The ship market and maritime finance in South Africa: An overview

shipping law
15 Sep 2016

The state of the ship market, maritime finance in South Africa and the effectiveness of our maritime laws in the protection afforded to financiers are the three pillars of our commercial maritime industry in South Africa. Steyn Botha evaluates the success of the South African Department of Transport in achieving its 1996 objectives of expanding this sector of the economy.

The South African economy and the economies of its landlocked neighbours are served by the six major ports on the South African coastline at Durban, Richards Bay, Port Elizabeth, East London, Cape Town and Saldanha. The two Kwazulu-Natal ports provide the largest concentration of sophisticated port facilities on the Southern African coast. Five dry docks constitute the ship repair facilities in South Africa.

These ports are not only conduits for trade between South Africa and her partners in the South African Customs Union and Southern African Development Community, but function also as hubs for traffic emanating from, and destined for, Europe, Asia, the Americas and the east and west coasts of Africa. South African ports handle an average of 13 000 vessels carrying 500 million tons of cargo annually, with major upgrades currently underway to increase handling capacity and absorb the rapid increase in commercial traffic.[1]

Southern Africa is economically dependent upon world commerce and also on the necessity to have free use of the gateway between the South Atlantic and the South Indian oceans. Ninety per cent of South African imports and exports in tonnage, or eighty per cent in value terms, takes place by sea. By 1996 the South African fishing industry created 25 000 job opportunities and generated R1,5 billion per annum to the country’s GDP while more than fifty per cent of the GDP is generated through maritime foreign trade and the sea fishing industry. Approximately thirty per cent of Middle East oil bound for Europe and the Americas is annually conveyed around the Cape sea route.[2]

On the one hand we have exponential growth in the South African shipping industry with tremendous reliance being placed on the shipping infrastructure by the Southern African economy, and on the other hand we see the country’s largest shipping operation, with the largest locally owned blue water fleet, to fragment into foreign ownership[3]. There have been warnings that the loss of local ship ownership is so extensive that South Africa will in due course have no significant local blue water shipowners at all[4].

Through the efforts of the maritime industry with initial support from the new South African government, South African shipping laws have seen much innovation[5]. Unfortunately much of the post-1994 momentum has been lost, with much criticism being directed at the authorities for sometimes forgetting that South Africa has a coastline[6].

Realizing the crucial role which the country is playing in international maritime commerce and the crucial role which international trade, in turn, plays in the country, the South African Department of Transport initiated a review during 1996 of its Maritime Transport Policy[7]. A fully consultative transport policy initiative which reported to the Minister of Transport in 1996 formed the basis of the White Paper on Transport. The policy review addressed maritime transport issues relating to economic principles, trades and cargoes, ship financing and registration, the operation of ships, ports, safety at sea, employment & training, and administration.

The main thrust of the 1996 maritime transport policy report was that the government and the maritime industry should commit themselves to expansion of the South African shipping industry. In order to do so, the strategic objectives of the Maritime Transport Policy were defined as follows:

  • To facilitate and enhance the expansion of international trade and tourism in general, and exports in particular.
  • To ensure that economic decisions are, as far as possible, left to market forces, subject to general competitive principles applicable to all industries, with the view to maximising consumer choice, need satisfaction and job creation.
  • To promote the development of an efficient and productive South African maritime industry capable of competing on international markets.
  • To maintain control over maritime services within a well defined regulatory framework that is flexible enough to cater for changing needs and circumstances and to ensure orderly, safe and reliable maritime transport services.
  • To promote international relations with other countries and international organisations involved in maritime activities.

To achieve these objectives, the Department identified certain critical issues in ship operation, -financing and -registration. The policy makers acknowledged that domestic shipowners and operators take the following into account in choosing an appropriate register (as opposed to the South African Register) under which to operate their vessels:

  • The efficiency, cost & suitability of South African ship registration, manning legislation and administrative procedures.
  • Their ability to raise foreign finance at a satisfactory rate on overseas markets. This ability is inhibited by South Africa’s sovereign risk rating, and by deficiencies and anomalies relating to ship’s mortgages.
  • The fiscal allowances and incentives given to them by the South African Income Tax Act.
  • Cumbersome exchange control procedures.
  • A duty & excise regime which favours foreign trading vessels over domestic vessels in relation to fuel costs and costs of spares.
  • Shortcomings and anomalies in the enabling legislation for the registration of ships and ships mortgages in South Africa which is based on the British system of 1894.
  • Anomalies in the priority accorded to South African ship’s mortgages which make them out of line with the majority of the world s maritime nations.
  • South African shipowners do not enjoy the same competitive advantages as many foreign carriers. Shipping is highly cyclical and shipowners and operators must be able to adapt their fleets to meet continuously changing circumstances.
  • Both local and foreign owned vessels on the international trades to and from South Africa are free to carry South African coastal cargo, but those on international trades have the advantages of fuel at the international price, of seafarers being exempt from income tax, of no import duties payable on ship’s spares, and, in the case of many, and of operation in low or no income tax regimes.

With these issues in mind, the following were some of the key recommendations put forward:

SA should aspire to a modern ship’s register which is efficient, which balances the interests of the nation, shipowners and seafarers in an internationally acceptable manner, and which accords with principles of international law relating to the necessity of a genuine link between the state of registry and the shipowner.

  • The register should be attractive to both local and foreign investors, but in no way a flag of convenience.
  • The Department should promote interdepartmental and private initiatives to ensure that administrative, fiscal and legal inhibitors to the development of the South African Register and its ancillary services are removed.
  • The anomalies in the ranking of maritime claims should be urgently addressed by an interdepartmental initiative involving the Departments of Justice and of Transport in consultation with interested parties such as the SA Maritime Law Association.
  • The scope for bilateral shipping agreements which will enable South African shipping interests to access markets which are currently inaccessible should be explored.
  • Many SA maritime regulations are outdated and require updating or repeal. Most require re- examination in the light of the South African Constitution.
  • There are many international conventions which require examination to assess the advisability of South Africa acceding to them.

The recommendations were to be implemented as follows:

  • The Department should of its own initiative and through the Interdepartmental Committee and the Standing Committee on Maritime Transport address the key recommendations.
  • The initiative of the Chief Directorate: Shipping to amend ship registration legislation should be vigorously pursued until acceptable legislation can be tabled in Parliament.
  • A similar initiative, driven by the Chief Directorate: Shipping, should be launched to examine the ranking of maritime claimants, especially the mortgagee, and to correct any anomalies in that ranking.
  • Close liaison between the Chief Directorate: Shipping and the shipping industry should be promoted.
  • An inter-departmental committee as proposed by the Floor Committee (involving the Departments of Trade and Industry, Finance and Environmental Affairs) should be appointed to review all issues affecting shipping in a holistic manner.
  • The Department of Transport, where appropriate in consultation with the Standing Committee on Maritime Transport, should continue to give urgent attention to the review, revision and updating of conventions, regulations and other legislation affecting maritime transport.

From the objectives and recommendations of the White Paper the following key issues relating to the ship market, commercial lending and maritime mortgages can be extrapolated:

Key Issue 1

An efficient and productive South African maritime industry capable of competing on international markets should be promoted.

Key Issue 2

The South African Ship Register should be attractive to both local and foreign investors, but in no way a flag of convenience.

Key Issue 3

The anomalies in the ranking of maritime claims should be urgently addressed.

Key Issue 4

Many South African maritime regulations are outdated and require updating or repeal.

Key Issue 5

Many international conventions require examination to assess the advisability of South Africa acceding to them.

The activity in its ship market is directly related to the state of a country’s shipping industry. As a result of the international character of shipping, the success of a country’s shipping industry relies on its international competitiveness. If the shipping industry does not respond favourably to the needs of shipowners and financiers internationally, it cannot succeed and the ship market will fail.

The ship market relies on commercial lending to finance shipbuilding, ship sales and repairs. Commercial lending relies on sound credit security laws with which it is able to limit its financial risk. With the global village becoming all the more accessible with modern technology, international financiers are more amenable to extend their lending offshore and across borders. But this is only possible if there is, to some extent, conformity in international maritime credit security and which fulfils its risk expectations. Shipowners and their financiers gravitate towards modern, competitive, flexible and properly managed ship registration regimes which offer substantive credit security.

Whether these new perimeters are a reality for South African lenders and borrowers in South Africa depend on:

  • The various forms of maritime credit security available in South Africa and offshore;
  • The effectiveness of South African mortgages in South Africa and offshore; and
  • The effectiveness of foreign mortgages in South Africa and offshore.

With South Africa now entrenched as a respected member of the global democracy, its ship owners are not only looking to local financiers for funding and local financiers do not have to extend their business to local borrowers only.

South Africa’s important role in international maritime trade is therefore apparent. Are South Africa’s maritime mortgages effective locally as well as offshore?

International shipping is generally conducted in a highly competitive environment. Does the protection offered by its maritime credit laws allow South Africa to be relevant as a lending forum for local and overseas financiers?


Many of the recommendations of the White Paper on Transport eluded to in the introductory paragraph to this paper, have been successfully implemented. Some have not yet been addressed and others are suffering bureaucracy.

In answering the questions of whether an efficient and productive South African maritime industry capable of competing on international markets has been promoted, and whether the South African Ship Register is attractive to both local and foreign investors, one must consider the most significant milestone as being the promulgation of the SRA and the Regulations thereto. It removes the inflexible parochial approach of the 19th century English law which prevailed in South Africa until 2003[8].

The SRA introduces the following groundbreaking innovations:

Foreign joint venture ownership of South African registered ships of which the majority shares in the ship are locally owned.

  • Ships chartered in for longer than 5 years can now be registered in South Africa as a second register.
  • A centralised and computerised Register is established which is more readily available and better administered than in the previous dispensation.
  • It corrects uncertainties about the creation and ranking of locally registered ship’s mortgages.
  • It introduces to owners of most vessels the right to register and be subject to maritime mortgages.

The promulgation of the SRA signifies a giant leap of the South African government in addressing the objectives set in Key Issues 1, 2 & 4 of the introduction to this paper. It furthermore offers a Registry which makes ship registration and administrative procedures more efficient and suitable. The Act allows for foreign finance to be raised at competitive rates on overseas markets. This ability is no longer inhibited by deficiencies and anomalies relating to ship’s mortgages which was previously encountered in the MSA. To this end, the shortcomings in the enabling legislation for the registration of ships and ships mortgages in South Africa have thereby almost been eradicated. But there is room for improvement.

It is unfortunate that the proposed amendments to the AJRA pertaining to the ranking of mortgages are still not in force. This fact negates the positive results which the new mortgage dispensation of the SRA has achieved. Although the SRA has promoted the maritime mortgage to the same status as that of the special mortgage, its ranking in admiralty still reeks of shipping in the previous centuries. The anomalies in the ranking of maritime claims have therefore not yet been properly addressed and South African maritime mortgages are still out of line with the majority of the world’s maritime nations. Regrettably, we are still burdened with outdated legislation in this respect and it is uncertain when the South African law commission is eventually going to resolve this impasse. As will be reiterated below, Key issue 3 has yet to be resolved.

South Africa is not a party to the many international conventions pertaining to mortgages and ship registration. Is it necessary for South Africa to accede to them?

Key issue 5 clearly begs a positive response.

South African maritime laws lack the bold approach of the provisions of the International Convention on Maritime Liens and Mortgages, 1993 pertaining to the superiority of mortgages over claims for necessities. Notwithstanding the fact the proposed amendments to the AJRA in South Africa are not even in force, the attempt at modernizing the South African system in this manner does not go far enough. If only for this provision, South Africa should accede to the Convention. Another important reason for South Africa to consider accession, is the fact that the Convention imposes sensible provisions which requires that notice and details of a forced sale be given to the authority in charge of the register in terms of which the vessel is registered, all holders of registered mortgages, hypothecs and other charges and to the registered owner. Sadly the South African laws are satisfied only with media publication of the sale and no further notice to creditors, especially mortgagees. The possible prejudice to mortgagees who have not received notice of a sale of a mortgaged vessel is disconcerting.

Although the Convention relating to Registration of Rights in respect of Vessels under Construction, 1967 is not in force, South Africa should take cognizance of the international tendency, which is especially apparent in Canadian and US laws, to allow for early registration of vessels under construction, thereby enabling the financing of the vessel at an early stage.

To answer the questions regarding the effectiveness of South Africa’s maritime mortgages and to judge whether South Africa is relevant as a lending forum, is not easy.

Consider this: none of the major maritime nations have acceded to all the Conventions relating to mortgages and ship registration. For instance, none of the nations researched in this paper have acceded to the International Convention on Maritime Liens and Mortgages, 1993. That does not prevent them from being major role players in international lending. South Africa has, like them, included many of the important terms in its national legislation. Its recognition of foreign mortgages and the protection of mortgagees with the deletion of mortgages are examples. South Africa’s inability to promote mortgages at the expense of necessities claims is also to be found in the US where local necessities claims rank prior to foreign mortgages. South Africa is therefore no in isolation.

The SRA has definitely improved South Africa’s standing in the world of international commercial lending, especially when one considers the increased presence of foreign financiers in our courts. The Act does, in conjunction with the slightly weak AJRA, offer substantial protection and effective mortgaging to local and overseas financiers mortgagees to entice them to the South African market as a lending forum.

But the thrust of the SRA alone is not sufficient to lift South Africa to the new heights it sought to reach in local ownership and international finance. The Department of Transport has commissioned a further Consultative Report on Maritime Transport Policy. Consultation with the industry has resumed with the result that the South African government’s attention should again be focused on the maritime industry and its unfinished business.

[1] http:/ accessed on 15 September 2004.

[2] Siko M., South Africa’s Maritime Interest and Responsibilities, African Security Review Vol. 5 No. 2, 1996.

[3] J Hare, 2002 Maritime Law update, accessed 14 august 2004

[4] ibid

[5] ibid

[6] ibid

[7] accessed on 12 August 2004

[8] Hare 2002 Maritime Law update.


See also: Grey goods: Not a black and white issue in SA law

(This article is provided for informational purposes only and not for the purpose of providing legal advice. For more information on the topic, please contact the author/s or the relevant provider.)

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