Singapore is widely recognized as an international shipping and financial hub, and its innovative shipping finance initiatives have significantly contributed to the clustering of the shipping industry. Its legal framework and experience offer valuable lessons for other global shipping centers. Maritime trusts represent Singapore’s innovative approach to securitizing trust assets within the framework of its Business Trusts Act, combining traditional common law commercial trusts with shipping operations—the world’s first maritime trust securitization product integrating shipping business with trust assets. Although maritime trusts are not currently a mainstream financing model, the securitization of business trusts remains highly relevant for shipping finance innovation worldwide.
Over the past 18 years, Singapore’s maritime trust development has successfully facilitated the securitization of commercial trusts in port and logistics infrastructure. By examining Singapore’s maritime trust model—its policy background, market performance, and legal framework—and evaluating its shortcomings in shipping financing and operations, this study aims to provide recommendations for improving the legal safeguards for shipping finance innovation, particularly in the context of Shanghai’s development as an international shipping center.
### The Capital-Intensive Nature of International Shipping
The international shipping industry is highly capital-intensive, making ship financing a perennial topic. Shipping finance, as an emerging concept and field, serves as a bridge between global shipping and financial hubs. Key factors supporting the growth of international shipping cities like Shanghai include maritime culture, natural endowments, economic hinterlands, and shipping finance innovation—the latter being a critical factor in the industry’s resilience through multiple shipping cycles.
As a quintessential open economy, Singapore has leveraged its strategic geographical location and robust financial infrastructure to lead in shipping finance innovation, establishing itself as a premier shipping financing hub in the Asia-Pacific region. Maritime trusts exemplify Singapore’s financial innovation under common law, applying traditional business trusts to ship financing through asset securitization. Trust mechanisms, with their advantages in asset management and disposition, have gained increasing recognition across jurisdictions. Modern trust systems have evolved beyond passive asset-holding tools to actively manage assets in commercial contexts.
For Singapore’s shipping finance sector, the past two decades have been a period of accelerated integration and financial innovation, with maritime trusts serving as a pioneering case study. This model demonstrates how common law trust securitization can merge with shipping operations, leveraging legal advantages and capital markets under government support. Singapore’s legal framework and policy incentives for maritime trust securitization offer valuable insights for other regions developing shipping finance models. To elevate Shanghai’s status as an international shipping center, it must meet the industry’s diverse financing needs, leverage local financial strengths, and explore distinctive shipping finance models with global influence.
### Theoretical Foundations of Legal Safeguards for Financial Innovation
A flexible legal environment under common law positively impacts financial clustering and innovation. Studies by La Porta et al. highlight that weak legal frameworks deter investors and capital. Coffee argues that common law judges can constrain insider behavior even without statutory provisions, ensuring fairness for external investors—a flexibility lacking in civil law systems. Even within common law jurisdictions, relaxed regulation explains the rise of offshore financial centers like Bermuda, which filled gaps left by rigid U.S. insurance oversight.
Huang Tao emphasizes deregulation as key to financial center development, with judicial systems serving as vital sources of financial rules. In common law regions, court rulings under precedent principles can shape universal financial regulations. Chinese scholars like Liu Fengming and Xu Donggen stress the primacy of legal environments in attracting investors and advancing financial hubs.
Shipping finance, a subset of international finance, thrives under flexible legal regimes. Unlike traditional finance, it operates within a maritime tradition governed largely by common law, where ship mortgage laws directly influence financing scale. Traditional bank loans remain shipowners’ primary funding source, with English law dominating due to protections like single-ship company structures shielding assets from unrelated claims (as affirmed in *The EVPOAGNIC* case). Offshore single-purpose vehicle financing faces limitations as banks prefer corporate structures without parental risk transfer.
State-led financial systems, like Singapore’s, can outpace organic economic development through deliberate design. Singapore’s maritime trusts—products of policy, law, and market demand—have carved a niche independent of U.K. and U.S. capital markets, showcasing a tested asset financing model.
### Singapore’s Shipping Policies and Financial Innovation Ecosystem
#### 1. Shipping Industry Foundations
As a global free port, Singapore boasts strong trade and transshipment capabilities. In 2019, shipping contributed 7% to GDP. By 2020, its ship registry ranked fifth globally (96M GT), while container throughput hit 36.87M TEUs (second worldwide). In services, Singapore led the *Xinhua-Baltic International Shipping Centre Development Index* for eight consecutive years, excelling in shipping brokerage and finance. Strict banking secrecy, favorable forex policies, and low taxes underpin its success.
#### 2. Shipping Promotion Policies
The Maritime and Port Authority (MPA) drives proactive policies. Since 1969, competitive tax incentives have attracted shipowners. During downturns (e.g., 2015–2016 offshore slump), MPA offered port fee rebates (e.g., $0.50/day for offshore vessels docked ≤180 days). Amid COVID-19, 50% port fee waivers were granted to short-stay cruise/ferry vessels. Wage subsidies under employment support schemes further bolstered service sectors.
Current policies target shipowners, finance, and services (see Table 1), cementing Singapore’s role in Asia-Pacific ship trading, finance, agency, and insurance. The Maritime Cluster Fund enhances local education and technical expertise.
#### 3. Legal Environment for Financial Innovation
As a common law jurisdiction, Singapore aligns with London’s shipping finance market to meet regional needs. Its business-friendly ecosystem—featuring professional regulation, livability, and 17% corporate tax (10% for offshore operations)—supports low-cost innovation. Approved marine insurers enjoy a 10% tax rate. Case law’s empirical rationalism fosters trial-and-error innovation.
Despite lacking a central bank, Singapore’s government actively shapes a relaxed yet controlled financial landscape. A robust base of shipowners, service providers, and financiers underpins demand and supply chains in shipping finance.
### Government Incentives and Maritime Trusts
#### 1. Development of Maritime Trusts
In 2006, then-PM Lee Hsien Loong launched the Maritime Finance Incentive Scheme (MFIS), offering tax exemptions for approved shipping investment vehicles. This spurred creative asset-finance hybrids to capitalize on low-tax benefits. The 2004 Business Trusts Act enabled ship asset securitization, paralleling Singapore’s rise as Asia’s largest REIT market (ex-Japan), with 44 REITs listed (S$116B market cap, 13% of SGX).
Three maritime trusts listed post-2006: Pacific Shipping Trust (PST), Rickmers Maritime Trust (RMT), and First Ship Lease Trust (FSLT). Industry cycles—e.g., Hanjin Shipping’s 2015 bankruptcy and post-2020 boom—saw PST and RMT delist by 2017, leaving FSLT as the sole survivor (see Table 2).
#### 2. Maritime Trusts vs. REITs
Maritime trusts are structured finance products. Registered business trusts can list like equities on SGX, though maritime trusts (unlike REITs) lack capital/loan limits. Table 4 contrasts their features.
### Legal Framework for Maritime Trust Securitization
#### 1. Codification of Business Trusts
Common law’s uncertain trust asset status complicates securitization. Singapore’s Trustee Act and Trust Companies Act govern trusts but lack clear boundaries between civil/commercial trusts, hindering risk isolation. The 2004 Business Trusts Act resolved this by allowing asset transfers to trustee-managers, who issue tradable trust units—enhancing liquidity and attracting yield-seeking investors.
#### 2. Independent Trustee-Managers
The Act mandates corporate trustee-managers (often sponsor-affiliated) to ensure asset segregation and operational independence. Strict governance rules prevent sponsor abuse, with equitable duties prioritizing beneficiary interests. Unlike REITs, maritime trusts require active management, facing operational and regulatory pressures (e.g., PST’s parent-subsidiary conflicts).
#### 3. Statutory Business Scope Limits
Securitization hinges on credit ratings. Singapore restricts trusts to single-business scopes to mitigate risk and boost credit. While effective for REITs (rental income), shipping’s cyclicality challenges maritime trusts’ charter-based models. PST and RMT’s struggles highlight inflexibility versus diversified shipping logistics firms.
#### 4. Tax Incentives and Policy Support
Tax perks underpin maritime trusts (e.g., FSLT’s German backers sought asset liquidity and tax savings akin to Germany’s KG model). Singapore’s Maritime Sector Incentive and Block Transfer Scheme attract registrations, though sustainability remains uncertain (cf. U.K. tax reforms shrinking its finance market).
### Lessons for Shanghai’s Shipping Center Ambitions
Shipping finance is pivotal to Shanghai’s soft infrastructure and service capabilities. As China’s economic/financial hub and transport nexus, Shanghai must build a modern shipping finance system to ascend globally. The Yangtze Economic Belt offers new opportunities, but legal safeguards are essential.
#### 1. Legal Environment for Innovation
While common law aids London/Singapore, civil law regions (Zurich, Tokyo, Frankfurt) also innovate. Shanghai can adapt Singapore’s state-led trust securitization and legal dynamism within local legislative bounds, empowering judicial reforms (e.g., expanding maritime courts’ jurisdiction
