Ship Registries: Flags step up support for regulation concerns

Ship owners undoubtedly have their ‘lie awake at night worrying’ lists.  Right now, the list includes the IMO sulphur cap and reducing GHG emissions further ahead, digitalisation, cybersecurity, piracy, relentless regulation and, of course, the generally tough state of the market.

What do they expect of their ship registers in the form of help, advice and support?

“Despite certain signs of industry improvements, shipping is still seeing very difficult market conditions,” said Alfonso Castillero, COO of the Liberian International Ship & Corporate Registry (LISCR), the US-based manager of the Liberian Registry.

“To help ship owners navigate these conditions, flag states must live up to their commitments in a proactive manner. Liberia firmly believes that it is the responsibility of the flag state to help owners through this changing time in shipping, and to assist with reducing the cost of regulatory compliance. As a result, the Liberian Registry has introduced a range of technological improvements, streamlined systems, and cost-saving initiatives to reduce a variety of operational expenses. Liberia is constantly investing in innovative technologies that save shipowners time, effort, and – most importantly – result in savings in costs.”

It stands to reason that a well-performing flag that supports its ship owners should expect to do well. Some things, however, are beyond a flag’s control. For the UK Ship Register, that thing surely is Brexit. The UKSR team have likely had a few sleepless nights as the UK flag has haemorrhaged tonnage this year.

At the start of 2019, the UK-flagged fleet amounted to a total 16.5m gt. By the end of April, it had fallen to 10.9m gt.

“The fleet has gone down substantially,” said Brian Johnson, CEO of the Maritime and Coastguard Agency (MCA). “Over the past couple of months we have had a significant number of exits from the register – all of them EU exit-related.”

These, he says, were either on the back of the high and continued levels of uncertainty caused by Brexit, or because the finance covenants of the ships involved required them to be registered with an EU flag.

“We have been very careful to test whether there are service issues or other issues around the flag as people have been unflagging. It simply isn’t the case. It is purely around the EU exit.”

Early on, when it became clear things were going to get tough with Brexit on the horizon, the MCA/UKSR embarked on a business plan for post-EU exit to get a clearer idea of the future, said Mr Johnson.

The result has been a decision to expand the flag’s traditional eligibility limits, widening the ownership criteria beyond the UK and Europe to include Commonwealth countries and another 20 countries, bringing it in line with other Red Ensign Group flags.

The new list of countries includes Brazil, China, Japan, Liberia, the Marshall Islands, Panama and the UAE, amongst others. However, Mr Johnson emphasised, this move does not make the UKSR an open register. “We are an international register and this gives us quite a big pool of countries – and we are very keen to get our offer around the flag much clearer. We provide a really well-regarded technical service at the MCA and I really want our high level of technical expertise to be much clearer to those looking at the UK flag.

“The UKSR is part of the MCA, which really hosts the IMO in London and there is a real closeness of shipping and the flag to global and national policymaking.”

The past two years have seen a transformation at the UKSR, he said. “We weren’t always as responsive to customers as we needed to be on the survey side and we are now in quite a different position, getting high levels of customer satisfaction.”

Having stationed a surveyor permanently in Singapore, the register is now looking at installing surveying capacity in other key locations, and it is also using class more, he says.

Another change has been to give ship owners flexibility regarding bareboat charter-out, so that ships can temporarily reflag for the period of a charterparty, before returning to the UK flag at the end of that agreement.

Mr Johnson said decisions had to be made to crack on with things such as the wider eligibility despite the continuing Brexit uncertainty. It would be better to have complete clarity as to where the UKSR sits from the EU perspective, he said: “The challenge is that it is not clear even when we will have that clarity.”

However, he believes the Brexit-related exodus from the flag has largely run its course. “Ships have been exiting because of political and financial considerations that are out of our control. But we are looking to build a long-term pipeline with ships coming into the register, and there is a compelling offer form the UK flag. It is access to really world-class technical capability within the broader MCA, and access to international and national policymaking. I am not sure we have made enough of this offer in the past.”

Low-sulphur fuel is the big topic of the moment – not just the practical aspects but also how the regulation is actually going to play out, said Mr Johnson. However, he said, while people are tied up with low-sulphur fuel now, this will seem ‘almost easy’ compared to what comes next. “The emissions targets are just huge and we anticipate that will be dominating conversation over the next few years.”

Other key topics include the modernisation of seafarer training and skills, an increasing emphasis on digitalisation, and the move towards automation.

“We have automation increasing exponentially and we have to (a) be able to regulate it and also (b) train seafarers in a relevant way. In both of these areas the MCA is already ahead of most of the world in terms of regulation.”

The Isle of Man Ship Registry, also part of the Red Ensign Group, has a new Director following the retirement of Dick Welsh.

Cameron Mitchell, who was previously Deputy Director of the registry for 16 months, says that he shares the philosophy of his predecessor: “We don’t want ships for ships’ sake or tonnage for tonnage’s sake. We want to grow our register at a pace that suits us, that still attracts quality ships and shipowners, and that will never change for us.”

The Isle of Man-flagged fleet peaked at 18m gt last year, and stood at 17.2m gt at the beginning of May – this was due to normal ship transactions and older tonnage being moved on, said Mr Mitchell.

Despite the UK link, the registry is not affected by Brexit: “Most of the companies that are with us are here because we are an international flag,” he said. “We don’t get small tonnage trading around Europe for perceived cabotage implications and we have no sign in our statistics that we have lost anything due to Brexit. In fact, we have new ships coming on every month.”

There have been suggestions – over the years – that the REG flags should merge but Mr Mitchell is clear on this. “Politically that simply would not be acceptable for us. We have our own government and our own regulations. The registry is really here to serve the island. We are the nucleus for maritime activity on the Isle of Man and if we can grow, then we can grow crewing, insurance and other associated maritime services. We do have an excellent maritime cluster and our aim is to maintain and grow that, providing people with work and allowing the flag to be cost-neutral.”

Having said that, there has been more marketing, in a combined way, by REG members – around the product and what it stands for, he said. “The big thing we talked about at the REG conference was how we can move forward, based on our high safety, excellent casualty investigation and MAIB training. We do a lot of things well and a lot of things well together – but we do still need our own individuality.”

He paid tribute to Dick Welsh: “He has done an amazing amount of work in establishing and maintaining relationships and getting owners to come to us and perhaps dip their toe in the water with one ship at first. We have steadily grown our tonnage over the years; in 1995 the registry had 135 ships of not significant tonnage and 24 years later we are 14th in the world by gross tonnage.”

Beyond the pressing issues of low-sulphur fuel and alternative fuel sources, Mr Mitchell autonomous shipping will be one of the next big things. “Not necessarily getting to autonomous ships yet but when you look at the level of investment in autonomous systems, it will happen.”

Meanwhile digitalisation is a big topic from the flag’s point of view. “In February we started issuing only digital/electronic certificates, including registration, survey and seafarer certificates – we don’t issue paper ones any more. That seems to have gone down well with clients. We want to streamline our processes and put our time in the right place.”

The register is already trialling electronic engine room log books on Isle of man flagged ships and oil and garbage record books will follow.

“Electronic log books will be discussed by the Marine Environment Protection Committee (MEPC) again this year; hopefully we will get a final direction on their use.”

Marketing activity continues for the registry, which has had a business development manager in Singapore for a while and has now appointed similar managers in Greece and Japan. “We are going to push quite hard in these two areas,” said Mr Mitchell.

Liberia also highlights ‘solid high-tech initiatives’ – Alfonso Castillero says these ensure that its clients are ahead of trends, not behind.

“As shipping moves rapidly into the data era with electronic record-keeping and data exchange, leading flag administrations must increase their capacity to provide this information in a real-time, transparent, and convenient way to their fleet,” he said. “Most flags are not investing in this important technology; however, the Liberian Registry has and continues to do so.”

As part of these data sharing initiatives, the Liberian Registry has launched significant updates to its WayPoint client portal, which will now include all statutory certificates issued by Class/Recognized Organisations (RO), he said. “Now, all vessel and certificate information collected from Class/RO in the data exchange programme is connected electronically to the Liberian Registry’s Detention Prevention Programme, free of charge. Further, with all vessel information conveniently aggregated on one platform, the system will support the collection and reporting of data in accordance with both IMO Data Collection System (DCS) and EU Monitoring, Reporting and Verification (MRV).”

This data exchange further enhances Liberia’s Detention Prevention Programme by ensuring vessel compliance prior to port arrival, as all certification and class notations will be located in a centralised system,” said Mr Castillero. “Costly detentions and delays are prevented by centralising or synchronising vessel-specific information electronically prior to vessel entry on Port State Control. As our inspectors go onboard the vessel, they will be better prepared as they will have a complete background of the vessel and can help the crew to minimise the time of inspections.”

The issue of low-sulphur fuel is also occupying minds at LISCR.

Liberia has submitted a paper to the IMO Marine Environment Protection Committee (MEPC) calling for early reporting on the availability of fuel oil that is compliant with the new 0.5 per cent global fuel oil sulphur limit well in advance of 1st January 2020, the date when the limit enters into force. “Early reporting of these fuels would help shipowners and operators meet their responsibilities, gain experience on the carriage and use of the new fuels on their ships and test implementation plans, to assist in the smooth and effective transition to the new regulatory requirements,” said Mr Castilero.

“The industry waits months for the IMO to discuss and determine how to practically implement conventions; meanwhile, owners, charterers and operators are carrying the economic weight of this uncertainty. Liberia would like to see more guidance and uniformity among the industry as how to meet this mandate together.  Technical, practical and economic aspects must continuously be considered to meet these long-reaching changes within the maritime industry.”

Among other developments, Liberia and China have renewed a reciprocal agreement to develop friendly relations between the two governments in the field of maritime transport. The five-year renewal of this agreement will further strengthen cooperation in the shipping, maritime, port and transport infrastructure sectors, as well in the training and education of seafarers, says the registry.

The Liberian Agreement on Maritime Transport allows Liberian flagged vessels to receive a preferential 28 per cent discount on all port tonnages dues in China. The registry says this can translate to a reduction of approximately $100,000 in port fees, which has an effective net increase in time charter equivalent of $1,000 per day based on a 100-day voyage.

The maritime transport agreement also enabled the Liberian Registry to enter into more than ten strategic cooperation agreements with shipyards and ship design companies in China, as well as the establishment of a technical cooperation committee in areas such as Port State Control, crew training and future maritime regulatory policy.

“All these agreements give Liberia a clear advantage over those flag states which do not have diplomatic relations with the People’s Republic of China and which do not qualify for any discount on port dues in the PRC. Moreover, the recent maritime law amendments introduced by Liberia which allow a financing charter to be recorded as a mortgage are likely to further strengthen the high level of mutually beneficial cooperation which exists between Liberia and its Chinese partners.”

The sulphur cap remains the number one topic for shipowners, according to the Marshall Islands Ship Registry. “Certainly there are still some uncertainties with regard to the sulphur cap,” said Nick Makar, Regulatory Affairs Advisor at International Registries, Inc. (IRI), which manages the register.

“But ship owners are also looking forward to other aspects of air emissions – the consequent steps after the global sulphur cap.”

The sulphur cap itself is ‘no small thing’, said Bill Gallagher, IRI President, and ballast water management regulation was no small thing before that.

“The owners’ wish is this; if we have regulation, make sure it is smart and well thought-out, and that the science is there. Owners feel besieged and beleaguered with all the regulation they have to contend with – it is one thing after the other. All the owner is looking for is not a breather, but certain clarity. That is what our IMO delegation focuses on – trying to keeping things real at regulatory level.”

That, said Mr Gallagher, is a very important role. “Obviously we do our duty as a flag state but also we want to see well thought-out, smart regulation that actually takes into account the operational realities of shipping.”

The Marshall Islands registry jostles with Liberia for second place (behind Panama) in the ‘league table’ of flags. At the end of April, the fleet stood at a total 4,560 vessels of 166.3m gt.

“We move between two and three on the world list, and there is no doubt that Liberia and us are neck and neck”, said Mr Gallagher, although he said the real story is that there are now three big registries in the world, not just two. “The Marshall Islands over the past two decades has been consistently the fastest growing registry,” he said.

This year the register celebrated Qualship 21 recognition for the 15th year running. “That is unprecedented and we are very proud of it,” he said. “We committed a lot to this. We have several offices in ports in the US and that makes a difference. It is literally all about working with the US Coast Guard and having the resources to handle issues as they come up. We do take our role as flag state very seriously and we see Port State Control almost as partners now.”

Qualship 21 is particularly important for tankers and LNG vessels, helping with the strict vetting required by charterers, says the registry. “An owner told me Qualship 21 was very important and that they see it as a distinguishing factor for them with charterers,” said COO John Ramage.

And while the Marshall Islands works closely with PSC, it isn’t afraid to appeal where it sees fit. “Obviously we have good owners and sometimes a ship gets detained not because it is a bad ship but because a piece of equipment is not functioning. That sometimes causes a bit of an issue with us – so to deal with that, we have an appeals team that identifies if they think it is valuable or possible to appeal the detention. Port State Control’s whole function is to stop substandard ships going to sea and depending on a piece of equipment a ship can be ‘substandard’ but we have to closely identify what it is that has cause the detention – and if we can appeal it successfully, we will.”

Another aspect of helping the shipowner avoid detentions is sending advance warnings to operators and seafarers before they reach a specific PSC area or port.

Qualship 21 success is based on the registry’s good vetting and inspection system, says IRI – yes, the registry wants growth, ‘but we want to have good ships with good owners’.

And again, digitalisation is a big focus. “We issue all our registration certificates electronically and we have a programme now for expanding that out into other certificates,” said Mr Ramage. “We have had online application for seafarers’ licences for quite a number of years and are launching a new system in the next few months. At some point we would issue electronic licences as well but a lot is dependent on what Port State Control accepts, as well. We don’t want to go fully electronic and find a ship is detained because Port State Control is not happy.”

The Palau International Ship Registry (PISR) is supporting ship owners during a difficult period with both innovative pricing and a set of unique services that continue to build on its reputation as the world’s fastest growing ship registry, said CEO Panos Kirnidis.

PISR is leading the drive to for the industry to embrace digital operations, he says: “In an age where technology is the driving force of most businesses, there is a need to bring the shipping world out of the paper era and into one of combining digital operations with a human element.

“The ship owners I talk to tell me they need strong support from a registry and at Palau we have created a registry that combines the human element with the latest in technology. We see this as a vital component of our service provision – the ability to support using digital services but with the added bonus of having real people who understand the shipping world communicating with ship owners and operators.”

PISR’s Deficiency Prevention System (DPS), introduced three years ago, provides support to ensure vessels’ compliance with international conventions and prevent deficiencies and detentions. A dedicated department within PISR monitors previous inspection findings along with the location and destination of Palau flagged vessels. With further integration and development of technology in mind, PISR gives ship owners access to ePISR, allowing for the monitoring at any time of the status of the vessel’s open and previously imposed reported deficiencies. PISR says that it is currently the only registry in the Paris MOU without detentions for five consecutive months (from 10th November, 2018), although its fleet trading there is constantly growing.

Meanwhile, PISR is responding to tough financial times by offering discounts and advantageous terms for many ship and yacht owners. “Our fleet is growing and we have currently more than 400 active ships served by 39 deputy registrars in 24 countries with full operational and commercial authority to serve the needs of the local markets they operate in when Palau flagged vessels arrive at their ports. To complement our ship registry services, we have 105 flag state inspectors in 43 countries to cover all the technical needs of Palau registered ships,” said Mr Kirnidis.

With the approach of the IMO’s sulphur cap in 2020, there is a great deal of concern in the shipping world and most of that is centred not on the availability of the new bunkering but mainly on the increasing costs of compliance, he noted. “We have strong relationships with the IMO and working partnerships with classification societies and these should always be used to help ship owners. I believe strongly in these sorts of working partnerships because the industry, as a whole, needs a unified voice and set of regulations to operate profitably and responsibly.

The International Shipping Register of Madeira (MAR) fleet totalled 510 vessels of 14.9m gt at the end of 2018. Of these, roughly half were containerships and three-fifths were German owned.

The trend has mainly been the transfer of non-EU flagged vessels into MAR, mostly by German owners but also from other European ship owners,” said Nuno Teixeira, Senior Manager at MAR.

“Between 2012 and 2018, the register grew from 147 to 510 vessels, a significant and steady growth which has made of MAR the fastest-growing register in the EU in recent years,” he said. “In fact, as an EU register, MAR has been one of the top options for European shipowners to bring back tonnage into EU flags.”

The EU has provided a range of incentives for European ship owners to re-flag to EU flags, including possibility of benefiting from competitive tonnage tax schemes, said Mr Teixeira: “As such, the possibility of registering a vessel in MAR directly owned and managed by a foreign entity, for example an EU company, allows European ship owners to benefit from a tonnage tax scheme in their own home country while benefiting from all the operational and tax benefits provided by the Madeira Register.”

Recent operational and legal changes have contributed to MAR’s competitiveness – amongst them the simplification of on-line crew and ship certificate applications and the introduction of a tonnage regime in Portugal. In addition, amendments have been introduced into the Portuguese law to allow simplified procedures in the case of mortgage registration.

“Amongst the biggest concerns of our clients, there are issues such as security related to piracy, and the new environmental regulations and green shipping, which all present challenges and costs. Madeira is committed to cooperating with both ship owners and the relevant national and international organiaations to create a framework in which these challenges are tackled without compromising the sector’s sustainability and competitiveness.”