Study commissioned by the Malta Institute of Management
Prof. Joseph Falzon
Executive Summary
The maritime industry in Malta has existed for centuries of years. However during the last 50 years it has faced very stiff competition from other growing sectors in the Maltese economy. Workers no longer felt greatly attracted to work in the maritime sector, and shifted instead to higher paid jobs, in more comfortable settings, in competing sectors like tourism, manufacturing, and recently Information Technology, financial services and I-gaming. The lack of Maltese workers with sufficient skills is the fundamental problem being faced by the maritime sector in Malta.
In spite of this, Malta still remains situated in the middle of the Mediterranean and witnesses hundreds of vessels passing each month near its shores. Hence, the maritime sector still remains a natural viable sector that can still remain profitable and also contributing positively to the gross domestic product of the Maltese economy.
This report lists the main problems being faced by the current operators and makes some sound suggestions as to how this maritime sector can be revived and brought back to life within the constraints of Malta's small size, lack of enough human resources, and the stiff competition originating from the other growing economic sectors in the Maltese economy. In this regard, the Maltese Government has a very important role to play in the suggested policies that need to be implemented to revive again the local maritime industry.
1. Maritime services offered
The maritime operators in Malta still offer a variety of different services which need to be consolidated and improved. These various services include: ship repairs in the international market; the provision of floating docks to fix damages; marine works and salvage operations; oil spill response teams; repairs of all mechanical and steel works; towing vessels and crew boats; taxi services on sea for food and water supplies; and crane barge services.
Maritime operators in Malta have also engaged referral agents all over the world since they enjoy a very good reputation in the international market. They have also offered super yachts services and dredging works, and have acted as contractors for the film industry in Malta (building the Ship of Troy). They have also sunk ships for divers in Maltese waters.
2. Impact of the privatization of the Malta Drydocks
The Malta Drydocks used to attract very large vessels. It had a good international reputation and was well known as a maritime service centre in the middle of the Mediterranean. On the other hand, smaller vessels were allocated to smaller ship repairers in Malta. It is also a fact that more vessels used to call to Malta when Drydocks was present.
The Malta Drydocks ended in 2002, while all workers at Malta Shipyards ended their employment in June 2010. Palumbo started in June 2010, and is now employing over 150 direct workers and many indirect sub-contractors. There seems to be a natural evolution of shipping industry in Malta. Everything depends on international credibility. The Malta Drydocks had a good reputation on quality work, but had a bad reputation regarding deadlines and costs.
The Drydocks used to produce highly skilled and much needed workers through their hands-on apprenticeship practical schemes. Now students are not trained and skilled enough after simply going through the MCAST system. It is a great pity that apprenticeship systems, like we had in the Drydocks, no longer exist. Current students are now attracted to short term higher paid sectors, and they are not patient and interested to learn real, useful and productive skills.
Today there is an acute lack of development of good human resources. The Drydocks used to be a factory of skilled talent, while today the apprenticeship scheme is no longer offered through MCAST, alone or jointly, with any other private sector entity. 4000 young persons applied for Drydocks exams 50 years ago - and only the best 60 were accepted. Maritime workers were the best paid 50 years ago - attracting the best brains available at that time. 10 years ago, only 50 persons applied for 100 vacancies at Drydocks. And only 25 went for the interview We need to stress the need for the EU to consider ship repair as an important sector so that ship owners can fix and service their vessels up to the standards imposed by EU within the EU itself.
Today many maritime operators feel that the privatization of the Drydocks was a big loss. All training of very skilled workers has been lost: welders, crane operators, electricians, and turners are no longer being trained on the job. The Drydocks offered a good and reliable system of hands-on apprenticeships and practical training. MCAST today is not sufficiently hands on. Students today are not skilled enough. Today training of good new employees has been lost.
Today I-gaming, banks, financial companies, and tourism are offering better paid jobs with much less hard physical work. This is causing the brain drain away from maritime sector.
3. Possible rebirth of the Shipyards
Palumbo started slowly to rebuild deadline reputation while confirming quality of work. Palumbo now has six years of continuous and consistent feedback from clients. After job remarks from every client are taken very seriously by the management. Evaluation forms assess the outcome and execution from each individual client. Palumbo has six docks: sometimes full, sometimes empty, according to the fluctuations in the market demand. Palumbo finds no problem for floating docks in other areas, as long as these are done according to the law.
4. Lack of coastline to develop industry further
There is not enough quay space available in Grand Harbor. A lot of ship enquiries are made but there is not enough quay space and its availability is very limited. This is one of current biggest problems for small maritime service operators. There is no overall system for better allocation of quay space in the Grand Harbor. One local company lost 14 ships of one single owner due to lack of quay space.
Maybe an auction system could be developed by Maritime Authority whereby each quay in grand harbor is allocated by tender to the highest bidder each month. A transparent auction system would enable each quay to be used most efficiently for each month according to supply and demand. Ship repairers would bid for quay space according to demand and to the value added produced on each ship. Through such an auction system, each quay space would produce the most economic value added for the maritime industry and for Malta.
5. Lack of quay space
The lack of quay space is particularly important for any start-up in ship management and in repairs. Recent start-ups which did not exist when Drydocks was present, have no facility of any quay space since principal quays were already allocated before these start-ups existed.
Although these start-ups can offer better prices and better services, they cannot effectively compete because no quays are available for them. Private quays are being rented out at Euro 600 per day, even at Euro 2000 per day, depending on size of ship, when before quay rent was Euro 80 per day, although in the old good days, ships at Drydocks used to pay even up to US $ 60,000 per day.
Start-ups are acutely aware that the biggest and main quays have already been privatized to single companies: Manoel Island, Drydocks to Palumbo, and Ship building to Ablecare. They know that floating docks cannot happen without quays. The existing quays have been given out with long term contracts, while some are being used just for parking fees, and not to do any large repairs. Hence, new comers are never given any chance to effectively compete.
For start-ups it is clear that more quay space needs to be created. They suggest to extend the quays: maybe in Freeport, maybe in M'Xlokk, maybe in the North. Government policy is one of the main problems here, but can also be one of main solutions if it opens more quay space for small operators.
For maritime operators who have been in existence for a long time, the lack of coastline is not a big problem. One operator has its shipyard at church wharf which has been in its possession since the company started in 1966. Our grand harbor is a natural port, one of the best in the world with surrounding bastions. These operators feel that the lack of space is not a problem if the grand harbor is well organized. The port cannot be enlarged. However the secret is to be well managed.
6. Rising sea bed
The sea bed in Grand Harbor is rising and needs constant dredging so that the harbor can continue to be used for deep ships. The rising sea bed is limiting the available quay space even more. MEPA is insisting that toxic material at the bottom cannot be dredged. This material can only be exported to acceptable quarries abroad. However this is extremely expensive to do so for the small ship repairers.
There is a need for a national solution of this dredging issue. MEPA and Transport Malta need to agree on a common way forward. We already have the situation where no vessels higher than 4 metres (draft) can be serviced.
Although dredging was regularly carried out before 2010, now the sea bed cannot be touched: not even just to separate it, to allow ships to be repaired. Ship repair companies rent the use of sea area from government. They pay rent to government for the use of sea space. However no national solution of the dredging problem seems to be imminent.
7. Development of the Grand Harbor
Several areas in the Grand Harbour can be developed further, from Ras Hanzir to Parlatorju, to the area near the old power station. The area near the "tinda tal-patata" is only used by a few tuna boats, while that near one of the existing shipyards, is just used for berthing almost sunk ships.
There is a lot of potential to develop the Grand Harbor even further: "Il-port jiflah jizviluppa aktar".
A lot of investment has already been done in the cruise liners. There is capacity for 4 cruise liners each day: however, only 2 or 3 arrive per week, operating at less than 15 % capacity.
The Grand Harbour has a lot of potential to capture a bigger part of the vast marine traffic passing through the Mediterranean. In fact more concentration of activity in the Grand Harbour is desirable: more ships are needed and can be accommodated.
8. Floating docks in other areas
Floating docks already exist in adequate numbers. It is more quays that are needed. Certain entities in the grand harbor do not need the quay: they are just using the quay to berth some equipment. Hence there is no optimal allocation of quays in the Grand Harbor. The Vittoriosa quay is now used entirely for berthing yachts. The majority of vessels visiting Malta do not need a dock: they just make repairs afloat.
Some operators feel that floating docks are not a problem. Right now there are 4 floating docks, and another one of the former dockyards. There are enough floating docks and there is not enough space for more. Malta's Freeport cannot be further expanded. Malta's size has its benefits, but also its limitations.
9. Required human skilled resources
Another major problem in the maritime industry is that the industry is not producing the required human skills. A local ship repairer advertised ten posts for part-time welders. However not even one worker applied.
The apprentice system no longer exists. It was very effective in training young people. To maintain operations, skilled labor has to be imported from Eastern Europe through a manning agency demanding higher wage rates. There is a need to remove this manning agency's monopoly by allowing the maritime industry to hire non EU skilled workers as well.
Lack of human talent in the maritime industry is a true fact today. Working in the shipping sector is not attractive, and is perceived as difficult and messy. Fewer and fewer qualified personnel exist and/or are being trained today. Working on vessels each day is different and challenging as you have to apply what you have learnt in a creative way.
The lack of human talent is the current biggest problem. The Drydocks has been closed; MCAST is not producing enough qualified workers; Malta needs practical apprenticeship schemes that offer direct and hands-on contact and skills learning.
The problem is that young people in Malta nowadays have better alternatives. They do not wish to work in the maritime sector. Similarly, although ITS is offering apprenticeships for catering, not enough waiters of Maltese nationality are found.
This lack of Maltese human talent is also found in many other economic sectors. Even in football for example. A widely known fact is that Hibs cannot find top quality Maltese players - need to import good international players. The problem is that football in Malta is not full-time. Young talented players are not sent to an academy where they can play and train 6 hours a day. Football is just one example of the lack of skills found in many sectors of the Maltese economy due to its small size limitations, fast economic growth in many areas, and the wide diversity of economic sectors found in the Maltese economy.
10. Foreign Sailors
It is desirable to get SOFA - Status of Forces Agreement. Although a sensitive issue, other countries are concluding some sort of policy with the American Navy. In fact Croatia managed to conclude a 9 month project with the American Navy.
One should note that foreign sailors that are uniformed have their own pickets (police) to keep law and order when they land. Not uniformed sailors, however, are subject to local laws and can be arrested by local police.
11. International Players
It is also important to have international players as part of our networks. This can stimulate collaboration and cooperation with other entities that need services to vessels. Partnership with international players will help Malta Maritime to expand further. We also need more effort to get ship managers offices operating from Malta. This will make it easier to generate more maritime traffic.
Some feel that there is no need for international players to be part of the local network. Foreign partners are needed to send us work, but not to manage their operations locally.
Malta can develop as a maritime centre in the Mediterranean. Malta cannot service 4 rigs at the same time. There is not enough space, not enough workers to work on 4 rigs at once. Many rigs will be scrapped and dismantled or re-vamped in the near future. Rigs are usually 70 m x 70 m or even 100 m x 100 m in size.
12. EU Regulations
The EU has several regulations on safety. These are good and positive in principle. However in practice, they can be a big disadvantage. Safety wear in Germany is appropriate for the cold weather and snow. But the same safety wear cannot be fully worn in Malta during the summer.
EU regulations need to be applicable to each country. Not a one size fits all policy. There is great need to also use the principle of proportionality.
13. Competitive Advantage
The maritime industry in Malta is now importing both the required material (steel) and the skilled labor. Hence, the maritime industry is, price wise, not competitive due to higher import costs of the two main inputs.
However Malta can still exploit its main competitive advantage in:
* Location
* International reputation
* English speaking
* Provision of many maritime services afloat
* One of strongest flags
Malta has a comparative disadvantage with other countries especially not in EU. Malta is pressed to abide by EU regulations which are increasing its costs. Higher costs are reflected in higher prices, making Malta less competitive with other countries. Malta can only compete on quality and better service which can prevail in longer term.
Maritime flag in Malta one of the largest. Need to exploit further this opportunity to offer more holistic services to the maritime sector like finance, insurance, and holding companies.
Economic policy in Malta also needs to monitor the possible effects of rising real estate prices and rents on the other economic sectors. The rent of a normal apartment was Euro 250 per month in M'Scala. Now it is Euro 450 per month. Rising rents and property prices is attracting a lot of investment in this sector, which could have gone to sustain other important economic sectors in Malta.
14. Way forward
Malta needs to:
* Find an acceptable dumping site for dredging material
* Develop an acceptable system for the most efficient allocation of the quay space available
* Re-develop a serious hands-on apprenticeship system
* Involve more the private sector in the final national decisions
* First listen and understand correctly the needs of the industry before making any strategic national decisions.
In the near future, the maritime industry in Malta also needs to:
* Perfect maritime regulations and adopt them to modern times
* Develop a holistic maritime plan and update it on a regular basis
* Exploit Malta's strategic position in the Mediterranean
* Increase commerce with ships not even coming to Malta
* Engage more in the transfer business of cargo and oil from large vessels to smaller ones
* Facilitate more crew changes and provisions through ship chandlers
* Provide more spare parts and repairs
* Increase economic value added of ship repairs: provide hotel rooms for crew, and trade containers for passenger ships.
* Exploit more its logistic and strategic position in the Mediterranean
* Attract business from North Africa which is not a stable region at this moment
* Import foreign workers, both from EU and non-EU countries, to fill its maritime vacancies.
* Engage the Maltese Government to include the maritime sector within the Highly Qualified Persons Rules to attract specialized high value adding foreign personnel to Malta; similar to the rules which already include the aviation sector (Reference Justice website SL123.126).
Malta needs to stress the need for EU to consider ship repair as an important sector so that ship owners can fix and service their vessels up to the standards imposed by EU. The EU needs to back up ship repair by research and development funds. A future national maritime master plan is needed to coordinate the future development of the industry. The maritime sector has been here for centuries and the Government needs to recognize and acknowledge the importance of this industry in Malta. Government needs to put upfront the importance of the maritime industry on the national agenda.