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Celtic Bulk Carriers In the company's Annual Report for 1973, the Chairman announced the formation of a partnership arrangement with Reardon Smith Line in the following terms:- " With delivery next month of the Irish Larch we will have completed the building programme begun in 1970 when we ordered four bulk carriers from Upper Clyde Shipbuilders. We have decided to pool these four ships with seven similar vessels owned by Reardon Smith Line of Cardiff. These eleven ships, which form a pool of almost 300,000 d.w.t. (deadweight tons), will trade under the trade name Celtic Bulk Carriers. With this tonnage at its disposal the pool can quote for contract business which would not be available to a smaller operator." The partnership appeared to operate with reasonable success in the first few years of its existence and the Chairman was moved to refer to it in his Statement to the Annual General Meeting of 1977 as follows:- " Our pool operation with Reardon Smith Line of Cardiff has proved to be of particular value in the present depression. With contract business to and from the West Coast of the United States and Canada both Companies have been able to maintain a level of earnings for the vessels in the pool in excess of market rates, either spot or timecharter." In his Statement for 1978, the Chairman does not refer
specifically to Celtic Bulk Carriers but rather to the international
freight market and the increase in fuel prices which he points out "
have increased by more than 400% in the past four years." " Furthermore, estimates from reliable sources suggest that at least 30% of the world's present fleet of dry-cargo ships would have to be laid up to raise freight rates to break-even point for shipowners. In this context , and in the light of the considerable losses sustained by major shipping lines, it can be readily appreciated that our company's performance over the past four years has been exceptional. Our trading results are a vindication of the policy of diversification long since established by the company to offset the debilitating effects of persistently uneconomic freight rates." On future prospects, the Chairman cautioned :- "It would be comforting to speculate that the winds of adversity which have beset the shipping industry for the past four years were abating and that, having ridden out the storm, we were about to enter calmer waters in the coming year. Such a prediction would entirely ignore the clear portents which counsel that the worst is yet to come." In the Report for 1979, the Chairman refers specifically to Celtic Bulk Carriers as follows:- " The performance of this partnership suffered severely from the general depression in shipping despite the special advantages of a pooling system which yielded such excellent results in earlier years. With our partners we have critically examined the operations of Celtic Bulk Carriers and we believe we have found a solution which will produce enhanced earnings next year." The Chairman did not elaborate or explain what that solution was and it is almost incredible that the representatives of the Government who attended the Annual General Meeting did not ask for details of the "solution." Even more significantly, neither the representatives from the Department of Transport nor the Department of Finance raised any query on the fact that the company Report for 1979 showed that seven ships had been chartered-in adding a further 201,399 deadweight tons to the fleet of ships being operated. This was the first Annual Report since Celtic Bulk Carriers was formed in 1973 which showed chartered-in tonnage. It was at least strange that the dire warning given by the Chairman in his 1978 Report was not followed in the case of the chartering-in of ships by Celtic Bulk Carriers. Furthermore, the Departmental representatives failed to question the fact that the company's owned vessels, at a total deadweight of 159,467 tons, were already in excess of the strategic tonnage of 155,000 d.w.t. set out in the Second Programme for Economic Expansion in 1963. In such circumstances the Departmental representatives exhibited a lack of appreciation of their supervisory role on behalf of the State and were justifiably apportioned blame for the consequences of their inaction in the following four years. The Department of Transport requested and were supplied with forty copies of the Annual Report well in advance of the date of the Annual General Meeting. The fact that the huge imbalance between owned and chartered-in tonnage did not appear to raise the slightest concern would suggest that the forty Reports were not examined with the due diligence to be expected from the Departments of Transport and Finance. It was logical that the company was obliged to obtain the Government's authority for the purchase of ships. What was highly illogical was the apparently unlimited freedom for the company to charter-in tonnage which could and did involve financial commitments far in excess of the cost of building a ship. It is clear from the facts quoted that the Departments of Transport and Finance failed to protect the interests of the State as the only shareholder in Irish Shipping Limited and, by extension, the interests of Irish taxpayers and of the company's employees. Both Departments were, at best, negligent in allowing the company, through the Celtic Bulk Carriers partnership, to indulge in such irresponsible chartering-in of ships at a time of depressed freight rates. It is relevant to quote from a letter which was sent by the Secretary of the Department of Tourism and Transport to the Chairman of Irish Shipping Limited and dated 11th June, 1979. " I would ask you to ensure that, in accordance
with standing arrangements:- Obviously the Department considered it more important to ensure that the staffs of State companies were not overpaid at a cost of a few thousand pounds rather than to ensure that those companies did not incur financial commitments involving several millions in their business operations. As we have seen from the various quoted extracts taken from Annual Reports in the 1970s, it is clear that even a casual study of those Reports should have alerted those whose function it was to monitor the activities of Irish Shipping Limited. One must also question the composition of the Board of
Directors in 1979 to understand their apparent indifference to the magnitude
of the financial commitment involved in the chartering-in of so many
ships. When I raised this matter in a 1985 television interview which
was pre-recorded, the former Fianna Fail Minister for Transport, Albert
Reynolds, indignantly replied that all the Directors he appointed
were highly successful business men. Unfortunately, I did not have any opportunity to challenge
him on the various business enterprises in which those gentlemen were
engaged with such success. It was obvious that none had any direct experience
of the international tramp shipping market. " It is hardly surprising that the tramp shipping side of our activities is that which causes us most concern. It would not have been possible to maintain and operate a deep-sea fleet of at least 155,000 deadweight tons without cost to the taxpayer but for our diversified activities." Commencing in September, 1979, nine vessels were chartered-in for terms ranging from four to eight years at extremely high rates and these long-term charters were to prove ultimately disastrous both for Irish Shipping Limited and the Reardon Smith Line. The first of the nine ships, the Celtic Sky, was chartered on 20th September, 1979, at a rate of U.S.$6,700 per day for a term of eight years commencing in July, 1980. Five further ships were chartered in June, August, September, October and November, 1980 at daily rates of U.S.$8,000, $10,000, $10,000, $7,500 and $9,000 respectively. These were the Transocean Progress, Slaney Venture, Shannon Venture, Celtic Sea and Celtic Princess. The respective charter periods were five years, five years, eight years, eight years and four years. In January, May and July, 1981, three further ships were chartered at rates of U.S.$13,000, $8,000 and $10,000 respectively. The three vessels were the Celtic Yana, Celtic Venture and Celtic Light. The charters were for terms of eight years, five years and five years. The Transocean Progress was chartered up to September, 1985 and would have been the first of the chartered ships to be redelivered. The Slaney Venture and Celtic Venture were subsequently purchased by Irish Shipping Limited under renegotiated arrangements concluded in April, 1984. One of the surprising, if not extraordinary, features of the company's Annual Reports was the glaring inconsistency between the Chairman's Statement and the actual decisions taken by the Board and Management over the final ten years of the company's history. For example, in the 1975 Statement the Chairman says:- " Higher incomes are the modern siren song, luring nations to self-destruction. They are unreal because nationally they have not been earned." Yet the Report itself shows that the Directors' fees had
increased by 75% in the previous year although, of course, the fees
were still nominal in the context of such fees in both public and private
sector companies at that time. Apart from the number of ships being chartered-in by Celtic Bulk Carriers, the period for which the charters were entered into in each case and the high rates involved were such as should cause alarm to anyone with responsibility for protecting the company's and State's interests. It was not surprising that the Oireachtas Committee for State-Sponsored Bodies and the Official Liquidator of Irish Shipping Limited. should each find both Government Departments, Directors and Management of the company guilty of neglecting their duties in respect of the chartering-in activities of Celtic Bulk Carriers. In paragraph sixteen of its Report issued on 3rd April, 1985, the Oireachtas Joint Committee on Commercial State-Sponsored Bodies made the following observations regarding the formation of Celtic Bulk Carriers in 1973. The Joint Committee would have expected that, on disclosure of the 1973 Memorandum of Agreement between Irish Shipping and the Reardon Smith Line, the Department of Transport and Power would have - (a) sought the terms of the Agreement and provided for periodic reviews of it; and (b) satisfied itself with regard to the implications of the joint and several clauses incorporated in the agreement." In paragraph twenty-three the Joint Committee reports as follows:- " It indicts - (1) the Board of the company with failure to keep
itself informed of the chartering (2) the senior executives involved in the chartering
agreements with acting without (3) the Department of Transport and Power and the
Department of Finance with The most inexplicable feature of the chartering-in by Celtic Bulk Carriers was the absence of back-to-back charters for the hiring out of the vessels which the partnership had taken on charter. This meant that the partnership was engaging in a highly speculative strategy which would have been extremely risky even at a time of reasonable freight rates and with fewer vessels. In the context of the international tramp shipping market during the late 1970s and early 1980s, it was grossly irresponsible. It was also in practical contradiction of the cautionary sentiments expressed in the Chairman's Statement published in successive company Annual Reports during those same years. The 1980 Chairman's Statement referred to the international freight market as follows:- " Although there has been an improvement in freight rates, shipowners still have to contend with the problems arising from world-wide inflation, and in particular the ever increasing burden of fuel costs which have escalated further over the past year. Further improvement in freight rates will be needed before shipowners can achieve a break-even level on purely shipping activities." The 1981 Report contained the following comments by the Chairman:- " Our main activity, which is operating a fleet of deep-sea ships, was profitable in spite of the problems which had to be overcome in the year under review. This fleet consisted, at the 31st of March, 1981, of the six bulk carriers which we own and five vessels which we have chartered-in in conjunction with our partners in Celtic Bulk Carriers, Reardon Smith Line." Further on in his statement, the Chairman explained: "We have now completely repaid from our own
earnings, the capital cost of the Irish Pine, Irish Maple and Irish
Oak and the last instalment on the loan which financed the construction
of the Irish Larch will be paid in the next few days. The loans outstanding
on the other vessels will be discharged in the next few years. In 1982 the Chairman reported: " The deep-sea fleet operated by the company in conjunction with our partners in Celtic Bulk Carriers, Reardon Smith Line of Cardiff, consists of six bulk carriers which we own, augmented by a number of vessels which we have taken on long term charters to enable us to compete for contract business. The trading loss of this fleet was very heavy indeed amounting to £3.037 million. This was entirely due to the collapse of the tramp shipping market which commenced at the end of March, 1981 and continued inexorably for the rest of the year." As already stated, the maximum required tonnage for a strategic deep-sea fleet was 155,000 deadweight whereas eight ships totalling 232,690 tons deadweight were chartered-in in 1980 and added to the company's own fleet of six vessels, with a total tonnage of 159,467 deadweight, brought tonnage being operated to a grand total of 392,157 deadweight. In 1981 chartered-in tonnage amounted to 247,447 deadweight and in 1982 a total of 400,580 deadweight was chartered-in thus increasing the total operated tonnage to 554,275 deadweight or 3.6 times the required maximum strategic tonnage. The 1983 Annual Report shows eight chartered-in vessels with a total tonnage of 336,932 deadweight and three owned ships plus the Irish Spruce, then being built at Verolme Cork Dockyard. The company's owned fleet totalled 153,695 deadweight tons which was very slightly less than the strategic maximum tonnage. The 1984 Report incorporated the changes which had been
made as a result of the re-negotiation of the long-term charters with
the Hong Kong owners. These changes provided for the outright purchase
of the Slaney Venture and the Celtic Venture and these
two vessels increased the owned fleet to 246,411 deadweight tons. The
seven chartered ships had a total tonnage of 307,051 deadweight bringing
the overall tonnage being operated to 553,462 deadweight tons, again
about 3.6 times the mandated maximum strategic tonnage. These purchases
were obviously approved by the Government since the borrowings required
to finance them were guaranteed by the Government. |