Once perceived as mainly enforcers, flag states today see themselves as partners in guiding clients toward a sustainable future.
(Article originally published in July/Aug 2022 edition.)
The past few years have seen dramatic changes for the shipping industry and for ship registries – also known as flag states – that in many ways function as regulators and enforcers. While their core mission remains overseeing the safe operation of commercial shipping, registries have also had to deal with the upheaval brought on by the pandemic and now the race to reform shipping’s operations to meet pressing environmental challenges.
The landscape has changed dramatically. Open registries, once scoffingly looked down upon as “flags of convenience,” have transformed into industry leaders. The three biggest – Panama, Liberia and the Marshall Islands – together account for more than 50 percent of all commercial tonnage, but well-known registries such as the UK Flag (overseen by the Maritime and Coastguard Agency – MCA), Korean Register (KR), Singapore Registry of Ships and Bahamas Maritime Authority have also pushed forward with innovations.
At the same time, smaller flags such as the Cayman Registry, Palau International Ship Registry (PISR) and Isle of Man Ship Registry have each carved out niches in the market.
Once it was enough for the major registries to promote their advantages by citing their position in the Paris and Tokyo MOUs (memorandums of understanding) that govern the industry. Inclusion in the rankings maintained by the Paris and Tokyo MOUs as well as participation in the U.S. Coast Guard’s QUALSHIP 21 program is based on data from port state control inspections, the registries’ efforts to eliminate substandard shipping and their focus on improved methods to identify poor-quality vessels.
Flag states promote their merits based on their rankings in the prestigious White Lists from the MOUs or involvement in QUALSHIP 21, which they say reduces the number of inspections and oversight ships receive.
More flags have also set their sights on improving their standing with the MOUs. The Liberian Registry, which says it was the fastest growing flag state between 2019 and 2021, proudly announced that, starting July 1 of this year, it met the requirements for QUALSHIP 21, becoming the largest flag state administration to be enrolled in the USCG program.
Smaller flags are equally on the rise. Cayman has maintained its position on Paris’ White List for 17 years and Tokyo’s for 13 years while Palau points out that in the last five years it made the biggest improvement of all flags in the Paris MOU as it aims for membership on the White List.
Today, marketing for the flag states goes beyond recognition on the MOUs. Seeking growth, the Bahamas Maritime Authority established representation in South Korea, noting that five of the top ten shipowning nations are located in Asia. The Korean Register, long recognized for its leadership in Asia, promotes its research with methanol, liquefied CO2 transport and the challenges of fire prevention and suppression when transporting electric vehicles as it seeks to increase relationships with the European shipping community.
“The past few years have been exceptionally challenging for owners and operators,” says Panos Kirnidis, CEO at the Palau International Ship Registry. “They’ve had to keep up with tightening environmental regulations and requirements followed by a pandemic that brought other issues including a crew change crisis that led to increased pressures and demands.”
Travel restrictions, lengthy times at sea and limits on crew changes brought on by the pandemic forced registries to adopt new ways of operating. They still needed to work with fleets and shipowners globally to make sure they complied with all the complex rules and regulations in what remains a paper-intensive business. While all registries were exploring the role of digitalization, the pandemic pushed it to the fore.
The UK Registry, for example, launched its digital registration system and provided upgrades as part of the continued modernization of its services. UK survey and inspection regimes also responded to the challenges with safety surveys delegated to trusted international operations.
The Korean Register conducted a range of remote surveys, including continuous machinery surveys, three-month extensions of shaft surveys, three-month extensions of boiler surveys, minor damage surveys, and outstanding Condition of Class or confirmation of repairs done for deficiencies or corrective actions. “Over the last few years, in common with many other class societies, we have implemented a range of measures to help our customers manage any difficulties they have faced as a result of the COVID-19 pandemic,” it says.
These changes were not limited to the larger ship registries. Kirnidis notes that Palau is a fully electronic registry that implemented a remote inspection process. The Cayman Registry expanded its survey network while using enhanced delegation schemes, meaning that most surveys can be completed by the local office rather than registry surveyors. It’s also been focusing on the digitalization of its products and services, permitting it to introduce digital statutory certificates in 2021 with digitalized registration and crew documents to follow.
In the wake of COVID-19, the shipping industry has entered “uncharted waters,” says Joel Walton, CEO of the Cayman Registry – a view shared by many of his peers. While environmental issues have loomed over the horizon for years, they’re becoming increasingly pressing. The IMO’s new regulations for EEXI (Energy Efficiency eXisting Ship Index) and CII (Carbon Intensity Indicator) from MARPOL enter into force this November. They present new challenges for seafaring organizations to systematically ensure their fleets operate more efficiently and emit lower volumes of greenhouse gases.
“Shipping companies are increasingly looking to gain more detailed advice with regard to their future CII rating to establish a regulation response plan,” explains the Korean Register, which launched its GEARs tool in 2019, a greenhouse gas online data management system to support compliance. The tool was enhanced in 2021 to include a predictive system that helps companies project out to 2026, a key threshold in the regulations adopted by the IMO.
According to KR, digitalization and decarbonization will join to become increasingly important tools in the future: “The mechanical elements of a ship’s main engines and its auxiliary devices will be systematically connected through digital technology, which will extend the current use of systems such as predictive maintenance and condition-based monitoring to the decarbonization of ships. We envisage a transformation from ‘traditional hull and machinery-oriented ships’ to ‘future system-oriented ships’.”
Green is not limited to the major registries. Like the larger flag states, the Cayman Registry has been looking at hydrogen fuel cell-based power plants. It also recently evaluated the potential conversion of a vessel to methanol and is assisting a client in the development of a novel NOx scrubbing system.
To help shipowners and operators gain recognition for their green efforts, Palau is awarding special “Blue Certificates” to recognize registered vessels’ contribution to addressing environmental issues. Some of the flags are also using their green programs in marketing. Singapore, for example, became the first major ship registry to announce significant financial incentives including reduced initial and annual fees for shipowners who adopt energy-efficient designs.
Similarly, the Isle of Man Ship Registry launched its new green fees registration regime in 2022. “IOMSR is one of the first flag states in the world to reduce registration fees for ships deploying green technology,” states Toby Brooks, IOMSR Deputy Director. He explained that the program gives owners or operators of cargo ships, commercial yachts and passenger ships a 15 percent reduction on their annual registration fee if they invest in biofuel, alternative fuels, wind or shore-side energy technology.
The flag registries continue to look for new ways to use technology to help owners and operators while also growing their own operations. Liberia, for example, reinvests its tonnage revenue tax into systems and technologies such as its Dynamic Prevention Program, which contributes to the flag’s low detention rate. Similarly, Palau has an in-house Deficiency Prevention System that supports owners and operators in avoiding financially damaging detentions.
Technology will play a key role in the future. Earlier this year, KR established its virtual reality-based ship training offerings that enable immersive and intuitive training, including developing content for ship surveyors. KR expects to complete the development of its training content this year and offer the software to ship management companies next year. Similarly, the Panama Maritime Authority says 2022 will be a year of technological transformation and is investing in new service platforms for the supervision of its fleet, incorporating maritime investigation, long-range identification and tracking (LRIT), risk analysis, vessel detentions and flagging issues.
The role of the flag states goes beyond technology and regulatory compliance, notes the UK’s MCA, stating that “Mental health and wellbeing became increasingly clear as a key role and a high priority” during and after the pandemic. The MCA is launching tools to support the understanding and management of seafarer wellbeing. It’s also modernizing its cadet training program, expanding funding and rolling out the UK Shipping Concierge, a professional and tailored service that will provide support and guidance for maritime businesses looking to access the UK market.
No longer just enforcers, flag states today are proving themselves able partners with their clients in growing their businesses and guiding them into a sustainable future.
Allan Jordan is the magazine’s Associate Editor.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.