Liberian Registry President Asks Owners to Look at All Costs in Addition to Flag State Price
Scott Bergeron of the Liberian Registry emphasizes that investing in a flag state with a caliber record will reduce likelihood of shipowner costs in the long term and addresses issues the maritime registry community faces today.
Scott Bergeron, Chief Operating Officer for the Liberian Registry, has recently spoken to shipowners about the importance of examining all costs when choosing a flag state. Mr. Bergeron, who spoke at the International Chamber of Shipping Conference this month and wrote the following editorial piece emphasizes that investing in a flag state with a caliber record will reduce likelihood of costs in the long term. In his op-ed he addresses many of the issues the maritime registry community faces today.
How does your flag state measure up?
There are a wide range of factors other than cost that must be considered when evaluating a flag state’s performance
Why is it that the global ocean shipping industry so often has to address its questionable reputation? Responsibility for this could be vested to varying degrees with every sector of the industry. But there can be no doubt that flag state performance must bear much of the blame.
If flag states had effectively regulated the shipping industry, class societies, International Transport Workers’ Federation campaigns, Port State Control regimes and vetting/charterer inspection programmes would not exist as they do today. Yet, because even this is not enough, there are countless unilateral and regional legislative efforts vying to exert further controls on the operation of oceangoing ships.
As an industry, are we are using the right measurements to assess flag state performance, and have we identified the relevant stakeholders? Do pressures on owners and operators to reduce expenses or to obtain commercial advantage ever conflict with regulatory oversight? Of course they do. The key point is, how will the flag state respond?
What about the other stakeholders? Financiers need to be able to rely on an established regulatory system to protect their interests. A basic necessity is the security of a bank lien. Most European and North American banks simply do not trust their mortgages with certain jurisdictions and therefore reject a number of flags where financing is involved. A flag’s financial statutes have to be tested, internationally.
Insurance underwriters need a competent assessment of the condition of the vessel, but there seems to be a general reluctance by underwriters to voice strong opinions about flag state performance. There is very little dialogue between flags and underwriters.
The proliferation of shipyards has made regulation more difficult. Standard-shopping is prevalent and quite often shipowners are forced to make decisions in the name of price about the likes of construction features and class and flag. In Japan, any flag other than Panama is an opportunity for the shipyard to open price negotiations.
Port authorities and the governments of coastal states generally act in the public’s best interests, but there is an undeniable motivation by politicians to simply be seen to be doing something, however ill-advised. The failur0e of the flag state is a large contributor to unilateral legislation and increasing regulatory oversight.
Criminal prosecutors have a growing vested interest in the regulation of shipping. Accidents that were traditionally civil matters are now prosecuted as personal crimes. Is it possible for a flag state to intervene and exert its sovereignty? The answer should surely be ‘Yes’.
The various vetting systems that exist in shipping today each look at the condition and operation of ships from the commercial perspective of the charterer. Again, failure of the flag state is a major contributor to the development of the vetting process.
Despite the contrived and mostly paradoxical nature of the ITF’s so-called Flags of Convenience Campaign, the universally agreeable element of labour’s efforts is to ensure the well-being and fair treatment of seafarers. The International Labour Organisation Maritime Labour Convention is a welcome and long-overdue solution to certain failures of certain flag states.
Classification societies are operating in an ever more hostile environment. The strengths and capabilities of class societies have led many flag states to delegate statutory functions to them, thereby achieving a significant amount of efficiency and cost-effectiveness for everybody. But, rather than delegating, too many flag states abdicate responsibility.
So far as the government of the flag state is concerned, we have to ask whether the maritime administration is sufficiently empowered, and properly funded and staffed, and whether the legislature is supporting it with regular updates to legislation, or alternatively whether it is a legacy bureaucracy that is mostly ignored until there is a crisis.
There is a wide range of factors to be considered when measuring flag state performance. Price is just one of them, but it is one that invariably gives rise to misunderstanding. The cost of a flag state is typically less than one-half of one percent of the vessel’s operating expenses. As with any market-based system, there is a price-competitive factor and there is also the matter of taxation. But when choosing a flag, too many shipowners look at the ‘price’ rather than the cost.
What is the cost, for example, of one day of detention; of a non-responsive maritime administration; of repatriating stowaways; of accidents or claims caused by crew in-competence; or of an act of piracy? What expenses can be saved if the flag state is forward-thinking, actively involved, always available and regularly examining initiatives to reduce operational expenses?
Ultimately, we have to ask whether owners really want to comply with international regulations. Some frequent requests from owners include side-stepping construction standards, reducing crewing levels, ignoring ownership/genuine link issues, reducing and simplifying inspections and surveys, ignoring trade sanctions, compromising treaty obligations, providing clean air exemptions or fleet reduction pooling, and denying co-operation with accident investigations
A responsible flag state should actively seek to achieve compliance with both domestic and internationally adopted regulations. There are undoubtedly a number of flag states that need to improve their performance. There needs to be greater emphasis on truly effective measurement points, mandatory participation in the International Maritime Organization’s ‘Voluntary’ Member State Audit, and an attitude of continuous improvement.
Related: The Maritime Executive
