When Choosing Flags, Many Ship Fleets Seek Lax Rules, Low Wages

IT'S a rather inconspicuous building situated on the main drag of Panama City's Via Espaa. Unbeknown to many is that behind the tinted-glass windows is the office of the world's largest shipping registry. The office of SECNAVES - Panama's flag agency - is open to shipowners worldwide almost 24 hours a day. For a small fee you can register your oil tanker, cruise ship, container vessel, or even a yacht under the bright blue, white, and red colors of the Panamanian flag.

The owners of more than 13,000 ships have done just that. Merchant-fleet officials flock to this small, four-story building with checks or cash-filled briefcases to register a large percentage of world shipping tonnage. Traditionally proud seafaring nations have seen leading shipping firms abandon their national flags for a new home in this tropical republic of 2.5 million people.

The reason, primarily, is the money saved on wages and taxes. Critics allege that this cost-cutting comes at the price of lax safety regulations and crews that are mostly non-union and poorly paid.

"The reasons for 'flagging out' are quite clear," says Barry Everts, a shipping broker for Taipan Shipping in Panama City. "One is avoidance of potentially onerous taxation and the other is a low-cost crew. Shipping is notorious for cycles of feast and famine." Managers are always looking to cuts costs, he adds.

The International Transport Workers Federation (ITF), a multinational trade union, has fought a running battle against such cost-cutting practices since the inception of so-called "flag of convenience" (FOC) registries in 1925. Richard Flint, the communications secretary at ITF headquarters in London, charges that FOC registries - such as that in Panama - have led to the exploitation of ship crews and a decline in the knowledge of seafarers. The registries, he also alleges, have been a direct cause of many maritime disasters.

Mr. Everts notes that the shipping industry has changed considerably over the past few decades, with the dynamics of the modern world economy dragging the usually conservative and cautious world of shipping along with it. As trade barriers and protectionism have diminished, so it seems have the subsidies once lavished by many nations on their merchant fleets.

Panama's sleepy ports - though they are some of the largest in Central America - would not likely have the capacity to handle 13,000 ships, and they don't need to. Most ships in Panama's "fleet" do not actually enter the country's territorial waters, unless they are transiting the canal or operating on a local line. These thousands of ships, cruising other waters, are Panamanian in name only.

Panama is not the only country offering its national flag to the international shipping community. The war-torn country of Liberia until recent years boasted the world's largest merchant fleet. Its registry maintains an office in New York.

The Bahamas has long been in on the game - its island office in the back of a bar is even less grand than Panama's SECNAVES.

New kid on the block - Cuba

Cyprus has been trying to attract more tonnage in recent years, and the new kid on the block is Cuba, which will provide both ships and crew at a competitive price in American dollars.

Past ITF campaigns against FOC shipping almost brought the practice to an end. In conjunction with national seafarers and dockers unions, the union has forced hundreds of ships to sign better contracts with crews, sometimes by blocking loading.

During the 1950s, an ITF boycott of Panamanian flag vessels lasted four days, and finally a resolution that would call for a ban on FOC registries went to the United Nations for consideration. But the measure was vetoed by the United States, which had founded the Panamanian registry when it held sway here.

In 1963, after a campaign against FOC registries by the ITF and trade unions, the issue went before the US Supreme Court. But the court upheld the legality of open registries.

Campaign to end flag-of-convenience ships

"We are campaigning for an end to the whole practice of FOC registries," Mr. Flint says. In many cases, he says, ITF inspectors have found crews unpaid and often denied basic rights.

For instance, some crews were not allowed to leave their ship for more than a few hours through an entire 12-month contract. Some members of other crews experienced cases of scurvy because of a lack of fruit on their ships, he says.

Many crew members on Panamanian and other FOC ships hail from developing nations such as the Philippines, Ghana, and Indonesia, and former Soviet states including Latvia, Flint says. Other than officers, he adds, most crew members have little or no knowledge of seafaring. Few have seen the inside of a sea school; and they are versed in only the most basic safety procedures, he says.

This is a cause of concern for the UN-funded International Maritime Organization (IMO), which is the industry's main international watchdog. The IMO has brought in several safety codes over the decades, paying particular attention to FOC ships, which are notorious for their bad overall safety record.

A new International Maritime Safety Code (IMSC) has begun to be implemented this year to try to improve the situation. "It is up to the flag state to make sure their owners do what they need to do," says William O'Neil, the secretary general of the IMO.

Some of the problems that Flint touches on were highlighted in February when the Sea Empress spilled more than 70,000 tons of crude oil into the sea off the Welsh coast. The accident raised concerns over who should accept responsibility for the ship, which was built in Spain, owned by a Norwegian, registered in Liberia, managed from Glasgow, crewed by Russians, and carried an American cargo.

Flint says that a combination of factors compromises safety on FOC ships.

"Often crews are multinational. Sometimes the captain and first mate will not share the same language. Badly [trained] or untrained crews and other cost-cutting measures on the part of the ship managers can and do lead to disasters," he says.

According to 1995 statistics from SECNAVES, 3,323 ships registered in Panama are more than 30 years old, many of them tankers. Many of these cannot enter US ports because of strict environmental regulations. On average, one bulk ore/oil tanker sinks every month, according to the British Rail Maritime Transport Union. Many of these ships have FOC registration.

Watchdog group hopeful

The International Maritime Organization is more optimistic about the situation than the ITF is. O'Neil says he believes the FOC states are slowly recognizing that safety must become a priority if they are to continue in the flag business.

"It isn't game as usual - there is a change coming," O'Neil says. "In the next few years, the plans of the IMO should bear fruit. No longer is it going to be a simple thing like, 'Register with me and you will get away with murder.' "

Among the changes that the IMO is introducing are regional safety inspectorates to enforce the new IMSC, and mandatory and universal training programs for all crews. The crews would have to obtain recognized qualifications.

The prospect of more inspectors in the world's ports is dreaded by Bob Veno of the US Bureau of Shipping. Currently up to 25 inspectors from various organizations can inspect a ship when it arrives in port, which is detrimental to an industry in which time is a crucial factor, he says.

"Some of them are no more than a government official looking for change," Mr. Veno says. IMO safeguards can be bypassed, he says, by corrupt inspectors taking bribes from operators. The enforcement of the new IMO procedures is a gradual process. But until all FOC states are brought into line, the hazards remain a chilling reality, Veno says.

"On one ship we inspected recently," he says, "there was no one from captain to cook who knew how to launch a lifeboat."