New security rules will have a huge impact on one of the fundamental drivers of the shipping market – sale and purchase of vessels. Maria Dixon looks at the potential pitfalls for buyers and sellers- Friday October 18 2002
BUYING and selling a ship is about to take on a new complexity. Shipowners and their brokers must get ready to come into line with what will be one of the benchmarks of the anti-terrorist era, the International Code for the Security of Ships and of Port Facilities.
Commonly known as the ISPS code, this International Maritime Organisation project will have an impact on almost every sector of the maritime industry.
It sometimes seems that ships change hands with remarkable ease, but let us remember some of the dynamics that lead up to those balance sheet profits on disposals and acquisitions.
It is all too easy for outsiders to ignore or forget the mechanisms used for sale and purchase.
Only shipowners, bankers, registration departments of flag administrations and others intimately involved know the difficulties, and the crucial moments of tension over a transaction.
They remember those nerve-wracking waits for funds to be authorised; keeping an anxious eye on the clock as that day’s bank closing approaches in a different time zone; and agonisingly slow procedures in remote locations dragging back the harmonisation between all parties over a deal.
In the end, everyone knows they must work together to ensure that vessels are formally sold and bought, deleted from the previous flag, registered under the new flag, discharged from old mortgages and registered with new ones. Brokers and agents must arrange for protocols to be signed on board, crew changes, and sometimes ships to be loaded before sailing.
There are times when vessels are sold and change their flag while sailing on the high seas, so let us for a moment pose that scenario with the proposed code in operation.
Whether in port or at sea, vessels at all times have to have assessment and security plans duly authorised and approved by the relevant administration so they could be registered, and sail and arrive in good odour to different ports worldwide.
All that calls for a mechanism to resolve the urgency of an ownership transfer at sea: to enable the authorities to study the security plan and have it approved there and then, together with the granting of registration documents for the ship and its new owner, so the vessel can sail further without delay.
Under the new rules, all ships of 500 gt or more will have to have a ship security assessment and plan, records of all activities regarding security, ship Identification marks, a security declaration, and many other requirements.
It is important to mention that as things stand today, most of the administrations grant registration regardless of a ship’s passing location.
Usually the approval is received at the other side of the world and the vessel may sail without original documents on board (registration papers, patents, radio licences, certificates, etc).
With the new regulations in place, we will have to add a further list of documents for all parties: some produced by the owner, like the security plan, and others by the administrations, like the certification empowering a ship to sail once the security plan has been studied and approved.
Just think of what this means for large and small registers alike: in the case of Panama, they would be dealing with more than 9,000 ships, a fair amount of them bought and sold in any one year.
The security plan needed for every ship will have to be lodged for approval with the flag state, a package including ship’s blueprints, photographs, ship plans, manuals, perhaps even videos.
A shipowner’s work is never over, nor is that of a flag state authority. It will be important to remember that all these plans will have to be revised and approved for existing vessels to sail, and for new vessels joining the register.
Looking more deeply into the implications, one has to bear in mind the presence of mortgages. Lender banks would have to insert or change clauses, in effect asking borrowers to comply with the new ISPS code. It is worth remembering that when the ISM code was introduced, banks asked their lawyers to insert a new clause in the mortgage document, although since then, they have probably done little to ensure yearly verification and rectification of non-compliances.
How many banks have requested their mortgagors to lodge on a annual basis the proof of verification and compliance? Is the same thing going to happen with the ISPS code? Are they just going to settle for the inclusion of a new clause and let the operation look after itself?
A vitally important feature will be the new ‘Ship Synopsis Record’ required on board every ship.
This document will detail the ‘whole’ history of the ship: the who is who of present and past owners. One copy must be kept on the ship at all times, while another must remain with the administration. So from anywhere in the world a port could ask the flag administration to send this information in order to match it with the synopsis record on board the vessel, to allow it in. It might be Tuesday of Mardi Gras, or a Good Friday at 1900 hrs, even Christmas Day. Holiday dates make for greater vulnerability, when everybody is celebrating, apart from someone intent on causing damage or disruption.
Administrations must have a mechanism to ensure that 24 hours a day, 365 days a year, they can pass any required information to any port, in order to allow ships to proceed.
The industry as a whole needs to address availability of contact numbers, facilitating a full listing of administrations, and clarifying whether the synopsis reports are to be sent by fax, by email, or even telex. Beyond Europe and the US, some places still await the efficiency of electronic communication. In the sale and purchase context, the synopsis record must not be abandoned, so thought will have to be given as to how it will be updated, how administrations will work on the handover with the ship, and with the new administration registering the ship. Change of flags is threatening to become a nightmare, and the less a ship is re-flagged, the simpler life will be.
It might well be time to create a Central Information and Co-ordination Centre where all the information on ships can be concentrated: one central number, one location, and one resource centre, where ships can be listed and their records updated.
Setting up such a centre might look a mammoth task, but it could well be easier than dealing with administrations, left right and centre.
© 2002 Maria Dixon – ISM Shipping Solutions Ltd.
Published in Loyds List, with permission from the Author