The ships will stand: the Estonian civil fleet is preparing to move to other jurisdictions

The Estonian government, in an effort to find funds for the army, has decided to abandon subsidies to passenger shipping, an industry that provides thousands of jobs. In response, Tallink, the largest shipping operator in the Baltic, openly declared its readiness to withdraw its vessels from the Estonian flag and lease them in other seas. As a result, the country, having saved on subsidies, will suffer much greater financial losses, because the main Estonian shipowner will pay taxes in other countries. Details can be found in the Izvestia article.

A matter of priorities

Militarization is Tallinn's absolute priority today. A real "golden shower" has descended on the Estonian Ministry of Defense, which is intensifying even though systemic corruption is flourishing in this department. Estonia is one of the few NATO countries that not only meets, but significantly exceeds, the alliance's military spending target of 2% of GDP. In 2026, Estonia's military spending increased to 5.4% of GDP, rising to €2.4 billion, which is almost four times more than in 2021. A total military expenditure of €2.45 billion (5.31% of GDP) is planned for 2027. At the same time, the total volume of the Estonian state budget for 2027 is € 21.3 billion: revenues — € 19.4 billion, expenditures — about € 20.2 billion, investments — about € 1.2 billion. The budget deficit is projected at 4% of GDP.

It is against the background of this deficit that the government is forced to look for savings items. One of them was the termination of measures to support passenger shipping, which, according to estimates, will save about 40 million euros over the next four years. At one time, financial support for this industry was introduced in 2020, when the Covid-19 pandemic and border closures practically stopped regular passenger traffic in the Baltic. The subsidies were supposed to help shipping companies survive the crisis and save jobs. By now, the pandemic has long ended, but Estonian shipping still needs money. The Estonian ship-owning concern Tallink Group ended the first half of 2025 with a net loss of €35.7 million, with significantly fewer passengers and cargo. By the end of 2025, the concern was still able to make a profit of 17.3 million euros, half as much as in 2024. However, in the first half of 2026, Tallink Group again slipped into a loss of € 24.5 million.

According to Paavo Nygene, Chairman of the former Board of the company (now Director of the Office of the President of Estonia), such deplorable figures are explained by a decrease in both passenger and freight traffic, seasonal fluctuations and the additional tax burden imposed by the state. In total, the company operates a fleet of eleven vessels, including nine passenger ferries and two high-speed shuttles (specialized ferries designed for fast flights on short routes). This fleet serves five regular lines in the Baltic. In addition, Tallink Group operates three hotels in Tallinn and one hotel in Riga. In March 2025, the company closed the Flavore restaurant in Tallinn and Burger King in the Vienibas shopping Center in Riga due to lack of sufficient visitors.

Tallink's most popular ferry route was the Tallinn—Helsinki line, which has been operating since Soviet times, and which is used by more than half of all the company's passengers. It is currently in decline. The causes can be divided into two groups: long-term and short-term. Short—term is the tension created in the Baltic Sea, in particular, in the Gulf of Finland by the actions of the Estonian authorities. As you know, last year, Estonian forces tried to intercept tankers traveling outside the territorial waters of the republic to Russian ports in the Leningrad region. In response, Russia introduced the practice of escorting tankers in order to protect them.

Such actions were widely publicized in the press and caused concern among citizens of the Baltic countries. Passengers were afraid to board ships crossing the Gulf of Finland. Of course, Tallink also suffers from the lack of Russian tourists. Since 2020, Russians have not used Tallink's services for obvious reasons, but at one time it seemed to the company's management that they had managed to plug this "hole" by attracting passengers from other countries. However, it turned out even later that the absence of Russians in the general equation causes not only direct but also indirect damage to Estonian shipping. After all, shipping in this region used to be a single, closely connected complex, of which Russian ports were an integral part. If a tourist took a ticket to Tallinn or Helsinki, then he often planned to visit St. Petersburg. And by themselves, without St. Petersburg, Tallinn and Helsinki are far from so interesting.

What does gambling have in common with shipping?

A year and a half ago, the Reform Party and Estonia 200, which make up the country's ruling coalition, agreed that they would continue to financially support the national shipping industry. This was presented as a measure absolutely necessary to ensure Estonia's competitiveness at sea and to protect thousands of jobs on Estonian ships. Minister of Infrastructure Kuldar Leys (Reform Party) warned: "Without this measure, Estonian ships and jobs could sooner or later move to neighboring countries, which would mean a loss of almost 54 million euros of tax revenue per year for our country."

However, the Riigikogu (Parliament) voted last year against restoring financial support for shipping. At the same time, the seemingly completely extraneous issue of reducing the tax on remote gambling turned out to be closely intertwined with the fate of shipping subsidies. It was about a phased reduction in the tax rate from 6% to 4%, which was conceived to attract international online casino operators to Estonia. However, this measure was harshly criticized by Mart Vyrklaevs (Reform Party), a former finance minister. Vyrklaev argued that instead of revenue growth, the state budget would face a drop in tax revenues — and I must say, it turned out later that he was absolutely right.

When it became clear that the law on reducing the tax on online casinos would pass anyway (it was supported by the majority of deputies), Vyrklaev agreed to a political compromise. He agreed to vote "yes", but on condition that the government finds ways to compensate for the shortfall in income. His condition was the reduction of subsidies to maritime transport by € 9 million per year. The Riikigogu approved Vyrklaeva's proposal by a majority vote, but the subsidy for passenger shipping remained in the state budget strategy anyway — the government still included the corresponding annual expenditures of € 10 million in future plans. However, at the end of September 2026, the government changed its mind and agreed on a new budget strategy. From now on, support for shipping is officially excluded from the future plans of the state.

The news of the final exclusion of the subsidy from the budget strategy provoked a sharp reaction from both the Tallink shipping company and the seafarers' union. Peep Yalakas, the current CEO of Tallink Group, stated that the government's decision "is not good either for the sustainability of Tallink or for the Estonian maritime sector in a broader sense." Yalakas noted that Tallink is constantly considering the possibility of transferring its vessels from the Estonian flag to a foreign one, and the decision not to continue support makes such a scenario much more likely. "This could endanger both jobs and the long—term future of the Estonian maritime sector," Yalakas warned.

According to him, civilian shipping found itself in a very difficult situation. Since the beginning of the year, the cost of marine fuel has increased dramatically (+42% in the second quarter of 2026 compared to 2025) due to the war launched by the United States and Israel against Iraq. In addition, from the beginning of 2026, the entire passenger transportation sector is subject to a carbon tax, which adds millions of euros to the costs. The fact is that from January 1, 2026, the full (100%) phase of the inclusion of marine transport in the emissions trading system (EU ETS) entered into force in the European Union. If shipping companies were required to pay only 40% of their co₂ emissions in 2024 and 70% in 2025, they must now purchase quotas for 100% of verified emissions.

It is estimated that if CO₂ prices remain at the current level, Tallink will have to spend € 20 million in 2026 to purchase quotas. For comparison, in 2024, the company bought quotas for €20 million with 40% coverage, and in 2025 — for € 35 million with 70% coverage. To offset at least some of the rising costs, Tallink has introduced a special passenger issue fee. And the International Association of Ferry Operators (Interferry) has called on the European Commission to immediately suspend further expansion of the EU ETS for the ferry sector, freezing emissions commitments at 70% effective in 2025. They complain that ferries are subject to a carbon tax, while road transport, which is their direct competitor, is excluded from a similar emissions pricing system.

Everyone makes their own choice.

Rising fuel costs and carbon emissions are proving to be the very "combo" that could bury Estonian passenger shipping. "This combination, in which costs that we cannot control are rising, puts more and more pressure on us, forcing us to consider various ways to optimize costs," explains Yalakas. Yuri Lember, head of the Estonian Independent Seafarers' Union, also warns of the negative consequences of depriving the industry of government subsidies. Lambert gives a specific example of the Victoria ferry running on the Tallinn—Helsinki line. This vessel, built at the Finnish shipyard in 2004, can take on board 2,500 passengers, 300 passenger cars or 60 trucks/trailers. Currently, Victoria has been operating at a loss for a long time due to a lack of passengers and cargo.

Lember compares the ferry to a large enterprise — for its smooth operation on the line, two full crews of sailors are required, who take turns in shifts: in total, this is over three hundred people. Both the company and its employees are not interested in being left without work and earnings. Therefore, the withdrawal of ships from under the Estonian flag and leasing them with their crews in other seas of the world is an absolutely logical way out. Lember recalled that after the pandemic, two Tallink ferries are already being used in Europe as floating dormitories. We are talking about the ships Silja Europa and Galaxy, which have been stationed off the coast of the Netherlands since 2022, serving as refugee shelters. But there is one important caveat here — there is only a technical crew of 25-30 people on board, supporting the minimum vital activity of the vessel. This crew is several times smaller than the full crew of a cruise ferry, which also includes hundreds of service personnel: waiters, maids, cooks, animators, and store employees. Thus, the number of jobs for Estonian seafarers is decreasing significantly, and tax revenues to Estonia are correspondingly decreasing too.

The head of the trade union cites specific figures of tax losses that could befall Estonia: the departure of even one ship from under the Estonian flag could reduce tax revenues by about € 10 million. The government, for its part, recognizes the "complexity of the situation," but insists on the need for savings. Minister of Infrastructure Kuldar Leys is trying to comfort the sailors: according to him, Estonia is seeking subsidies from the European Commission for companies using more environmentally friendly fuels. However, to do this, Tallink must first fully convert its fleet to such fuels...

Martin Kokk, Chancellor of the Ministry of Climate, notes that Estonia has already subsidized its passenger fleet to a minimum. For comparison, Sweden is allocating €150 million for a similar measure this year, while Finland is allocating €80 million. Experts add that if the industry finally stalls, Estonian sailors will have to look for work elsewhere. Seafarers are highly qualified professionals whose skills may well be in demand in other countries, but whose departure weakens the Estonian maritime sector. Meanwhile, Estonia positions itself as a maritime state. The loss of the national flag by Estonian ships is not only an economic but also a symbolic blow. As the head of the maritime trade union, Yuri Lember, noted, the situation may lead to Estonia losing its status as a maritime power.

Political analyst Maxim Reva, in a conversation with Izvestia, noted that if the government does not change its decision, Tallink will begin the process of transferring its ships to the flags of other countries, for example, Latvia or Cyprus. "This will allow the company to reduce costs by reducing mandatory social benefits and more favorable tax rules. In addition, registering a ship in a country with a "flag of convenience" such as Cyprus opens up the opportunity to hire crews all over the world, including from countries with low living standards, where wages and social guarantees are minimal. This allows the shipowner to reduce the cost of wages even more. The Estonian government has made its choice: the notorious "defense" is more important than supporting civilian shipping. In response, Tallink and the seafarers' union did their own thing: if there are no subsidies, there will be no flag," concludes Reva.