International Journal

on Marine Navigation

and Safety of Sea Transportation

Volume 6

Number 2

June 2012

287

1 INTRODUCTION

Latvia is a maritime nation due the local maritime

resources like ports, seafarers etc. However, there is

a lack of awareness in the community about devel-

opment prospects of Latvia’s maritime sector. Does

Latvia need maritime resources? This is a frequently

asked question made by in the public opinion. There

seems to be a lack of information about maritime re-

sources and their contribution to country’s economy.

There is no updated study on the importance of Lat-

vian maritime resources and their contribution for

Latvian economy at present and how valuable for

Latvian economy they can be in the future.

Looking to present situation, the current maritime

knowledge infrastructure is not supported by a de-

liberate policy to strengthen the stakeholders within

this sector of the Latvian economy. It is merely

based on legal principles, most of them to accom-

modate the standards set by the International Mari-

time Organisation (e.g. STCW) and translate to

country specific rules and regulations. Having an ef-

fective policy requires much more as the policy is a

way to influence business, living and social climate

with the aim to push the economy in the right direc-

tion. Up until now, the Latvian government has been

steerless in this respect. If governments do not know

what is the game played on the high seas, it is diffi-

cult to manoeuver your own little boat through safe

havens...

This article will explore the economic value of

seafarers for the Latvian economy thereby striving to

create awareness and initiate an action plan to de-

velop a coherent maritime policy to support sustain-

able development of the maritime cluster and com-

panies within.

2 LATVIAN MARITIME CLUSTER IN

CONTEXT OF M. PORTER’S CLUSTER

THEORY

2.1 The cluster concept

The cluster concept tries to put into the frame a

business environment and considers the possibilities

of the development. Therefore it can be concluded

that cluster itself is an environment. Regarding the

Porters definition for a cluster it does not put strict

margins on a cluster as such and it is based on em-

pirical studies from different industries.

M. Porter (1998) stated that: “Clusters are geo-

graphical concentrations of interconnected compa-

nies, specialised suppliers, service providers, firms

in related industries and associated institutions (for

example, universities, standards agencies, and trade

associations) in particular field that compete but also

cooperate.” Actually there still is going an on-going

debate on what constitutes a cluster, both among ac-

ademics and among policymakers, and there are a

multiple perceptions of the kinds or the categories of

Development of the Latvian Maritime Policy; A

Maritime Cluster Approach

R. Gailitis

Latvian Maritime Administration, Riga, Latvia

M. Jansen

Netherlands Maritime University, Rotterdam, Netherlands

ABSTRACT: Latvia is a maritime nation although most of its inhabitants are unaware of the importance of

maritime activities to the economy. For policy makers and also for stakeholders of the maritime clusters it is

important to understand which factors contribute for the sustainable development of the companies in the

cluster. Therefore the aim of this paper is to analyse the economical value, which gives the possibility to as-

sess the importance of maritime resources for country. On the basis of this analysis, the authors conclude an

integrated approach should be applied which is based on knowledge about the economical importance of the

maritime sectors, their economical links and their strategic tradeoffs for future development.

288

the clusters (Andersson, Schwaag Serger, Sörvik,

Hansson 2004). However, as most important factors

for determination and investigation of cluster can be

mentioned geographical concentration, critical mass

of companies, multiple actors and active business

channels between stakeholders which involve coop-

eration and competition.

2.2 Cluster concept in perspective of the Latvian

maritime cluster

The Latvian maritime cluster is not defined in any

official policy document. With regard to the pres-

ence of the maritime cluster it can be seen that the

building stones for the maritime cluster within the

business environment of Latvia exist. There are

numbers of companies active in different maritime

business sectors located in Latvia. The European

Cluster observatory distinguished a number of sec-

tors, which together make up the maritime cluster.

All of these maritime sectors are represented in Lat-

via.

Figure 3: Latvian maritime cluster according to the methodolo-

gy of European cluster observatory

However, the links between those maritime sec-

tors are weak and the maritime cluster is deemed to

be underdeveloped. Some of the sectors are more

developed than others. Shipping, seaports, shipbuild-

ing and maritime services can be considered as be-

ing the most observable sectors in the Latvian mari-

time cluster.

3 MAIN MARITIME SECTORS IN LATVIA AT

A GLANCE

3.1 Shipbuilding sector

Shipbuilding in Latvia is represented by four enter-

prises predominantly active in the ship repair sector

(additionally there are some small enterprises, large-

ly associated with in house servicing of fishing or

small river vessels). As the shipbuilding is active in

ship repair activities there are weak economical links

between shipping and shipbuilding sectors as the

Latvian ship owners are not purchasing their ships at

Latvian shipyards.

3.2 The port sector

There are 3 big and 7 small ports. Approximately

70% of all cargoes going through Latvian ports are

transit cargoes. Due to the cargo flows through Bal-

tic area and related business which directly focuses

on those cargo flows, like road transport, rail

transport, shipping agencies, ferry services from

Latvian ports, freight forwarding etc. it can be as-

sumed that the ports’ role in logistic cluster is im-

portant. However, as the logistic cluster is almost

independent of the rest of the maritime cluster it is

difficult to define the real value of the ports in the

logistic cluster and induced effects on rest of the

maritime cluster.

3.3 Merchant shipping

The merchant shipping sector can be characterized

with a number of small shipping companies. Ac-

cording the data from Equasis and Sea Web (Lloyd

List data base) there are located around 30 shipping

companies which operate fleet of about 150 ships

with total GT 1,408,243. However, only about 40

ships are owned by national ship owners. The rest of

the ships are owned by foreign owners, which has

located their shipping companies in Latvia. Latvian

Shipping Company which owns around 21 ships can

be considered as the main player. With regard to the

available data the size of national fleet during last 18

years has considerably decreased (see table 1).

Table 1 Number of ships owned by national ship owners

__________________________________________________

Year 1992 2000 2010

__________________________________________________

Number of owned ships

by Latvian shipowners* 110 80 40

Number of owned ships

by LSC 89 60 21

__________________________________________________

* Estimated number of ships considering the number of com-

panies owned by national owners

The national seafarers can be considered as the

other part of merchant shipping sector. There are

around 13,000 seafarers of whom around 12,000 are

289

active at the merchant fleet. However the number of

the seafarers during last 6 years has decreased (see

table 2).

Table 2 Changes of the number of the number of Latvian sea-

farers working on merchant vessels (2005-2011)

__________________________________________________

01.01.2005 01.01.2011 Difference

__________________________________________________

Ratings 8500 6616 -22%

Officers 5734 5691 -1%

Total 14234 12307 -14%

Deck officers 2383 2541 7%

Engine officer 2541 2625 3%

Non conventional

officers 679 552 -19%

__________________________________________________

The main decrease has been on account on the

number of ratings. According the data from Latvian

Seamen Registry the decrease of ratings has been

22% in comparison with number of ratings in 2005.

The decrease of ratings is linked with increased

competition with ratings from Asia and economical

growth of Latvian economy during (2004 -2007)

when part of rating switched to work ashore in con-

struction companies. The decrease of officers during

this period is not so considerable and is linked with

decrease of number of non conventional engine of-

ficers like electrical engineers and gas engineers.

The decrease of non conventional engine officers is

linked with lack of maritime education programs for

them. However recently the maritime education pro-

gram for electrical engineers has been re-established

and the first graduates joined pool in 2010. The im-

pact of this programme on number of non conven-

tional engineers will have effect in closest year.

The positive aspect is that number of conventional

officers both deck and engine has been increased

during this period.

3.4 Maritime services

There is a wide range of maritime service businesses

in Latvia. The maritime services can be separated in

to the two groups – services which focus on shipping

sector with core subject of business “ship” like

shipbroking, maritime law, maritime insurance, and

services which focus on shipping sector with core

subject of business “seafarers” like maritime educa-

tion and training, crewing agencies etc. The first

group of services with focus on ship is not devel-

oped as the shipping sector itself in Latvia is not de-

veloped.

Due to the weak home demand from Latvian

shipping companies for those services the services

are not internationally competitive.

The other part of the maritime services with focus

on “seafarers” can be considered as well developed.

All services which seafarer would need are availa-

ble. As an example there are established around 50

crewing agencies and 8 training centres, which are

considerable numbers for such a small country as

Latvia is. The crewing agencies not only provide re-

cruit Latvian seafarers but also recruit seafarers from

Belorussia, Ukraine, Russia therefore adding value

for Latvian maritime cluster.

4 ECONOMICAL VALUE OF SEAFARERS

Economical value gives possibility to assess the im-

portance of maritime resource for the country.

Figure 4: Economical value of the seafarers

According the authors’ analysis, the pools of sea-

farer positively contribute to Gross National product

of Latvia and other economical processes in country

due to money which they spend in Latvian economy.

The total contribution to Gross National product is

around 1.3 percent in 2010. Comparing with average

employee in Latvia ship’s officer earn around 4.5

times more than average employee in Latvia while

average rating earn only 1.3 time more than average

employee. This lead to conclusion that officers are

much more valuable for Latvian economy, even they

are less in number than ratings.

Regarding the considerable number of the seafar-

er resources it can be seen that the subcluster is for-

matted around them. The seafarers cluster included

crewing companies, maritime education centres,

nongovernmental associations, training centres and

other stakeholders who benefit from presence of

large pool of seafarers.

290

Figure 5: The seafarers cluster in Latvia

Considering the present economical value of the

national seafarers it can be concluded that they are

an important driver for Latvian economy especially

during the time of economical recession of national

economy as they are bringing money from foreign

shipowners and spend their earnings in Latvian

economy.

5 LINKS BETWEEN MARITIME SECTORS IN

LATVIA

Demand and supply links, the so-called factor condi-

tions according the Porter’s Diamond model inter-

link the maritime sectors within a cluster. So for the

maritime cluster it is important to have those de-

mands/supply links between the players of the mari-

time cluster as the growth in one sector will induce

the growth in other sectors as well. Considering the

general maritime cluster, the shipping and related

industries like (navy, cruise shipping, fishing) are

main demand generators in the rest of maritime sec-

tors. However, nowadays shipping are looseing its

links with the other maritime sectors on their home

market due to the globalisation. Shipowners operate

their ships far away from their home country and are

free to order their services in any country as long as

it is cheap and convenient.

Figure 6: Demand supply relationships in maritime cluster

(general model)

Also the Latvian maritime cluster is not an excep-

tion to this rule of thumb, considering the most ob-

servable sectors it can be seen that ports depend on

the local transit cargo flows, but the shipping sector

is not attached to these cargo flows. Therefore it

leads to the situation that the two most important

sectors in Latvian maritime cluster have different in-

terests and weak links. Due to lack of critical mass

in shipping sector the links between ports and ship-

ping sector is limited. The port sector and related

sectors are almost independent from shipping sector

and other maritime sectors. The shipbuilding also is

not linked with shipping sector as the shipbuilding

focuses on ship repair activities and Latvian ship-

owners cannot order their ships through Latvian

shipyards.

6 CONCLUSIONS

Latvia is a maritime nation as it can be derived from

the local maritime resources like ports, seafarers and

related business activities. However, there is a lack

of awareness in the community about development

prospects of Latvia’s maritime sector. This article

provides an updated overview of the maritime sec-

tors and placed these economical activities in a con-

ceptual framework based on the Porter’s cluster the-

ory. Most important elements of a well-developed

cluster are: geographical concentration, critical mass

of companies, multiple actors and active business

channels between stakeholders who are in coopera-

tion and competition with each other. This article

explores the economical value of Latvian seafarers

in order to assess their contribution to the Latvian

economy, thereby striving to provide awareness and

sense of urgency for future development of the mari-

time cluster in Latvia.

Latvian maritime cluster is lacking some key el-

ements like critical mass in shipping sector, ship-

building sector and maritime equipment sector,

therefore the links and cooperation between those

sectors are weak.

291

One of the problems for the maritime cluster de-

velopment is lack of the successfully performing

maritime policy. This factor impedes the process of

the development of maritime cluster. There also is

no shared vision, mission, goals and strategy among

the stakeholders of Latvian maritime cluster. The

cluster mindset is not developed in maritime com-

munity and therefore it is important to understand

what is cluster and which factors can contribute for

successful cluster development.

In line with Porter’s cluster theory, there is a task

of the government to set a policy which aims to cre-

ate an environment where companies can build criti-

cal mass to create inner dynamics for the maritime

cluster development. This would increase the eco-

nomical value of cluster and increase the backflow

for government. The other aim for strengthening

maritime cluster is to establish policy measures

which would help to interlink them in a better way.

As the policy as paper is living document it should

be subject of periodical review to diminish risk for

policy to become outdated and for nation to lag be-

hind other nations.

At the first stage the maritime policy should be

written down explicitly. As the maritime cluster is a

complex business environment, an integrated ap-

proach should be applied based on knowledge about

the economical importance of the maritime sectors

and their economical links.

6.1 Factors which should be integrated in maritime

policy

6.1.1 Focus strategy

The focus strategy of the Latvian maritime cluster

probably can be Short sea shipping in Baltic/Nordic

region or transit cargoes towards Russia, but this

does not imply that other areas in maritime cluster

do not get attention in the new policy. Important ac-

tivity of Latvian maritime cluster is supply of sea-

farers for EU shipowners therefore Latvian maritime

cluster can be linked to EU market as a new broader

home market which would help to develop home

demand conditions (according model of Porter) in

the Latvian maritime cluster;

6.1.2 Stimulation

The maritime policy should focus on the stimula-

tion of the “home demand condition” which would

influence the factor conditions. The stimulation of

the “home demand” is essential as the main problem

of the Latvia maritime cluster is lack of critical mass

of the companies. The home demand conditions can

be stimulated by making available capital through a

finance system like KG ship finance structure in

Germany and by linking home demand to other EU

countries, which requires the cooperation between

countries at international level.

6.1.3 Attractiveness of the Latvian maritime cluster

It is recommended to develop Latvian maritime

resources to stimulate local maritime business and

attract foreign users to use those resources through

benefits for companies and seafarers stimulating

economic activity of the maritime cluster.

6.1.4 Communication and cooperation

It is recommended to set up maritime cluster or-

ganisation which would provide an environment for

communication and cooperation between policy-

makers and the rest of the stakeholders.

6.1.5 Support for innovation and education

Although the role of innovations has not been

topic of this research, is obvious that support for in-

novations and maritime education is essential. The

innovations can help in creation of the special factor

conditions which would serve as unique competitive

advantages. Therefore it is recommended to set up

innovation policy to support creation of the research

and development centre. The support for maritime

education is essential as the maritime knowledge is

inherited and embedded in the maritime education of

the country. The available maritime knowledge can

provide maritime cluster with the unique competi-

tive advantages and serve for sustainable develop-

ment.

6.2 Further research

Further research is required to gain more knowledge

and information about the economical importance of

the different maritime sectors. Due to the limitations

of this article, only the economical importance of

Latvian seafarers has been assessed. The same quan-

tification needs to be done for other maritime sec-

tors.

A second part of such research should focus on

the economical value of the links between the mari-

time sectors, i.e. what is the purchase value of one

sector to the other and what is the import and export

value of maritime services from Latvian based mari-

time companies. This should help to comprehend

how the development policy of maritime cluster can

be set to achieve the proposed aims.

Based on the economical value of the maritime

cluster as a whole and the understanding both the

linkages, governments should work out its policy in-

struments in line and in close cooperation with busi-

ness strategies of companies acting in the cluster.

Authors put strong emphasis on the sustainability of

the maritime policy. The effects of these policy in-

struments should be subject to a longitudinal moni-

toring survey, measuring the economical value, sup-

292

ply and demand on maritime employment and edu-

cation and innovation in the forthcoming years.

REFERENCES

Gailitis, R. 2010. Development of the Latvian maritime policy;

Maritime cluster approach, Master thesis. Rotterdam:

Netherlands Maritime University

Andersson, T. & Schwaag Serger, S. & Sörvik, J. & Hansson,

E.W. 2004. Cluster Policies White Book; Proc. of the 6th

Global Conference of The Competitiveness Institute (TCI),

Gothenburg, Sweden, 17-19 September 2003. Malmo:

International Organisation for Knowledge Economy and

Enterprise Development

Porter, M.E. 1998. On Competition. Boston: Harvard Business

School Press