Asia: A Flag State's Market
The OGSR recently compiled the last five years’ worth of statistics from the UN Conference on Transportation and Development’s (UNCTAD) annual Review of Maritime Transport (RMT) on the thirty-five largest owned fleets by country, breaking down the data with an eye on Asia. The findings were then evaluated for an original feature in the latest issue of parent publication, Marine Money. The article and accompanying charts are published as follows. The OGSR thanks Marine Money for the opportunity to contribute to their recent edition, available to subscribers now.
A Flag State's Market
by Sarah Noonan and Campbell Houston
The Official Guide to Ship & Yacht Registries compiled the last five years’ worth of statistics from the UN Conference on Transportation and Development’s (UNCTAD) annual Review of Maritime Transport (RMT) on the thirty-five largest owned fleets by country, breaking down the data with an eye on Asia. The trends shown are well known: the world fleet is growing, the Asian fleet is growing, ships are getting bigger, and national registries are losing market share to open registries. The data though, featured in the accompanying table and charts, reveals a shocking magnitude of change. This article dives into the data and discusses with flag states its real world effects and opportunities.
In order to understand the conclusions drawn, four notes must be provided:
• Vessels of 1,000 GT and above, excluding the United States Reserve Fleet and the United States and Canadian Great Lakes fleets (which have a combined tonnage of 5.4 million dwt) are included.
• The country of ownership indicates where the true controlling interest (i.e. the parent company) of the fleet is located. In several cases, determining this has required making certain judgments. Thus, for instance, Greece is shown as the country of ownership for vessels owned by a Greek national whose company has representative offices in New York City, London, and Piraeus, although the owner may be domiciled in the United States.
• National flags include vessels flying the national flag but registered in territorial dependencies or associated self-governing territories such as Gibraltar, Guernsey, Isle of Man or Jersey (United Kingdom), and in second registries such as DIS (Denmark), NIS (Norway) or FIS (France). For the United Kingdom, British flagged vessels are included under the national flag, except for Bermuda.
• For the purpose of this article, OGSR defined Asia as Japan, China, Korea, Taiwan, Hong Kong, Singapore, India, Malaysia, Indonesia, Vietnam, and Thailand, as well the Middle Eastern countries of Saudi Arabia, Iran, United Arab Emirates, Kuwait, and Qatar.
(To view above chart as a full size image, click here.)
In 2008, the world fleet of known ownership by deadweight tonnage stood at 1,038 million dwt; since then, it has grown at an average of 6.1 percent (88.4 million dwt) per year. In 2012, world tonnage reached 1,391 million dwt, a total increase of 34 percent (353 million dwt) over the past five years.
Asian-owned tonnage, that is, vessels where the controlling interest is located in Asia regardless of flag, grew at an average rate of 7.3 percent (45.7 million dwt) per year for a total increase of 41.5 percent (183 million dwt). This rate is approximately double the pace of the tonnage owned by the rest of the world (RoW), which grew at 3.5 percent (26.4 million dwt) per year for a total increase of 17.7 percent (105 million dwt).
Growth of foreign-flagged (open registry) tonnage in Asian and RoW countries was comparable. Asia registered an average of 7.1 percent (30.8 million dwt) additional tonnage per year, two-thirds of the region’s total growth, to foreign flags. The rest of the world added 6.5 percent (33.5 million dwt) per year. The result was a five-year worldwide increase of foreign-flagged tonnage of 37 percent (257 million tons), a boon for open registries.
The difference lies in how Asia has outpaced the rest of the world in nationally-flagged tonnage growth. Asian-owned, nationally-flagged tonnage increased an average of 7.6 percent (14.9 million tons) per year, maintaining a constant 31 percent of owned tonnage under a national flag over the five year period. Tonnage owned by the rest of the world under national flags, meanwhile, decreased by an average of 2.7 percent (7.1 million tons) per year, falling from 44 to 25 percent of total RoW-owned tonnage.
As these trends indicate, the world’s open registries, with which an increasing majority of ships are registered, have an ever-expanding market to serve, with those that position themselves properly reaping the benefits. And they have, refining legal regimes, legislation, cultural skills, and costs and expanding range of staff, offices and services in local Asian markets. In light of the growth of Asian tonnage in the world fleet, this is only natural. But how exactly have the most active flag administrators seen the shift? A review of the past year’s archives and discussions with flag state administrators provide insight into the approaches taken by these registries toward the burgeoning Asian market: Physical presence and continuous service are clearly critical.
The best way for open registries to target new business in Asia is by establishing corporate offices and appointing deputy registrars to act on behalf of the flag in the region. This enables the registries to work with Asian owners within their own time zones and bridge what were previously cultural and linguistic barriers, and, in some of the best examples, provide immediate high-level introductions. William Gallagher, President of International Registries, Inc. (which provides administrative and technical support to the Republic of the Marshall Islands registry), whose fleet is more than 20 percent Asian-owned, explains by way of example, “As a result of the demand coming out of Asia, we have seven offices in this region; two in China, two in Japan, one in Singapore, one in South Korea and one in Hong Kong, which is our head office in Asia. The network of offices we have established ensures easy coordination for registration and day-to-day operations and communications with the flag State.”
Gallagher continues, “In years past, if a vessel in the registry had a problem, they had to contact a US office of the registry regardless of the time of day. Now, with worldwide offices, regardless of the time of day we have an office that is open any day of the week and at any time. Thus we can better co-ordinate our services.”
Annie Ng, Managing Director of the Far East offices, commented, “we thrive on being a user-friendly Flag State administration; we provide updated guidance on new and upcoming regulations and through our worldwide maritime services group, assist ship operators in ensuring their vessels comply with international and national regulations which impact safety, security, environmental compliance and social responsibility.”
“We take our responsibility as a flag State seriously. On the regulatory side, we have been working diligently since January of 2010 to prepare our owners for the MLC, 2006 entry into force date of 20 August 2013. The Marshall Islands fleet is nearing 100% compliant with more than 2,080 Declarations of Maritime Labour Compliance, Part I issued. This proactive approach of the Registry has consistently been recognized by owners coming out of Asia and the rest of the world,” concluded Mr. Gallagher.
Developing an Asian presence has also been fruitful for the Isle of Man. Of the registry’s focus on the region, Director Dick Welsh states, “We have a registry agent working in Tokyo, and have developed a network of surveyors in Singapore, Manila, Hong Kong, Shanghai, and Brisbane to be able to serve the needs of clients in that area. We provide 24/7 cover from the Isle of Man with key decision makers who are able to assist shipowners and we also provide registry at any time of the day or night from the Isle of Man to suit the shipyard delivery times in Asia.”
The rewards stemming from these efforts for the Isle of Man have been huge. Over the past five years the registry’s Asian client base has grown from no representation at all to accounting for 35 percent of the flag’s fleet.
Alfonso Castillero, Director General of Merchant Marine for the Panama Maritime Authority, has also spoken about how his registry better serves Asia-based clients through a local presence. He is quoted as saying of the offices opened across Singapore and Korea, “Those Segumar branches eliminate the delay in the response time to the ship owners and provide them important support.” The registry, whose fleet is over half Asian-owned, is currently considering expanding even further into the region by building offices in China and Southeast Asia.
Vanuatu Maritime Services, which has offices in Korea and Japan, also recognizes the importance of these affiliate branches. Matthew Bonvento, Senior Manager of the registry, explains that the offices have helped to raise awareness of the flag within the market. Asian tonnage currently accounts for 20 percent of the registry’s fleet. Bahamas Maritime Authority Deputy Director and Registrar Christine Scavella also spoke about the flag’s initiatives within the region. She noted that the BMA offers full registration services in Hong Kong and features a Registrar in Tokyo, and cited “continued aggressive marketing” as a factor that would position the flag to attract even more Asian tonnage over the next several years.
In addition to establishing operations in Asian shipping centers, representatives of the most successful flags travel extensively to meet with contacts in person throughout each year. Marine Money’s seventeen annual conferences, five of which take place in Asian shipping hubs, serve as important networking venues for owners, their legal and financial representatives, and flag officials. Similarly, the most recent Sea Asia exhibition this past April featured registry participation from the Marshall Islands, United Kingdom, Singapore, Sierra Leone, Belize and Panama.
With so much potential, it is clear one cannot be an Asian “tourist” and succeed. Deep immersion with the right personnel and partners enables a cultural sensitivity which is also a clear delineator of success. This takes time and commitment. But as finance becomes more complex, and cross-border and legal regimes more flexible and accommodating to lease and ownership structures, the trend will only grow.
The OGSR invites any additional flags that wish to share comments on their initiatives in Asia to do so through our contact form.
For a PDF version of the article, click here.
