International shipping has been a major driver of sustained economic growth over the last sixty to seventy years. The ever-increasing efficiency of international shipping has helped to boost trade which has, in turn, brought prosperity to nations and has lifted literally billions of people out of dreadful poverty.
Ever-increasing efficiency and value for money
From time-to-time some commentators make wrongful claims about the reasons why the ocean-carriage of cargo is such great value-for-money. The simple fact is that the cost of ocean freight has fundamentally plummeted because of increased transport efficiencies.
Ocean container shipping is the single most efficient way to move large volumes of goods. Back in 1956, loading of a medium-sized break-bulk ship cost US$5.83 per US ton. Loading of the first true containership, the Ideal-X, in 1956 was US$0.16 per US ton. Loading the Ideal-X was literally 36 times cheaper than the alternative.
International general cargo freight rates are much lower now than they were 64 years ago. And container shipping has massively increased its efficiency and value-for-money since then. For instance, according to the World Shipping Council, if all the containers from an 11,000 TEU ship were loaded onto a train, it would need to be 77 kilometres long. A container can be moved from a factory in Malaysia to Los Angeles – a journey of roughly 14,484 kilometres – in just 16 days. The cost of transporting a small electronic appliance from Asia to the US is about US1.50, a kilo of coffee is US$0.15 and a can of beer is a penny.
And that’s just the efficiencies in the containerised goods supply chain. There are also huge efficiencies in the seaport-loading / discharge and ocean carriage of bulk raw materials such as iron ore, crude oil and petroleum.
Separate corporate legal personality and limited liability are well-established principles
From time-to-time the use in shipping of separate corporate entities and liability limited by shares (limited liability) comes under attack. The principle of separate corporate personality and limited liability to protect from ruinous unlimited financial liabilities dates back to the UK’s Companies Act of 1862.
The fundamental right to organise affairs around the concept of corporate limited liability was first upheld – and unanimously so – by the House of Lords (which was formerly the UK equivalent of Australia’s High Court) in the landmark case of Salomon v A Salomon (1897). The principles that people and companies are entitled to structure their affairs around separate corporate entities and to enjoy the benefits of limited liability has been repeatedly upheld in courts around the world for over a century since.
And for excellent reason.
Separate legal personality for corporate entities and limited liability forms part of the very bedrock of the modern economic system. From investments, saving for retirement, building infrastructure, providing goods and services for sale, buying insurance, or operating any kind of business, nearly all of our economic and financial dealings in some direct or indirect way depend upon, or interact with, these two principles.
Indeed, it is inconceivable that modern day companies – from the smallest corner store to the biggest company in the world – would not organize their affairs with these principles in mind.
Access to the ocean is a fundamental international right
Access to the ocean is part of the common heritage of all mankind. Accordingly, the ability of all countries to benefit from the ocean is enshrined in international law under Article 90 of the United Nations’ Convention on the Law of the Sea which states: “every State, whether coastal or land-locked, has the right to sail ships flying its flag on the high seas”.
Countries exercise their right to access the ocean by setting up “open registries”. Today, many open registries have become outstanding global citizens with specialist maritime skills.
Some commentators take issue with the exercise of this fundamental right and argue that there should be a connection between the nationality of the ship owner and the registry of the ship. This is often attacked with provably false allegations that national registries are somehow better than open registries by virtue of a national connection.
But open registries often out-perform many traditional, national, flag states. Here’s the proof: the Paris MOU, a globally-authoritative body, tracks such things on its three lists: the White List, the Grey List and the Black List.
The White List, as its name suggests, is the list of the best-of-the best ship registries in the world. The Paris MOU puts the Bahamas open registry near the very top of the White List. The Bahamas open registry beats every other registry in the world bar the UK and Norway. Other open registries near the top of the White List include the Marshall Islands, Singapore, Hong Kong, and Bermuda.
A highly-regulated international industry
Sometimes commentators claim the shipping industry attempts to evade regulatory standards. It is hard to see how – worldwide ocean shipping is possibly one of the most regulated human activities in the world.
Shipping is regulated globally by the International Maritime Organization, regionally by bodies such as the EU, nationally by every country, sub-nationally by bodies such as Australian States and Territories, and even at the port-level by institutions such as the office of the local harbourmaster.
That’s not even considering the sectoral, regulation-like, rules by bodies such as classification societies, insurers, regional MOUs, and other such actors who also have a role to play in the governance of the transport of ocean freight.
Highly-important work of the International Maritime Organization
There are far too many regulators and regulations that work in the maritime field to meaningfully discuss here, so we will just take a brief little look at the IMO.
The work of the IMO includes combating marine pollution, promoting the safety of life at sea, boosting energy efficiency, helping trade facilitation, tackling invasive species and much more. The work of the IMO also includes setting up international legal regimes that govern various aspects of the behaviour of the global shipping industry.
None of the legal regimes created by the IMO would have much value or effect if the shipping industry did not contribute to them, help implement them or comply with them.
At a global level, the ocean shipping industry recognises, agrees, and strives to comply with society’s legitimate demands that it must be an outstanding and responsible global citizen.
