New ship registries fight against a vicious cycle: Palau Registry

The Paris MoU Blacklist status is stopping the growth of new registries, is anti-competitive and has become a vicious circle according to Panos Kirnidis, ceo of the Palau International Ship Registry.

Once a new registry is launched it needs to grow and will not in the first period be attracting the newer and larger vessels, operators or owners. It takes time for the new registry to build trusted relations with the ship-owners and stakeholders in the industry and to show its values.

“Consequently, the fleet may start as one of older vessels (although not substandard) and numbers will not match those of the established registries; however, there is a higher risk of those older ships being detained.

“It is more than simple numbers, but it is highly disadvantageous to new registries such as Palau, even though our services and credentials can be ranked as among the finest in the industry. To climb the rankings, we have to be seen as whiter than white and yet the very statistical formula negates our chances of progress. You can have 12 of the best vessels sailing the world’s oceans but if one or two fail an inspection, then by sheer lack of numbers you end up on the blacklist. Once the new registry is placed on the blacklist it condemns it to years of struggle to prove its credentials as a diligent and efficient flag. It is almost impossible to start off anywhere other than on the blacklist, despite the enormous impact it has on your business.”

Kirnidis believes the system needs changing as it shuts out competition and fails to provide any support for new and developing registries. “There is a distinct imbalance in the world of shipping when it comes to the rankings of flag states and classification societies. It’s about time we woke up to the issues affecting new registries and their flags. Maybe it is easier at this time for me to hold such strong views; after all, my registry – Palau International Ship Registry (PISR) - is the newest entrant into the sector for more than a decade with a precise plan to lead the market among other reputable registries. But it is more about the processes and the inevitability of being placed on a blacklist that concerns me and maybe why a change is needed.

“The Performance lists within the MoU’s places an unbearable burden on new registries trying to grow and prove their credentials. You can find yourself placed on the lower rank for even a series of minor infringements and issues, as detentions are detentions no matter what the issue is. This is where the system really falls down, for a small registry the numbers are stacked against it.”

Panos Kirnidis was responding to Palau Registry being moved from the Grey to the Black list by the Paris MoU committee as of 1 July 2017.

“Being placed on the blacklist as a new registry is more about a maturity process than having a significant number of issues related to your fleet but it is a system highly weighted against new registries. There is an inevitability of being placed on a blacklist that concerns me and maybe why a change is needed. Despite its credentials, highly experienced auditors, inspectors, managers and the latest Smart technology to operate its systems, Palau has been placed on the Black List because it currently does not have enough vessels in its fleet to escape the formulaic consequences. Having 23 detentions and inspections in a fleet of 300 vessels puts a new registry on the blacklist, even though the overall number is lower than other fleets with more vessels, more detentions and more inspections. If another registry has 23 detentions but a fleet of 5,000, then the simple formula used means these detentions are deemed less relevant in the case of larger registries only because of the maths.

“This is why a mathematical formula without any weighting doesn’t work in the best interests of the industry. If your vessel is flying the flag of a blacklisted flag state, then vessels are inspected more frequently and more thoroughly. It is a vicious circle that is almost impossible to escape from. Just look at the top registries now they have all been through this process and taken years to migrate through it.

“For a small registry like Palau, one detention means we need 19 clean other inspections to avoid its negative effect, something that is hard to achieve when you have a small fleet. To grow our vessel base we need to gain the confidence of shipowners and managers and this is made harder when you find ourselves in the black list forming a vicious cycle, so even though our services and credentials can be ranked as among the finest in the industry we find ourselves not on an even playing field. It is a process we are working through and will enable us to show we are a diligent and highly responsible registry. A change to the way the formulas are used as it is a system highly weighted against new registries. There is an inevitability of being placed on a blacklist that concerns me and maybe why a change is needed.

“The performance of a Flag is based on the ratio of total number of inspections and detentions over a rolling three-year period for flags, with at least 30 inspections taking place in that period. But during the process of growing a fleet any new registry will be at a disadvantage when any detentions are recorded; a smaller fleet means a lower number of inspections which can result in a higher ratio of detentions.

“This means that the new registry cannot attract newer vessels having been placed onto the ‘black list’ and the vicious circle continues. We have detailed, strict and comprehensive inspections to achieve the highest standards. But this all takes time and we have no intention in plunging into a quantity over quality issue and failing to meet our own exacting standards. This is a planned progression with markers along the way.

“We need to grow commercially and maintain standards but at the same time maintain a quality fleet of vessels. The barriers to doing this are based on detention numbers but they act disproportionately against new registries. One detention takes nineteen clean inspections to clear up the bad record and in case of second detention that makes it thirty-eight clean inspections and so on. For a new registry with a small fleet, if one or two vessels fail an inspection, then by sheer lack of numbers you end up on the blacklist. If this is not an anti-competitive rule, then what is it?

“The system is biased against new registries. New registries have to compromise on the age of vessels they accept. Owners want to see how a registry performs so attracting new vessels is almost impossible. But older vessels are not necessarily of a lower standard or quality. What it does mean is that the registry with older vessels will be more rigorously inspected and more often. This is where this unfair advantage comes into play: you become a target for detention and inspection and even the smallest issues become major ones when it comes to calculating the ratios that place a new registry onto the Black List. It is unfair and damaging the credibility of the flag system. We have invested in new technology, the highest quality staff in auditing and inspections and yet we are unable to grow while we are considered a risk, purely due to numbers rather than serious issues.”

Kirnidis wants the regulations and system to be revaluated and is calling for support from other registries to rewrite the mathematical algorithms and help attract new entrants into the sector. “In no way are we asking for a dilution of the regulations affecting the critical issues classification societies, flags, registries and any other relevant bodies are subject to. On the contrary, the reason so many registries have exemplary reputations is because of the expert work, diligence and experience they bring to world shipping.

What we are asking for is for the anti-competitive practices defining the Performance Lists to be reviewed. This is supposed to be a competitive world and yet my registry enters the race to become one of the world’s leading registries with the inevitability of being relegated to the Black List because we are new and small. This is anti-competitive and highly biased towards the big players.”

Posted 01 August 2017

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Contributed by the Palau Ship Registry

Contributed by the Palau Ship Registry

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