Insights: Registries Unwrapped
Debunking the myths about international ship registries, choice of classification society and a raft of other variables.
Throughout the shipping world, ship registries, where a vessel is tied to laws of a particular nation, remain a subject of continual debate. As world trade has grown, registries have moved offshore, mirroring developments in the realm of the multinational corporations that have fueled the demand for shipping, and the movement of shipowners to financial centers away from their home countries.
The commercial advantages of offshore registries – less restrictive labor requirements and taxation regimes that favor non-resident businesses, to name just a couple – are well known.
In a trend started initially by traditional European shipowners and then supported by leading shipping nations creating offshore alternatives for ship registries, the number of open registries has flourished. These so-called “flags of convenience” also attract a fair amount of criticism related to perceived substandard conditions, less than competent crew and a general penchant for favoring the bottom line over an operation should be run in a safe and environmentally correct fashion. But those conditions, if they ever existed at all on a scale to cause great concern, have largely evaporated. A closer look at reliable data tells us why, and how.
Flags & Countries: Does one have anything to do with the other?
At the beginning of 2012, according to the United Nations Conference on Trade and Development’s (UNCTAD) “Review of Maritime Transport,” the global mix of vessels of 1,000 gross tons and above totaled nearly 47,000 vessels, with a cumulative deadweight of 1.5 billion tons. Panama topped the list of registries, with 6,739 vessels of 327.3 mdwt, followed by Liberia (2,996 / 189.8 mdwt), the Marshall Islands (1,833 / 122.8 mdwt), Hong Kong (1,761 / 116.8 mdwt) and Singapore (2,022 / 81.7 mdwt). Greece, a traditional maritime nation (859 vessels / 72.4 mdwt) and the Bahamas, an open registry (1,332 vessels / 69.1 mdwt) also boast sizable fleets.
The UNCTAD data also reveals, perhaps of more importance, the links between ship registries and the country of underlying ownership. The United States controls 2,055 deepsea vessels totaling 54.6 mdwt with 267 ships of 20.6 mdwt registered in the Marshall Islands – a flag with a legal backdrop patterned on U.S. Owners. Separately, UNCTAD’s report also shows that 46 percent of deadweight under the Panamanian register is linked to Japanese ownership. Likewise, the Liberian flag has strong connections with Germany and Greece, with these two nations together comprise more than 51% of deadweight under the Liberian flag. The data also links flags to vessel types and in this case the oil tanker market seems to be dominated by Liberia, Panama and the Marshall Islands. Table 1 depicts U.S. control of tonnage under various flags. Table 2 Depicts ownership control of tonnage in various major flags.
At one time, the open registries were easy targets for accusations of lax safety and other shortcomings. Decades of regulatory harmonization in conjunction with a strengthened role for the International Maritime Organization (IMO), have made such assertions largely a thing of the past. This combined with the oversight of the world’s major classification societies, plus close ties with major industrial and/or maritime nations have tightened maritime safety and compliance to arguably its best performance ever.
The choice of registry is somewhat subjective; these decisions reflect varying doses of tradition and economic practicality. Nevertheless, some are clearly better than others. The International Chamber of Shipping (ICS), a London-based body representing a large percentage of global shipowners, offers a “Flag State Performance Table.” The indicators, with a clear “use with care” disclaimer, come in the form of green (positive) and red (potentially negative) ratings in several major categories. The algorithm for coloring the boxes is derived from results of Port State Control (deficiencies and detentions), ratification of major maritime conventions, reliance on IACS (the major, recognized classification societies) for surveys, vessel age, STCW considerations and attendance at IMO meetings.
In ratings of more than 100 registries, Liberia, Greece, Japan and the Marshall Islands earn solid green rows on the ICS tables, along with a number of northern European flag states (and UK-linked offshore registries). The Paris MoU, a major Port State Control agreement, offers a “Ship Risk Profile Calculator” (also with a legal disclaimer); a list of important variables includes criteria of whether the flag appears on White (best), Grey or Black lists (worst), as well as whether the ship’s registry is audited by the IMO. The age of the ship also matters; one variable in the Calculator is whether the ship is more than 12 years old.
With a preponderance of older tonnage, and hence more detentions, the U.S. flag finds itself in the middle category – the Grey list, albeit near the cusp of the White List. The dubious distinction earns U.S. flag operators a measure of admonition from its own Coast Guard, enhanced scrutiny and more frequent inspections at foreign ports. It also underscores the reality that even a registry from a major industrialized country that espouses all the right metrics for ocean borne commerce can fall well short of what is considered to be satisfactory performance. The Marshall Islands Registry is an excellent case in point. William Gallagher, President of International Registries Inc., and providers of administrative and technical support to the Republic of the Marshall Islands (RMI) registry, told MarPro recently, “Those vessels operating under the RMI flag achieve the highest ratings in the port State control international rankings. The RMI is the only major open registry to be included on the White Lists of both the Paris and Tokyo Memorandums of Understanding (MoUs) and to hold Qualship 21 status with the United States Coast Guard (USCG) for nine consecutive years.”
More Numbers: Other Benchmarks …
Hard numbers on casualties can also be tied to particular flags. A recent effort to compare casualty statistics for various registries was presented in 2011 by Lloyds List Intelligence at a meeting of the International Maritime Statistics Forum (IMSF). The presentation, entitled “Marine Casualty Profiles,” looked at a field of 86,000 vessels (greater than 100 gross tons or nearly double the UNCTAD pool), and considered various dimensions of “serious casualties” and “total losses.” In noting the prevalence of casualties in the Eastern Mediterranean and Black Sea, the presentation suggests possible causes, including elderly age profile with vessels averaging 20+ years of age, and a relatively high percentage of dubious flag registries (Cambodia, Togo, Comoros, North Korea). In terms of absolute numbers of “serious casualties” incidents, Panama (to be fair – with the most vessels) dominated over a 5 year period. However, on a relative basis, the league is led by Canada, St. Kitts/Nevis, Antigua/Barbuda, and Bangladesh. The Big Three (Panama, Liberia, Marshall Islands) do not even appear on the chart. From this angle, the bigger registries are the safest.
Another dimension on “serious casualties” is the types of vessel likely to make the tables. Based on five years of averaged data, general cargo/unitized, dry bulk, passenger and then container ships were the most prone to “serious casualties”. Tankers were farther down the list. This type/ casualty link has implications when casualties are charted against the relevant Class societies; for example, Germanischer Lloyd and Lloyds Register (both with many smaller vessels maneuvering close to land) saw more casualties than the other Societies, including the top IACS members in tables contained in the IMSF presentation.
and Black Sea, the presentation suggests possible causes, including elderly age profile with vessels averaging 20+ years of age, and a relatively high percentage of dubious flag registries (Cambodia, Togo, Comoros, North Korea). In terms of absolute numbers of “serious casualties” incidents, Panama (to be fair – with the most vessels) dominated over a 5 year period. However, on a relative basis, the league is led by such flags as Canada, St. Kitts/ Nevis, Antigua/ Barbuda, and Bangladesh. The Big Three (Panama, Liberia, Marshall Islands) do not even appear on the chart. From this angle, the bigger registries are the safest.
Another dimension on “serious casualties” is the types of vessel likely to make the tables. Based on five years of averaged data, general cargo/unitized, dry bulk, passenger and then container ships were the most prone to “serious casualties”. Tankers were farther down the list. This type/casualty link has implications when casualties are charted against the relevant Class societies; for example, Germanischer Lloyd and Lloyds Register (both with many smaller vessels maneuvering close to land) saw more casualties than the other Societies, including the top IACS members in tables contained in the IMSF presentation.
There are natural connections between ship types and classification societies. Energy trades are evolving. Liquified gas carriers, for example, comprise about 45% of UNCTAD’s “Other” category. Anecdotal evidence suggests the importance of registry specialization in attracting and servicing tonnage. The Marshall Islands, for example, has brought an LNG/LPG specialist onboard, reflecting the growing importance of gas transportation, but also the very specific technical expertise required for assuring the regulatory and technical compliance of these complex vessels. The registry handles seven of 13 ships in the Golar LNG (GLNG) fleet, and is set to flag 11 additional newbuilds on order (for delivery in 2013- 2015) from Korean yards.
Finally, the reputation of ships’ registries can also find its way into the charter of vessels. In one example, the exhibits in the March, 2010 initial public offering prospectus of Scorpio Tankers (SBNA) (a company with extensive charters with oil majors and highly demanding traders), includes a “Shelltime 4” time charter. Clause 33 of this agreement, a redacted version of a five year charter of a vessel ultimately put out on charter to Glencore (GLCNF), shows the importance of the ship registry and class society: “For the duration of the charter party period the Owners will register the vessel into the Marshall Islands Registry and fly its flag. The vessel was built and is classed under ABS and the Owners intend to maintain this classification during the period of the Charter Party. Owners have the option to change classification within the IACS group for important reasons only.”
Minutia: Don’t get lost in the Weeds
Maritime statistics are full of minutia and it’s easy to get lost in them. Likewise, discussions of maritime policy and vessel flagging tend to degenerate into posturing, politics and dogma which engender a different type of confusion. At a very high level, it is abundantly clear that the most demanding movers of cargo in the oil and energy businesses trust annual cargo movements in the billions of tons of commodities to “flags of convenience.” Bottom line: the days of “rust buckets” are long gone. Today’s tankers and other vessels tasked with dangerous cargoes and tasks, are mainly flagged in offshore registers, where they provide critical and trusted links in the energy supply chain.
(As published in the 2Q edition of Maritime Professional - www.maritimeprofessional.com)