Flag registries: why is the anti-competitive environment allowed to continue?



Panos Kirnidis* takes a critical look at Flag States’ competitiveness

Recently my flag, Palau International Ship Registry (PISR), has suffered from dubious and questionable port state control (PSC) inspections that have resulted in PISR being placed on the Paris MoU blacklist.

Given that anybody can easily access inspection records, white, grey and black lists have an enormous impact on the reputation and the ethical and commercial position of the parties involved – the owner, the shipping company and the flag of the vessel. Many conflicts have emerged among these parties and while authorities who participated in research indicated no conflicts, flags and shipping companies have given the opposite view and incidences of unreported cases are common.

PSC officers do not work to a common standard for inspections. The selection of ships to be audited does not follow random sampling and so does not reflect the real situation. The mathematical formula used is biased against smaller registries. There is no substantial historical evidence to show that there is a direct relationship between the calculated target factor (age, flag or Recognised Organisation[RO]) and the standard of the ship.

There needs to be a more serious look at how PSC operates in some parts of the world. Political influences can play a damaging part in PSC detentions. Add into this volatile mix corruption and sheer incompetence in some parts of the world, and it is not hard to see why there needs to be a tighter control on PSC and the economic and management issues that are directly affected.

Despite the fact that the majority of PSC inspections are conducted on a highly professional, transparent and equitable basis, incidents of corruption have been unofficially reported at a number of ports worldwide, notably in the Black Sea region. Some of these cases show that the PSC was used as geopolitical leverage for a specific time period. If a registry had several vessels trading in the Black Sea region and other registries had no ships in that area, the picture will not be a genuine reflection of the performance of the two registries. It is important to stress that the MoU should be an agreement between maritime administrations and not governments, as stipulated in all Memoranda.

Another major issue is that it can be proven, statistically, that local PSC favours its national registered vessels or vessels with the national RO. Take, for instance, the statistical performance of Russian-flagged ships detained in Russia, French-flagged ships detained in France, or Italian-flagged ships detained in Italy.

The shipping industry needs ways to tackle this alleged corruption among some PSC officers, who are extorting large payments by threatening to detain vessels in port.

The problem is so severe that the international shipping associations (Intercargo, Intertanko, BIMCO and the International Chamber of Shipping) addressed their concerns to the PSC MoUs, suggesting that they establish fully independent internal affairs review panels to confidentially assess any complaints of corruption or negligence. So many shipowners and crews, feeling exposed, left under threat, but the proposal was rejected by the PSCs on the basis that established procedures are considered adequate.

The most vulnerable ships seem to be bulker vessels because of the variety of facilities visited, compared with tankers or container ships.

Remember that PSC officers are bound by a code of conduct, as vessels, companies, flags and ROs are ruled by international conventions. The code of conduct for PSC officers encompasses three fundamental principles against which all actions of officers are judged: integrity, professionalism and transparency. We expect compliance with these principles and codes, as we are adhering to the applicable maritime rules and regulations.

The United Nations Conference on Trade and Development (UNCTAD) states that “Entities engaged in the same or similar lines of activity should be subject to the same set of legal principles and standards to ensure fairness, equality and non-discriminatory treatment under the law.”  According to the OECD, “competition is central to the operation of markets and fosters innovation, productivity and growth, all of which create wealth and reduce poverty.” The current PSC standards do not, in our opinion, meet these definitions.

There is not a common standard or code for PSC inspections, so at the end of the day the PSC officers carrying out the survey are the ones who decide if the vessel will be detained. These inspections rely more on the prima facie impression of the inspector to decide the extent and scope of inspection. The same vessel can be released from one port and then detained in another port soon after. Communication difficulties both on the part of PSC inspectors and ship crews can result in detention even though there might be no deficiency. There are no translators or interpreters to assist with documentation, for example.

There is also the issue of organisational structure: the lack of communication, common activity and uniformity among the PSCs seem to be obstacles to solving the problems.

Another issue is the lack of a grace period to appeal against the results before they become available to various interested parties. Without even an inspection/detention report sent (neither to the owner nor the flag administration), you can see detention records that give you even more “credits for the black list membership.”

Since we established PISR seven years ago, we have been working toward the development of a smart registry, one for the here and now with future-proofed technology and foresight. What we are fighting against, though, is an outdated inspection system that can plunge a newer and smaller registry into a vicious circle. Even though the overall number of detentions by PSC can be lower than for larger fleets, more detentions and more inspections can be explosive for a registry like PISR. If you go by the risk factor, the flags with a greater number of ship calls have more risk and should be targeted. But the PSC focus on so-called blacklisted flags even if the number of ship calls is lower.

PISR recognise that over the past few years the PSC MoUs have seen developments in training, communication, procedures and aids. We are supportive of the current activities to harmonise the practices of the PSCs and the desire for more transparency, including PSC instructions for the training of officers; references to the deficiencies found during an inspection in order to limit incorrect reports; publication of handbooks and guidelines for FSIs; and certain inspection guidelines for campaigns and new inspection window regimes. Yet it is not clear if inspection results will improve with just the above-stated actions.

Palau would like the system to be re-evaluated, and is calling for support from others in the maritime sector that want a transparent and fair system for the rewriting of the mathematical algorithms. This will help attract new entrants into the sector and increase competition. We are not asking for a dilution of the regulations affecting the critical issues that classification societies, flags, registries and any other relevant bodies are subject to. We are asking for a review of the anti-competitive practices defining the performance lists. That way at least we would all know, no matter what our size or perceived industry standing, that the ports our vessels are sailing in and out of are adhering to one set of regulations. We are all sailing the same seas, are we not?