Textbook of Maritime Medicine

3.3.1    Ownership and control

Shipping companies differ widely in size and organisation from small entities operating a limited number of vessels to large integrated companies that operate a large fleet of vessels. The large shipowning companies often operate diverse kinds of vessels and offer transport services in several segments of the shipping business. AP Møller - Maersk the world largest container ship operator is an example.. http://about.maersk.com/en/BusinessAreas/Pages/BusinessAreasNew.aspx Wilh. Wilhelmsen is another. http://www.wilhelmsen.com/about/Pages/Companies.aspx

A shipowner may choose to let his vessel on a so-called bareboat charter for several years. This resembles a financial investment since the firm hiring the vessel then has both technical and commercial management of the vessel.  By technical management we mean manning, maintenance, and to secure that the vessel operations fulfil rules and regulations.  By commercial management is meant securing cargo and thus the revenue from operating the vessel.  Bareboat charter implies that the day-to-day control of the vessel is in the hands of the firm hiring the vessel. There are firms specialising in technical management. Hence, the responsibility for the crew may not always rest with the owner of the vessel

Shipowners, who choose to operate their vessels themselves, hiring crew and maintaining the vessel, may do the commercial management themselves or let their vessel on a time charter for a shorter or longer time.  If so, the hiring firm directs the vessel and agrees on what cargoes the vessel is to carry and where it is to operate. The shipowner still is responsible for the crew when letting the vessel on a time charter, however.

Thirdly, a shipping company may specialise in commercial management and hire vessels in on time charter. If so manning, maintenance and financing the vessels are left to other firms.   These could be other shipowning firms or a ship management firm specialising in technical management services. The commercial management company operating tankers or bulk vessels then earns its revenue by letting the vessel out on a spot charter. A container operator uses the chartered in vessels in its container operations.

The fourth alternative is fully integrated shipping firms that finance the vessel, secure manning and maintenance and find cargoes for the vessel to carry. For vessels operating on scheduled routes as is typical for container vessels, the firm announce the schedule and work to fill the cargo carrying capacity of the vessel on each trip.  In tramp shipping the shipping firm offers the vessel in the market for every single trip or makes an agreement with a cargo owner for some consequential trips.

We also see combinations of the alternatives within individual shipping companies. The firm may choose to have a mix of vessels owned and operated and vessels hired in from other firms on either bare boat charter or time charter.

To complicate this picture even more each vessel in a fleet formally may be owned by different “one-ship” firms.  These “one-ship” firms then are organised in a holding company. A vessel and the firm directly owning it may be registered in different countries and fly different flags. 

The Eitzen Group fleet structure is an example of the diverse control and ownership structure that may exist in a firms’ fleet.

Table 3.17 The Eitzen Group Fleet structure, number of vessels

Source Eitzen (2009)

http://www.camillo-eitzen.com/index.php?pk_menu=163

3.3.2    Classification and insurance

Classification societies are non-profit organisations that approve ship design, survey the construction of new vessels, issue certificates to and “class” vessels as seaworthy. They also perform periodic surveys of vessel for maintenance of class and certificates. Ship classification thus provides a benchmark on ship reliability and safety.  Classification of the vessel and the periodic surveys is done on behalf of flag nation.  National registries require that ships in their register are classed all the time.  Marine insurers similarly require classification for the vessels they insure, as do banks financing the vessels.

Several classification societies operate around the world.  Classification rules for the major classification societies were standardised in 1968 when they established the International Association of Classification Societies (IACS) http://www.iacs.org.uk/ .  IACS introduced uniformity in classification rules, interface between classification societies and collaboration between the societies and the International Maritime Organisation (IMO), the UN organisation that drafts and work to get conventions for international shipping and work for the implementation of these conventions. (IACS, 2009) See section 1.3.5 on conventions.

The ten IACS member classification societies cover more than 90 per cent of the cargo and passenger fleet. List of vessel classed by the IACS members are updated every week and may be downloaded from http://www.iacs.org.uk/shipdata/data.aspx?pageid=3§ionid=1

3.3.3    Flag nation control and flags of convenience

Every ship must be registered and fly a national flag. At the same time the Convention on the Law of the Sea (UNCLOS),  (IMO,2005) http://www.imo.org/Safety/mainframe.asp?topic_id=1514&doc_id=7602   provides every state with the right to register ships given that there is a genuine link between the ship and the state.  A ship flying a nation’s flag is part of that state for legal purposes. The ‘genuine link’ is not well defined, however.  It is left to every state to set their requirements.  As a result, shipping firms have a wide choice when deciding where to register their ship and what flag and jurisdiction to apply. They may choose their national or an open register. Traditionally ships were registered in the national register. Shipping firms were subject to the standard national rules for firms concerning company, financial and employment regulations. 

Open registers started in the 1920s and grew in importance after WWII.  Open registers offers alternative registration to the national flag. Their success depends on their ability to attract shipowners and gain acceptance by regulatory authorities (port states and IMO).  These flags were called “Flag of convenience” (FOC) because of the commercial advantages they offered shipowners by setting fewer restriction and requirements.

Some shipping nations have established so-called international register as an alternative to the traditional national register.  They aim to offer similar commercial advantages as do open registers.  The Norwegian international register NIS was established in 1987 as the first of such international registers after several years with flagging out neither from the national Norwegian register NOR to different open registers. http://www.nis-nor.no/?lang=en Singapore, Hong Kong and Marshall Islands are other big international registers.

Shipowners evaluate states’ company, financial and tax laws when selecting a register and flag.  They assess naval protection, access to coastal markets and political acceptability of a flag. They also assess whether the state has ratified conventions on maritime safety and other regulations.  Crewing terms differ among registers and this has cost implications for the ship-owning firm and thus often influences the choice.

Ship may switch registers and change flag several times during their life time to get access to new markets, to exploit the commercial advantages of FOC’s or international registers or when sold to another shipowner for further trading.  To facilitate ship identification a specific and permanent number that follows the ship irrespective of flag change was introduced in 2004; the IMO number http://www.imo.org/Facilitation/mainframe.asp?topic_id=388   (IMO 2002).

Figure 3.18   Flags of the Norwegian owned fleet, mill dwt

Source Based on data from Norwegian Shipovners Association  (NSA, 2009) http://www.rederi.no/default.asp?FILE=items/5396/263/quarterly%20report%20no%201%202009.pdf

3.3.4    Port or coastal nation control

There is a potential conflict of interest between the flag state and the coastal state. The rights of a coastal state depend on zones at sea as defined by UNCLOS.  These are territorial sea (3-12 nautical miles), the exclusive economic zone (12-200 miles), and the high seas (beyond 200 miles of the coast).  Following the law of the sea, ships have the right to pass through territorial waters and beyond. 

To avoid that ships face different construction and crewing standards in different territorial waters, UNCLOS states that coastal states legislation does not apply to design, construction, manning and equipment on foreign flag ships. Coastal states may impose restrictions only in special cases to secure safe navigation and hinder pollution.   The coastal state may extend pollution regulation to the 200 miles, however.

The rise of port state control was a response to the increasing popularity of FOC.  Some of these flags did not enforce international maritime regulations, which reduced the reliability of flag state control measures and induced a need for port state or coastal state control.

Port state control was formalised by the Paris MOU in 1982 when 14 European states agreed on a scheme to ensure that vessels comply with international conventions on safety and pollution.  Now 27 countries have signed the Paris MOU. Participants to the MOU agree to inspect 25 percent of foreign merchant vessels entering their ports.  Other MOUs have been established: the Mediterranean MOU, the Tokyo MOU, the Caribbean MOU, the Latin American Agreement and the Indian Ocean MOU.  USA has its national port control programme. IMO has established guidance on port state inspections to standardise such controls.  Vessels that do not pass are detained in the port and lists of detained vessels are published. 

Lloyds register of shipping give access to information on detained vessels at http://www.cdlive.lr.org/psc/psc.asp. 

3.3.5    International conventions (IMO)

Conventions are the sources of maritime law. They suggest how national maritime laws may be designed to secure compatibility across national jurisdictions or to standardise national maritime laws (IMO, 2009). Initially the International Maritime Organisation (IMO) was called the inter-governmental maritime consultative organisation (IMCO) and was established to draft and get acceptance for conventions.  Since the 1980s, IMO also works to secure implementation of such legislation. 

IMO in 2009 has 169 member states and 3 associate members.  It works through committees: the maritime safety committee, the marine environment and protection committee, the technical co-operation committee, the legal committee and the facilitation committee. There are several subcommittees, one of which is the flag state implementation subcommittee under the maritime safety committee; working for implementation of the conventions.

IMO drafts conventions and work to get them ratified and thus included in national laws.  The first group focus on maritime safety and with measures to prevent accidents including standards of ship design, construction, and equipment and manning:

• Load lines convention 1966, specifying load limits. Samuel Plimsoll MP British Parliament worked for this and the result was a law in UK in 1876.  The convention came into force in 1968.

Figure 3.19: Load line

Source www.brighthub.com

• COLREG 1972 (Convention on the international regulations for preventing collisions at sea). As stated by IMO, “One of the most important innovations in COLREG was the recognition given to traffic separations schemes”.   in congested areas such as the English Channel (IMO,1972)
• SOLAS 1974 (Safety of life at sea convention) Ratified in 1980.  SOLAS has amendment procedure to facilitate updates. By October 2006, it was ratified by states registering 99 percent of the merchant fleet.
  ISM (International safety management) is a code implemented in the SOLAS convention 1994 to maintain a safety management system,
• MARPOL 1973/78 (International convention for the prevention of pollution form ships) covers pollution both from operational and accidental causes.
• STCW 1978 (Convention on Standard of Training, Certification and Watch keeping for Seafarers) came into force in 1984.  STCW was amended in 1995.  It complements the ISM code.
• SAR 1979 Search and Rescue

Another group is conventions to prevent pollution in case of accidents

• Global Maritime Distress and Safety System (GMDSS)
• International convention on Saving and rescue (SAR)
• The international convention on oil pollution preparedness, response and co-operation

The third group is conventions to secure compensation and liability regimes:

• The international convention on Civil liability for oil pollution damage
• The convention establishing the international fund for compensation for oil pollution damage
• The Athens convention for covering liability and compensation for passengers at sea

These are the three main groups of conventions that constitutes international regulation; in addition there are conventions on tonnage measurement, unlawful acts against shipping and salvage, and conventions on facilitation

• International convention on Tonnage measurement of ships 1969 came into force in 1982.  It created new rules for measuring gross and net tonnage and for allocation of IMO numbers to each ship. Port and canals use these measurements as basis for charges. The measurements thereby influence costs and competition.

3.3.6       Global maritime distress and safety system (GMDSS) and SAR regions

The global maritime distress and safety system was implemented in 1999 by amendments to the Safety of Life at Sea (SOLAS) convention.  GMDSS is an international radio safety system that automates and improves the efficiency of radio watch keeping and distress communication for the world shipping industry.

The idea is to link Search and Rescue (SAR) authorities ashore with vessels close to vessel in distress as is illustrated by Figure 3.20

Figure 3.20 Illustration of the function of Search and Rescue areas and the radio safety system.

Source: http://www.vpirb.com/marine_safety_gmdss.shtml

Safety and rescue areas are defined as in Table 2.3.

Table 3.4 Safe and Rescue (SAR) areas, (For the DCS link in the table use http://www.vpirb.com/marine_safety_dsc.shtml, for the Imarsat link in the table use http://www.inmarsat.com/) 

Source: http://www.vpirb.com/marine_safety_gmdss.shtml