Class societies diversify services, clientele

A recent editorial in Lloyd's List analyzes trends across class societies, including the globalization of client bases and expansion into energy and consulting services.

Class societies battle over price, not safety, says IACS

Growth in competition will not threaten safety, argues outgoing chairman Cazzulo

THERE is likely to be more diversification within the classification societies, rather than more consolidation, according to Roberto Cazzulo, chairman of Italian class society Rina Services.

The tough economies of shipping companies have hit classification work as owners hunt for best value, pushing the class societies or, as is often the case, the companies that own the classification services, to put more emphasis on diversification of revenue streams.

Yet a re-emergence of a price war, offering shipowners cheaper registration and annual fees, is evident as the leading class societies seek to strengthen their international presence.

In the world of classification, the merger of Norway’s Det Norske Veritas and Hamburg-based Germanischer Lloyd was a huge event.

It led to the creation of the largest class society in terms of tonnage on the new organisation's books, but also saw the new entity talk about being able to achieve more revenue in its work in the energy sectors and marine consultancy than from its classification work.

Never before had two large class societies merged and many have been around for more than 150 years, so are certainly well-established.

As well as hinting at the commercial arrangement that surrounded class work, the DNV and GL merger pointed to class societies’ focus internationally rather than being seen as a sovereign entity; the names of most of the class societies tell of strong national roots.

But today most are no longer just classification societies. All offer commercial consultancy and risk assurance, in the marine sector and increasingly in other sectors such as energy, renewables and navies.

These fields are where the classification societies can make more of a commercial difference, according to Mr Cazzulo, who steps down at the end of the month from his one-year tenure as chairman of the International Association of Classification Societies.

IACS represents the 13 leading class societies in the technical debates at international platforms such as the International Maritime Organization.

Price war

However, his comments do not account for the price war that seems to have emerged in recent years among the leading class societies.

This is notable in Germany, where ClassNK has taken on DNV GL in what some see as a key class battle ground.

ClassNK president Yasushi Nakamura told Lloyd’s List that the Japanese class society has been offering competitive entry prices for German owners to switch, but insisted this had no impact on service, quality or safety.

As ClassNK has been moving into Germany, US class society ABS announced earlier this year that it had classed its first Japan-flagged vessel.

For DNV GL this competition comes at a tough time.

The merger of the Norwegian and German class societies has created a need to assimilate prices and Tor Svensen, DNV president of maritime, told Lloyd’s List at the time of the merger that there would be a transition to the new company and that there will eventually be some winners and losers as the two class societies had different pricing mechanisms.

Common standards

IACS has no role to play in these commercial activities of the class societies, says Mr Cazzulo.

Its focus remains on the interpretation of regulations and ensuring the safety of shipping.

This is more than enough to keep the IACS agenda full, he says, with the 12 members paying their way though a total budget of about £12m ($20.4m), depending on each society’s individual commitment.

IACS works on creating more detailed rules that its members put into their own class requirements.

It cannot be denied that these interpretations and the pricing of them for owners is however a key ingredient in the competitiveness of individual organisations.

So it is perhaps in a society’s interests to get its rules seen as the best standard for a common interpretation.

The class societies stress that competition is on the added-value services they offer, basically consultancy work.

For Lloyd’s Register, which has been working on improving its performance as a flag-state recognised organisation, another role class plays in the industry, this has included improving its work with shipowners with vessels under its class to advise how to keep vessels within flag and port state requirements.

Mr Cazzulo insists that the way IACS works creates the right interpretations of rules so that the best standards are applied to shipping, not the cheapest and not those of the loudest class society.

It is, he says, a technical organisation, not a political or commercial one with the competitive issues that would ensue if that was the case.

Yet IACS membership is sought-after. Turku Lloyd in Istanbul and Jakarta-based Biro Klasifikasi Indonesia are in dialogue to be members, though Mr Cazzulo could not say whether this process will take months or years.

In 2012, the newest classification society, Emirates Classification Tasneef, was born. It has set its sights on IACS membership, recognising how this will help it to achieve its international objectives.

However, it will have to wait 10 years before applying unless, of course, it seeks to do so through a merger or acquisition.

Post-panamax rules After next week’s council meeting, the new chairman of IACS will be Bureau Veritas vice-president Philippe Donche-Gay.

One of his first roles will be to issue an updated strategy for IACS, and to complete assessing, and possibly updating, the construction rules for post-panamax containerships.

The MOL Comfort incident fuelled a review of class rules on hull-girder strength and load conditions of larger boxships, much to the embarrassment of ClassNK.

The June IACS Council meeting will discuss any developments, with an outcome at the end of the year to be fed back to industry.

Unsurprisingly, all 13 IACS members are interested in this work, sending their experts to meetings and participating in rule analysis.

This work is all about “defining an envelope of specifications”, according to Mr Cazzulo, one that will not deter innovation in design, which would also include designs for larger vessels.

One wonders whether the envelope will leave any existing designs wanting, though.