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Leading the Way: Flag Registries Up Their Game

Liberia

Published Oct 1, 2023 5:10 PM by Allan E. Jordan

(Article originally published in July/Aug 2023 edition.)

Shipping is in transition with emerging regulations, the drive for decarbonization and geopolitical issues all increasing the pressure on both ship registries and classification societies. The pandemic impacted the business by driving up cargo volumes and demand for containerships. More recently, the war in Ukraine and implementation of sanctions impacted dry bulk, tanker and gas carrier usage.

All of this comes as shipowners and operators had to deal with increasing financial pressures and a growing shortage of qualified merchant sailors.

Responding to these issues, ship registries (flag states) are rethinking their role and how they work with owners. While finding themselves challenged as more shadowy operators seek to skirt regulations, flags – like class societies – are becoming more like advisors to the industry. They’ve also had to incorporate new technologies to address trends such as digitalization as they change the way they do business.

Sanctions & Flag-Hopping

Increased sanctions over the past two years have placed a growing burden on registries. Flags and class societies alike have responded by increasing the number of ships and operators they’ve suspended and removed from their ranks. All the flags are also reporting that they’ve increased their vetting efforts to stop “flag hopping” and other deceitful practices.

Coming under pressure to address sanction busters, the Panama Maritime Authority – which for many years has been the largest registry – says it’s canceled more than 6.5 million gross tons since 2021 for issues related to Iran and North Korea or vessels included on the lists of international sanctions.

In an effort to stop operators or ships from hopping between flags, Panama together with two of the other leading international flags, the Liberian Registry (LISCR) and the Marshall Islands Registry (RMI), has had an agreement since 2019 for the exchange of information. It helps them identify ships being removed from a registry and seeking replacement flags.

The vetting of ships and their operators has also taken on new importance. The Liberian Registry, for example, which has grown rapidly to rival Panama, has taken significant steps to enhance its capabilities by collaborating with outsourced services to strengthen its ability to access accurate and up-to-date information. The Cayman Registry, a leader in yachting, is only accepting registrations from individuals or companies located in jurisdictions with stringent fiscal and anti-money laundering regulations.

Rise in Detentions  

Financial challenges created by shifting markets and supply chains are further increasing the pressure on ship operators. Flags believe this has led to the increase in abandonments and lax compliance by some marginal operators with the Maritime Labor Convention, maintenance and safety regulations. The Paris MoU, one of the largest port state control authorities, reports that detentions were at their highest rate in 10 years in 2022.

Ship quality issues and the rise in detentions have also seen flags slip from the top-level White List to the more audited Grey List.

Authorities like the Australian Maritime Safety Authority have increased their enforcement efforts. AMSA, for example, reports that so far in 2023 it’s issued bans on five ships and has 18 operators under monitoring programs due to a history of deficiencies. Even a private organization, the International Transport Workers Federation (ITF), announced in March an eight-week surge in inspections seeking to root out safety, maintenance and seafarer welfare failings.

The Korean Registry (KR) believes the number of inspections has returned to pre-pandemic levels, contributing to the global increase in detentions. The Liberian Registry highlights “the lack of standardization among Port State Control inspections and the detainable items and what can be rectified before departure.”

Additional factors include the overall growth in the size of the global fleet as well as the increasing average age of vessels. Because of the size of its registry, Panama’s more than 8,500 ships receive more than 14,000 inspections annually. Panama concedes that, while it’s been effective at attracting over 1,500 new ships to the registry in the past four years, the age of its legacy fleet contributes to detentions. More than a third of the ships registered in Panama detained in the Paris MoU in 2022 were more than 30 years old with 35 of them more than 40 years old.

“Tidying up” has become a key issue for the Panama Maritime Authority. Since 2021, it’s begun efforts to actively purge the registry of the oldest ships and ones that do not follow best practices. Panama has also introduced pre-inspections and other steps for vessels calling in the U.S. to ensure compliance, especially for ships that might – because of their past history – be targets for USCG Port State Control inspections.

These steps were introduced as the PMA for the first time entered the U.S. Coast Guard’s Qualship 21 program, a milestone for the flag administration.

Other flags, including the Marshall Islands, say they’ve also increased their vetting considering issues like age with RMI highlighting its pre-registration inspections and 19 consecutive years of participation in the Qualship 21 program.

Many have introduced new tools to help owners prepare with the Korean Register offering a new app that provides real-time information designed to reduce the risk of PSC detentions. Liberia has a Dynamic Prevention Program that, among other capabilities, automatically generates notices with a risk assessment when destinations are entered into a ship’s AIS system.

These efforts are not exclusive to the largest flags. Cayman provides support before, during and after PSC inspections and has a Fleet Quality Management system.

Environmental Issues

The Liberian International Ship & Corporate Registry (LISCR), which administers its flag, calls decarbonization and growing environmental regulations “probably the most contentious issues” for the shipping industry.

The IMO’s Carbon Intensity Indicator (CII) and the Energy Efficiency Existing Ship Index (EEXI) have each gone into effect and are expected to have significant financial consequences for operators. The IMO’s Marine Environment Protection Committee also recently adopted a dramatic acceleration in the industry’s decarbonization timeline.

“There’s a lot going on behind the scenes on the environmental/emissions fronts,” notes LISCR. Flags and class societies are actively working with organizations including shipbuilders to develop new vessel technologies. Liberia, for example, is in partnership with Lloyd’s Register on a project to develop a large multi-gas carrier while KR is working on projects including a liquefied CO2 carrier and methanol-fueled tanker designs.

“Palau International Ship Registry is making significant strides in promoting green shipping practices,” says the registry. It points to programs such as a Blue Certificate to recognize clients who comply with environmental regulatory regimes and also donates $5 to the Palau Marine Sanctuary for every invoice issued, demonstrating a commitment to the marine environment. Panama highlights its efforts in promoting the construction of eco-friendly ships.

The time has come, says the Marshall Islands, for owners and operators to determine their path forward to decarbonization. As owners access and implement their approach, flags are working to provide increasing levels of technical support and guidance. The Marshall Islands has launched a Gas and Renewables team to help reduce the risk of regulatory “surprises.” Cayman says it understands the difficulties its clients are encountering as a result of the uncertainties surrounding alternative fuels and has launched new efforts to assist.

The IMO’s regulations are not without controversy, and flags are taking an active role in representing clients’ concerns to the IMO. Palau, for example, supports the IMO’s CII and EEXI initiatives but “believes that the IMO should address industry concerns and collaborate with stakeholders to develop a more comprehensive and adaptable system.” The Cayman Registry is helping clients “ensure that any unintended consequences of GHG emissions from EEXI implementation are addressed at the IMO before 2026.”

“Owners need qualified and experienced partners as they navigate the decarbonization challenge as well as an intimate understanding of the direction of the regulatory discussions,” says the Marshall Islands Registry.

New Technology

In the wake of COVID and emerging environmental regulations, efforts are growing to adopt new ways of operating and, for example, reduce dependence on physical documents. Panama, for example, is overhauling its model and working with legislators to modernize and streamline administration of the flag.

A big part of the effort is the adoption of new technology. Panama’s upgraded systems provide new automatic notifications, minimize the requirement and handling of physical documents and allow users to make inquiries. Similarly, Liberia has a popular Duty Officer Video Call feature that permits shipowners to get live video support and share documents in real time.

“The biggest challenge facing all classification societies is how to best harness the power of digitalization,” says KR, noting its use in driving decarbonization. It adds that 22 percent of its Busan headquarters workforce is dedicated to R&D dealing with new technologies. KR is developing remote survey technologies and plans to launch an integrated digital service platform in 2023 as well as a data exchange system.

One of the biggest challenges involves technology getting ahead of regulations. An example is autonomous navigation where KR is working with HD Hyundai and its subsidiary Avikus on autonomous navigation technologies and how to integrate them into future operations. Marshall Islands has also invested in building strong technical teams with experience in emerging new solutions.

Leading the Way

Owners need qualified and experienced partners as they navigate the growing challenges and coming transitions in ship operations. Ship registries are working to fill this role along with class societies. Understanding and anticipating the regulatory direction will be critical going forward, and that’s where the registries can lead the way.  

Allan Jordan is Associate Editor of The Maritime Executive.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.