Panama City — Panama, which registers, or flags, the largest number of ships in the world, with 8,653 vessels currently in operation, will now see Panamanian-flagged ships more susceptible to inspections from this month as the country has slipped 10 places in the ranking onto the so-called ‘gray list’ of the París Memorandum of Understanding on Port State Control (Paris MoU).
Paris MoU is a group of European nations plus Canada which maintain data on vessel inspections and rank flag states based on the ratio of detentions to inspections. The data underpinning the rankings is on a three-year rolling basis, with the latest list covering inspections and detentions from 2020-2022. The new list came into force in July.
Analysts warn that the drop in Panama’s standing makes it vulnerable to competition from other nations.
The country dropped 10 positions on the Paris MoU list, an assessment valid from July 2023 to June 2024 that “calculates the risk profile of ships” and classifies them in white, gray and black, by the organization formed by 27 maritime administrations and covering the waters of European coastal states and the North Atlantic basin, from North America to Europe.
Its mission, according to its website, is to eliminate the operation of substandard ships through a harmonized system of port state control and that the responsibility for compliance with international maritime standards lies with the flag state.
The consequences
Associations and lawyers linked to the maritime sector warn that the canal country has not realized the serious implications of the devaluation to the gray flag with 17 other nations and the fact that it will present itself with this new qualification to an audit of the International Maritime Organization (IMO) due in 2024.
Panama had abandoned the gray list 12 years ago and has since held the white flag, where, on the other hand, competitors of the free registry such as Liberia and the Marshall Islands remain.
The list is updated approximately every year and a half and evaluates the flag states, according to the standards of compliance with IMO maritime regulations, and according to the report Panama’s shortcomings are focused on labor and safety issues.
“Several problems may be faced in the area of commercial flagging of ships,” according to the Panamanian Shipowners Association (ARPA). “International shipowners may become more cautious in choosing a flag that has been flagged on the grey list as they are likely to be subject to stricter inspections in accordance with established protocols. These additional inspections are intended to ensure that ships under that flag comply with safety and environmental standards.”
Another implication warned by ARPA’s Rodrigo Hernandez is that, due to possible legal problems, sanctions or reputational damage that could arise from being associated with flags that do not comply with international standards, some shipping companies could express concerns and “there our competition would be focused on Panama”.
The former magistrate of the electoral tribunal and former director general of the merchant marine, Guillermo Márquez Amado, explains that ships under the registry of a gray flag, as Panama is now, have as a consequence “a rise in interest rates on bank loans secured with mortgages, and naturally that means higher costs”.
After Panama in the ranking of countries that register ships are Liberia, the Marshall Islands, Hong Kong, Singapore, Malta, China and the Bahamas.
It is not in Panama’s interest to be on the gray list because the registry begins to be seen as “tolerant of the faults or conditions of having its ships in a substandard state, and that naturally alienates shipowners and cargo owners, insurers and financiers of operations related to merchant ships,” explained the lawyer.
The Panama Maritime Authority (AMP), for its part, said it remains committed to the compliance of its fleet and continues to take measures to reduce Port State detentions of Panamanian vessels.
The Paris MoU is aimed at sanctioning vessels that do not meet maritime safety standards and to prevent pollution of the marine environment.
Why is Panama on the gray list?
Among the main reasons for Panama’s inclusion on the Paris MoU gray list and that could have generated situations of non-compliance are the age of the inherited fleet operating.
“Of the 374 detentions reported (in the last three years), we have 104 vessels of more than 30 years old, and 35 vessels over 40 years old, a situation that puts us at risk given the rigorousness of the inspections. These vessels are being subjected to a special inspection regime, and if they do not improve they will be purged from the registry,” the AMP said in an official communication.
In addition, there is a number of ships with a high number of detentions, or with reported deficiencies.
These companies have been audited, some suspended and revocation of their delegation of authority is not ruled out.
“We are on that list for lack of controls, any color on the list harms Panama and urges other shipowners to use another flag [of the free registry] and this can affect us,” agreed Yira Poyser, president of the Panama Maritime Chamber, a guild that is prepared to offer support to improve the situation.
Coincidentally, for a past investigation, Bloomberg Línea requested from the AMP the list of inspections of the Panamanian fleet, with the reasons for the sanctions as well as the detail of the vessels that were fined, but this information was held, citing confidentiality.
Bloomberg Línea’s investigation in conjunction with Mongabay Latam revealed that Panama’s free registry or so-called “flag of convenience” is sometimes used by vessels with a terrible record of compliance with the rules and related to illegal fishing.
Meanwhile, among the actions of the Panamanian vessel registry “to maintain its compliance standards”, the AMP states that due diligence has been strengthened and vessels older than 30 years are being rejected.
During the year 2023, 20 vessels have been rejected due to their history of detentions in the pre-flagging process and the purging of the registry continues, the entity added.
The 8,653 vessels flagged under the Panamanian registry represent 249.3 million gross tons and contribute $66.74 million to the Panamanian treasury, according to official figures.