The main purpose of the Bill is to extend from £15 million to £45 million the limit on the amount of borrowings by Irish Shipping Limited which may be guaranteed by the Minister for Finance. The enactment of this Bill is necessary in order to make provision for the probable financial needs of Irish Shipping Limited in the next two years. The opportunity is being taken also to extend to Irish Shipping Limited certain statutory controls relating to remuneration, allowances for expenses and superannuation.
Irish Shipping Limited were established in March 1941 to ensure the availability of vital supplies during the Second World War and, as Senators are aware, they did an excellent job in keeping our links with other countries open during a critical period. Indeed I should like to take this opportunity to acknowledge the great debt we owe to the heroic endeavours of Irish seamen, many of whom lost their lives serving their country.
In addition to their deep-sea shipping operations, the company have over the years diversified into other areas including insurance, car ferry services, property development, stevedoring, ship management services and other activities. These ancillary activities have provided the company with a profitable cushion against losses incurred periodically in the very volatile deep-sea shipping business.
The Irish Shipping Group have enjoyed 15 consecutive years of profit to 31 March 1982, but in the following year 1982-83 they incurred net losses of £14 million. Losses on the deep-sea sector, which is the company's principal sphere of activity, amounted to £20.1 million offset to the extent of £6.1 million by profits on the sale of ships and from ancillary activities. Further substantial losses of the order of £22 million are estimated in respect of the financial year ended 31 March 1984, just 11 days ago.
Irish Shipping Limited are, therefore, in a very critical financial position, due primarily to the collapse of the world deep-sea freight market. The tramp shipping market has always been subject to cyclical slumps. Following the world oil crisis of 1973, uneconomic freight rates were a feature of the years 1975 to 1977. Rates improved in 1978 and this trend continued through to January 1981. Rates commenced to decline in February 1981 and later in the year the market disintegrated completely. By December, 1982 average rates for a "handisize" vessel of 27,000 tons had fallen from $8/9,000 per day at the peak to about $3,700 a day and for a Panamax vessel of, say 65,000/70,000 tons from $18,000 per day to $3,500 per day.
The catastrophic decline in freight rates is due basically to the world economic depression, resulting in a growing excess of shipping supply over demand. The market situation throughout 1982 and 1983 has been extremely difficult with world-wide heavy losses by shipowners, bankruptcies, debt rescheduling, deferred delivery of new vessels and increased laying-up of vessels.
Even if the activities of Irish Shipping Limited had been confined to the operation of their wholly-owned fleet of four vessels totalling about 153,000 tons deadweight, the collapse of the freight market would have posed serious problems for the company. These problems have been seriously aggravated by the fact the the company had chartered-in nine vessels, foreign owned and with foreign crews, totalling 393,000 tons dead-weight to cater for expected increases in coal, steel and lumber shipments which never materialised. The vessels were chartered-in under separate agreements terminating on various dates from 1986 to 1990 and comprise four Panamax-type bulk carriers of from 59,000 to 64,000 tons dead-weight and five "handisized" vessels of from 27,000 to 32,000 tons deadweight.
The decision of Irish Shipping Limited to enter into long-term charter agreements for nine vessels has proved disastrous. The agreements were entered into without the knowledge or consent of either the Minister for Transport or the Minister for Finance and were made on the assumption that market freight rates would be significantly higher than the fixed rates for which the ships were chartered. The company's expectations were not, however, realised. What happened in practice is that the market collapsed, leaving Irish Shipping with nine vessels earning only a fraction of the cost of the company under the charter agreements.
Since 1973, Irish Shipping Limited have been a partner with the Cardiff Shipowners, Reardon Smith Line, in an operating pool or consortium of vessels known as Celtic Bulk Carriers. The creation of the pool enabled Celtic Bulk Carriers to quote for business which neither party alone would have had the capacity to handle. Celtic Bulk Carriers were successful in obtaining substantial time-charter business for bulk cargoes, particularly steel — Europe to East Coast US — and timber — West Coast US to Europe — and before the world freight market collapsed was the biggest single operator in these two trades. Unfortunately, the Reardon Smith Line have themselves run into financial problems. This has compounded the difficulties facing Irish Shipping Limited, because Reardon Smith are not at this time in a position to meet their share of the joint commitments they had entered into with Irish Shipping under the Celtic Bulk Carriers pooling agreement.
Faced, therefore, with an increasingly critical financial situation, Irish Shipping Limited recently entered into negotiations with the foreign owners of the nine chartered-in vessels with a view to seeking some reduction in the financial burdens of the long-term charters. As a result of the negotiations significant concessions have been obtained from the owners concerned. For obvious commercial reasons, the details cannot be disclosed, but I can say that they mean very substantial cash savings to Irish Shipping up to the end of 1985.
It was part of the agreement with the largest shipowner concerned from whom the greatest concessions were obtained, that the company would purchase for $42 million two of the chartered-in vessels, the Slaney Venture a Panamax vessel of about 62,000 tons deadweight constructed in 1982 and the Celtic Venture a “handisize” vessel of about 32,000 tons constructed in 1983. The company's position is such that they have little choice but to purchase the two vessels under long-term financing arrangements if their short-term financial commitments, which are at present extremely onerous, are to be reduced to tolerable levels.