Tonnage taxes keep government hands off box shipping’s profits bonanza
Carriers operating under tonnage tax regimes have benefited most from surging profits
Tax regimes based on tonnage can be expensive when there is little profit coming in. But in container shipping’s year of extraordinary profits, carriers using these incentive schemes have saved the most in tax
CONTAINER carriers operating under tonnage tax systems rather than pay tax on revenues benefited significantly from the surge in profits for box lines in 2021.
In a bad year, fixed tonnage taxes mean carriers may have to pay tax even when they have made losses. But in 2021, even with the staggering profits in the sector, little of this profit bonanza will make its way to government coffers by way of tax revenues.
An analysis of recently published annual results by Sea-Intelligence showed that fixed taxes based on the amount of tonnage operated had proved invaluable in a highly profitable year.
“If profits suddenly increase sharply — as they did in 2021 — tonnage tax conveys a competitive advantage to carriers who can avail themselves of the tonnage tax versus those who cannot,” said Sea-Intelligence chief executive Alan Murphy.
Tonnage taxes apply only to revenues derived from ocean transport, and not to carriers’ other activities, so a carrier with more revenue derived from inland logistics services will pay higher taxes than one focused more tightly on direct maritime services.
Nevertheless, a comparison of three companies operating under tonnage tax regimes — Maersk, CMA CGM and Hapag-Lloyd — with two that do not — Zim and Matson — indicates a significant advantage of the tax protection during periods of high profitability across the sector.
The three Europe-based container lines paid tax rates of between 0.7% and 3.7% for 2021. Zim, by comparison, paid 18%, while Matson paid 21%.
On a tax per teu shipped basis, both Zim and Matson saw large increases in 2021. But with their fixed cost taxes, the European carriers’ tax increase per teu was barely discernible.
But even within the carriers benefiting from tonnage tax, there were competitive advantages to be had, said Mr Murphy.
Maersk paid the highest level of tax per teu, while Hapag-Lloyd paid the least.
“This also matches the fact that the taxation rate as percentage of the pre-tax income is also highest for Maersk and lowest for Hapag-Lloyd, among these three carriers,” he said.
For 2021, this gave Maersk a tax disadvantage of $10.30 per teu. CMA CGM was “mainly neutral”, while Hapag-Lloyd had a tax advantage of $10.70 per teu.
“This means that compared to a situation where the three carriers had been taxed completely equally per teu, Maersk has a disadvantage of $269m in 2021, CMA CGM has a disadvantage of $10m, and Hapag-Lloyd has a tax advantage of $127m,” Mr Murphy said.
But the comparison with non-tonnage tax paying carriers was even starker.
“Very simplistically put, ZIM pays a price of $953m and Matson pays a price of $229m in in 2021, compared with a situation where their taxation per teu had been the same as for the big three tonnage-taxed carriers,” he said.
“The impact the different taxation rules have on the relative financial competitiveness of the carriers in 2021, is indeed highly visible. The financial environment in 2021, has resulted in the tonnage tax becoming a much larger competitive advantage amongst the carriers than we have ever seen before, and with 2022 poised to be as profitable as 2021, this advantage will persist for the coming year as well.”