FMC Probing Foreign Flagging Practices That Undermine Ocean Shipping
The Federal Maritime Commission this week launched an investigation on whether the vessel flagging laws, regulations or practices of foreign countries or shipowners, including the use of flags of convenience, are creating “unfavorable shipping conditions in the foreign trade of the United States.” The FMC said May 21 that its “nonadjudicatory” investigation will look into whether those practices or laws are violating U.S. shipping regulations, specifically referring to foreign countries that lower their shipping standards or ease “compliance requirements to gain a potential competitive edge” on vessels from other nations.
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The commission said foreign countries sometimes do this by offering to register and flag vessels with “little or no oversight or regulation” while earning revenue from flagging fees and minimizing the costs of inspecting vessels for compliance with maintenance and safety requirements. “In doing so, these nations compete to lower the cost of registering and flagging vessels beyond a point where they can ensure the efficiency, reliability, and safety of the vessels used in the ocean shipping supply chain,” the FMC said. “The use of these flags of convenience endangers the ocean shipping supply chain.”
Although the International Maritime Organization has sought to address issues associated with flags of convenience, its approach “has not brought about meaningful change nor deterrence to what is clearly a growing global problem,” the commission said. And even if the IMO were to “develop a policy solution to address these issues,” the FMC said countries would still have to enact that solution into their own domestic laws, “leaving room for some countries to choose their level of compliance.”
The FMC said these “patchwork policies and uneven compliance have proven ineffective in ensuring the reliability and efficiency of ocean shipping.” It also said there needs to be “standardized definitions” for terms like flag of convenience, open registry, fraudulent registry and shadow or dark fleet. Without standard definitions, it’s difficult to “identify, and successfully regulate, on a global scale,” the commission said. “As the IMO lacks the authority to enforce vessel registry standards or penalize non-compliant nations, its efforts are unlikely to serve as an effective deterrent or bring about meaningful change to curb abuses. A comprehensive and enforceable approach is needed.”
The FMC said its investigation will identify a set of best practices that “contribute to responsible and safe operations of vessels as a critical component of a reliable and efficient ocean shipping system in the U.S. foreign trade.” It will also look into practices that lead to unsafe vessel conditions and “imperil” ocean shipping.
The commission’s notice listed a range of what it called “unfavorable” practices caused by ships that register under flags of convenience. Those ships often operate under lax regulatory oversight, are owned by people who pay “substandard wages” to inexperienced crews, and are usually “beyond the reach” of unions, leading to unsafe or poor working conditions, the notice said. Many of those ships also don’t comply with international maritime conventions and “may avoid regular inspections or certifications.”
Other ships register under a flag state “without the knowledge or approval of the relevant maritime administration,” usually to “evade regulations or conceal illicit activities,” the FMC said. These shadow fleet vessels are often involved in “smuggling, sanction evasion, or transporting prohibited goods, sometimes without proper documentation to avoid international scrutiny.”
The FMC is seeking public comments detailing specific examples of both responsible and “unfavorable” flagging laws and regulations, and how they help or hurt ocean shipping. It’s also seeking feedback on any practices by shipowners or operators that hurt the reliability of ocean supply chains. Comments are due Aug. 20.