20/04/2012
How to become a shipowner
Six years ago, Hansatee – operating under the Tallink brand – had no vessels of its own. Now, in May 2002, there are seven of them. This amazing development is to a great extent the work of Enn Pant, chairman of the management board of Tallink Group (former Hansatee Group). In this interview, he talks about the past and the future.
Enn Pant, chairman of the management board of Tallink Group.
Until November 1996, you were the chancellor at the Ministry of Finance. How did you adapt yourself from being a financial analyst to being a shipowner?
I am still a financial analyst! Each business requires the skill of handling money. I think that a person is rich when he or she feels that he or she has enough money all the time. You have to live up to what you can afford, then you will always have enough money.
A company should act the same way. You have to shrink expenses during not-so-good-times, while it may even be possible to take a vacation during better times. This is a question of self-discipline and company discipline. You have to make the right decisions at the right time.
The previous management was more at home with navigation, while you are more at home with financial operations. Was it due to your experience as a financial analyst that according to the balance sheet, you could turn a loss into a profit within one year by making the financial structure of the company more expedient?
To a certain extent – yes. However, a loss is not a paper thing, generally. A skilled accountant is able to design as required.
For a company, a loss, in a direct sense, means that a certain amount of money falls short, and it is specifically about cash.
The issue of cash – this cash flow thing – is more important for larger companies than the matter of having a profit or loss in the books. It is important to have enough real funds to cover your own expenses.
But how can it be that you reached profit a year after the loss of about USD 9 million?
Shrinking expenses was the first thing. Secondly, large expenses, such as rents for vessels which were disproportionately large for the Estonian Shipping Company, were renegotiated.
Remedies also included disciplinary issues, the implementation of internal control. Because tax-free sales and the sale of services on board amount to 60 per cent of the total income, the disappearance of 10 per cent can also be felt clearly.
Internal control, which didn’t even exist earlier, is now one of the largest departments – not because of too much fraud, but we just have so many vessels. And the preventive effect of ongoing control is much better than catching somebody specifically.
This entire complex of remedies has had an impact in getting over the loss.
People who come from another area to work in shipping companies start to like maritime matters, as a rule. There’s no doubt that you do, too.
When I came, the situation was in fact really lousy. There were only two chartered vessels “Georg Ots” and “Tallink”. The first vessels were expensive for us. First, we bought “Tallink Express I” for about EEK 20 million (USD 1.4 million).
For us, the arrival of Normandy was a new era in the development of the company. Never mind the fact that it was chartered! It provided the hope that the company would be capable of surviving. This vessel was not productive; the profit of the entire period of it’s being here was one million kroons. But it was an investment in the future; it was how the customer base was created.
By that time, it was clear that I was to be buried here in shipping for quite a long period. And then came “Fantaasia”, which was our first real “own” vessel.
Where one can see your favourite colour…
Well yes, in the sense that “Fantaasia” was the first vessel to be rebuilt extensively – and there are many of my ideas in it. Not just mine, however; the whole Hansatee participated in the project.
Also, all decks on the new vessel were sketched by us in a way that we thought would be appropriate. There was no interior architect – this role was performed by the management of the company. Of course, there were interior designers who had the final say. The shipyard, of course, did the technical part.
Tallink’s newbuilding “Romantika” left the shipyard for sea trials in April 18, 2002.
Long ago, you planned a vessel that took the Finnish customs rules into consideration. However, now we often hear that Estonia may give up tax-free.
Now, there has been talk about a 6.5 year transition period. I believe that within that period, it should be possible to change products and start thinking about something else. An alternative is that a corresponding sum would be returned to us as a subsidy. I have understood that the government has a sufficiently positive approach and that a compensation mechanism is being created. To a great extent, Tallinn has been built up thanks to the money that Finns have left here, so this is not just an issue of one shipping company. Vessel traffic as such will of course be retained here, but how many vessels and what would the ticket cost? Finns have been so spoiled by the prices of Silja and Viking that a price difference of 1–2 Euros will be a big factor…
Overall, you are still quite optimistic.
Nothing is over yet. We are not in the European Union yet. We haven’t even come to the point where we have declared a referendum. A lot may change in public opinion during the time we have left. I think that this is not only an issue of tax–free, but much more is at stake.
Does the Estonian shipowner have considerable advantages, since it is claimed that the work is extremely cheap?
What advantages? Let’s compare our labour costs to the sum paid by Finland directly to Silja and Viking during this last year – it was probably FIM 240 million. This is a larger sum than our total salary fund – by far. I believe that when they subtract the sum to be received from the salary fund, they are paying zero salary.
Earlier, there could be some advantages but after these subsidies, there’s no way. Because of the Estonian flag, we are also paying more fees in Finland.
By the way, the Estonian flag is not that cheap. We are paying our crews gross wages of about FIM 100 million annually. The Finns may pay 2 – 2.5 times more, but if we consider the subsidies of the state, it works out the same. If we then consider the advantages that they have due to the Finnish flag, and, why not, the advantages of their blue-white brand…
Compared to them, our sole advantage is that we have an extremely professional and small-sized shore personnel. Where we have one person, they have a whole department. I think that we achieve effectiveness primarily by saving on shore costs.
How much do you feel the influence of the trade union?
I think that the trade union in shipping is strong enough in Estonia. The worst thing is that they learn from Finland and Sweden – places where nothing can be learned from in this matter. Trade unions are afraid that if there is no war, they probably don’t exist.
If we are doing something good for our employees, they don’t even notice. The opinion is – how can it be that you did it yourself, it’s not logical. An enemy must be behind it!
There is a lot of talk about our shipping having no support, while everyone else in the neighbourhood has. Why can’t we hear the complaints of shipping companies that the state doesn’t support them – for instance, that no advantages are provided in labour taxation or port fees?
We have talked about taxation a lot but we have not reached anywhere yet. Unfortunately, I know enough about economics and finances of the state to understand that nothing can be taken away from social taxes. The social side is so underdeveloped in the country.
Although the corporation tax has been abolished in Estonia, we are still being skimmed by port fees. The port has officially declared that the passenger traffic in Vanasadam brings in EEK 180 million (USD 10 million) a year in profit.
Consequently we, Viking, Silja and Eckerö are paying EEK 180 million in corporate tax per year, and we have calculated that this corresponds to a percentage of about 45 per cent – not 26 per cent as it used to be.
Therefore, a double notion of abolishment of the tax burden exists.
If we wanted to, we could hire advocates and reach the point where since the Port of Tallinn paid 300 million in dividends to the state, we claim the respective sum back since the state has declared that there is no corporate tax.
