The concept of ship registration dates back to the time when vessels started to sail under national flags. Belonging to different countries, the 'nationality' of a ship provides not only protection of the owner's rights, support and other advantages, but also responsibilities and certain limitations. Registration means subjecting the ship to the jurisdiction of a country. However, the ways and approaches to ship registration were not rigid and inflexible. Prior to the 1980s, national registers were the only phenomenon in the ship registration practice. But the so-called 'open registers' appeared due to several developing countries, such as Panama, Liberia and the Bahamas. They provided more flexible conditions and lower costs than national registers. Ship owners were attracted by open registers to become more competitive in comparison with their rivals. The response of the developed countries was to introduce international or second registers that gave wider opportunities than national ones, but provided better technical support and service to the member-vessels. The current literature review is aimed at providing the overall classification of ship register types and to concentrate on the four registering companies: NIS, NOR (Norwegian Ship registers), IOM Ship Register (Isle of Man) and UK Ship Register.
Definition, Classification and Functions of Ship Registers
Rayfuse (2004) argues that according to existing international legislation, ships are allowed to sail under the flag of one country only. Consequently, the concept of a ship register or flag state addresses a vessel to the state, which carries out the regulatory control over this ship (Harwood, 2006). However, this registration will imply further certification and inspection of the ship. Special attention is given by ship registers to the maintenance of environmental regulations and the prevention of pollution (Raikes, 2009).
Hinkelman (2005) proposed an overwhelming classification of ship registers types. The researcher argues that all the register types are subdivided into national registers, flags of convenience (FOCs), second registers and bareboat charter registers. In the case of national registers, the direct link between the nationality of the vessel's owner and the flag state is implied. National registers are often referred to as 'closed registers' (Hinkelman, 2005). Flags of convenience (FOCs) do not directly link the nationality of the owner with the state flag. On the contrary, they are foreign registers, which provide more convenient conditions for the ship owners. Bareboat charter registers grant the possibility to obtain for vessels a foreign registration for a certain time period. However, they retain their primary registration (Hinkelman, 2005).
The current dissertation focuses predominantly on second and national registers. Second registers are often referred to as offshore registers. Their operation is determined by the International Transport Worker's Federation (ITF) (Mulcahy and Tillotson, 2004). This type of register is usually established either by the separate legislation in the country, which already has a national (primary register), or in the offshore territory with the direct legal connection to the host country. The main second registers are the Norwegian International Ship Register (NIS) (Norway), Isle of Man (UK), Madeira (Portugal), Kerguelen (France) and Danish International Ship Register (DIS) (Denmark) (Farthing and Brownrigg, 1997).
From the standpoint of the world economy, the main function of international ship registers is to assist in global maritime commerce. According to Odeke (1998) this assistance may be seen in eliminating certain restrictions and limitations imposed by primary registers. Besides the implementation of the official control function, international registers protect the rights of the owners of vessels. Furthermore, second registers tend to subscribe certain original regulations for vessels' owners. They stipulate definite manning, taxation rules and safety requirements (Chircop and LindÃ©n, 2006). For instance, the nationality requirements for manning are usually relaxed by the international registers. At the same time, the second register country has the right to call all registered vessels in the event of war or other emergencies (DeSombre, 2006).
Klikauer and Morris (2002) argue that it is beneficial for countries to have their own second registers. International registers charge registration taxes and fees from the vessels' owners. Even providing the above mentioned services to the ships, they remain profitable. International registers attract ship owners, as they ordinary provide more favourable conditions and terms than those of the home states (Raikes, 2009). It may be even stated that the second registers compete against each other in attracting new candidates.
Norwegian International Ship (NIS) Register
The Norwegian International Ship Register was founded in 1987. The second register provides the possibility of the registration and certification for vessels under the flag of Norway, which has been an outstanding nautical nation since the time of the Vikings. The main purpose of the NIS is formulated as the following: 'to offer a flexible and commercially attractive alternative to open registers while retaining the essential features of quality registers' (Branch, 2007, p. 164). The organisation was established to compete against other international registers for the benefit of Norway. The Norwegian International Ship Register allows the certification of the following types of ships: hovercraft, cargo and self-propelled ships, movable platforms and installations. The citizenship of the owner is not limited or restricted by the NIS.
The ships sailing under the Norwegian flag have to subject to the jurisdiction of that country. The key differences with the ordinary NOR may be seen in the following. First, according to the NIS, direct certification of foreign companies is allowed which is not possible in case of NOR. Secondly, according to the NIS, the employment of foreign crew with the standard local salary level is allowed.
Limitations of the NIS
The limitations subscribed by the NIS were originally formulated by the International Labour Organisation (ILO) of Norway and the International Maritime Organization (IMO). The main limitation of the NIS is that the ships under the Norwegian flag are not allowed to carry passengers or cargo from one Norwegian port to another Norwegian port. Furthermore, regular transportation of passengers between foreign and Norwegian ports is not permitted either. It is specified that Norwegian gas and oil installations are considered to be Norwegian ports from the standpoint of this limitation.
Despite the fact that the NIS legislation allows foreign ownership of the vessel, owners are obliged to have a Norwegian representative. This requirement may be also interpreted as a limitation for foreign owners. Another limitation may be seen in the fact that a foreign crew of the vessel is not allowed to carry out all the technical and commercial maintenance operations by themselves. Furthermore, their home country cannot be involved in these operations either. The NIS legislation implies the participation of the third party, a Norwegian company, which will accomplish the minimum set of technical and commercial operations for a foreign vessel. Hence, a certain degree of dependence in technical and financial operations for foreign vessels may be classified as a limitation because crew cannot make a choice of their own. At the same time, the NIS legislation does not limit the age of the vessel to be registered. The main requirement is satisfactory technical functioning of the ship.
The Number of Registered Ships
It is reasonable to trace back the dynamics of the registered quantities of vessels in the NIS. At the beginning of 1999, the number of registered vessels was equal to 705. In forthcoming years it was fluctuating and finally dropped. In 2000, 2001 and 2002 the number of the registered vessels constituted 712, 717 and 693 respectively. However, in 2008, this figure constituted only 577 vessels. The NIS registered 358 vessels owned by the Norwegians and 192 owned by foreigners. This illustrates that the general tend in the number of NIS registration was decreasing. To estimate the NIS registration in tonnage, the following indicators can be mentioned. During the period from 1999 to 2005, the tonnage of the NIS registered vessels changed from 19,000 gross tons to around 14,000 gross tons. Again, the overall trend for the NIS registers in tonnage was decreasing.
- The following advantages can be attributed to registration in the NIS.
- Norwegians are universally recognised as a competent and experienced maritime nation.
- The Norwegian taxation system is relatively mild in comparison with the overall European taxation regulations.
- The Norwegian judicial system characterises itself as one of the most predictable and sophisticated towards the maritime business.
- The NIS system has a very good reputation, which eliminates further inspection of the cargo in foreign ports. The registered vessels will reap all the benefits of high-quality tonnage.
- The implementation by the NIS of other international standards, such as ILO, IMO, ISM, SOLAS, WTO, OECD and MARPOL, increases the universality and uniformity of their legislation, which is advantageous for trade.
- The NIS provides more than 500 service stations on a global scale, which are easy to apply to for technical and financial management and support.
- The income of the crews including foreign citizens is not taxed by the Norwegian authorities.
It may be argued that the following disadvantages can be found in the NIS.
Foreign owners and cargo or passenger transportation companies are not permitted to enter the internal Norwegian market. The NIS legislation does not allow transportation between Norwegian ports for foreign vessels. However, this disadvantage is recognised by foreign owners only. The Norwegian authorities secure themselves against additional competition in the sea transportation market, which is recognised as an advantage for them.
Foreign ships have no possibility to turn to their domestic technical and financial support services.
Ship owners have to coordinate their payments to the employees within Norwegian legislation.
Mandatory participation of the Norwegian representative in the communication with the Norwegian government.
Norwegian Ordinary Register (NOR)
The Norwegian Ordinary Register (NOR) has certain similarities with the NIS, but the main difference may be found in the class of the register. According to the above given classification, the NOR belongs to the national type of registers. It means, that it emphasises the direct link between the nationality of the owner and the host country. The NOR can be considered a 'closed' register. The NOR legislation implies two options upon registration of vessels: mandatory and voluntary registrations. The mandatory registration is necessary for all the Norwegian vessels, which have a length of 15 meters or more. However, if they are already registered in other countries (have international or second registration), the NOR registration is not required.
The voluntary option of registration can be applied to the Norwegian vessels, which have a length from 7 to 15 meters. In addition, other vessels, which are not used for commercial purposes may be registered voluntarily according to the NOR. Floating docks and cranes, hovercrafts and installations and moving platforms can be registered on the voluntary basis. In all the other cases, which are prescribed by the Act concerning the Registration and Marking of Fishing Vessels, the registration of vessels is mandatory.
Limitations of the NOR
According to the Organisation for Economic Co-operation and Development (2005), the main limitations of the NOR may be found in its nature of being a national or closed register. In particular, to be registered by the NOR, the shipping company is to be owned by an EEA citizen. Nevertheless, non-EEA ownership is possible too, but the share owned by the EEA citizens must be no less than 60%. If compared with the NIS, such limitation does not exist there. On registration in the NOR, the company that owns a vessels becomes a company with limited liability. The headquarters of a cargo or passenger transporter must be on the territory of the EEA. Similar requirements are attributed to the crew of the vessel registered in accordance with the NOR standards. The prevailing majority of the crew members including the captain itself are to be EEA citizens, who had resided in the EEA area the two preceding years.
Another limitation deals with the technical and financial management of the registered vessel. The NOR legislation allows technical support for a vessel from a Norwegian technical servicer only. The maintenance may be given abroad, but this company has to ultimately belong to Norway.
The Number of Registered Ships
In 2007, the total number of vessels registered in NOR was equal to 749. In 2008, this figure increased by 2.8% and was equal to 770. The NOR registration in tonnage was equal to 2,411 gross tons in 2007. In 2008, this figure decreased and constituted only 2,305 gross tons. It is quite difficult to comment about the tend in the NOR registrations because the two recent years demonstrated a small rise in numbers, but a fall in tonnage.
The following advantages are usually attributed to the NOR.
The vessels operating in the inner market reap the benefits of high-quality support and the protection of foreign competitors.
Sophisticated and highly experienced maritime tradition contributes greatly to the development of sea transportation businesses for different types of vessels.
It is beneficial for ship owners that the country has two types of ship registers: national and international.
The following disadvantages may be seen in the NOR registration for vessels.
The registration fees are not stable and fluctuate from year to year depending on the prescriptions of the Maritime Act.
Opportunities of technical support are limited only to the domestic providers of this service.
It may be concluded that as Norwegian International Ship (NIS) Register and Norwegian Ordinary Registers (NOR) belong to one country, they have much in common. However, the main difference between these registers is that they belong to different register groups: national (NOR) and international or second (NIS) registers. The NOR completely binds the registered ships to the host country, Norway. It may be noticed in terms of ownership, cooperation with maintenance and support services and the location of the headquarters. The NIS naturally allows foreign ownership, but the limitation of mandatory service remains. Moreover, companies are obliged to have a Norwegian representative.
The UK register is part of the Maritime and Coastal Agency (MCA), which controls and monitors all of the marine activity in the UK. Since the UK is a kingdom, all of the activity is ultimately answerable to Her Majesty the Queen of Great Britain. The UK register is a 'closed' register.
The UK register handles:
Pleasure Crafts/ Small ships
With 116 (UK Ship Register, 2010) ports around the UK, all of the above vessels can register and receive a UK flag. Although the register provides a list of restrictions on who can be registered, it covers quite a wide range of geographical locations (e.g. British Dependant territories citizens, EEA countries, those that have a registered business in one of the EEA countries).
Benefits of having a UK Flag
The UK flag is considered to be one of the best performing flags in the world, ranking 3rd (lowest by risk) in the Paris MoU list - "The 'UK Flag' is one of the top performing Flags on the Paris MoU 'White List'" (UK register, 2010). The register is proud to offer their customers assistance both before and after registration. Financially, it rewards its members with relatively low annual renewal fees and contributes around Â£1.4 million to a Crew Relief Cost Scheme.
" UK registered ships are not targeted by Port State Control regimes in the world's major trading areas
ISPS plan approvals and verification audits at no cost to owners and operators
An international reputation for expert advice and guidance with a proactive leading role at the IMO, EU and Quality Shipping Committees
Worldwide security threat level information provided to UK registered ships with support for British Nationals on board from British Consuls and Royal Navy protection dependent on the availability of assets and exact situation
Quality Assurance offering certification to ISO 9001 and ISO 14001 standards with audits being taken in harmonisation with ISM
Alternate Compliance Scheme: A voluntary scheme that streamlines the survey and certification process by minimising duplication of effort with Classification Societies. Eligibility is conditional upon certain criteria being met" (UK Register, 2010).
Disadvantages of the UK Flag
The National Audit Office (2009) has reported that the efficiency with which the MAC operates has deteriorated over the years. Until 2000 the agency have managed to carry out all of the required surveys in order to check the quality of the ships that operate under a UK flag. However, by 2007, the targets were not met. Furthermore, it was predicted, that the targets would not be met again in 2008-2009. "Failure to meet its targets will increase the risk that UK vessels which do not comply with regulations operate without detection in UK ports and waters" (National Audit Office, 2009, p.5).
In order to be efficient, the MAC needs more resources However, at the moment, even the cost of surveys are not met by the revenues that are brought in by the owners of the vessels.
Another worrying fact, is that the quality of the UK flag, which has been enjoying a very good reputation over the years, is starting to disappear. The audit has found that an increasing number of UK flag holders are being detained overseas due to the inability to pass quality checks. Although relatively this detention number is lower compared to other flags, it has been argued that the difference is getting smaller every year. Partly, because the quality of the other flags is increasing and partly because the quality of the UK flag vessels is deteriorating.
In order to increase the growth in registered ships, the Government has introduced a tonnage tax in 2000. In turn, instead of charging vessels on the profits that they make off their activities, they are now charged on the tonnage of their vessels. This regulatory measure has allowed the UK register to see a good increase in the number of vessels. "By the end of 2007 the UK registered merchant fleet had grown from 1,050 to 1,518. Of these, 646 vessels were trading vessels compared with 417 vessels in 2000" (National Audit Office, 2009, p.5). The tonnage that was brought in also increased. In 2007, the average tonnage per vessel increased from 11,000 to 19,000.
This increase had an interesting effect on the number of overseas surveys that the MCA had to perform in 2007. Nearly a quarter of them had to be done overseas. This is a large increase, considering that in 2000-2001, 5% were performed overseas, while the rest were done domestically (National Audit Office, 2009, p.5). Large increases were also seen in the number of Certificates of Equivalent Competency that were issued, from 3,244 in 2003 to 4,722 in 2007.
However, although absolute numbers have increased, the overall rate of growth has declined. In 2007, the fleet grew by 10%, compared to 13.33% average growth from 2001 to 2003. The MAC argues that too many external factors are at play, which do not allow them to enhance the growth with more control. For example, the MAC found that some shipping companies were happy to wait and see whether the EU would bring in a tonnage tax as well, before making the final decision on their flagging. In turn, this shows that although the UK ship register provides a large number of benefits, they are not relatively strong enough to become a deciding factor for the shipping companies.
Isle of Man Registry
Isle of Man Registry (IOM) works closely with the Isle of Man government to provide relevant solutions to its members. Tynwald (the local parliament) is ultimately answerable to the Crown, however, as has long been agreed, the UK government does not legislate the IOM, and therefore, shipping legislation is approved by Tynwald alone. "The Isle of Man operates a Category One, Red Ensign Group British Register that provides for the registration of ships of any size or type. The Isle of Man Register is a component part of the British Register" (The Red Ensign Group, 2010).
IOM registry is relatively new, established only in 1984. Over the years, the IOM has seeked local private solutions for its clients, and today works closely with local marine lawyers, accountants, P&I clubs and even banks, bringing a diverse, 'one-stop-shop' solution to anyone who registers.
Due to its offshore jurisdiction capabilities and proximity to Europe, IOM can provide a highly competitive solution. The IOM strongly competes on its tax exemption regime, it's financial centre capabilities and developed technical solutions whilst on the island.
The IOM registers a large number of different vessels, including VLCC, superyachts, fishing boats and pleasure crafts.
Advantages of the IOM
"The Isle of Man Ship Registry has recently been voted "best in the world", claiming the top spot in the international shipping industry round table annual flag state performance table" (PDMS, 2008). Like the rest of the registrars, IOM conveys that it will provide the ship owners with the cost-efficient and customer-friendly solution. "Quality is key to the Isle of Man, where our reputation as a high quality jurisdiction makes us the flag of choice for today's modern maritime business" (IOM, 2010). Furthermore, the website states that this register's customer service has a 'can-do' approach.
" A professional Ship Registry providing a high quality of service available 24/7 with fast response to queries
Reasonable costs and no annual tonnage dues
A favourable taxation regime designed to encourage business
The right to fly the "Red Ensign" and access the support of British consular services world-wide and British Royal Navy protection
Flexibility in the requirements for registered owners
The availability of Demise registry both "IN" and "OUT"
Support for ships treated unfairly by Port State Control
Full political support for shipping
ISO 9001/2008 Accreditation
Not a Flag of Convenience
Regular advice bulletins on key issues to help owners respond to them" (IOM, 2010).
Unlike the rest of the registers, it can be argued that IOM offers a number of unique solutions and help. For example, the Ship Managers and Owner Association (IOMSA) brings together the ship owners with the relevant legal and financial representatives, where they are able to discuss outstanding issues and come up with solutions. A similar association is offered to the superyachts sector (Manx Yacht Forum). In turn, it can be argued, that the register can see the issues quickly and address them, which takes the customer service to a different level. Furthermore, since a large proportion of its business is coming from the private yacht owners, the IOM offers one annual yacht fee, which includes all of the charges and exemptions in it already. This makes it very easy for the owners to delegate all of their paper work to the registers, without getting involved in the complex structure of the system.
The Annual Report (2008) puts strong emphases on the quality of the vessels that register with the IOM registry. Consistent quality checks before the registration and during the time that the vessel is under the IOM flag, reflects in the strong decline in the number of accidents that the IOM are subject to. Over 5 years, the number of accidents declined from 53 in 2004 to 35 in 2008 (Annual Report, 2008, p. 20).
The Number of Registered Ships
The IOM has grown over the years, yet, this growth has never been aggressive. In 2008, it's main growth was in the registration of yachts, where the target was to register 1 per month. In 2008, 995 vessels were sailing under the IOM flag.
Figure 1. IOM registered vessels by type
Source: IOM, Annual Report, 2008, p. 10
It is extremely important for the IOM register to be within the first third on the Paris MOU register. So far, out of 83 members of the Paris MOU, they have managed to stay within the first 11.
Figure 2: Paris MOU register and IOM position
Source: Annual Report, 2008, p. 21
The literature review has shown that there are the second registers have been developed by the countries in order to compete with those that were offered by the developing countries. The 'closed registers' examined still prevail in size (by the number of registered vessels), however, the difference is not very large. Each of the registers offers their members a large number of benefits. However, as the case with NIS has shown, reluctance to be flexible is likely to results in less demand for their services. It was interesting to see the results produced by IOM. The registry has managed to grow steadily, despite having a large amount of competition. The low costs that the IOM offers has not impacted on the quality of the service provided.
It has been found that the UK Register is much bigger in size than NOR and enjoys a steady growth. Despite the deteriorating ability to meet its survey targets, it still has the 3rd place in the MOU whitelist (see Appendix). It can be argued that if the vessels are less likely to be detained overseas due to deficiencies, this plays an important part on their ability to make a profit. Therefore, low risk registers, such as the UK Register is likely to be more attractive.
Both NIS and NOR has seen a decline in their registered members. It can be argued that unlike the UK register and the IOM, they did not make enough competitive changes to stay attractive.
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