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Go to the main meeting page for the 29th Joint Maritime Commission

29th Session of the Joint Maritime Commission

Geneva, 22-26 January 2001

The impact on seafarers' living and working conditions
of changes in the structure of the shipping industry

Contents

Introduction

1.       Changes in the world shipping industry

Ownership, organization, finance and competition

Growth sectors: Boxboats and dreamships

Technological developments

The rise of the ship-management company

The arrival of environmental politics

The internationalization of shipping registration

Initiatives relating to the implementation of conditions of work

Port state control and quality shipping
Voluntary initiatives
Reducing costs

2.       The labour market for seafarers

Regulatory regimes and employment

The global labour market

Women seafarers

Recruitment and the labour market

Trade unions and collective bargaining

Training and certification

3.       Living and working conditions

Freedom of association and the right  to collective bargaining

Wages

International wage benchmarks/standards

Length of contracts and tours of duty

Hours of work

Food, accommodation and welfare

Recreation and communication

Provision for worship

Gender issues

Occupational safety

Occupational health

Abandoned seafarers

4.       Concluding remarks and suggested points for discussion

Concluding remarks

Suggested points for discussion

Appendix:   Extracts from the opinion on “Merchant seafarers' working
                  and employment conditions”

Introduction

At its 26th Session in 1991, the Joint Maritime Commission dealt with an item entitled “Changes in the shipboard environment and in the characteristics of seafarers' employment”. At that session, the Commission recognized that the shipping industry had experienced considerable and profound structural changes as regards ship registration and management and its deliberations paved the way for the adoption by the ILO of standards on hours of work and manning of ships, labour inspection and recruitment and placement. The Commission also requested the Office to undertake studies on the effects of “second” or international registers on seafarers' working and living conditions and of external ship management on seafarers' employment conditions. The results of these studies were to be submitted to the Commission with a view to determining what action, if any, should be taken by the ILO.

Therefore, in preparation of this session of the Commission and taking account of the limited resources available, the Office consulted the social partners on the follow-up to be given to the Commission's request. It was agreed that in view of the positions taken by the Shipowners' and Seafarers' groups in 1991, and of developments since the previous session of the Commission, it was preferable to have a broader agenda item which could provide a basis for discussing the future action of the ILO with regards to the conditions of work and life of seafarers. Accordingly, the Governing Body of the ILO decided at its 273rd Session to include in the agenda of the present session of the Commission an agenda item entitled “The impact on seafarers' living and working conditions of changes in the structure of the shipping industry”.

Indeed, this agenda item falls within the ILO's primary goal of ensuring “decent work”, as expressed in the Report of the Director-General to the 87th Session of the International Labour Conference in 1999: “The need today is to devise social and economic systems which ensure basic security and employment while remaining capable of adaptation to rapidly changing circumstances in a highly competitive global market.”

The Office thus requested the Seafarers' International Research Centre (SIRC) (Cardiff University), to gather information on the changes undergone by the shipping industry, especially as regards the institutions which are responsible for their regulation and verification of implementation – i.e. registry – and those who implement conditions of work and life on board – i.e. management. They were also to look into the impact of these changes on the conditions of work and life of seafarers.

This report has been prepared by the Office on the basis of this research and should provide the Commission with a basis for its discussions.

Chapter 1 examines some of the main changes which have occurred in world shipping and influenced the labour market and conditions of work and life of seafarers, especially in its organization as a sector. These include: the shift of ship management to specialist companies, the emergence of alternative types of registers, environmental issues, technological developments and port state control. The chapter concludes with some comments on the thrust of the industry to reduce costs in the face of economic considerations and the consequential impact on crew conditions.

Chapter 2 examines some aspects of the labour market for seafarers as well as a number of changes which have had an impact on conditions of work. It looks, inter alia, at the reduction in influence of national regulatory regimes and the impact of international recruitment on the employment of seafarers. The chapter also examines the employment of women in the industry, the role of unions and collective bargaining, and training and certification.

Chapter 3 deals with the current conditions of work and life in the shipping industry with particular emphasis on shipboard conditions. This chapter examines such issues as wages, hours of work, food, accommodation and welfare as well as certain issues such as gender and abandonment of seafarers.

Chapter 4 contains concluding remarks and the suggested points for discussion.

The Office would like to express its appreciation to all those who contributed to this report, above all to the staff of the SIRC for their dedication to research on the conditions of work and life of seafarers.

1.    Changes in the world
        shipping industry

The considerable changes in the living and working conditions of the world's seafarers during the past 30 years are, of course, linked to the unfolding political economy of world shipping. Changing patterns in the directions and volumes of world trade are conventionally held to be the underlying determinants of the modern transformation of world shipping. However, major changes in finance and management have also had a profound influence on the industry.

The last 30 years have been marked by rather erratic growth in seaborne world trade. In the 20 years from 1972 to 1992, the total tonnage carried by the world's ships steadily increased by some 52 per cent (an annual average of 2.6 per cent) – from 2,763 million tonnes to 4,211 million tonnes. The 1980-98 period, however, witnessed irregular trends in trade. Indeed, although tonnage carried showed an increase from 3,675 to 5,064 million tonnes (i.e. 2.8 per cent per annum) between 1988 and 1998, seaborne trade actually fell by 400 million tonnes in 1981 and did not climb back to 1980 levels until 1988. This reflected the fact that the 1980s – described by the investment bank, Warburg Dillon Read, as a period of “valiant but mutually destructive competition” – was the worst decade for the shipping industry since the 1920s and 1930s.

Developments in the shipbuilding industry are not explored in this paper but deserve a brief mention at this point, not least because part of the immediate cause of the severe recession of the 1980s lay in the shipbuilding industry. Based on the expectations of growth in world trade, many new and cheap ships, frequently built with state subsidies, were launched or ordered in the late 1970s and onward into the mid-1980s. Undoubtedly they helped to make a bad trading period worse. Despite a high rate of scrapping in the early to mid-1980s, it was not until the 1990s that the demolition-newbuild ratio (see table 1.1) began to show some consistency leading to a steady reduction in the volume of surplus tonnage (see figure 1.1). The data in table 1.2 shows reassuringly modest annual growth rates in the most volatile sectors (tankers and bulkers), negative growth in the ship types being displaced by container ships (cargo-passenger and general cargo ‘tween deckers) and obsolescence of ore-bulk-oil (OBO) carriers. Although the potential for future disruption from the shipbuilding industry has diminished through the removal of subsidies, it has by no means disappeared. Attempts in the later 1990s by GATT and its successor, the WTO, to manage capacity rationalization met with limited success.

Table 1.1.    Demolition and newbuilds, 1990-97 (million tonnes)

Figure 1.1.    Surplus tonnage by sector, 1989-96

Source: UNCTAD.

Table 1.2.    Development of world merchant fleet, 1988-98

Ownership, organization, finance
and competition

Ownership structures vary considerably from sector to sector in the shipping industry. While the privately owned and privately owned limited company (PLC) forms of ownership can be found in all sectors of the industry, generally speaking the largest firms and firms operating the more sophisticated ship types are more likely to be equity-funded, listed companies. The equity-funded, listed companies are also found in those subsectors where ownership is relatively concentrated, e.g. large chemical tankers and liner-container vessels. Throughout the twentieth century, the liner trades of all the traditional maritime nations showed high levels of concentration. Now, at the beginning of the twenty-first century, the world's liner trades are for the most part concentrated in a shrinking number of global firms.

The mergers, takeovers and acquisitions that resulted in the large container firms becoming progressively larger throughout the 1990s has now reached a point at which the sector will soon be dominated by perhaps six global carriers. The largest carriers who seem set to grow even further are not just owners of large fleets of ships running “mainline” services. Through their vertical and lateral ownerships of ports and terminals, warehousing, road transport, rail rolling-stock, freight forwarding and feederships, the liner companies of today are adopting exactly the same sorts of strategies first developed by the first consolidations which occurred in the liner trades of the late nineteenth century. There are however some important differences: the earlier consolidations and vertical integrations were all pursued from within a logic which saw shipping as the core business where everything was aimed at maximizing ship efficiency. In this new wave, a century later, the vision is the formation of global companies whose business is supply chains of which ships are but one element.

Integrationist global strategies are especially feasible in cases in which finished goods can be collected direct from producers for delivery to end-users. It is therefore possible for similar policies to be pursued in other trades such as the carriage of chemicals or vehicles. In the late 1990s there were some noteworthy developments in these trades: a Wallenius Wilhelmsen merger in car carriers; a Hoegh-Unicool merger in reefers; and a Stolt-Nielsen purchase of Van Ommeren shares in the chemical transport sector. The Wallenius Wilhelmsen merger created a fleet of 80 ships and a 35 per cent market share and Stolt-Nielsen further consolidated its already dominant position. In the tanker and dry bulk trades there are fewer opportunities for uncertainty-reducing strategies. Shipowners in these sectors are frequently independent carriers to the shippers of raw materials such as the oil majors and the world's steel-makers and are therefore classic cases of “price takers”. There is, however, some scope for shelter in these trades. Tanker pools grew stronger in several market niches in the 1990s and the oil majors' self-regulatory measures, emphasizing quality standards, work to the long-term advantage of owners of well-found ships. In the bulk trades there is strong evidence that well-found ships enjoy competitive advantages in those world regions where port state control measures are rigorously applied.

Unabated volatility in the freight markets unquestionably disadvantages owners operating well-maintained ships. When freight rates go down, shipowners with high costs have difficulty to compete with tonnage of lower quality. Andreas Ugland, when chairman of the International Association of Independent Tank Owners (INTERTANKO) in 1993, complained: “The employment of sub-standard tonnage continues ... and there is an unfortunate spiral. Companies that have invested in high-quality state-of-the-art vessels are unable to earn sufficient income to support the investment.” A Greek underwriter, speaking to the International Union of Marine Insurance in 1993, made exactly the same point: “The situation gets worse if one takes into account that seamanship has seriously deteriorated in recent decades. International shipping has got involved in a vicious spiral of recession in low freight returns, poor maintenance in general, and then cheaper crewing costs.” By way of response to these claims, the OECD published in 1996 the results of its study into the financial advantages accrued by operators of sub-standard ships.^[1] The conclusions of this report supported the view that declining freight rates had led to lower operating standards and that regulatory avoidance by sub-standard operators results in savings of a significant percentage of total operating costs.

Nowadays, banks play a major role in the industry. Bank lending is the prime source of capital in the building of new ships, buying of second-hand ones, providing working capital when bridges are needed and restructuring misjudged historic loans. The actual number of banks involved in ship finance constantly varies and it is not unusual for one bank to sell its ship loans portfolio, either in whole or in part, to another bank. Estimates in the late 1990s suggested that worldwide there were some 40 banks involved in ship finance, of which about 70 per cent were European, 18 per cent United States and 10 per cent Asian.

Bank finance began to assume increasing importance in shipping industry finance in the boom years of tanker building in the 1960s. Such was the rate of growth in crude oil shipments in this period that traditional methods of financing newbuilds through retained earnings was no longer adequate to support large fleet expansions. Furthermore, the then emerging trend of building specialist ships for specialized trades likewise indicated the need for new sources of capital. Even the conservatively managed and equity-based liner groups turned to bank borrowing to establish themselves in the new niche markets. In the independent tanker and bulk trades where private firms were dominant, bank lending was the only possible source of new capital unless they relinquished some control by floating share issues. In the 1960s, at least, there was little incentive to do this. So lucrative were time charters from the oil majors in the mid-1960s that a bank loan up to 90 per cent of the cost of a ship could be paid off in five years.^[2] Commenting on this epoch, Helmut Sohmen, whose family firm became the world's largest owner of very large crude carriers (VLCC), said: “Many financial institutions entered shipping for the first time, confident that high freights and expanding bulk trades suggested few risks in shipping. Syndicated loans became a common way of financing the new generation of very large tankers and bulkers. In the buoyant market conditions a 220,000 dwt tanker built for US$12-14 million in 1968 might be valued at US$30 million in 1971 and US$47 million in 1973.”^[3]

Banks specializing in ship finance do not necessarily carry all or even most of the debt. They may, for example, sell on some or all of the debt to other organizations which might be other banks or institutional lenders such as pension funds or insurance firms, although the extent to which this is possible at any given moment necessarily depends on trading conditions in the capital markets. In the conditions of a buyers' market, it is not uncommon for implausible debt to be bought by inexperienced and ill-informed lenders. During the mid-1990s, for example, the responsibility for the financial collapse of Adriatic Tankers with its 90-ship fleet could be evenly divided between a commercially incompetent owner and five banks and institutional lenders, who between them had contributed US$244 million to the (private) firm's expansion.

The relative absence, in the past, of PLC company structures in shipping made it difficult for a bank to make a conventional assessment of a prospective loan. Apart from the lack of any kind of historic data series enabling comparison with other operators' performance, a shipowner based offshore might or might not have had a balance sheet and was unlikely to possess either audited accounts or an impressive suite of offices providing apparently tangible evidence of a well-run firm. In these cases, however, bank debt could still be available on the basis of “name lending” or “relational banking”. That is to say, where there was some equivalent continuity between the individual banker and the individual owner, trust relationships could commonly be the basis of long-term sequences of lending.

When mortgages failed, as they often did in the 1980s, banks and other lenders could either repossess ships and appoint a ship manager to operate them until a disposal decision was made or the debt could be turned into equity, thus making the bank an institutional shareholder. This latter option was never popular and resorted to only where the debt was large and shared by a number of other banks. For example, in 1986 the family-controlled Wah Kwong Shipping and Investment group in Hong Kong, China (the third largest shipping group), owed more than US$850 million to 46 creditors who eventually agreed to reschedule the debt as equity.^[4]

The precise balance of ownership in the world fleet as between private and public capital may not be known but there is no question of the growing importance of equity funding and PLC status. It was estimated in 1995 that there were more than 300 shipping companies quoted on the world's stock exchanges with a total market capitalization of more than US$30 billion. The pace of change to PLC status, however, is unlikely to be rapid or uninterrupted except in the liner and “liner-like” trades. At least in the medium term, name lending is likely to remain predominant in the least specialized bulk trades. The inherent risk in lending of this sort is acknowledged by banks in the relatively low level of tolerable exposure to any one owner, even if the total exposure to shipowners is high. This type of lending, other things being equal, will help to sustain fragmentation of ownership, speculation in ship values and, therefore, freight market volatility. Continued volatility will reinforce the sceptical attitudes toward the shipping industry generally held by institutional lenders and thus ensure slow progress toward concentration of ownership.

There has been some debate over how far bank lending has encouraged shipowners to buy speculatively, thus exaggerating freight market volatility – with all the attendant consequences for seafarers. At the time of the Wah Kwong restructuring in 1986, Paul Slater, a prominent shipowner/financier, said publicly:

To order a new ship, other than in the liner trades, without contractual employment (i.e. without a time charter) is total speculation. To finance that speculation with borrowed funds is an irresponsible gamble, and those banks who provide funds for such gambles and describe them as loans are guilty of gross deception.^[5]

This is a persuasive argument. There can be no denying that – at least in the 1970s and 1980s – the banks were responsible for funding the speculative ship purchases which led to over-tonnaging, depressed freight rates and the pressure on labour costs. Indeed, the responsibility was theirs alone because neither retained earnings nor equity were any longer important sources of capital in the 1980s, least of all in the tanker and bulk trades where the over-tonnaging problem was especially severe.

The industry's structural problem of having too many ships to allow a reasonable return on ships that ran to high professional standards could not be resolved by the rescue operations banks were obliged to mount if they were not themselves to be driven into crisis. It was simply commercially impossible for them to write off their assets by selling them for scrap, least of all at a time when scrap prices were low. They were therefore obliged to keep their assets at sea and trading and selling them at the first best opportunity. As Paul Slater pointed out, the logic of the situation was ironic: “If anything the problems are compounded as ships sold or auctioned at a fraction of their recent original costs then return to the market at rates reflecting their new low value and thus continue to depress freight rates and cause further collapses.”

Despite all this, bank lending will continue to be the major source of funding for capital projects due to the high level of investment required. If, at any moment, capital is plentiful, looking for outlets that are available on attractive terms while shipping is coincidentally enjoying a run through buoyant markets, banks will be competing with each other for lenders. But the banks will only be doing what banks do. The perennial problem of the depressive effects of over-tonnaging on the labour market cannot be laid at the door of the banks and other short-term lenders. There may be problems with the capital markets – but perhaps the greater problem lies with the ownership structure of the shipping industry.

The most dramatic example of change in ownership structure in recent years came with the privatization of the shipping industry in Eastern Europe. The demise of the Romanian and Georgian fleets resulted in bankruptcy and abandoned crews with ships in appalling conditions being detained by port state control agencies. The relatively well-managed Polish fleet went through a lengthy period of decline, in the course of which large numbers of well-trained Polish seafarers, officers especially, quickly found employment in the flagged-out ships of the traditional maritime nations (see Chapter 2). The fleet in the former German Democratic Republic was of course quickly disposed of and officers wishing to continue at sea found work on ships belonging to the Federal Republic. Developments in the Baltic States, Ukraine and the Russian Federation were far more complex. In a number of cases privatized companies were refinanced through offshore registration and subsequent bareboat chartering back to the privatized company for manning by indigenous crews. In 1999, large numbers of ships crewed and operated by Russian, Ukrainian, Lithuanian, Estonian and Latvian crews, were mortgaged to Western banks and mainly flagged in Malta, Saint Vincent and the Grenadines, Cyprus and the Bahamas. Several European shipping and ship-management companies were involved in brokering these arrangements and providing commercial management services. A number of these arrangements have not worked well, commonly because of the new owners' financial practices.

The process of privatization effectively left the former USSR (including the Baltic countries) and its closer partners such as Bulgaria with two fleets. The newer and better ships were mortgaged and flagged-out; the older and presumably unmortgageable ships remained with the national flag. The flagged-out ships have generally fared better because they have benefited from Western commercial management experience. The high port state control detention and abandonment rates experienced by Russian- and Ukrainian-flagged ships and crews, accurately reflects the relative fortunes of the two fleets. Another consequence was that well-trained seafarers from the former USSR easily found relatively well-paid and secure employment outside of their countries; indeed, the timing was good and they often made up the shortage of well-trained officers.

Without a doubt, therefore, the excessive supply of vessels in the preceding decades, made worse by the availability of bank finance, has caused a high degree of competition with negative impact on freight rates. In the face of competition, shipowners have had to take tough measures to cut costs, some of which have influenced conditions aboard ships.

Growth sectors: Boxboats and dreamships

Apart from roll-on-roll-off passenger ships mainly operating in near-sea ferry trades, the high growth rates have been in the liner trades and in cruise shipping. Although the liner trades have been steadily expanding for more than 30 years as they have eaten into more and more of the trades formerly served by geared ‘tween decked cargo ships, cruise shipping has more recently accelerated into a growth trend best compared, perhaps, with the development of the package-holiday industry in the 1960s and 1970s. Where the liner trades are concerned, the growth emphasis has been on developing two main types of ship – mega-carriers dedicated to the mainline hub routes and various-sized feeder ships flexible enough in draft and carrying capacity to be switched between spoke routes. As far as crews are concerned, the mainline ships probably offer the best employment conditions to be found. The feeder ship crews, by comparison, can experience long hours of work in trades involving rapid turnarounds in ports and short sea passages. Overall growth in the container trades is expected to continue: 12 per cent of general cargo was carried in boxes in 1990 and 27 per cent in 1999. The forecast for 2005 is a conservative 40 per cent.

From the perspective of seafarers, by far the most important growth has been in cruise shipping, involving unprecedented levels of demand for women seafarers. The number of the cruise ships (1,000 gt and over) in the world cruise fleet has risen from 147 in 1980 to 225 in 1998 with gross tonnage having increased from 2,045,000 in 1980 to 6,307,000 in 1998^[6] and the passengers carried from 1.5 million in 1980 to over 7.5 million in 1998. The cruise sector has been looking for economies of scale and this has led to the “mega” ship of 100,000 gt or over, with a berth capacity of 3,000+ passengers (see table 1.3). For example, one of the recent cruise vessels, Voyager of the Seas, owned by Royal Caribbean International, is 142,000 tons and has a capacity of 3,000 passengers and 900 crew. Most of these ships are owned by companies of a few countries such as the United States, Norway and the United Kingdom and fly the flags of the open registry States of the Bahamas, Liberia and Panama. The fleet has been built mainly in Europe. There are ten main owning/operating companies with the top five largest owners and operators listed in table 1.4.

Table 1.3.    Development of cruise shipping, 1980-98
                    (with ships of 1,000 gt and over)

Table 1.4.    World top five cruise companies (1999)

There are considerable economies of scale to be had from operating large cruise ships with 2,000 to 3,000 berths. Both capital cost and operating cost per passenger decreases rapidly with the increase of ship size. Indeed, operating cruise lines have become so profitable that Carnival, for example, reported a net income of US$157.8 million for its first quarter in 1999, a 44 per cent increase on the previous year. This made it the 31st consecutive quarter that the company has reported improvements. Royal Caribbean also reported an income growth of 16.3 per cent for the first quarter, from US$77.5 million in 1998 to US$90.2 million in 1999. The current economic “prizes” to be found in this sector are considerable – but the entry costs are high and this has ensured a small number of dominant firms and a high merger rate.

Technological developments

Already in 1991, in a report to the Joint Maritime Commission, the Office had identified technological development as a cause of the reduction in employment opportunities at sea. It also pointed out that automation, the increase in size of ships and various other technical innovations had also contributed to a reduction in the size of crews, increased fatigue and isolation while increasing the need for highly skilled personnel.^[7]

Shipbuilding technology has allowed a rapid increase in ship size which has been matched by developments in cargo-handling equipment and port infrastructure. The bulker and tanker sectors have reached a stage where a further increase in ship size, although technically possible, would not seem at present to be commercially viable. Other shipping sectors have seen a marked increase in ship size over the last decade. Outstanding examples are container vessels. In less than two decades ship sizes have doubled from Panamax (3-4,000 TEUs) to the latest generation of post-Panamax vessels (6-8,000 TEUs). Furthermore, there are already plans to build vessels with a carrying capacity of 15,000 TEUs.

The use of bigger vessels has been accompanied by a change in the geography of ports. Earlier ports were built close to the hinterland they served. Today, the environmental, operational and commercial considerations raised by the increase in ship size dictate port development in remote areas, typically far away from urban centres. From a seafarer's perspective, the remoteness and fast turnarounds in modern ports can make shore leave difficult or impossible.

During the past two decades, the use of high-speed craft has been growing in coastal areas around the world. Until now, this type of vessel has been used mainly for passenger services. However, as supply chains in different industrial sectors move towards integration and ever-higher efficiencies, the demand for high-speed crafts for transporting commodities over much larger distances is increasing. The first transatlantic high-speed service is currently at an advanced stage of planning.

The shipboard organization aboard high-speed craft resembles more that of an aircraft than of a ship. The levels of automation and integration require highly specialized training for all of the crew. Given the high capital cost involved, maintenance and fast turnaround time in port are paramount, as failure to run is failure to earn. The crews of high-speed crafts, like airline pilots, are at present only subject to national regulations on hours of work. It is not yet clear how regulations on working time will apply to transoceanic services when they start to operate in the near future. Neither is it clear what the duties of the crew will be when in port. Will a ground crew for loading and unloading replace them? Undoubtedly, these crews will need a working regime different from the one applicable to crews aboard conventional cargo vessels.

It is also reported that on short sea passenger ferry routes, high-speed craft may replace conventional vessels – with corresponding job losses.

The reduction in turnaround times has also been impressive in almost all trades, especially in dry and liquid bulk trades and in the handling of general cargo through unitization.

Since its development in the 1950s, containerization remains the most important development in cargo unitization. Although container systems require a very high initial investment they do achieve added benefits such as very fast rates of handling; they also provide a seamless link with other modes of transport. Container ships are equipped with special features specifically designed to optimize efficiency of handling operations. Cellular guides partly do away with the need for lashing cargo prior to a sea passage and easy access to holds reduces dramatically the turnaround time in port. The speed with which cargo operations are conducted also requires the maximum attention to cargo calculations and stowage on board as any error quickly becomes buried under stacks of containers making it extremely expensive and time-consuming to rectify. Turnaround times measured in single-digit hours are now close to the norm for container services.

Automation and integration technology has been adopted since the 1960s in the shipping industry and is now applied to most shipboard systems. Integrated bridge systems are now a standard feature on new ships. The bridge has become an information and control centre for all shipboard functions including navigation, propulsion and communications. The layout of this system has more similarity with an aircraft's cockpit than with the traditional wheelhouse arrangements.

During the 1970s, the introduction of computers to monitor and control propulsion systems resulted in unattended machinery spaces, where constant watches were no longer necessary. Nowadays, most seagoing vessels operate with periodically unmanned machinery spaces. The main effects of deck and engine-room automation and integration are a reduction of manning levels and a change in work organization and shipboard environment.

The introduction of satellite communications has also had two major repercussions on ships' personnel. First, the possibility of direct and immediate contact between ship and shore management has often done away with the former notion of “line management”. Second, the introduction of electronic distress and safety communications has abolished the position of radio officer.

Satellite communications in shipping were given a boost by the establishment of the International Maritime Satellite Organization (INMARSAT) by the International Maritime Organization (IMO) in 1976. Since then, the use of communication satellites has greatly improved not only safety and distress communications, but also public correspondence and fleet communications between ship and shore.

On 1 February 1999, the Global Maritime Distress and Safety System (GMDSS) was implemented, heralding a new era in ship distress and safety communications. This integrated system of satellite and terrestrial communications is intended to improve the accuracy and response time to distress calls originating from ships. All passenger ships and cargo ships over 300 gt engaged on international voyages are now required to participate in GMDSS by having the appropriate equipment on board and trained personnel to operate it. Ships participating in GMDSS are not required to carry a dedicated radio operator, as distress communication functions have been passed on to the designated GMDSS operators on board (deck officers). This provides another opportunity to reduce manning levels.

For public correspondence purposes, satellite communications by voice are still expensive. However, a few seafarers are benefiting from the use of the Internet at sea which can be used for correspondence, leisure and even distance learning. As technology in this field advances, the cost for sea-based users will decrease making communications more affordable to all seafarers.

For fleet communications between ship and shore, the use of satellites is revolutionizing the way ships are managed by enhancing communications, data transfer and operational control.

The rise of the ship-management company

The long crisis of the 1980s found shipowners of the traditional maritime nations looking for cost-cutting survival strategies. Some left the industry to focus on more profitable parts of their business. For example, the large British firm, Ocean Transport (better known as Blue Funnel), progressively sold its shipping interests and became a logistics company. Others flagged out their ships to “open registers” of one kind or another which allowed them to make large and immediate labour cost reductions. In 1983 an author pointed out that: “relative advantages based on only lower manning costs are impermanent and will not finally save even the most cost-effective operator”.^[8]

A number of shipowners turned to managing ships for other owners as a means of utilizing spare management capacity. In 1983, P&O won a contract to manage four tankers owned by one of the Gulf States – in addition to a further 15 ships it managed for various other companies.

Third-party ship management, although not unusual among established shipowners in the traditional maritime nations, had previously only been on a very limited and almost incidental scale. In the United States, however, it became a specialist business in the 1950s when American owners built up substantial Liberian-flagged tanker fleets. Probably the first major step towards similar businesses in Europe came in the 1960s when the family-owned Scottish tramp company, Denholm's, rapidly became a specialist ship manager upon taking over the management of a substantial part of what had been the Naess fleet. Ship management as a recognizably specialist sector in world shipping then grew rapidly – initially in Hong Kong, China, in the 1970s, where professionals were needed to operate ships being bought by private entrepreneurs and then to continue operating them on behalf of financial institutions. Ship-management companies in Europe, mainly in Germany, Monaco, the Netherlands, Switzerland, the United Kingdom and the Scandinavian countries, by contrast, mainly developed as extensions of existing shipping enterprises.

In-house management buy-outs or the creation of self-sufficient but wholly owned subsidiaries of technical and personnel management services became extremely common among many of the larger shipowning companies. Many of these offshoots successfully evolved via mergers or takeovers into the now familiar ship-management companies of the 1990s. Success was due in no small part to the fact that many shipowners were looking for ways to cut their overheads and saw in these new organizations the possibility of reaping some of the benefits of economies of scale that were hard to achieve in small fleets. Economies were especially likely to be found in the area of crew management because of the difficulties involved in hiring crews either wholly or in part from cheaper but unfamiliar world regions. In these circumstances subcontracting to specialist firms became attractive.

As ship-management firms have developed and expanded they have become the world's largest employers of seafarers. Such is the scale of their labour requirements and their consequent need for efficient organization that they have collectively become a powerful source of labour market stability. Unlike shipowners with small fleets who may be recurrently driven by circumstance to look for a new and cheaper source of labour, ship managers with perhaps 5,000 seafarers spread over 200 ships need orderly and predictable supply lines. By the mid-1990s a number of ship-management companies had already become seriously involved in officer training, at least two of them to the extent of running cadetships in the manner of some of the large – now defunct – liner companies. Others had set up their own training establishments for ratings.

By the late 1990s ship managers had become centred in both the old and the new metropoles of world shipping: in Europe – Hamburg, Glasgow, the Isle of Man, Geneva, Piraeus and Cyprus; in the United States – in and around New York; in Asia – Hong Kong, China, Singapore and Kuala Lumpur.

The managed fleets typically embrace a wide range of ship types, flying various but mainly “open register” flags with owners and crews drawn from a number of different countries. For example, the mid-range firm, Univan, founded in Hong Kong, China, in 1973 by a Belgian shipmaster, has a fleet of more than 70 ships flagged to the Newly Independent States (NIS), Liberia, Panama, Cyprus, Hong Kong, China, and the Bahamas; of these ships 30 per cent are owned in Norway, 25 per cent in the United States, 12 per cent in Japan, 12 per cent in India and 5 per cent in the United Kingdom. Crews are mostly Indian (90 per cent) with others from the Philippines and Myanmar.^[9] Other companies have a similar range of clients but normally draw upon a wider range of crewing sources: Acomarit employs large numbers of Russians; Barber International's main crew sources are the Philippines, India and Poland.

The ship-management market is as stratified as any market. Perhaps as much as 80 per cent or more of the market is accounted for by companies with fleets in the size range 15-200+ ships and 50 per cent of the total market by managed fleets of roughly 200+ ships. These are then followed by a long list of small firms managing less than ten ships. Firms in this range do not have the resources to have vertically integrated organizations with agencies in the labour-supply countries and, other things being equal, are more likely to be “footloose” in sourcing crews.

In at least the medium term, the larger ship managers' organizational imperatives ensure that at any given moment they have a strong interest in sustaining the status quo in the labour market. They have established dense and personalized networks in the labour-supply countries, often reaching into training and educational institutions – and social capital of this kind is not easily accumulated. On the other hand, the interest and investment in stability provides no guarantee of its continuation. It would only take one large ship-management company to seek short-term competitive advantage by opting on a large scale for a significantly cheaper source of labour to send competitors off in pursuit. The effects would be similar to those produced by the flight to offshore registries in the 1970s and 1980s. Several management companies are known to be diversifying their sources of labour on a small scale – e.g. by employing Vietnamese and Chinese on a limited scale while employing large numbers of Filipinos.

The ship-management sector, though still growing, has now entered its mature phase. Its main centres are in northern Europe including the Nordic countries, Greece, South-East Asia (principally Hong Kong, China, and Singapore), Japan and the United States, and its main customers are from the same countries and regions. Some estimates now suggest that perhaps 10,000 ships have at least one of their functional areas run by third-party managers. Ship-management functions are conventionally designated as commercial (charters, mortgages, insurances, etc.), technical (ship maintenance, dry-docking, periodic survey, etc.), and crew management (finding, organizing, paying and training crews). By the mid-1990s the ship-management sector was sufficiently well established to successfully launch the International Ship Managers' Association (ISMA). In 1994, ISMA members alone managed 1,800 ships totalling 60 m dwt; a further 1,053 were fully managed (i.e. commercially, technically and crewing); 717 were solely under crew management contracts and a further 70 were under other forms of service contract. More than 80 per cent of managed ships flew an offshore flag: second register or flags of convenience; the remaining 20 per cent flew national flags. The total seagoing labour force of ISMA members was approximately 50,000, the great majority from the Philippines, India and Eastern Europe. At the beginning of the twenty-first century the ship-management companies' clients are for the most part small to medium-sized shipowners but, by virtue of the central management provided by the managers for all their clients, it might be said that ship-management companies provide at least some of the benefits of scale otherwise only found in large and powerful shipping companies.

The arrival of environmental politics

Wrecks, founderings and other incidents, many of them involving crude oil tankers, have had far-reaching consequences for world shipping's regulatory environment. Modern developments in port state control began with the wreck of the Amoco Cadiz off the northern coast of France in 1978. This control was reinforced after the grounding of the Exxon Valdez in Alaska in 1989, the incident off the Western Australian coast when the entire bow section fell off the Kirki, and the wreck of the Braer on the United Kingdom's Shetland Islands in 1993. These incidents have all contributed to a string of regulatory consequences.^[10] The most important of these has been the global spread of transnational port state control systems aimed at identifying ships failing to conform with IMO and ILO Conventions. The various provisions of these Conventions offer a wide range of opportunities to “capture” defective ships: structural deficiencies, inadequate life saving and fire-fighting appliances, poorly stocked medicine chests, deficient food and accommodation, insufficiently or improperly certificated officers are all grounds for delaying a ship's departure. The oil industry with its own initiatives has also introduced practices designed to squeeze out sub-standard ships. In 1993, the Oil Companies International Marine Forum (OCIMF) established the Ship Inspection Report Programme (SIRE), a commonly held database of reports of the oil companies' own ship inspectors. The scheme was designed to ensure that ships taken on hire by the oil majors met good structural and operational standards. As the SIRE system has developed it has increasingly been concerned with crew competence and crew conditions of service. Within just three years of operation the London shipbroking community was persuaded that it was no longer possible to fix a sub-standard ship with any of the oil majors. The SIRE regime, taken together with the state-based port state control system, has received support from all of the industry's representative organizations and has undoubtedly gone a long way towards improving safety generally – especially for crews. It is fair to wonder, however, how much of this new regulatory regime would have developed without the arrival of the environment as a major political issue.

Every major disaster involving large-scale pollution has consequences for policy-makers: for example, the Amoco Cadiz, Exxon Valdez groundings and more recently the sinking of the Erika, with the dramatic pollution of the French coast that ensued, are expected to have a significant impact on international maritime legislation. As far as seafarers are concerned, one of the negative consequences of the heavy impact of environmental issues has been the ease with which national authorities have held masters in custody for protracted periods after maritime casualties involving pollution of the environment.

The internationalization of shipping registration

There is no doubt that the “flag” has a bearing on the conditions of work of seafarers. This is recognized by the United Nations Convention on the Law of the Sea which compels States to take measures with regard to labour conditions and training of crews, taking account of the applicable international instruments. The ILO has examined the evolution of ship registration several times in the last 50 years, and particularly in the period preceding the adoption of the Merchant Shipping (Minimum Standards) Convention, 1976 (No. 147). The practice of allowing foreign shipowners to register vessels under one's flag has grown. “Flags of convenience” emerged to give flexibility in the operation of ships. As a response to intensified competition in the industry, many major maritime States have created registers which provide similar flexibility. These open registers have been termed offshore, secondary, second or international. Most of them have some or all of the characteristics of “flags of convenience” as defined in 1970 by the Rochdale Inquiry into Shipping:

(i)    the country of registry allows ownership and/or control of its merchant vessels by non-citizens;

(ii)    access to the registry is easy. A ship may usually be registered at a consul's office abroad. Equally important, transfer from the registry at the owner's option is not restricted;

(iii)   taxes on the income from the ships are not levied locally or are low. A registry fee and an annual fee, based on tonnage, are normally the only charges made. A guarantee or acceptable understanding regarding future freedom from taxation may also be given;

(iv)   the country of registry is a small power with no national requirement under any foreseeable circumstances for all the shipping registered (but receipts from very small charges on a large tonnage may produce a substantial effect on its national income and balance of payments);

(v)   manning of ships by non-nationals is freely permitted; and

(vi)   the country of registry has neither the power nor the administrative machinery effectively to impose any government or international regulations; nor has the country the wish or the power to control the companies themselves.

A large number of countries have registers which offer some or all of these advantages. For example, they may reduce taxes applying to shipping and allow the employment of foreign seafarers. Some States have created second registers which provide some or all of these advantages while maintaining a distinct primary and less advantageous register.

The Office has identified 24 such second registers, a list of which is given in table 1.8. The term “second register” does not imply the form of the relationship between the two registers or the rationale and operation of their respective registers; hence it needs to be used with some care.

A number of these second registers are minimal and show little, if any, growth; furthermore, they cover only small ships. Their status as a second register is a result of their being based in a non-metropolitan territory of another State although, in terms of shipping registration, there may be no links with the State's primary register. In addition, that territory might not have entered into the registry business. These registers could be classified as non-active, in terms of both their operations and international significance. Eight of them might be considered in this category: Wallis and Futuna Islands; Cook Islands; Macao; Anguila; British Virgin Islands; Channel Islands; Falkland Islands; and Turks and Caicos Islands.

A few are active as registers, and are significantly autonomous in their operations. However, a second register does not define the rationale behind the register's existence – i.e. the register does not exist solely with a view to attracting shipping from the metropolitan State. The relationship between the territory and its metropolitan State tends to be visible through the content of laws, for example in Bermuda and the Cayman Islands the principal shipping legislation in force is the United Kingdom Merchant Shipping Acts; the Isle of Man legislation is also principally based on these Acts. These second registers are, in effect, open registers based in non-metropolitan territories.

One of the responses to the phenomenon of “flagging out”, has been the creation of new registers or the cultivation of an existent territorial register. The aim is to minimize the loss of tonnage from a flag State by effectively encouraging a shipowner to remain under the auspices of that State while benefiting from a number of enticements such as lower taxation and less-regulated crewing requirements. This action is the pragmatic recognition of the force of international competition from open registries – and of their competitive advantages because of their flexibility. With few exceptions, such as the German second register, these flags attempt to attract international shipping as well as maintain the national fleet.

The creation of these registers began in the late 1980s with France-Kerguelen Islands (1987), the Norwegian International Ship Register (NIS) (1987), the Danish International Ship Register (DIS) (1988), Portugal-Madeira (1988), and the German International Ship Register (GIS) (1988). After this initial period of activity, there was a significant lull in the further creation of second registers, with the sole exception of Spain-Canary Islands (1992). However from 1997 onwards there has been renewed activity in this area, with the creation of a Turkish second register in 1997, a Brazilian Registro Especial Brasileiro, and an Italian second register in 1998. Current activity suggests that the option of utilizing a non-metropolitan territory has become less attractive, and new second registers are exclusively concentrated on the nominal constitution of second registers within the primary countries themselves. Both the recent second registers and those countries currently engaged in debate over this issue (the United States is expected to reach a policy decision on a second register in the near future) favour this option. The disadvantages attached to the use of a non-metropolitan territory has led the French Government to consider plans to create a second national register within France to replace the Kerguelen Islands. Concerning the attempt to retain tonnage, the GIS has been most successful in the first instance. When Germany introduced its second register in 1988, 52 per cent of German tonnage was registered abroad; it subsequently fell to 38 per cent but was up to 65 per cent in 1997.^[11] According to the Federal Office of Maritime Shipping and Hydrography, 96 per cent of German registered tonnage appears on this register. It is also unusual in terms of second registers in that only ships acceptable to the primary register may be entered on the GIS.

Table 1.5.    Second registers

The increased level of deregulation within these second registers – and, in particular, the relaxation of crewing requirements plus the increased amount of non-national shipping attracted to these registers – has led to significant amounts of interest from the International Transport Workers' Federation (ITF) who have concluded that 13 second registers should be considered to be flags of convenience.^[12]

The importance of the international fleet consisting of open and second registers compared to the world fleet as a whole has increased considerably. Based on available information, the Office has estimated that the international fleet, which in 1989 represented 44.5 per cent of the world fleet by gross tonnage, had reached 64 per cent of the world fleet in 1999 (table 1.6). By number of vessels the proportion had grown from 19.5 per cent in 1989 to 28.7 per cent in 1999.

Table 1.6.    Evolution of international fleet as percentage of world fleet (gross tonnage)

The international fleet consists mainly of large vessels and these are concentrated especially in a few very large registries. In the 1990s, the ten largest registers consistently covered around 90 per cent of the international fleet and around 50 per cent of the world fleet (table 1.7).

Table 1.7.    Evolution of international fleet as percentage of world fleet (numbers)

The majority of vessels registered in the international registries are effectively owned in other countries. In the five largest international registries, Greek interests own most of the tonnage on the Maltese and Cyprus registers, Japanese owners control 40 per cent of the Panamanian fleet, whilst there is no significant tonnage owned by nationals of any of the countries concerned (table 1.8).

Table 1.8.    Nationality of effective owners of the five major open registry fleets, by percentage
                    (as at 31 Dec. 1997)

For many reasons the international registers have steadily become more important within the global maritime industry. As suggested by Bergantino and Marlow^[13] “flagging out is primarily caused by the desire to minimize costs …”. The same authors also suggest, however, that other factors such as the quality of available labour, management costs, fiscal considerations and questions of effective control are important elements in such decisions.

Data on detention and casualty rates nonetheless also reveal that many national flags often have records worse than the international registers. The average global detention to inspection rate by port state control in 1998 was 6 per cent,^[14] and of the 39 countries who exceeded this rate, only eight were international registers whose combined total gross tonnage represented just 20 per cent of the entire international fleet (table 1.9).

Table 1.9.    The 39 registries that exceeded the average global detention rate in 1998

With regards to casualties, there is a similar picture. Of the 21 States whose losses as a percentage of its fleet exceeded the world average losses of 0.1 in 1998, only seven were FOCs and their combined total gross tonnage accounted for only 25 per cent of the FOC total (table 1.10).

It is therefore evident that FOCs have evolved since the 1970s and only a few have a safety record which is any worse than the world fleet average.

This competitive drive to attract shipping to a register looks set to continue.

Some maritime nations are allowing considerable tax advantages to shipowners in order to attract ships back to the country's flag. The recent adoption by the Netherlands and the United Kingdom of new tax regimes for shipping has prompted the return of some beneficially owned tonnage to the national register.

Table 1.10.    Registries with losses exceeding the world average in 1998