Journal of Commerce / August 3, 2000
By Larry Luxner
LIMASSOL, Cyprus -- Tired of the country's designation as a "flag of convenience," the Cyprus Department of Merchant Shipping -- which runs one of the world's largest ship registries -- says it's begun cracking down on deficient vessels. But the Mediterranean island's chief shipping association says the government isn't doing enough.
At the moment, 2,686 ships around the world fly the Cypriot flag; 1,700 of them are oceangoing vessels, while the rest are yachts, dredgers, floating cranes and others.
Together, these vessels boast a combined tonnage of 26.8 million metric tons, giving Cyprus the sixth-largest registry in the world, after Panama, Liberia, Greece, the Bahamas and Malta.
In 1997, Cyprus ranked No. 4 worldwide, but Serghios S. Serghiou, director of the Cyprus Department of Merchant Shipping, says he's after quality, not quantity.
"Our emphasis now is on the improvement of safety standards of Cypriot-registered ships," Serghiou told The Journal of Commerce during an interview in Limassol, the country's chief port. "We're trying to increase the number of inspectors in order to verify that our ships fully comply with international regulations."
Serghiou, who's directed the Cypriot ship registry for 20 years, says Cyprus boasts the third-largest ship-management center in the world.
"We are in a unique position among open registry countries," he said. "Liberia does not have a single shipping company operating there; the same is true of Panama and Malta. They just operate registries. They don't have companies employing people. Cyprus has 40 large companies that own and manage ships from Cyprus, and another 100 companies engaged in shipping activities. We are not a flag of convenience, if one considers that Cyprus has a genuine link with the ships flying its flag."
Unfortunately for Cyprus, the International Transport Workers Federation (ITF) doesn't agree. Despite lobbying by Serghiou and other Cypriot officials, the London-based ITF still designates Cyprus as a flag of convenience because of unacceptably high deficiency rates.
"The problem is the public sector," said Thomas A. Kazakos, general secretary of the Cyprus Shipping Council. "The Cypriot flag suffers from an image problem. Since the 1980s, the registry has seen a boost, and the authorities have not increased their staff accordingly. That means that a lot of ships aren't being inspected. Most of these involve safety deficiencies, meaning that the rates of deficiency of Cypriot-flag vessels are rising."
Kazakos, whose 129-member trade association is the largest shipping organization in the country, says the Cypriot government must be more aggressive in cracking down on deficient vessels. He noted that 25 countries currently appear on the ITF's blacklist, which defines a 15% detention rate as "borderline." The rate for Cyprus is 17.6%, he said.
"They have a three-year rolling average. Once you're on that list, it's almost impossible to get off it," Kazakos explained. "For us to get off, we'd have to stay below 15% for three consecutive years."
Serghiou, whose agency has offices in Paris, Rotterdam, London and New York, says a shipowner might pay as little as $500 (for a yacht) or as much as $10,000 (for an oil tanker) to register a vessel in Cyprus. But the real payoff comes at tax time. While the United States, Great Britain and other countries charge far less to register a ship, their income tax rates are much higher, as are labor costs, he said, estimating that the typical owner of a Cypriot-flagged containership saves about $2 million a year as opposed to registering the same vessel in the United States.
"This is the basic reason shipowners opt to register their ships with us," said Serghiou. "We provide stability, adherence to the law and, of course, full responsibility as a flag state."
According to Serghiou, the government-run registry of ships brings Cyprus $10 million in annual revenues, while the overall shipping sector generates between $150 million and $200 million a year. Some 4,000 people -- half locals, the other half expatriates -- are employed in shipping. All of them use the services of local attorneys, banks and utilities.
"The reason we have been accused of being a flag of convenience in the past was because of high casualty rates," he said. "Yet, unlike other open registries, we have a solid shipping infrastructure. A large proportion of these ships are owned and managed by Cypriots. Therefore, the government has decided to focus on improving quality rather than pursuing an increase in the size of the registry."
Kazakos suggests that Serghiou's office might start by fully computerizing its operations, hiring far more inspectors (it currently has only 17) and adopting "zero tolerance" standards for larger ships. "Right now, detention is a last resort, though it should be the other way around."
Adding to the pressure is the desire by Cyprus to join the European Union in the face of opposition by Turkey, which occupies 37% of the island by force yet wants to join the EU itself.
EU accession, which could come as early as 2003, means that Cyprus must harmonize its shipping legislation with that of other EU member countries, an activity which Serghiou's office is also pursuing. Yet experts say there's one problem Cyprus alone can't fix, and that is Turkey's trade embargo against the island.
"We've lost a number of ships that would have been registered as Cypriot if not for the Turkish trade embargo," says Costas P. Erotokritou, chairman of the Cyprus Ports Authority. Adds Kazakos: "Any ship, irrespective of flag, which before or after leaving Cyprus calls on a Turkish port, is banned from berthing at a Turkish port again. This has had a major commercial impact on Cyprus."