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Wednesday, December 13, 2017

Coghlin spells out challenges to squeeze out substandard shipping

'Tightening the screw on substandard shipping' was the title of the Donald O’May memorial lecture delivered to an illustrious audience of shipping and insurance specialists by Terence Coghlin last week in London. (Click here to download a copy of the presentation.)

In his talk Coghlin, the former chairman of the Thomas Miller group, and of the International Group of P&I Clubs, expanded on the report he had recently prepared for the Organisation for Economic Co-operation and Development (OECD). That report focuses in particular on the International Group of P&I Clubs (IG) and the role that they can play in weeding out substandard tanker operators. It also provides a comprehensive overview of the marine insurance industry and includes a number of useful discussion points and recommendations (see Weekly NEWS No. 44 of 29 October 2004).

In his lecture he cited shipping’s record of continuing reductions in the losses of life and ships and in environmental damage, while highlighting that there will still be casualties at sea even if the campaign to squeeze out the substandard elements is fully successful. He also reminded the audience of the critically important role of flag states in ensuring compliance and enforcing safety standards.

Coghlin referred to an attitude of “minimal compliance” by some operators and the focus that was rightly placed on them, but suggested that in parallel more attention should be directed to incentives for good performance.

He then turned to the insurance industries. Here he had concluded that “the ability of the hull market as a whole to squeeze out the remaining substandard operators was limited”. However, looking at the P&I Clubs, he said “there seems rather more hope” and proceeded to outline some of the measures that the Clubs could take.

Firstly, he said it should be “less easy for a Club that has a claim from a fleet or ship of dubious quality to recover under the International Group’s pooling arrangements”. Secondly, he suggested that there should be a raising of the threshold above which a claim is “pooled”. Acknowledging that the Clubs were now looking at these matters, he encouraged the various stakeholders to support these developments.

To facilitate these improvements, he advocated greater sharing of information among the Clubs on their surveys and the historical records of the operator/ship whenever there was a transfer between Clubs. He also supported the information in the OCIMF Ship Inspection Reporting Programme (SIRE) system being made available to the P&I Clubs, and encouraged other exchanges of information which would reduce the inspection and survey burden on ship’s staff. More transparency on quality issues, he suggested, could sort out the competition issue once and for all. While acknowledging the concerns over the sharing of such information in the context of various competition and confidentiality law regimes, he asked if the shadows of these regimes may be more frightening than their reality. He suggested that the regulators in those states which are serious about the campaign to eliminate substandard shipping “may have to modify their laws”.

Coghlin said it was well recognised that P&I Clubs could not squeeze out substandard operators simply by raising premia, but that their greatest contribution would be in the form of denial of the “ticket to trade” provided by P&I insurance cover.

Clubs, however, are not expected to take on the role of the international policeman, which, he said, undoubtedly belonged to the flag states. While voicing some doubts about the voluntary nature of the IMO flag state audit scheme, he sees a situation in which commercial pressures could be brought to bear, with owners, charterers and others opting to work only with those flags which have satisfactorily completed the audit, and with, for example, port state control increasing its targeting or even banning other flags.

Some of these measures may take time, he said, but in the meantime “those of us who are the commercial actors must make our individual contributions. These, when taken together, will tighten the screw further on the substandard operator and make his way of life increasingly intolerable”.

Contact: Peter Swift