The Eastern Baltic Shipping Companies Got into Serious Debt

Both the private shipping companies and state enterprises are slipping into a financial quagmire in the eastern Baltic countries.

Latvian and Lithuanian Analogies

Latvian Shipping Company is facing bankruptcy. This has been expressed to the Latvian business publication “Dienas Bizness” by “Vitol Group” representative Mark Vera, the shareholder of “Ventspils Nafta” – the company that manages the Latvian Shipping Company (AO Latvijas Kuģniecība).

He accused the Latvian government of ruining investments. The Latvian Shipping Administration took its share of criticism as well. It is accused of spending money like water and entering into transactions that are contrary to the interests of shareholders.

Swiss-registered “Vitol Group” Representative M. Vera said that he had appealed Latvia to the European Commission and the International Monetary Fund. The country does not adhere to the agreements on the protection of foreign investments.

Lithuania faces some shipping problems as well, but not as severe as Latvia does.

The company “Lithuanian Shipping Company” had also got into debt before. Its three-quarter losses amounted to 34.7 million litas, which was even 2.2 times higher than last year.

This year, the Lithuanian maritime shipping demonstrates a gleam of hope. After constantly slipping into debt over the past few years, the company earned 2.8 million litas of net profit in the third quarter.

Losses on Foreign Exchange

The reasons which led to the reasons why the eastern Baltic fleets have become bogged down in debt are associated with the economic crisis, during which vessel freights had plunged so low that it had been cheaper to anchor ships to the external roadsteads than cargo transportation.

During the economic crisis, Lithuanian Shipping Company did not keep its ships at quays, but tried to “fish” a few cargoes in the market, the transportation of which would only cover fuel and crew maintenance costs.

Freight markets are currently reviving, but they are not fully recovered yet.

Lithuanian and Latvian Shipping Companies that had old ships and started changing them before the crisis had hit, were dragged down by the bank loans. Having already mortgaged nine vessels, the Lithuanian Shipping Company is going to mortgage the remaining two to cover earlier commitments.

Shipping Companies’ losses also increased because of the significant rise in marine fuel prices.

In addition to the straitened circumstances of the Latvian and Lithuanian shipping companies’, there also exists the so-called “paper” loss. The growth of the U.S. dollar and decline in euro exchange brought the shipping companies millions of losses.

The income of the Lithuanian Shipping Company also reduced due to the fact that in April the U.S. Coast Guard officials seized the ship “Deltuva” in the port of San Juan in Puerto Rico. During the inspection, officials found the open door in strictly controlled premises, which had to be closed. The ship’s “oily” water purification equipment had been broken, which raised suspicions on the water being pumped overboard. The vessel was later released, but its six sailors were arrested; they are now waiting the American court’s decision.

Private shipping companies in Lithuania were also detrimental. Nine months ago, “Limarkas Shipping Company” suffered 19.2 million litas of net loss. It is even 9 times higher than last year during the same period.

Estonians Made their Mark once again

While the Lithuanian and Latvian Shipping Companies were suffering losses, the largest Estonian shipping company “Tallink Group” counted profits. It was elected the most competitive company of the year 2010 in Estonian.

The company is one of the leading companies not only in the eastern, but in the whole Baltic region. It employs 6.8 thousand employees, owns 19 vessels, mostly sea ferries.

The company “Tallink Group” counts its financial year from September. In the end of November, the company finished the first quarter of the financial year of 2010-2011.

During this period, “Tallink Group”, which serves seven shipping lines with Finland, Sweden, Latvia and Germany, carried nearly 2 million passengers, or 10 per cent more than last year during the same period. It shipped 18 per cent more cars, and 13 per cent more trucks and trailers. During the financial year of 2009-2010, “Tallink Group” moved 8.4 million passengers.

Different Ship Registries

Although Estonia has the largest and wealthiest shipping company, the country’s ship registry is the poorest. Estonian ship registry is left with only three cargo and 27 passenger vessels.

In essence, these are the “Tallink Group” ferries flying between the islands of Saaremaa.

Estonian seafarers and shipping companies exist under the most adverse conditions. Seafarers have to pay a 21 per cent personal income tax, the employer pays 33 per cent social taxes, they do not have the tonnage tax scheme enforced, and they are not applying the daily allowance system.

The Estonian fleet adverse conditions are dictated by the Finnish trade unions. They are pushing the Estonian ship owners, whose vessels fly the routes with Finland, to pay seafarers the same wages as in Finland.

Latvia applies the following tax exemptions for seafarers and shipping companies: tonnage, social security, and personal income. For the foreign companies to register a vessel in Latvia, it is sufficient to sign a ship management agreement with a Latvian company. This does not require setting up a subsidiary.

It is no coincidence that even the two largest Estonian “Tallink Group” ferries “Romantika” and “Regina Baltica” are registered in Latvia.

However, the Latvian Ship Registry is also poor. It has only six merchant vessels registered, including one dry cargo ship and one tanker ship and four refrigerators. Latvia has been trying to recover the ships of the Latvian companies to the country’s registry for several years, but it fails to do so.

On 1 December of this year, the Lithuanian ship registry registered the 141st vessel. The number of ships in the registry has also decreased. 3-4 years ago there still were over 200 ships.

Shipping Companies of the Eastern Baltic Countries