Sea change.

On a foggy morning in the port of Felixstowe, a 400-metre cargo-vessel glides into its berth– it is an integral ligament of the British economy. 95% of the nation’s trade, from bananas to pharmaceuticals, arrives by sea.

The ship’s legal contract was written under English law, insured through Lloyd’s of London, and chartered by a major broker in the City. But the ship itself flies the flag of Panama, it was built in China, is owned by a Greek firm and crewed mostly by Filipinos. For half a century this division of labour represented a triumph of global market efficiency.

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The resulting dominance of Britain’s service specialisation is stark. The shipping industry contributed £16.1bn to the economy in 2023. The sector's total economic footprint is £46.2bn, sustaining some 728,000 jobs.

London’s markets command over a third of global maritime insurance premiums and settled an overwhelming 83% of all international maritime arbitrations in 2019.

Once-ubiquitous, the Red-Ensign has now almost vanished. The number of British seafarers has collapsed by almost 60% since 1980, down to just 23,700 today. On vessels operated by the UK Chamber of Shipping, only 11% of crew are British nationals.

The UK-flagged trading fleet, which accounted for a tenth of global tonnage in 1975, now makes up a mere 0.4%.

The specialisation was deliberate. From 1979, rising economic currents promoted comparative advantage: it is simply inefficient for a high-wage economy to build ships. Like deindustrialisation elsewhere, to remain competitive Britain would specialise in high-value services like law and finance and employ hardware as needed. The end of the Cold War only reinforced the logic, seemingly evaporating any strategic need for a large merchant fleet.

But those assumptions are now being undermined. The Covid-19 pandemic showed the fragility of sea-borne logistics as the Drewry World Container Index, a benchmark for freight rates, soared by over 600% in late 2021. The return of great-power competition has turned economic dependency into a strategic risk as China, through its strategic industrial policy, now dominates the physical maritime sector, building half of global shipping tonnage in 2024. Chinese state-controlled firms have a presence in at least 91 ports worldwide, handling 12.6% of global container throughput.

Acknowledging the risks in a recent report for NATO British and American maritime unions warned of the "alarming decline" in member fleets.

Margaret Thatcher initiated a free-market revolution, but could only win the Falklands war by requisitioning 54 civilian ships to transport troops 8,000 miles to the South Atlantic. Replicating such an operation today would likely be impossible without requisition-able British ships and sailors.

The OECD forecasts the global “blue economy” could double in value to $3trn by 2030, yet Britain is failing to fully capitalise. A significant portion of the specialist vessels used to construct the UK's world-leading offshore wind farms are foreign-owned and crewed. With British content for these projects languishing at 48%, below a 60% government aspiration, the country is effectively offshoring the industrial benefits of its own net-zero transition, eliminating a key growth advantage.

A protectionist retreat is neither possible nor desirable; the maritime-services hub is far too valuable to jeopardise. But a strategic rebalancing of the nation’s maritime economy may be in order.

Proposals include reforming the tonnage-tax regime, linking its benefits not just to training of cadets but to the employment of British seafarers; Using the government's £206m UK SHORE fund to invest in the domestic construction of the high-value vessels needed for offshore-wind and aquaculture; And strengthening UK content requirements for offshore projects. For the still-great maritime nation it will take deft captaining to find both fair wind and following seas. ■

This article was written as part of an application to The Economist.

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