A ship spends most of its lifetime on international seas, she cannot belong automatically to an appropriate country in the same way as a fixed plant. A ship cannot be stateless. A ship has to belong to one country and must be subject to that country’s laws. Additionally, that country should incorporate the numerous international conventions for ships. In that country, the ship is registered at a particular port, the Port of Registry. A notable amount of control in connection with ship registration is exercised by the IMO (International Maritime Organisation). IMO (International Maritime Organisation) is responsible for regulating and supervising the use of the seas by the agreement of international conventions. IMO’s (International Maritime Organisation) important activities incorporate safety at sea, protection against pollution, and the settlement of international law of the sea. UNCLOS 1982 Article 92 (United Nations Convention on the Law of the Sea) requires every ship to sail under one flag and also confers a right to every country, whether littoral or land-locked, to have ships flying its flag (UNCLOS 1982 Article 91). If a country exercises this right, that country must also assume the obligation to ensure that the ships are subject to its effective jurisdiction and control (UNCLOS 1982 Article 94). If a country exercises the right to have ships flying its flag, that country should offer promising conditions for ship operators:
- Legal Regimes (Mortgage and Litigation Laws, Limitation of Liability)
- Fiscal Regimes (Foreign Exchange Controls, Fees, Tax Exemption)
- Ship Ownership Requirements
- Multilateral or Bilateral Agreements (grant exclusive rights to registered ships such as taxation, right of entry)
- Ship Manning Requirements (Crew Nationality, Crew Certifications, Ship Manning Rules, Crew Wage Scales).
Flag State must ensure:
- Registered ship is subject to its exclusive jurisdiction of the Flag State on the high seas
- Flag State has jurisdiction under its internal law over each ship and its master, officers, and crew in respect of administrative, technical, and social points about the ship.
Flag State must have laws and regulations incorporating:
- Standards of ship construction, ship’s equipments, and ship survey
- Manning of ships, crew accommodation conditions
- Training of crew members
- Safe navigation
- Mitigation and limitation of marine pollution
- Investigation of casualties
UNCLOS (United Nations Convention on the Law of the Sea) states that there must be a genuine link between the ship and the Flag State but is silent on what constitutes the genuine link.
In 1986, the United Nations Convention on the Conditions for the Registration of Ships was adopted. The United Nations Convention on the Conditions for the Registration of Ships intended to fulfill the space left by UNCLOS (United Nations Convention on the Law of the Sea).
The United Nations Convention on the Conditions for the Registration of Ships is designed to lay down the responsibilities that a Flag State has to consider about the registration of ships. The United Nations Convention on the Conditions for the Registration of Ships’ main provisions:
- Convention applies particularly to self-propelled ships of 500 GRT and above which are employed in international seaborne trade for the transport of goods or passengers.
- Flag State must have an adequate and competent maritime administration. Flag State shall implement relevant international rules and standards.
- Shipowners or operators must be identifiable to ensure their full accountability.
- State of registration has an option to comply with the provisions on ship ownership and/or ship manning:
Ship Ownership: Flag State must implement in its law and regulations relevant provisions for participation by that state or its nationals as owners of ships flying its flag or in the ownership of such ships and for the level of such participation.
Ship Manning: Flag State shall adopt the principle that an adequate number of officers and crew of ships flying its flag be nationals or persons domiciled or lawfully in permanent residence in that state, either on a ship, company, or fleet basis.
5. Flag State must ensure that the shipowning company or its subsidiary company or its principal place of business is established within its territory. Otherwise, there must be a representative or management person who shall be a national of that state.
6. Flag State may register vessels chartered-in by a charterer in that state in compliance with the United Nations Convention on the Conditions for the Registration of Ships.
Types of Ship Registry:
1- Traditional Ship Registry (Closed Ship Registry): is open only to ships of its own nation. Traditional Ship Registry (Closed Ship Registry) allows only vessels that are owned by companies or persons that are residents of that country. Traditional Ship Registry (Closed Ship Registry) usually have more stringent criteria for ship ownership, i.e. exclusively citizens and companies incorporated in the country can qualify. Traditional Ship Registry (Closed Ship Registry) is governed by an individual country as a national registry for the registration of their ships flying their flag, owned, operated, and manned by nationals of that country. In Traditional Ship Registry (Closed Ship Registry), the shipowner should undoubtedly be from the country of registration and the place of business should be in the country of registration. However, nonnatives might register in Traditional Ship Registry (Closed Ship Registry) via companies unless there are stringent rules also for company ownership. Traditional Ship Registry (Closed Ship Registry) examples are most of the European countries, except the Second National Register. The original registries still belong to the traditional category.
2- Open Ship Registry (International Ship Registry): organized as a service to the international shipping community and has virtually no restrictions. Open Registry (International Registry) allows shipowners of other nationalities to flag and operate ships under their flag.
Flag of Convenience (FOC) is a type of Open Ship Registry (International Ship Registry) but slightly different. Vessels registered under the Flag of Convenience (FOC) can often reduce operating costs or avoid the regulations of the shipowner’s country. To do so, a shipowner finds a nation with an Open Ship Registry (International Ship Registry) i.e. a nation that allows registration of vessels owned by foreign entities. When a ship operates under the laws of Flag of Convenience (FOC), the shipowner can take advantage of reduced regulation, lower administrative fees, and greater numbers of friendly ports. Flag of Convenience (FOC) examples are Panama, Liberia, Marshall Islands.
3- Second National Ship Registry: formed by the countries with Traditional Ship Registries to stop the departure of ships from their original registries to Open Ship Registry (International Ship Registry) or Flag of Convenience (FOC). Second National Ship Registry was viewed as an alternative to Open Ship Registry (International Ship Registry) or Flag of Convenience (FOC) and mitigate its effects on traditional maritime countries. Second National Ship Registry exits parallel with the Traditional Ship Registry (Closed Ship Registry). However, Second National Ship Registry offers considerably less operating cost for the shipowners while trying to combine the formal image of the Traditional Ship Registry (Closed Ship Registry). Second National Ship Registry examples are the Norwegian, Danish, and German International Ship Registers.
Off-shore Ship Registry is slightly different than the Second National Ship Registry. Off-shore Ship Registry is operated by autonomous regions of a particular country or country considered as an overseas territory of a particular country. Off-shore Ship Registry may enjoy the protection of the home nation and mitigate the costs. An Off-shore Ship Registry example is the Isle of Man.
4- Bareboat (Dual or Parallel) Ship Registry: one of the most important rules regarding ship registration is that a ship can only be registered in one country at a time. However, in some cases, a ship can also be registered in a second state. Bareboat (Dual or Parallel) Ship Registry implies that a ship that has already been registered in one state can simultaneously be registered in another. Bareboat (Dual or Parallel) Ship Registry is completely dependent on the compatibility of the legal systems of the two states involved. Furthermore, the Bareboat (Dual or Parallel) Ship Registry is a second registration of a ship as a result of a bareboat charter agreement. The ship is suspended or temporarily dismissed from the underlying registry or flagging-out registry, and is then registered in the name of the bareboat charterer in the flagging-in state for the duration of the bareboat charter. Examples of countries that allow dual registration are Germany, Australia, Liberia, and the Philippines.
Choosing Flag State
In the old days, the selection of the country of ship registration was simple. The shipowners registered and crewed their ships in the country where they lived and conducted their business. This type of employment persisted until the 1950s when American shipowners found that the extraordinary cost of operating ships under the American flag, crew wage levels being particularly high. This situation made it unmanageable for American shipowners to compete in the international shipping market. Therefore, shipowners searched for:
- A country that allows a company owned and controlled by non-nationals to operate ships under its flag
- A country that allows beneficial owners to reside, operate abroad, and manage all banking operations, retain all profits in a foreign country
- A country that allows the employment of crew of any nationality and at any wage scale the shipowners wished
- A country that demands minimal taxation.
Panama and Liberia had already established open registers and ships registered under either of these flags are known as Flags of Convenience (FOC). After flagging-out to Panama and Liberia, American shipowners were able to compete in the international shipping markets. Identically, traditional European and Japanese shipowners found it more challenging to compete in an increasingly competitive shipping market under their national flags. A shipowner would indeed, all things being equal, prefer to register his ship under the flag of his own country and crew it with his fellow nationals. However, due to increasing labor costs, traditional shipowners’ market share has been taken over by international shipowners that are registered in Flags of Convenience (FOC) and crewed with more affordable seafarers. Higher crew labor costs occurred because of higher domestic wage levels and expensive social security payments demanded by the national governments.
National governments can support its national fleet by:
- Promoting loans at low-interest rates
- Supporting with Social Security (SS) payments
- Favoring the national fleet for government cargoes and cargoes controlled by the major industrial companies in the country (Flag Discrimination)
- Exclusive chartering of national flags in specific preserved trades (Cabotage)
- Favorable tax plans
If a country actively supports shipowning by its nationals; has a domestic wage range which permits crews to be employed at competitive wage levels; has a pool of experienced seamen, that country will be attractive to register ships under that flag. Greece supports shipowners by authorizing shipowners to register the shipowning companies overseas, such as Panama, whilst the ships are registered in Greece.
If a traditional shipowner can not get adequate support from his government, the shipowner has to register his ship abroad. Preferring a Flag State will be affected by:
- Costs: Ship Registration Fee and Annual Tonnage Tax
- Acceptability of Flag State: not every flag is welcomed in every country
Shipowners either use an Off-shore Ship Register or a Flag of Convenience (FOC – Flagging Out):
Off-shore Ship Registry: is organized with advantageous taxation regimes and flexible crewing regulations but with close links with an established maritime country. Additionally, Off-shore Ship Registry requires some commercial presence from the shipowner in the country. Examples of Off-shore Ship Registry: Norway-Norwegian International Register, Netherlands-Netherlands Antilles, United Kingdom-Isle of Man and Bermuda
Flags of Convenience Registry: has no connection with an established maritime nation. Most Flags of Convenience Registries only require the most superficial presence from shipowners in the country. The most famous Flags of Convenience Registries are Panama, Liberia, and Marshall Islands (MI).
Moreover, a shipowner should examine commercial or political reasons when choosing a flag for a particular trade. Problems can be encountered with Panamanian and Liberian flagged ships in Australia, New Zealand, Scandinavia.
After selecting the country whose flag the vessel will fly and established, if necessary, the shipowning company in that country, the shipowner will apply to have the vessel registered in that country. The aforementioned procedure requires the authorities, or more usually an authorized Classification Society acting on behalf of the authorities of that country, inspects the vessel. Classification Society assures that the vessel complies with both national and international rules and regulations. Classification Society measures the vessel to determine its dimensions and gross and net tonnages.
After receiving all relevant information from the Classification Society, and a fee from shipowners, the Flag State authorities issue:
- Certificate of Registry: authenticating that the vessel is registered in that country. Authorities also give the vessel’s official number and radio call sign.
- International Tonnage Certificate: displays the gross and net tonnage
- License to operate the vessel’s radio station
The vessel is now registered.
A ship must be registered, but in theory, a ship does not have to be classed. Classification is an independent check on the condition of the vessel. It would be hard to find employment or insurance for an unclassified vessel because shippers, charterers, underwriters, P&I Clubs require that the vessel has to be classed. This independent check is carried out by Classification Societies. Classification Societies are independent organizations which run under the direction of representatives of Shipowners, Shipbuilders, Marine Insurance Underwriters, Professional Institutes such as Naval Architects, Marine Engineers and Metallurgists
Internationally recognized Classification Societies are those which are members of the International Association of Classification Societies (IACS):
- American Bureau of Shipping (ABS) – U.S.A.
- Lloyds Register (LR) – UK
- China Classification Society (CCS) – China
- Croatian Register of Shipping (CRS) – Croatia
- Indian Register of Shipping (IR) – India
- Det Norske Veritas Germanischer Lloyd (DNV-GL) – Norway
- Korean Register of Shipping (KR) – Korea
- Registro Italiano Navale (RINA) – Italy
- Nippon Kaiji Kyokai (NK) – Japan
- Russian National Register (RS) – Russia
- Polish Register of Shipping (PRS) – Poland
- Bureau Veritas (BV) – France
There are other classification societies but non-members of the International Association of Classification Societies (IACS) do not significantly share the same distinguished reputation.
Classification Societies document detailed specifications of all materials used in the construction of ships and rules regarding not only the construction of all equipment onboard but also the ship itself. Classification Societies enforce their rules and regulations by maintaining a network of surveyors. To obtain a classification from a Classification Society:
- Vessel plans are examined and approved by the Classification Society.
- The building of the vessel will be supervised by a surveyor from the Classification Society. Classification Society conducts a programme of regular spot checks and inspections to ensure that the rules of the Classification Society are being matched. Surveyor will also assure that all materials and equipments used are of a quality approved by the Classification Society
- The final sea trials of the new-building vessel will be accompanied by the surveyor. If everything is satisfactory, then the vessel will be formally entered as “Classed” with the Classification Society and a Certificate of Class will be issued
To maintain class the vessel will then have to enter a programme of class surveys. Class survey programme will ensure that everything on board the vessel which is material to the safety of the vessel is surveyed in rotation according to a pre-determined timetable. Class surveys are scheduled so that every item will have been inspected at the end of a period of 4 years. Once this cycle has been completed satisfactorily the vessel will have completed its first Special Survey (SS) whereupon the entire cycle of surveys begins all over again. Inserted into this programme is a requirement that the vessel is dry-docked twice during the survey cycle. However, Classification Societies grant an extension of one year (Year of Grace) in a survey cycle bringing it up to 5 years in certain cases where the progress of survey items and the condition of the vessel permit it. Furthermore, Classification Societies require that in the event of an accident happening to the ship or its equipment then a Class Surveyor is called in to inspect the damage; to advise if the repair has to be done immediately, or whether it can be postponed and if so for how long. If a postponement is granted, full details are entered in the vessel’s records as a “recommendation”. The eventual repair will have to be done under the supervision of the Class Surveyor. It is common for a vessel, once it has been built under the rules of a particular Classification Society, to remain with that Classification Society for its life. Nevertheless, there is nothing to stop shipowners from transferring from one society to another, always providing that the two Classification Societies’ building rules are compatible and subject to a full survey by the new Classification Society.
The Classification Societies keep full survey records of all vessels which they classify. Survey records will list all the surveys passed with the date during the current cycle, together with all surveys yet to be passed with the dates when they fall due. Survey records will also list all repairs done under the Classification Society’s requirements and all current recommendations for scheduled repairs. Additional Certificates are issued in respect of special features such as the vessels capacity to carry refrigerated cargo. Classification Society’s records are vital for potential buyers of any second-hand vessel. Frequently, the Classification Society’s records are inspected at an early stage in negotiations.
To trade and to get customs’ clearance at each of its ports of call, the vessel will have to maintain and carry on board at all times a complete set of certificates:
Certificate of Registry: issued by the government of the country whose flag the vessel flies. Certificate of Registry is valid until the vessel is sold and states the name of the vessel, its official number, its call sign and its principal dimensions, and the name of the shipowners.
International Tonnage Certificate: issued by the government of the country whose flag the vessel flies. International Tonnage Certificate states the vessel’s Gross Tonnage (GT) and Net Tonnage (NT). Generally, the International Tonnage Certificate outlines the measurements made by an authorized Classification Society. International Tonnage Certificate is valid until the vessel is sold.
Certificate of Class: issued by the Classification Society confirming that the vessel is classed by that Classification Society. If the vessel is equipped for the carriage of refrigerated cargo, the Refrigeration Installation is certificated separately.
In addition to the Certificate of Registry, International Tonnage Certificate, and Certificate of Class, there are other certificates which are required to prove compliance with international regulations and conventions:
Load Line Certificate: valid for four (4) years. Load Line Certificate presents details of the vessel’s freeboard measurements and subject to an annual inspection.
Safety Construction Certificate: valid for four (4) years. Safety Construction Certificate confirms the good condition of the vessel’s hull and subject to an annual inspection.
Safety Equipment Certificate: valid for two (2) years and subject to an annual inspection. Safety Equipment Certificate confirms that the vessel’s life-saving equipment such as lifeboats and life rafts, pyrotechnics, fire-fighting equipment, and emergency radios are in good working order and meet international regulations. Additionally, the class surveyor inspects the vessel’s charts and nautical publications such as nautical almanacs, lists of lights, and pilot books.
Safety Radio Certificate: valid for five (5) years and subject to an annual inspection. Safety Radio Certificate’s first page confirms that the vessel’s radio and radar equipment meet international regulations. The other pages present the details of the equipment required and available onboard.
International Oil Pollution Prevention Certificate (IOPP): valid for four (4) years. International Oil Pollution Prevention Certificate (IOPP) presents details of all oily water separation and filtering equipment and also the associated monitoring equipment required under the MARPOL convention. International Oil Pollution Prevention Certificate (IOPP) confirms that the vessel is equipped with machinery to remove oil from ballast and/or bilge water.
International Safety Management Certificate (ISM): confirms compliance with the ISM Code (International Safety Management Code).
These safety certificates are required under the SOLAS (Safety of Life at Sea Conventions). International Oil Pollution Prevention Certificate (IOPP) relates to the MARPOL Conventions. All these certificates are normally issued on behalf of the government whose flag the vessel flies by an authorized Classification Society. The surveys required to issue or renew these certificates are independent of the regular class surveys.
Lifting Appliance Certificate: presents features of the cargo gear survey and the safe working loads.
De-Ratization Certificate: confirms that the vessel is free from all traces of rats. De-Ratization Certificate is issued by a Port Health Authority and is valid for 6 months.
Safe Manning Certificate: issued by the Government who flag the vessel flies stating the minimum number, and appropriate ranks of that number, of crew the vessel can sail with.
Dangerous Goods Certificate: shows that the vessel meets the requirements and provides details of the separations available for the carriage of dangerous goods. Dangerous Goods Certificate shows that the vessel is suitable for the carriage of those classes of dangerous goods as specified in the appendix subject that any provisions in the International Maritime Dangerous Goods (IMDG) Code and the Code of Safe Practice for Solid Bulk Cargoes Code for individual substances, materials or articles area also being complied with. Dangerous Goods are those substances and articles, carried as cargo, which are listed or classified in the latest edition of the International Maritime Dangerous Goods (IMDG) Code.
Grain Book: if the vessel is going to load bulk grain, the vessel must carry a book providing details of the vessel’s stability calculations when loading bulk grain which is confirmed by the government of the country whose flag the vessel flies.
Deadweight Scale: displays the immersion of the vessel, i.e draft at any degree of loading. Deadweight Scale is used for estimating the additional draught or for planning the extra load that could be taken on board when a vessel is being loaded.
Port State Control (PSC)
Random spot inspections of vessels are carried out by the appropriate national authorities of the ports at which the vessel calls. Port State Control (PSC) inspections are independent of classification and certification surveys. Port State Control (PSC) inspectors possess the power to board the vessel and inspect all ship certificates and to check all items covered by the certificates. Port State Control (PSC) can ask that the lifeboats are manned and lowered. Port State Control (PSC) can inspect machinery and all lifesaving equipment. If Port State Control (PSC) discover any discrepancies or faults in anything they inspect, Port State Control (PSC) has the power to put a stop order on the vessel, even though the deficient items might be covered by a valid certificate. Port State Control (PSC) stop order prevents the vessel from sailing until the deficiency has been rectified. Furthermore, Port State Control (PSC) has the power to inspect the crew list and compare it with the Safe Manning Certificate to ensure that the accurate number of crew with the relevant qualifications are on board.
Virtually all maritime nations are signatories to the IMO (International Maritime Organisation) Convention on Port State Control (PSC), the degree of application varies considerably. Europe, the USA, and some maritime nations such as Hong Kong, take Port State Control (PSC) seriously. These countries publish lists of detained ships and the reasons for the detention. Unfortunately, some maritime nations do not perform Port State Control (PSC) inspections thoughtfully.
Flag State Control (FSC)
The authorities of the vessel’s Flag State reserve the right to board a vessel flying its flag and hold a full inspection along the lines of the Port State Control (PSC) survey. The more careful Flag States manage an active worldwide network of surveyors to ensure reasonably frequent inspections of the vessels that fly their flag.
Ship Condition Surveys and Ship Inspections
P&I Clubs (Protection and Indemnity Clubs) are now conducting their independent condition surveys for vessels over 10 years old that want to join their club. P&I Clubs (Protection and Indemnity Clubs) have no power to stop the vessel, but when they notice any deficiencies, they will limit the vessel’s P&I Cover until the deficiency is corrected. For instance, if a P&I Club notices that the vessel’s hatches are not very watertight, P&I Club limits the P&I Cover for cargo claims until the hatches are repaired.
In recent years, charterers such as major oil companies are requiring their inspections to be carried out which extends far beyond the more conventional hold or tank inspections.
Other Ship Surveys
Several other surveys are related to the commercial operation of the vessel.
On-Hire and Off-Hire Surveys: if a vessel is operating on time charter, the shipowner and charterer may agree to perform a survey for any damage especially in the cargo holds at the time of commencement and again on completion of the charter.
Bunker Surveys: if a vessel is operating on time charter, the shipowners and charterers may agree to perform a survey for the quantity of bunkers on board at the time of commencement and again on completion of the charter.
Pre-loading Surveys: all voyage charter-parties require the vessel to be in a clean condition to receive the cargo, however, today many charters provide that this shall be to the charterers surveyors’ satisfaction.