Shipping industry evades laws

I don’t know much about the shipping industry, but Hohum might find this article interesting.

Shipping companies have been increasing “Flags of Convenience” (FOCs) for many years. FOCs are countries with lax laws. Registering a ship under a FOC, using a shell company, enables a shipping company to evade laws, such as inspections, taxes, registration fees and environmental regulations. Currently, 82% of shipping is registered under FOCs.

A shell company can be created with only a single ship. By making a ship its own separate company, damaged parties could only go after an amount equal to the value of the ship and its cargo. If the ship caused damage, such as by running aground and spilling its cargo (e.g. an oil spill), that amount would be small. Today, about 90 percent of merchant ships are subsidiary companies with no assets except the ship.

This is a very long article with a lot of detail. One important point is that owners frequently change the flags of their ships. Especially in the last year of operation, when the flag is changed to a country (e.g. India) which has lax environmental laws so the ship can be scrapped on the beach exposing many workers to toxins.

https://hakaimagazine.com/features/how-the-shipping-industry…

The low inflation of the past 20 years has been largely based on globalization that relies on low-cost shipping. Consumers and investors in the shipping companies should be aware of the trade-offs which lower prices but also cause harm.

Wendy

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Not too surprised with much of the story.

I guess, if there was a surprise, it is how sloppy Container behemoth Maersk was with the disposal of the four older vessels. Maybe it was Maersk’s attempt to test how enforcement works. Maybe there was a
lesson learned there. In Jan 2021, Maersk opted on a sale & leaseback transaction involving seven older vessels.

https://www.globalshiplease.com/news-releases/news-release-d…

By completing a sale & leaseback transaction, Maersk enjoy the benefits of utilizing the vessels for, at least, 3 more years. Maersk also transfer the cost of disposal to another entity. FWIW, Global Ship Lease (GSL) is also an EU-based owner (HohumYNWA owns shares of GSL)

How does one accurately measure ESG if a larger, financially healthier entity gets to “sell” its way out of dealing with disposal costs?

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To maintain the US merchant marine–still essential in time of war–Jones Act requires that ships sailing between US ports be American flagged, hire American crews, and pay US pay scales. We still have merchant marine academies to train their officers. One at Kings Point NY and i hear another in California.

Jones Act is easily evaded by stopping at one foreign port. Per cruise industry.

Many ocean vessels can evade rules but Jones Act vessels must comply. And developed countries may be able to regulate ships serving their ports.

Flags of Convenience, right?

Scheherazade - It is owned by a holding company in the Marshall Islands, managed in Monaco and flagged in the Cayman Islands.

Doesn’t have to be capitalist countries, or entrepreneurs in capitalist countries, that try and take advantage of Flags of Convenience.

https://www.maritime-executive.com/article/italy-seizes-700m…

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