Developments and key players in international shipping policies

1
Developments and key players in international
shipping policies

• Tr815 International shipping
• Associate professor Harald M. Hjelle
• Partly based on lecture notes by
• Lars Almklov (NR) and Bjørn Pedersen (DNV)
• May 4, 2004

2
Lecture outline

• International shipping policies
• The key challenge Regulating a globalised
  industry
• International regulations and agreements
• International co-operation
• Key players
• Ship-owners
• Port states
• Flag states
• Classification societies

3
The development of a globalised shipping industry

• Shipping has evolved from being an international
  industry to the first truly global industry
• Before 1920s National industries in an
  international market
• After WW2 Mobile means of production, open
  registries and market liberalisation
• Gradually globalization of technologies, capital
  and labour
• 1970/80s Shipping the first globalised industry

4
Open registries A key necessary condition for a
globalised industry

• Characteristics of open registries
• No nationality requirements on crewing
• No/low tax business environment
• Liberal company legislation
• Many without national shipowners
• E.g. Panama, Liberia, Bahamas ...
• Creating a global capital and labour market in
  shipping
• Facilitating the development of a globalised
  industry

5
Illustration of a globalised industry

• Ship designed in Norway
• Built in South Korea
• Owned by a Norwegian listed company, Norwegian
  and foreign shareholders
• Flying a Panamanian flag
• Managed by a Norwegian owned company situated in
  Malaysia
• Trading in a liner service between the US and
  South America in co-operation with a Japanese
  shipping company
• Manned by Norwegian officers and Filipino crew
• Classed by DNV
• Insured with a London based insurance company

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National regulations not sufficient

• National or regional regulations may be both
  ineffective and inefficient
• May be evaded
• Different national regulations cause
  inefficiencies and competitive distortions
• Global standards necessary to avoid a race to
  the bottom
• A globalised industry requires global regulations

7
Regulatory framework and institutions

• Market access
• WTO (1995)
• National
• UNCTAD/OECD
• Safety and environment
• IMO (1948)
• Working conditions and social standards
• ILO (1919)
• Competition policy
• National / Regional (EU)
• UNCTAD / OECD

8
Market access

• International maritime transport is a liberalised
  sector compared to other service sectors
• Bulk trades
• Almost no restrictions to market access
• A very competitive spot market
• Liner trades
• Few bilateral cargo restrictions left
• Still reservations regarding
• Government procurement
• Strategic cargo
• Cabotage (now fully liberalised in the EU)

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The US case of shipping protectionism

• The Jones Act
• Coastal trade by US owned, manned, built,
  managed, registered vessels
• Government cargoes reserved for US flag
• Alaskan oil reserved for US flag

10
Organization for Economic Co-operation and
Development (OECD)

• Established in 1961
• 30 member countries
• Maritime Transport Committee
• Promotion of liberal shipping policies
• Promotion of quality shipping
• Competition policy
• Shipbuilding

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United Nations Conference on Trade and
Development (UNCTAD)

• First meeting in 1964
• Shipping committee
• Commercial and shipping aspects
• Confrontations between traditional shipping
  interests (Group B) and developing countries
  (Group of 77 / D)
• UNCTAD Liner code 40/40/20-rule
• Shipping committe dissolved in 1992

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World Trade Organization (WTO)

• Predecessor
• GATT 1948-1994
• WTO established in 1995
• 147 member countries
• Secretariat in Geneva
• General Agreement on Trade in Services (GATS) is
  relevant to shipping

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WTO principles

• Trade without discrimination
• Most Favoured Nation (MFN) principle
• Countries cannot normally discriminate between
  their trade partners
• Freer trade Gradually through rounds of
  negotiations
• Predictability Transparancy
• Trade rules should be clear and public

14
International Labour Organization (ILO)

• Established in 1919, UN 1946
• Secretariat in Geneva
• General conference once a year
• Conventions on work conditions and labour
  standards
• Maritime Conference every 10 years
• Adopted 32 maritime conventions and 25
  recommendations (minimum wage)

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International Maritime Organization (IMO)

• Established in 1948
• Secretariat in London
• 163 member states
• Mission Safer shipping and cleaner oceans
• Establishes minimum standards for ship
• construction, and
• operation

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How the IMO works

• Proposal is assigned to a committee or a
  sub-committe
• Adopted by a special conference
• Conventions typically enter into force on
  ratification by 15 countries representing at
  least 50 of world tonnage
• Lengthy process to adopt, amend and ratify
  conventions. Some may be amended by simplified
  procedures
• Conflict between states with strong environmental
  safety concerns and developing/open registry
  states

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Major conventions on environmentMARPOL 1973/78

• Regulation to minimise risk of accidental
  pollution phasing out of single hull tankers
• Regulates operational discharge of oil, chemical
  substances, sewage and garbage
• Regulates emissions to air (Annex VI 1997)
• not yet in force
• SOx, NOx, Ozon depleting substances

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Major conventions on environmentLiability and
compensation

• Civil Liability Convention (CLC)
• Strict liability for oil pollution
• Shipowners obliged to maintain insurance
• FUND- convention (IOPC)
• Importers of oil contribute to a fund
• Copensation if CLC insufficient
• Total compensation limit USD 260 mill.
• Limit may be increased
• Hazardous and Noxious Substances (HNS-convention)
• Adopted 1996, not yet in force

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Conventions on environmentSome remaining
challenges

• Discharge of ballast water
• Ban TBT in anti fouling paint
• Ratify MARPOL Annex VI Air emissions
• Regulate CO2-emissions
• More ambitious SOx regulations (fuel quality)

20
Major safety conventionsSOLAS 1974

• Specific minimum standards on construction,
  equipment and operation of ships
• Flag state certification prescribed
• Requirements on surveying
• Changing focus from technical requirement to the
  human factor.
• 8 of 10 accidents caused by human error
• Triggered ISM-code and STCW-Convention 95

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Major safety conventionsISM

• International Safety Management (ISM) code
• Originally only passenger ships and tankers, from
  2002 also cargo ships and drilling units
• Requires a safety management system to be
  established by the ship operator
• ensuring compliance with all regulations and best
  practices
• incident reporting and analysis
• setting goals, principles and functions for a
  continous improvement process
• Designated person responsible for the safety of
  the ship
• Triggered by Piracy in S.E. Asia, USS Cole, Sep
  11

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Major safety conventionsSTCW

• Standards on Training and Certification and
  Watchkeeping (STCW) convention
• Requirements for seafarers qualification and
  certification
• Requirements for maritime education and training
  institutions
• All seafarers must be trained in compliance with
  the new standards (Feb 2002)

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Regional vs. Global regulationsThe case of doble
hulling

• Exxon Valdez grounding in Alaska, 1989
• Oil spill of 37 000 tons crude oil
• Triggered the US Oil Pollution Act (OPA 90)
• Double hull requirement for new oil tankers
• Phasing out existing single hull tankers by 2015
• MARPOL Annex I amendments
• Erika, France 1999
• EU pressure for accelerated phasing out of single
  hull tankers
• MARPOL Annex I amended April 2001
• Prestige, November 2002
• Unilateral EU-regulation (Regulation (EC) No
  417/2002)
• (Cat 1 2007, Cat 2 and 3 2015)
• MARPOL Annex I amended December 2003 (Cat 1
  2005, Cat 2 and 3 2005-2010)

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Conventions on marine securityThe aftermath of
September 11

• Focus on ships as targets and means of terrorism
• IMO instrument for ship and port security adopted
  in December 2002
• SOLAS Chapter XI-2 New international ship and
  port facility security code (ISPS)
• In force July 2004
• Process in ILO for seafarers identification
• US Container security (World Customs Organisation
  Taskforce on Security)
• Focus on transparancy of ownership

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The challenge of enforcement

• To be sustainable global standards must
• Meet the legitimate requirements of
• Shippers
• Shipowners
• Environmental interests
• Consumer interests
• The general public
• Be credibly enforced by
• Flag states
• Port states
• Classification societies

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The role of the flag states (UNCLOS)

• Specified in the United Nations Convention on the
  Law of the Sea (UNCLOS)
• Right to set conditions for granting
  registration, including
• Administrative
• Technical, and
• Social policy matters
• Obligation to ensure that a vessel meets all
  relevant conditions
• Responsible for enforcing agreed safety
  regulations through national maritime law

Major flag states 2001 Source ISL Bremen Major flag states 2001 Source ISL Bremen
Panama 21,7
Liberia 9,8
Malta 5,8
Bahamas 5,8
Greece 5,6
Cyprus 4,6
Singapore 4,2
Norway 4,1
China 2,9
Japan 2,4
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Flag states ability to enforce regulations

• Some flag states seem to have problems enforcing
  regulations
• Lack of capability or will?
• This has triggered increased port state control

Paris MoU detentions in 2001 Paris MoU detentions in 2001
Sao Tome and Principe 46,15
Albania 45,71
Lebanon 35,16
Georgia 34,21
Tonga 33,33

Panama 10,33
Malta 9,48
.
World average 9,1
Norway 3,9
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Port state controlThe regime

• Ports (states) where ships are calling may board
  ships and
• check status of certification
• do physical inspections
• verify that ships comply with international
  conventions
• In case of serious deficiencies, ships may be
  detained until rectification has been carried out
• Detentions may be extremely costly to the
  shipowner

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Port state controlExamples of co-operation

• Co-operation between port states in enforcing
  international standards
• Paris MoU, 1982
• Tokyo MoU, 1993
• Latin America, 1992
• Co-operating on
• Exchanging ship information
• Check lists
• Targeting criteria
• Increased transparancy in Europe through the
  Equasis database

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More about Equasis

• Part of EU Quality Shipping Campaign (1997)
• Aim Promoting quality and safety in marine
  transport
• Main focus
• Transparancy with respect to the quality of ships
  and their operators
• Reducing substandard shipping
• Should cover the whole world fleet

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Example of Equasis output Rocknes
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Classification societiesThe origin

• Major societies established by marine insurers in
  the 18th and 19th century
• Background
• Increase in international trade
• Shipowners needed insurance to reduce their
  financial risk
• Insurers needed someone to
• establish safety standards, and
• verify compliance with standards

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Classification societiesFurther developments

• Insurance companies require a valid
  classification
• Now, the services of the classification societies
  are demanded also by flag states, port states,
  shipowners, financial institutions etc.
• The classification is made according to minimum
  standards according to the relevant class (ship
  type, equipment, trading area)

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Types of Marine Insurance

• Hull and Machinery (HM)
• To cover damages to the ship
• Protection and Indemnity (PI)
• To cover damages caused by the ship on
• the environment
• persons
• cargo
• Cargo insurance
• For the cargo owner

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Classification societiesRules and standards

• Rules developed to define standards related to
• Seaworthiness for intended trading area
• Focus on safety for crew, vessel and cargo
• Strength and stability
• Quality assurance of additional equipment
• Development of rules
• A continous process
• Feedback from surveys
• RD programs
• New technologies require new rules

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The classification processNewbuildings

• Assessment/approval of design documentation
• Inspection and certification of materials,
  machinery components etc.
• Supervision during construction and testing
• Class is specified in the contract between
  builder and owner. Class client to builder.
• The classification certificate is issued upon
  delivery

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The classification processShips in operation

• Annual, intermediate and 5-year renewal survey to
  verify that standards are maintained
• Scope of surveys increases with age of ship
• Contractual relationship is now between shipowner
  and class
• Repairs/conversions etc. are subject to survey
  and approval

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Flag states and classification

• Most flag states are authorising classification
  societies to carry out inspections and issue
  certificates on their behalf
• Statutory Classification
• IMO has issued a resolution with guidelines for
  such recognition
• EU has issued an EU Directive with additional
  requirements

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Other functions covered by Classification
Societies

• Assistance to Flag States in their participation
  in the work of IMO
• Advisory services in selected fields (not to
  present any conflict of interest)
• Certification according to ISO9000 and ISO14001
• Training of personnel

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Classification societies Port State detention
ratios by Class
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Other international shipping organisations

• INTERTANKO Independent tanker owners
• ITERCARGO Bulk shipowners
• OCIMF Oil companies maritime forum
• ICS Shipowners national organisations
• SIGTTO Gas shipowners and gas technical
  operators
• IACS Ship classification societies
• UMI Marine hull and machinery insurers
• PI Int. PI clubs

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International Association of Classification
Societies (IACS)

• 10 members fulfilling membership criteria
• Classing 95 of world fleet tonnage
• Quality system certification of members
• Code of ethics
• Promoting improvements of standards of safety
• Participating in the work of IMO
• Maintaining close connection with the worlds
  maritime industries
• Secretariat in London (www.iacs.org.uk)

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The 10 IACS members

• LR Lloyds Register (UK)
• DNV Det Norske Veritas (Norway)
• ABS American Bureau of Shipping (USA)
• GL Germanisher Lloyd (Germany)
• PRS - Polski Rejerstr Statkow (Poland)
• BV Burau Veritas (France)
• RINA - Registro Italiano Navale (Italy)
• KR Korean Register of Shipping (Korea)
• CCS China Classification Society (China)
• NK Nippon Kaiji Kyokai (Japan)

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Class Societies market share
DNV
BV
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Accidents and Causes

• All accidents have multiple causes
• The chain of events leading to accidents include
  the human element
• Accidents are the symptoms
• The basic cause
• Lack of control (inadequate management)

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DNV Loss/causation model

• Management
• Control
• Inadequate
• Policy
• Systems
• Compliance with the system

• Basic
• Causes
• Organisational factors
• Human
• Process
• Hardware

• Immediate
• Causes
• Substandard
• Acts
• Conditions

• Quality
• Events
• Undesired
• Defects
• Deviations
• Non-Conform-ities

• Loss of
• Quality
• Product
• Reputation
• Customer
• Oppor-tunities

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DNV Loss/causation modelActions
Management Control
Basic Causes
Immediate Causes
Quality Events
Loss of Quality
Present Situation
Desired Situation
Control Actions
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World fleet casualty history
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Annual total losses
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The ultimate aim of quality/safety management A
quality/safety culture
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The maritime safety regime summing up

• Flag state
• Provide and implement maritime safety regulations
• Class
• Enforcement through classification and
  certification
• Shipowner
• Ensure implemented standards being maintained
• Port state
• Verify implementation and enforcement

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The present safety situationSome observations

• Demands for higher safety
• Increasing political pressure
• Increasing volume and scope of regulations
• Disaster triggered regulations
• More regional solutions? Why?
• No lack of regulations but lack of compliance?

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Lack of compliance? Paris MoU and Tokyo MoU
statistics
Source OECD