CMA CGM faces windfall taxes to ease pressure on French public finances

Plans by the new French government to reduce the nation’s alarming budget deficit through public spending cuts and “temporary and exceptional” tax hikes, is set to have a direct impact on the transport sector with ocean shipping giant CMA CGM hardest-hit.

France needs to find some €60 billion to balance its books in 2025 and is looking to raise approximately €20 billion from an increase in taxation on large, profitable businesses and very wealthy individuals.

CMA CGM is set to incur windfall taxes estimated at several hundreds of millions of euros in 2025 and 2026 and CFO Ramon Fernandez has warned that this will have consequences for the Marseilles-based operator’s investment plans.

Quoted in the French media, he said that over the next two years some €800 million will not be available for investment in new LNG or methanol-powered ships as CMA CGM decarbonizes its fleet.

Competitive Disadvantage

The windfall taxes constituted “a form of competitive disadvantage”, compared with rivals who were taxed less, he underlined. “They (the taxes) have to be limited in time and in quantum otherwise we won't be able to make all our investments.”

CMA CGM enjoyed a meteoric rise in its profitability in the wake of the COVID-19 pandemic as ocean freight rates soared to a backdrop of supply chain chaos. It peaked in 2022 with a net profit of $24.9 billion, triggering a debate in France about whether a levy should be charged on corporate ‘superprofits’.

Ocean rates have normalised to a degree since and the group posted a profit of $1.4 billion in the first half of 2023.

While the windfall tax scheme targets France’s ocean shipping sector as a whole, only firms with an annual turnover in excess of €1 billion will be subject to it. CMA CGM is the sole operator in this category.

The windfall tax will be calculated on the basis of 9% of operating income in 2025 and of 5.5% in 2026.

It will be levied on ocean shipping activities exclusively and will not extend, for example, to CMA CGM’s logistics arm, Ceva Logistics.

The broader picture is that French shipping lines are hugely relieved that the new government has decided not to abolish the 'tax by tonnage’ fiscal scheme currently in place in the sector which allows operators to avoid paying corporation tax in the same way as other firms do. The scheme is subject to considerable variations from one year to the next due to fluctuations in global ocean freight rates.

CMA CGM president and CEO, Rodolphe Saade, whose family holds a majority stake in the group, has on several occasions highlighted the benefits of the ‘tax by tonnage’ scheme which in his view “enables companies based in Europe to compete with Asian companies who have a much more advantageous tax regime.”

He added: “If France were to decide to change this system today, CMA CGM would be at a major disadvantage.”

Air Sector Tax Hikes

The French government is also proposing to raise taxation in the air transport sector with a sizeable increase in a so-called ‘solidarity tax’ levied on air fares which last year contributed €450 million-€460 million to the State’s coffers.

Applied to all flights departing from France, regardless of the airline, the tax currently amounts to €7.50 for a Paris-New York flight in economy class and €63 for the same flight in business class.

“If this tax (hike) proposal was implemented, it would have a significant impact on the competitiveness of our companies -Air France, KLM and Transavia”, according to the French-Dutch airline group’s CEO Ben Smith. “Distortions of competition have never been so strong in France.”

Commenting on the prospect of French airlines facing a solidarity tax bill of around €1 billion from next year, Pascal de Izaguirre, president of industry body, FNAM and head of airline, Corsair, said: “It's unprecedented. The sector is already heavily taxed and this could further weaken French airlines which have been in decline for 20 years.”

Tax hikes aside, balancing France’s State budget primarily entails public spending cuts and there is speculation that a programme to invest €100 billion in rail transport up until 2040 and designed to reduce the country's carbon footprint, could hit the buffers.

Announced by the previous government in February 2023, a major element is the expansion and much-needed upgrading of the rail network.

Speaking at a rail industry conference earlier this month, France’s recently-appointed minister of Transport, François Durovray, explained that the €100 billion programme “remains the government's roadmap”, but warned that its implementation is “fragile” given the savings that need to be made in the State budget.

“We have a pressing need to determine sustainable financing methods that will protect all the country's infrastructures from government budgetary contingencies”, he said.

Durovray went on to call for the State's commitment to rail freight to be “sustained and even strengthened”.

Concerned that budgetary constraints could see the axe on public spending fall on rail transport, Jean-Pierre Farandou, the head of the French State railways, SNCF, parent of Geodis, has urged the government to make good a promise made by the minister of Transport of the previous administration to increase annual aid to rail freight’s single wagon segment by €30 million to €200 million. But will he be heard ?

Farandou also highlighted the need to prioritise the upkeep of France’s rail network, revealing that in 2024, SNCF is spending €1.7 billion on its maintenance. He went on to warn that from 2027, an extra €1.5 billion a year will be required for network maintenance.

Spending Cuts and Rail Investment

Meanwhile, it is unclear whether France’s public spending cuts will impinge on a major public investment programme, totalling €4 billion, in favour of rail freight which is due to be finalised later this year.

Named Ulysse Fret and running until 2032, it is seen as a key element in in an ambitious objective to double the sector’s modal share to around 18% by the early part of the next decade.

Of the €4 billion package, the French government has pledged €2 billion in State funding, with the remaining €2 billion to be sourced from French regional and local councils and the European Union.

The State budget for 2025 will be debated in the French Parliament in the coming weeks and is already the subject of a plethora of proposed amendments submitted by MPs from both pro-government political parties. But there is little room for manoeuvre given the perilous state of France’s public finances.