Is a ship register still good business?

 By María Dixon
International Maritime Consultant

Not long ago, perhaps one of the most significant questions among state flags was whether their registers generated an important net income for their respective national treasuries after operational costs were covered and the benefits of additional jobs and income paid to service providers were taken into account.

Another side of the issue was that many State flags were not too concerned over the income their merchant fleets generated from annual fees or registration rights but rather over the amounts received by their treasuries from taxes paid by maritime companies and shipowners. To this they added taxes applied to capital gains achieved through the sale of ships, taxes applied to importation of ships brought into the flag and, of course, Social Security payments by shipowners and seafarers.

The total of these revenues amounted to much more than the 10% that could otherwise be applied to a ship as an annual tax. In other words, tonnage taxes were just a trifle compared with the millions that those flag States were receiving for the other items.

The exodus of shipowners and crews to other flags caused not only the imbalance and very poor conditions in which their national fleets were left, but those flag States found themselves completely devoid of mechanisms to recover such an important source of income for the national economy.

On the other hand, there was the not so inconsequential question of “the national maritime pride,” which means having a respectable ship register, both on a quantitative and a qualitative basis. Also, many countries were complaining that in their books they could not find merchant vessels to charter in order to carry national cargo such as war materials, supplies to foreign bases and other.

Setting aside the financial aspect, let’s address another issue: that of safety and security. Traditional maritime countries tend to attack open registers and one of the ways is to apply pressure by means of creating new requirements and closing their coasts. That is how new conventions, regulations and memoranda of understanding come up in the matter of safety and security.

Little by little, the maritime industry – although regulated, was not over-regulated – begins to become a much regulated industry. This forces third class operators to begin disappearing and the balance translates into a more secure industry, with more emphasis on safety of life and infrastructures, the struggle against marine pollution and better labour conditions for crews; that is, the industry becomes more regulated and demanding.

Therefore, if we achieve uniformity in all registers, what is the shipowner’s best option? Continue with the national flag, or embrace an open register?

The headlines provide the answer

When we read the headlines of the press, we notice, for example, the beginning of inspection campaigns which are usually targeting a determined flag, but overlook the register of friends or nationals within the same economic area. That is how campaigns aimed at strengthening these flags start; and the campaigns are complemented with pressures on the national shipowners.

In answer to that tendency, open registers begin a marketing pilgrimage around the world, during which they offer a better price and service and at the same criticize the competition by making statements that at times are inappropriate and even disloyal in a world of freedom and free competition.

Whom do they try to deceive? The shipowner is actually a very experienced businessman and is knowledgeable about what each register can offer – price, quality, support, reputation, and above all, respectability.

The shipowner is knowledgeable about the dark recesses of registers and also about the methods of his “backyard.” Additionally, his decision is not based on love or sympathy for a register, or the better price another one may offer, or simply the greater political influence a flag could have. His decision is always based on a series of factors that are different today from what they were yesterday or what they will be tomorrow.

One of the factors is the cost of charters. To provide the reader an idea of the behavior of the freight market, let us say that the daily cost of chartering a bulk carrier in 2007 was $40,000 compared with the $7,500 per day a shipowner could obtain when he chartered the same ship in 2002. On the other hand, although the charter cost of tankers was reduced to $30,000 daily in 2007 – $10,000 per day less than in 2006 – that amount, although perfectly viable, was significantly higher than the $20,000 daily that was charged for the charter of a tanker in 2002.

As the reader can see, the profits are exorbitant when compared with past years. Therefore, today a shipowner does not worry about saving $3,000 or $5,000 annually under a register that is relatively inexpensive. That amount is equivalent to only about four hours of a charter, barely a fraction of the $14.5 million annually that the shipowner receives when chartering his ship in the market.

It should be mentioned that a ship register should not think or trust that it enjoys the customer’s loyalty, since these days that does not make sense, and loyalty does not exist. National fleets are growing mainly because of the nationality matter, but also because of regionalization (for example Europe) and even because of political factors. After analysing the market and registers in general, one can conclude that although national fleets are growing, open registries are not declining. That is a factor that should be investigated, since migrating from a register to another has always been normal among shipowners.

Growth in registers’ fleets

Early in 2008, a headline in a maritime publication indicated that the Liberian register was growing at the rate of two ships per day. That is an important number; however, at that rate a register such as Liberia with a total of 2,171 ships of more than 200 gross tons at December 31 2007 (per Lloyd’s Register of Shipping), would need many years to reach the 7,605 ships registered in Panama on that date.

Perhaps the news was intended for those who are not knowledgeable about registers. They might be amazed at the number resulting from multiplying by 365 days. But those who know the type of work involved in the merchant marine sector, especially in a register such as the Panamanian register, would not be impressed with that growth. if there is no new registration, there are ownership changes, or if there are no new licenses, there are renewals, inspections and multiple operations characteristic of an extremely active register.

In other words, the handling of two registrations daily is far from being a feat; that means that something has been done and has continued to be done for many decades. To illustrate this comment, let’s see the recent statistical table published during the first quarter of 2008 by Lloyd’s Register – Fairplay in England. That table indicates that during the second half of 2007, the Panamanian register increased by 248 ships, while other flags registered lower numbers.


New Registrations of Vessels over 100 gt.











Marshall Islands








Source: Lloyd’s Register – Fairplay

St. Kits and Nevis





* In a presentation made by the Panama Maritime Authority to the National Assembly in 2008, the latest figures for new registrations for Panama between Dec-2007 and April 2008 incremented by 170 new registrations making a total of 7,775 vessels.

Actually, the idea is not to measure a contest about ship registrations, but perhaps this calls for an analysis of what type of ships are being flagged, if those registrations are of a determined type of ship, or if they are old ships, or even if they respond to a marketing campaign that registers usually carry out to attract more tonnage. It is important to watch the trends in the market.

When governments do not comply: Norway and Great Britain

This has been the case among many countries which have changed their policies in the middle of the road, upsetting market predictions. I am referring to the Norwegian case, a country which maintained a Tonnage Tax regime but in December it decided to approve a new regime, retroactively.

Because of the surprising measure, two major shipping companies reported in their annual financial results a loss of $800 million incurred during the last quarter of 2007. The government wants to recover 21 billion Norwegian crowns in taxes and demanded from these companies, covered under the Tonnage Tax regime, payment of the dividends they had retained for over a decade under the previous fiscal regime.

As a result, more than 60 Norwegian companies are evaluating the convenience of remaining under the special regime or leaving it to join the regular fiscal system. Although the issue of transition rules has already been brought up before the Supreme Court of Justice with the objective of seeking a declaration of unconstitutionality, the truth is that the impact of that measure, added to the high cost of oil and the decline of the dollar, make commercial operations less profitable.

The other case is the United Kingdom, a country which has been experimenting changes and the rumour has it that there will be a change in the Tonnage Tax.

In fact, the president of Evergreen Group, Chang Yung-Fa, who several months ago had announced with trumpet flourish his unconditional support of the British register and in May 2008 had expressed his interest in registering a dozen ships under the British flag, could change his mind if the United Kingdom changes the fiscal policy as it pertains to the maritime sector and the industry ceases to be profitable.

Definitely, Evergreen expressed their intention to transfer their ships from the Singapore flag to the British register. Also, they made public their plans to flag 50 newbuildings in Singapore, pending the decision of the British government, Additionally, the ships of their fleet that for six years now have been registered in Great Britain could be transferred to Singapore. Evergreen has 11 containerships registered under the British flag.

This situation is extremely confusing since in addition to the British system, Brussels is revising all tariffs to ensure that all countries in the European Union conform to European recommendations and guidelines.

In the end, as mentioned at the beginning of this article, the shipowner is not loyal to any flag, which is perfectly understandable from the commercial point of view, The shipowner also seeks economic viability and sometimes his fleets are distributed strategically among different countries to ensure he enjoys a series of benefits and unique advantages in his business plans.

Strategies to attract investment: Greece and Singapore

Indeed, while half of the world backs away from offers and policies, the other half offers new advantages and seeks to capture shipowners by offering facilities and the necessary support.

In May 2008, the Minister of Merchant Marine of Greece, met in London with the Hellenic maritime community, which represents more than 100 shipping companies with offices in London, to propose a series of advantages to the Greek and British, enticing them to return to Piraeus once the British government decides to implement an income tax on people not residing in British territory. This would have a direct effect on the maritime industry and especially on Greeks established in the United Kingdom.

Everybody knows the Hellenic government’s desire to make Greece a world maritime centre and to persuade shipowners, especially the more than 1,000 ships of all types under construction in the world’s shipyards, to return to the Greek flag and register.

In Singapore’s case, we see the register growing steadily and developing a type of maritime industry and cluster extremely well planned and perfected. Old ships are penalized by providing more incentives to the new ones in the form of discounts in port rates. Double bottom ships also receive a favourable treatment.

The assistance provided by the government to the industry and maritime education makes Singapore a paradise for the maritime industry. Their publicity campaign to attract users on the basis of fiscal advantages and the help provided is the best incentive – a perfect strategy and a model for the industry.

Shipbreaking old ships

On the other hand, readers would think that shipbreaking activities might reflect an important number of ships in the sector and a contribution to the removal of substandard ships from the fleet. However, according to figures by the International Union of Marine Insurance, the dismantling of tankers and bulk carriers has remained very low, accounting for only 0.5% of the world fleet.

The fact becomes obvious when we see that 75 tankers 13 bulk carriers were dismantled for scrap in 2007 compared with an average of 125 annually between 1998 and 2006.

Fleet of tankers, bulk carriers and containerships

According to the International Union of Marine Insurance, the world tanker fleet continued to increase, registering 412 new tankers in 2007. If the 75 ships that were broken up for scrap that year are subtracted, we have a net gain of 337 tankers entering the world fleet. In 2006 a net gain of 411 was registered.

In regard to the world fleet of dry bulk carriers, in 2007 there was a net gain of 312 ships, compared with an increase of 261 ships in 2006. However, in the vital containership sector, 2007 saw a net increase of 350 ships compared with growth of 344 containerships in 2006.

Relative to the number of containers in the fleet, the year 2007 saw an increase of 2,623 million teus, a notable increment compared with the 942 million registered in 2006. In summary, the world fleet of containerships has reached a total of 10,472 million teus, an astronomic figure when compared with 3,766 million in 1998.

Newbuilding orders

According to the most recent statistics, on October 1, 2007. South Korea continued to be the leader in the newbuildings construction industry, accounting for 36% of the gross tonnage ordered at that date.

On the other hand the Republic of China continued to strengthen its position in the market, with the participation of 28% of the total gross tonnage on order, a notable gain if compared with the 22% share early in 2007.

If measured in terms of number of ships, the Republic of China ranked at the top with 34% of newbuilding orders, while South Korean shipyards held 23%.

The growth in China’s share has come at the expense of Europe and other Asian countries, but Japan remained in second place In terms of both measurements – 18% in the gross tonnage category and 16% in terms of number of ships.

Adding the tonnage of South Korea, China and Japan means that the three countries lead in the world’s ship construction industry, concentrating 82% of existing newbuilding orders at October 1, 2007.

According to Lloyd’s Register-Fairplay, early in 2008 there were 3,906 ships under construction or about to be delivered. As an open registry, Panama’s objective is to attract 35% of that total. If that goal is met, that would automatically reduce the average age of the register while generating a notable increase in fiscal contributions.

But, will they build those ships?

A recent study prepared by the Lazard Investment Bank revealed that up to 10% of newbuilding orders for Cape size1-Panamax ships and 20% for handysize2 ships (including supramax3) will not be constructed.

The explanation is that small ships are more vulnerable than Cape and Panamax sizes, because the contract for construction of a large number of those ships is based on speculation and the ships are to be constructed in small shipyards of the Greenfield type located in Asia. The bank indicates that even with a 7% annual increase in tonnage, shipyards will have an excessive supply beginning in the second half of 2009 until at least 2011.

Their warning and advice to investors is that they should take into account that a 30% to 40% of orders will not be delivered. Five percent of bulk carrier orders might not be constructed, while another 5% might not be constructed according to contracted specifications due to long delays or because of financial problems. The Bank believes that the less experienced shipyards might find themselves insolvent. Lazards recommended caution with investments in companies having long term strategies.

2008-2009 prospects

The year 2008 will be crucial for the Panamanian ship register. This is because the IMO has begun the Voluntary Audit which the Panama maritime administration has accepted. This means that the country will be subjected to all the processes required for certification of its systems in terms of quality and procedures.

Similarly, 2008 is a crucial year for the Panama Maritime Authority (AMP), since its administration is intent on making all AMP employees, whether in domestic or a consular service, aware that there has been a change in the complete mechanism covering matters of ship registration and examination and certification of seafarers.

During a visit to the AMP that I made early in 2008, I was aware that in just a few months very significant changes had been made. Due to the imminent audit that will take place, a serious commitment was noticeable. Additionally, it was evident that the personnel responsible for the pending tasks at hand were showing a high level of professionalism.

In the past, the commitment of employees has been satisfactory, but today the AMP comes across as more focused in developing measures and disciplines compatible with the new quality systems. They have young people graduated in maritime disciplines which did not exist 20 or 30 years ago. On the other hand, the local academic sector in maritime matters is much broader, due to the creation of the International Maritime University of Panama (UMIP).

Many years ago, when I started working for the Panama Ship Department in London, my personal tools were basic English, bachelor of liberal arts and a strong disposition to learn about the complexities of the maritime world. My best professors were maritime lawyers and marine officers. Postgraduate and graduate teachings in maritime careers did not exist.

Also, the profession of shipbroker in England was performed on the job, in an office, while one took night courses by mail or night courses on the subject of Chartered Shipbrokers, where the maritime business was taught. The professors were professionals who worked during the day in shipping agencies. The tools were calculators, the old typewriter, a telex machine, telegrams and letters using paper and envelopes. And that was it.

The maritime industry has embraced automation at levels unimaginable at the time. Several months ago the director of the St. Kitts and Nevis register told me about a German company that had developed and adapted a special program to automate their register, which they began operating in 2008. Similarly, Panama has continued with the automation process that was launched June 2006 in Posidonia. Also, other small registers have semi-automated procedures.

Actually, one of the major concerns is complying with regulations and measures for safe navigation and prevention of contamination of the marine environment by shipping companies.

The headlines of trade publications show how many first class companies have attempted against the environment with the so called magic pipe, which is nothing else than a removable tube utilized to empty thousands of gallons of sewer water into the ocean and, thus, avoid discharging it at the ports.

A few years ago, a maritime professional remarked that there are ports which collect that waste without an additional cost My question at the time was, why don’t they circulate information to regulate the collection of waste, including the cost and procedures involved, and avoid this way the shame of appearing on the front page as guilty of polluting the ocean; and above all, they would also save the crews from terrible moments when inspectors investigate and discover the magic pipes? This, in addition to the fines this irresponsible practice can generate.

History has demonstrated to me that it is important to focus, not on the actions of users of the registers, but on the registers themselves and how they have performed since my last article in the 2006 edition of the Panama Maritime Handbook.

What will the future bring?

If the prediction of the Lazard Bank holds true, this may be ad news for Panama, since the register is very popular among bulk carrier owners. To date, there are hundreds of shipowners who have openly indicated their intention to flag their ships in Panama. As announced in a public conference before the AMP in July 2007, “a decline in the construction of bulk carriers can no doubt trigger a decline in registration of new ships in Panama.”

“All that goes up will come down,” we heard a speaker say November 2007 maritime forum in London. Jim Davis, president of the International Maritime industries Forum, warned, with concern, that the “maritime boom” was continuing too long and, as an experienced man, he was afraid that a downturn would bring many losses.

He said that his concern was even greater considering the quantity of new orders to shipyards and the possibility that refinancing systems could at any time bring a depression in the maritime sector, once banks decide to withdraw their financing offers.

The maritime sector would reflect what is currently happening in the housing mortgage crisis in the Unites States, and that would affect the industry in general.

It is speculated that an overtonnage situation could bring a world imbalance; nevertheless, I will take as my own the words of an English newspaperman who wrote to me recently – Have you realized that property prices are declining, that the employment rate is failing, that trust in the industry and the economy has reached a new low, But … freight rates continue to rise?.


  1. Capesize are cargo ships too large to transit the Suez Canal
  2. Handysize are dry bulk carriers between 15,000-35,000 dwt. tons. They are flexible ships suited for small ports and have cranes to handle cargo. They mainly carry grains. steel, metals, phosphates, cement, lumber and other. They are very versatile.
  3. Handymax or Supramax are dry bulk carriers between 35,000 and 60,000 dwt tons with lengths of 150-200 m.. In Japan, port terminals restrict lengths to a maximum of 190 m.. This type of ship has five holds and four 30 ton cranes each.

The analysis and comments are based on news about the maritime industry that has appeared in different international media (newspapers, magazines Internet and press notes) published throughout 2007-2008.

©©María Dixon/ISM Shipping Solutions Ltd. – 2008
This article was published in Panama Maritime Handbook 2008, with the permission of the author