The Shipping Laws That Could Have Averted Two Catastrophes This Week

Bleak news this week has shone a light on the dark side of the shipping industry.

On Tuesday, Beirut was struck by the huge explosion of seized ammonium nitrate in the port, killing over 150 people, injuring 5000, with 300,000 made homeless, causing over $15 billion of damage including critical port infrastructure needed for food security.  The explosion was estimated as having the equivalent explosive power as 10% that of the Atomic Bomb dropped on Hiroshima in WW2. The ammonium nitrate cargo had been confiscated from a Moldovan-registered vessel that had been in difficulty for several years prior.

Then on Thursday, a Japanese owned but Panama-flagged cargo vessel which had ran aground on the pristine coral reefs of Mauritius, began leaking heavy oil and toxic bunker fuel as it started breaking up. The location of the vessel is close to one of the most pristine marine parks in the Indian Ocean with some of the rarest species in the world only found on the small atolls around the wreck which include two UNESCO Ramsar protected sites of international importance. It is an ecological disaster that is unfolding, in a country ill-equipped to address the magnitude of a major oil spill.

This follows news the previous week around large fleets of illegal fishing vessels around the Galapagos Islands as well as in the waters of North Korea.

What is happening?

With 90% of international goods passing onto a ship at some stage, vessel registration has often been neglected by manufacturing firms and their supply chains. With pressure on climate change and the shipping industry being one of the largest emitters of harmful greenhouse gases (if shipping was a country, it would be the sixth highest emitter of greenhouse gases), greater pressure for change is needed on the shipping industry.

In the aftermath of the 2008 financial crisis and 2011 Eurozone crisis, the G20 and OECD placed significant attention on Tax Evasion by focusing on Offshore Tax Havens that eroded company profits. This eventually led to over 135 countries signing up the Base Erosion and Profit Shifting Framework (BEPS). However, despite arguments to do so at the time, it was decided not to look at the murky world of flagging of vessels.

The top ten jurisdictions for international vessel registration are: Panama, Liberia, Malta, The Bahamas, Antigua, The Marshall Islands, Cyprus, Singapore, Hong Kong, Saint Vincent.  This means that these countries should be ultimately responsible for inspection, safety and seaworthiness of vessels.

This has created a culture of ‘jurisdiction shopping’ to find country regulators with the least onerous responsibilities. As was shown with the case in Beirut and Mauritius, it is unclear how effective the regulators of the flagged nations were in ensuring the safety of the vessel, port, crew and locations through which the vessel travelled. 

Countries earn millions of dollars in vessel registration fees, but often do not invest the resources to conduct the full vessel inspections required for sea worthiness. The international standard-setting of global shipping, the London-based UN-affiliated agency, International Maritime Organization, has also not moved swiftly enough on this issue.

In the case of Beirut, having stricter vessel registration standards would have made it easier to identify the owner who was ultimately responsible for the vessel and cargo, and could have even prevented the harmful cargo from being transported in an unsafe manner in the first place.

In the case of Mauritius, despite a Japanese firm, Nagashiki Shipping Company, owning the vessel, the Japanese Government has not publicly offered support for the cleanup of the vessel as the vessel is Panama registered.  This was despite the vessel which was travelling from China to Brazil, being 200 miles off course in the pristine and well-marked waters of Mauritius’ Blue Bay Marine National Park.

Identifying vessel risk

Identifying vessel risk is similar to identifying risk in road vehicles, and could have helped avoid such shipping accidents. 

There are several factors that can be combined to form a vessel risk index:

• The owner of the vessel – who is ultimately responsible for maintenance and safety
• The leaseholder of the vessel, where some vessels are on long term leases
• The shipping agent who may rent all or some of the vessel for a range of cargo to different destinations
• The captain of the vessel (who is often on a contract)
• The crew of the vessel (often on a different contract)
• The ports that the vessel had historically visited (which have their own risk profile based on how stringent Port Operations are)
• The behaviors of the vessel when sailing (e.g., how often the vessel has broken down, deviated from planned shipping lanes, switched off its broadcasting transmitter, weather conditions in which it embarks)
• Actual physical vessel itself (the shipping industry is notorious for changing the vessel name and identifiers to avoid detection)

All of this data forms a pattern of risk that can identify how a vessel is being controlled and and where the greatest driver of risk could be. For example, whether it is risky behavior by the captain, or poor maintenance by the vessel owner that poses a risk by allowing such a vessel to enter a country’s waters. Combining these factors forms a risk matrix, that could ensure safer and cleaner oceans. Several organizations have been looking at this, such as Israeli-based satellite analytics company, Windward.

With advances in Machine Learning, Satellites and even distributed ledger technologies, it has become easier to identify such risks, and this can be tabulated in an open-source manner to promote greater international safety and sustainability. All large vessels (above 25m) have been able to be tracked by commercial satellites since 2013. Newer satellites have been able to take photographs, video and see through clouds and at night time using Synthetic Aperture Radar, which can form a signature of the vessel.

This means that all vessels could theoretically be featured in such a risk index, which would have given Port Authorities sufficient indication of risk to allow such vessels into their National Waters. The Port Authorities and National Coastguards could be automatically updated using various machine learning techniques as to whether such a vessel poses a risk, and whether special surveillance measures may be needed.

Pressure on manufacturers: a new shipping sustainability standard

With such transparency, consumers also have the opportunity to exert pressure on manufacturers to ensure only the cleanest and safest vessels are used for the transport of their goods. In the same way that pressure on sustainability has been driven by various sustainability standards such as Marine Stewardship Council, Forest Stewardship Council, a similar sort of ranking or certification would greatly ensure the sustainability of the shipping industry.

The shipping industry had controversially exempted itself from Paris-Agreement Climate commitments, but faced external pressure to commit to voluntarily reducing emissions in line with the Paris Agreement by 2050 (thirty years from now).  Innovations such as autonomous vessels and electrification could accelerate the timeline toward a cleaner maritime industry, but this has been voluntary rather than catalyzed by strict emissions policies.

The need for vessel registration reform

With these two disasters, as well as ongoing uncertainty over Distant Water Industrial Fishing Fleets, addressing vessel registration becomes a critical tool to stamp out dangerous and polluting shipping practice.

Such public outcry could force greater momentum for action to be taken by the G20 and OECD to reform the Vessel Registration Regulations, in the same way that such energy was applied to addressing Base Erosion Payments (BEPS) following the financial crises a decade earlier.

Whilst there has been a lot of talk around building a ‘Sustainable Ocean Economy’ in recent years, the recommendations often miss the key systemic interventions that would make a real difference. It also takes stronger courage and leadership to move forward on a sustainable ocean economy, which has also been lacking.

Addressing vessel registration is a concrete action that could have prevented the multi-billion dollar disasters in countries that are least able to afford it.