Introduction and background
On 18 June 2015, the Senate moved that the following matters be referred
to the Rural and Regional Affairs and Transport References Committee for
inquiry and report by the first sitting day of 2016 (2 February 2016):
The increasing use of so-called
Flag of Convenience shipping in Australia, with particular reference to:
- the effect on Australia's
national security, fuel security, minimum employment law standards and our
- the general standard of Flag
of Convenience vessels trading to, from and around Australian ports, and
methods of inspection of these vessels to ensure that they are seaworthy and
meet required standards;
- the employment and possible
exposure to exploitation and corruption of international seafarers on Flag of
- discrepancies between legal
remedies available to international seafarers in state and territory
jurisdictions, opportunities for harmonisation, and the quality of shore-based
welfare for seafarers working in Australian waters;
- progress made in this area
since the 1992 House of Representatives Standing Committee on Transport,
Communications and Infrastructure report Ships of shame: inquiry into ship
- any related matters.
Conduct of the inquiry
The committee advertised the inquiry on its website and in The
Australian newspaper. The committee also invited some organisations to make
submissions by 21 September 2015. The committee received 25
submissions, which are all available on the committee's website.
A list of these submissions can be found at Appendix 1 of this report.
The committee held public hearings in Canberra on 4 December 2015,
3 February 2015, 23 February 2016, 16 March 2016
and 30 March 2016. A list of witnesses who appeared at these hearings
is at Appendix 2 of this report. Hansard transcripts of evidence from all
hearings are available on the committee's website.
On 2 February 2016, the committee tabled an interim report in the
Senate, seeking an extension to the final reporting date to 25 February 2016,
which is available on the committee's website.
On 22 February 2016 the Senate granted a further extension of the reporting
date to 22 June 2016.
1.5 This inquiry has raised certain issues that should be ongoing concerns
for the Commonwealth, particularly regarding how FOC vessels are monitored and
overseen whilst operating in Australian waters. Given this, the committee has
decided to table this report as an interim report, in the hope that the work of
this inquiry can continue in the new Parliament following the 2016 election.
The committee thanks all individuals and organisations that participated
in the inquiry by making submissions and giving evidence at public hearings.
The committee would particularly like to recognise the attendance of
crew members of the MV Portland who appeared at the hearing on 3
February 2016, and thank them for sharing their stories.
What is Flag of Convenience
Every ship engaged in international trade has a nation registration that
determines the laws all persons and activities aboard it are subject to,
regardless of where in the world the ship is operating. The term 'Flag of
Convenience' (FOC) ship refers to:
...those vessels engaged in international navigation but which
are not registered in the state with which the ship is most closely associated.
There are several reasons why FOC registration is used, most of which
have the effect of reducing operating costs, including:
reducing the tax burden that ship owners are subject to;
making the vessel subject to less stringent labour legislation
required for crews, thereby reducing wages and the financial burden of
enforcing higher working conditions and safety standards;
minimising current exchange and investment controls that ship
owners are subject to; and
avoiding costs from meeting more stringent safety or inspection
regimes for vessels.
Globally, the registration of FOC ships is clustered predominantly in a
handful of countries that offer favourable incentives to shipowners, including tax
concessions, nominal fee structures and less stringent safety regimes.
According to the United Nations Conference on Trade and Development (UNCTAD)
the largest fleets (by gross tonnage) that operate under open registers are, in
descending order of size: Panama, Liberia, the Marshall Islands, Singapore, the
Bahamas, Malta, Cyprus and the Isle of Man (UK).
According to evidence received by the committee, between 50 and 65 per
cent of global shipping is now carried out by FOC vessels.
The submission made by Shipping Australia Ltd argued that the term 'flag
of convenience' is anachronistic and has negative connotations, which means
that many stakeholders now prefer the term 'open register' shipping.
The International Chamber of Shipping also noted this, stating that:
The term used by the United Nations and IMO Member States to
describe those flag States which permit the registration of ships that may be
beneficially owned in another country is 'open register'. However, the shipping
industry, as represented by ICS, actually believes that distinctions between
open registers and so-called 'traditional' maritime flags are not relevant today,
particularly when making generalisations about the effective implementation of
international regulations governing safety, environmental protection and
However, most submissions used the term FOC rather than 'open register'.
Although most submissions did not provide an explanation for this use, the
Australian Institute of Marine and Power Engineers stated:
entire point of the term 'Flag of Convenience' ship is to identify that the
ship is NOT carrying the flag of the nation in which it is owned: this emphasis
would be lost if one were to accept the submission by Shipping Australia Ltd to
instead call them 'open register' ships.
This report uses the FOC terminology, consistent with the terms
of reference for the inquiry and the overwhelming majority of submissions
The decline of Australian shipping
and increasing use of FOC vessels
As an island nation, shipping is central to Australia's economy and
national security. Australia is currently the fourth biggest user of ships in
the world, not only as part of its international trade networks, but also its
coastal shipping and domestic transport infrastructure.
Working alongside Australian-flagged vessels, ships sailing under the flags of
other nations have an integral role in servicing Australian shipping networks,
and thereby our domestic economy. As the Department of Infrastructure and
Regional Development stated in 2014:
Australia is heavily dependent on shipping, with 99 per cent
of international trade volumes transported by ship and Australian ports managing
10 per cent of the world's sea trade.
Over the past two decades, international sea freight to and from
Australia has increased around 2.5 times, with Australia's ports currently
handling around $400 billion of trade a year.
However, over the same period, the Australian-flagged shipping sector
has been reducing in size.
In part, this shift can be attributed to the increasing use of FOC shipping, which
one witness suggested had 'increased by 78 per cent since 2002' in
Some evidence received by the committee suggested that this trend could
compromise Australia's economic interests, the health of our labour market and
skills base, as well as reducing work opportunities for young Australians in
the maritime sector. In particular, the committee understands that the local
shipping industry already finds it difficult to be competitive, given that FOC
vessels are subject to far fewer burdens than Australian ships, including being
subject to lower taxes, less stringent working condition and employment
standards, and more lax safety regimes.
This situation appears to be exacerbated by the exploitation of
loopholes in the temporary license provisions in Australian maritime law. These
issues relating to the outlook for the Australian employment and labour market
are discussed further in chapter 2 of this report.
The committee also heard that certain aspects of FOC shipping could pose
challenges for our national and fuel security, as well as for the health of our
environment. The challenges posed by FOC shipping to Australia's security
system are discussed at greater length in chapter 3 of this report.
Additionally, evidence that drew the committee's attention to the poor
conditions experienced by some seafarers on FOC vessels, and the lack of
adequate support services for them in Australian ports is also discussed in
Recent incidents involving FOC shipping of interest to this inquiry
Some recent events relevant to FOC shipping in Australian waters have
informed the issues examined by this inquiry. In particular this report
includes two case studies to illustrate concerns raised by evidence to the
the use of FOC vessels by Alcoa on their Kwinana (Western
Australia) to Portland (Victoria) route, which has meant the loss of a
substantial number of jobs for local seafarers on the MV Portland (discussed
at chapter 2); and
suspicious deaths aboard the FOC vessel the MV Sage
Sagittarius in 2012, which are currently being investigated by the New
South Wales Coroner (discussed in chapter 3).
The Ships of Shame reports (1992, 1995)
An important context for this inquiry is previous work looking into
matters relevant to FOCs, particularly the reports of the House of Representatives
Standing Committee on Transport, Communications and Infrastructure (HoR
Committee), most notably Ships of Shame (1992) and Ships of Shame – A
Following the loss of six international bulk carriers off the West
Australian coast in close succession between January 1990 and August 1991, the
HoR Committee undertook an inquiry into ship safety in Australia's
The initial 1992 report set out the scope of the committee's work:
This report is about a minority of ships, bad ships, ships
that endanger the lives of those who serve on them. Ships that are the source
of major risks to the marine environment and marine facilities of the nations
they visit. Ships on which seafarers are abused and exploited by officers and
management alike. Ships that well deserve to be known as 'ships of shame'.
Regarding FOC shipping specifically, this report stated:
The Committee is not opposed to FOCs or second registries as
a matter of principle. If FOCs and second registries conduct their operations
in accordance with international convention requirements the Committee sees no
reason why they should not exist. The Committee's concern is with the
unsatisfactory level of compliance of some FOCs with international conventions
rather than the competitive pressure they may place on traditional flags.
The inquiry produced two further reports: a progress report in 1994; and
a final report in 1995.
The final report found that there had been some positive signs regarding the
safety of mariners over the three years of the inquiry, both in Australian
waters and internationally, particularly:
the introduction of Safety Management systems with their
potential to transform the sea-going culture into one which is more safety
conscious and efficient;
the development of strict criteria governing the operation of
Classification Societies [non-governmental organisations that establish and
maintain technical standards for ships], both at International Maritime
Organization and through International Association of Classification Societies
which should result in a reduction in practises such as Transfer of Class; and
the move by [the International Maritime Organization (IMO)] in
the revised Standards of Training Certification and Watchkeeping Convention
towards auditing, approval and public acknowledgment of administrations
demonstrably compliant with the [International Convention on Standards of
Training, Certification and Watchkeeping for Seafarers].
However, the 1995 report also noted there were still serious
abuses occurring in the global shipping sector, most significantly:
Sub-standard ships and practises still exist; crews are still
being beaten, harassed, abused and deprived of basic human rights.
Flag States are still avoiding their responsibilities, cargo
owners still charter and operators still run sub-standard ships.
Progress made since the Ships of
Much of the evidence received by the committee suggested that global and
Australian shipping industry standards have improved significantly since the
1992 Ships of Shame report. Some examples of positive developments cited
the International Safety Management Code, which provides a
standard for the safe management of ships and the prevention of pollution and
improvements to the Australian maritime regulation and compliance
framework, including the Port State control system administered by the Australian
Maritime Safety Authority (AMSA);
the 2006 Maritime Labour Convention improving seafarers' rights
and working conditions;
the general global improvements to the quality of ships, training
for crews and the adherence of vessels to international conventions;
other improvements to the treatment and working conditions of
The Australian Maritime Safety Authority submitted that a range of other
factors had improved Commonwealth monitoring of foreign vessels and the more
effective targeting of inspections:
Based on this information [provided by modern communications
systems], AMSA has virtually 'real-time' maritime awareness of all ships within
Australian waters. This allows far greater monitoring of ship activities than
ever before and this information is used to assist in the targeting of ships
for inspection based on not only historical data such as inspection history but
also based on recent operational activities.
National and regional co-operative arrangements have
developed significantly over the last decade. These co-operative arrangements
have delivered substantial communication channels with other organisations and
countries that bring better information to enable refined and very responsive
targeting techniques. These communication channels allow Australia to pursue
matters with foreign administrations when a ship is outside Australian waters.
Despite noting these improvements, the committee received evidence
concerning other areas relevant to the increasing use of FOC shipping that have
either not improved, or issues that have emerged since the Ships of Shame reports
were produced, which the Commonwealth needs to consider. These issues are
discussed in the following chapters of this report.
Structure of this report
This report consists of four chapters:
This chapter sets out administrative matters relating to the
inquiry, as well as the background issues relevant to FOC shipping. It also notes
some general improvements to conditions in the maritime sector since the release
of the Ships of Shame reports in 1992-1995;
Chapter two discusses employment issues arising from the recent
increasing use of FOCs. These issues include: the loss of many Australian jobs;
the decline of the local shipping sector; the damage to our national skills
base; and the shrinking number of future job opportunities for young
Australians in the maritime sector; and
Chapter three discusses concerns raised to the committee about
potential ways that FOC shipping could pose risks to our national and fuel
security, and the environment. It also discusses the poor employment
conditions, low wages and other factors that foreign crews aboard FOC vessels
are subject to, as well as the lack of support for them onshore in Australian
Chapter 4 sets out the committee's views and recommendations.
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