managed to mobilise the country’s government in its defence, convincing creditors the industry deserved special treatment.

Capital controls for shipping companies quickly relaxed, allowing crew and supplier payments even from banks that were officially closed to the wider public.

The impact softened further after Cyprus’ creditors agreed that haircut rules should not be rigidly applied to shipmanagement companies. Cyprus’ shipping taxation remained untouched, despite harsh austerity imposed on other parts of the economy.

As a result, dozens of foreign shipmanagement companies present in Cyprus since the late 1970s decided to stay. Plus, “they have brought more business to Cyprus over the last four years,” says Thomas Kazakos, director general of the Cyprus Shipping Chamber.

Newcomers include funds setting up their own shipmanagement outfits like Tufton Oceanic. Others have expanded, such as Norway’s OSM Maritime, whose Cyprus office has served as group headquarters since 2014. Mediterranean Shipping Co (MSC) runs most of its in-house shipmanagement outfit, the world’s biggest, from the island.

Cyprus’s near-death experience four years ago seems to have concentrated minds to woo shipping even harder.

The government has always been supportive of the industry, says Sunil Kapoor, director and general manager of the Cyprus office of Fleet Management. “But things have actually become even better since the crisis,” adds Kapoor, who has been heading Fleet Management’s office since it was set up in the capital city of Nicosia 10 years ago. “If I have a problem, I can go directly to Transport Minister Marios Demetriades and he will solve it in five minutes.”

Fleet Management Cyprus currently manages 42 ships and Kapoor believes the number could jump by at least 30% if the island’s 43-year division between a Greek south and a Turkish north is overcome. A Turkish ban on Cyprus-registered ships is an obstacle to boost its flag, which is Europe’s third-biggest but has been stagnating in recent years.

d1394e64b289c6672ee7393792ff308d Sunil Kapoor, director of Fleet Management's Cyprus office  Photo: Fleet Management

“The ongoing Turkish ban continues to hamper efforts to strengthen its numbers,” says Cyprus Shipping Chamber chairman Themis Papadopoulos.

Hopes ran high earlier this year that a reunification settlement might be around the corner but talks in Switzerland hit the wall. “It’s disappointing because Cyprus had got so far,” says Arthur McWhinnie, head of Bernhard Schulte Shipmanagement Cyprus.

The country’s shipping players see the setback as a lost opportunity rather than an impediment to further growth. “We’ve been there before,” says McWhinnie, who is also a member of the Cyprus Shipping Chamber's board of directors. “I don’t think it will have an impact on Cyprus continuing to develop as a maritime hub.”

In terms of future growth, the Cyprus Shipping Chamber is setting much store on an administrative change, which it expects to make Cyprus an even more attractive location. The government department in charge of shipping was upgraded to a self-standing, independent ministry status in July. The industry had been lobbying for that change for about 10 years, but constitutional obstacles stood in the way.

“It’s important to have a figurehead for shipping. Having a minister gives clout, value and importance to the shipping industry,” says Rohdenburg. It will make it easier to “spread the gospel”, he adds. Shipping is estimated to contribute 7% to Cyprus’ GDP. About 200 shipping companies operate out of the country, employing 4,500 employees.

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However, challenges remain. Cyprus runs the danger of becoming a victim of its own success. Residential property is becoming increasingly hard to find in Limassol and rents are going up. It is easy to find qualified personnel for administrative or financial functions. Technical officers, however, largely have to be brought in from abroad.

“Attracting qualified ex-pats is still a problem,” Kapoor says. “Some feel unsure about the political situation, for others it’s too far away.”

This article is part of the October 2017 TradeWinds Shipmanagement Business Focus. Read the full report here.