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Riding a wave of success

Riding a wave of success

World's third-largest ship registry keeps profits afloat

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The Bahamas Investor Magazine
January 1, 2006
January 1, 2006
Tina Novotny

The motto of the Bahamas Maritime Authority (BMA) is “Progress, Honour, Service,” three principles that have combined to make the flag of The Bahamas one of the most sought after in the world. You could also add the word “profit” to the crest since, for ship owners, global business is booming. Shipping by member vessels of The Bahamas flag has nearly quadrupled in 10 years. The registry is now the world’s third largest in gross tonnage, just behind Panama and Liberia and ahead of Greece and China.

An estimated 90 per cent of world exports are carried by sea. Merchant ships generate annual income of more than US$380 billion in freight rates, according to The Round Table of the International Shipping Associations, representing about five per cent of total world trade. As more container ships, bulk carriers, tankers and cruise ships ply international waters, The Bahamas ship registry has raised itself into a distinguished position among both ship owners and regulators.

“The Bahamas flag is a very good brand,” says Ken McLean, director of BMA. He says the registry is recognized as a leader and known for understanding ship owners’ needs. “In the current environment, there are a lot of issues and [the need for] reputation management. Many shipping companies are floated on Wall Street and, particularly in the cruise line industry, reputation is paramount. Our strict standards only mirror those of the owners,” says McLean.

“We wouldn’t have it any other way,” says Bill Wright, senior vice-president of maritime operations for the merged lines of Royal Caribbean and Celebrity Cruises. “The BMA is a very strong voice in international maritime affairs, and very cognizant of the cruise industry. They’re our partners in many ways. It’s a strong relationship that’s only enhanced itself with time. Not only the registry, but also The Bahamas as a whole. We’ve been trading here for 30 years and it’s been our positive experience that was the catalyst to register our entire fleet,” says Wright.

Royal Caribbean has 28 cruise ships registered under the Bahamian flag. In early 2006, the company will launch Freedom of the Seas, designed to carry more than 3,500 passengers and attendant crew. “Absolutely she’ll be Bahamian-flagged. It’s already on the stern,” says Wright.

Cruise ships count for about 10 per cent of vessels in The Bahamas registry. The rest consists of the workhorse tankers, bulk carriers and specialized ships that move goods and resources around the world.

Nassau-based Dockendale Shipping Co Ltd and its partner, Copenhagen-based Clipper Shipping Co, run a fleet of 46 cargo ships and have several more on order.

Quality and high standards
“The Bahamas is a quality registry, it’s got very high standards, and they do a lot of monitoring and enforcement of international safety regulations,” says Kamanna Valluri, managing director. “The Bahamas has a good name, and when we’ve acquired ships, we’ve switched them here from Panama or Liberia. There are a lot of ships The Bahamas won’t accept, but they took our older acquisitions because they know Dockendale’s standards. Just the same, they did thorough inspections.”

“Our ambition is to maintain our reputation and strengthen our position, but not at any cost,” says the maritime authority’s McLean. “We want the right ships, with good, responsible owners. People are very proud of their assets, especially the Greeks, who will register here instead of their own country. They take long-term views and reinvest. You get a spin-off; you get one good owner and others will follow.”

This good reputation has been hard won given that just a decade ago the picture in The Bahamas was quite different. Back then, ship owners were frustrated with service received through the Department of Transportation, sparking the agency to get an independent review of the concerns. The Bahamas Maritime Authority was set up in 1995 as an independent body with its own board and a director drawn from the private sector. It was seeded with government money, but given a mandate to direct its own policies. It established an office in London.

McLean says BMA’s leadership combines seagoing, financial and management experience: “It’s that background that allows you to have the best communication with ship owners.”

Ship owners started their own association in 1997 to iron out interactions with the new registry, and dissolve lingering impressions that The Bahamas was a low-standard flag of convenience. “We were having trouble with authorities in various parts of the world because, at the time, there were quite a lot of problems with Port State Control,” says Dale Ploughman, director of the South Africa Marine Corporation and chair of The Bahamas Shipowners Association. Maritime authorities in every port in the world are empowered to check any vessel and detain ships for infractions.

“The Bahamas flag had been targeted until we proved that quality was its first, second and third name,” says Ploughman. “Now everyone recognizes that it’s one of the best in the world and we work very closely together with the BMA to preserve that. It takes commitment from both sides. They’ve seen that we’re very conscientious about keeping only quality ship owners. It doesn’t happen often, but we’ve had to cut a few adrift. Our reputation, as one of the flags that comes up with ideas, comes first.”

The Bahamas is also an elected member on the council of the International Marine Organization, a United Nations agency concerned with safer shipping and cleaner waters.

Flag with many benefits
Factors helping to boost the popularity of The Bahamas registry are the country’s base in the common law system, ties to England’s centuries-old naval traditions, proximity to the United States and long-time political stability. And, as an open registry, certain labour regulations that apply in other countries are exempted for Bahamian-flagged vessels.

For companies based in The Bahamas there are also financial advantages to setting up shop in a tax-free jurisdiction. Earned income is tax-free, as are capital gains made on the sale of ships. The country also exempts foreign-owned ships weighing more than 150 gross tonnes from paying customs duties and stamp taxes. As a banking and financial centre, the country has a network of top finance, law and insurance experts. These conditions helped expand the registry from 60 vessels in 1978, representing 58,000 gross tonnes, to 1,600 in 2003, totaling 34 million gross tonnes. Some 154 ships are also reported on order, all scheduled to fly The Bahamas flag.

The maritime authority says none of the registry’s gains are at the expense of quality or enforcement of standards. For admission, vessels have to run the gauntlet of the world’s top classification societies on construction and technical standards, navigational practices, crew competence and environmental impact. The BMA engages 250 inspectors in 200 of the largest ports in 70 countries, to evaluate vessels. Inspections are also conducted by Port State Control boardings, which have certified 97 per cent of Bahamian-registered ships for compliance, posting a detention record of half the world’s average.

Since the attacks of Sept 11, 2001, counter-terrorism measures and heightened safety standards have profoundly affected all maritime and port traffic. But even with its exacting enforcement standards, The Bahamas registry continues to anticipate growth. “We have a review of strategy and new opportunities that is underway at the moment to assess growth in all areas,” says BMA’s McLean.

On a global level, shipping volume has quadrupled over the last four decades. For The Bahamas, poised at the crest of renewed investment through its pre-eminent registry, the highest tide is yet to come.

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