Carnival Cruise Lines will partially reimburse the U.S. Government

Maritime Articles

In the face of an escalating public relations nightmare, Carnival Cruise Lines has announced that it will reimburse the U.S. Government for a portion of the costs incurred for rescuing its disabled cruise ships. The Triumph and Splendor experienced problems at sea, which left thousands of passengers adrift in international waters without power or plumbing for days. The disasters triggered a spate of lawsuits, as well as negative news coverage that may affect the cruise company’s ability to attract future customers.

It doesn’t help that cruise companies are known for evading U.S. taxes and regulations by registering ships in foreign countries. According to Democratic U.S. Senator Jay Rockefeller of West Virginia, Carnival Cruise Lines has used regulatory loopholes to avoid paying tax on millions in profit while abusing the generosity and goodwill of American taxpayers.

Though the cruise companies are often headquartered in the United States, its ships often sail under "flags of convenience", which allows cruise companies to claim that their ships are under the jurisdiction of another sovereign state. That way, the cruise lines do not have to pay U.S. taxes or adhere to national regulations unless the ship is docked at an American port or is still sailing within national waters. Today, the majority of ships sail under the flag of Bermuda, the Bahamas, Panama, or Liberia.

Senator Rockefeller wrote a strongly worded letter to Carnival Corp. CEO Micky Arison, pointing out that the U.S. Coast Guard has provided invaluable assistance to Carnival ships for the last 5 years, which amounted to 90 recorded events. The Triumph and Splendor incidents already cost the taxpayers $4.2 million—which is just a drop in the bucket when the rescue costs for the other incidents are taken into account.

"These costs must ultimately be borne by federal taxpayers. Given that you reportedly pay little or nothing in federal taxes, do you intend to reimburse the Coast Guard and Navy for the cost of responding to either the Carnival Splendor marine casualty or the Carnival Triumph marine casualty", the senator demanded.

Carnival Cruise Lines’s senior VP of corporate maritime policy James Hunn responded in tone deaf fashion, declaring: "Carnival’s policy is to honor maritime tradition that holds that the duty to render assistance at sea to those in need is a universal obligation of the entire maritime community." He insinuated that since the cruise industry already made significant contributions to the American economy, federal assistance should be provided without hesitation. He also added that Carnival ships already adhere to international maritime tradition by helping other ships in distress at their own expense.

The angry public did not buy the cruise company’s line of reasoning, however. Memories over the latest cruise ship disasters are still fresh in people’s minds, as many lawsuits have yet to be settled.

In a bid to turn around its public image, Carnival reversed its position, stating: "Although no agencies have requested remuneration, the company has made the decision to voluntarily provide reimbursement to the federal government." The company also clarified that they never resisted the request for reimbursement, stating: "It should be clearly noted that at no point in time has Carnival stated it would refuse to reimburse federal agencies if they sought remuneration."

This means that Carnival Cruise Lines will pay an unspecified amount to help defray the costs "related to the Carnival Triumph and Splendor incidents".

The most recent incident involved the Triumph, which floated aimlessly in the Gulf of Mexico for 5 days without power or plumbing. More than 4,000 passengers were stranded, who had to endure food shortages, sleep in tents, and endure unsanitary conditions. The Splendor broke down in international waters in January 2010, subjecting thousands of vacationers to a similar nightmare. Both times, the U.S. Coast Guard came to the cruise liners’ rescue.

Some critics point out that cruise ship safety may be compromised when ship owners prefer to hire less expensive international marine officers rather than credentialed American officers and mariners to cut costs. Said Tom Bethel, president of the American Maritime Officers (AMO) union: "None of these recent [cruise ship accidents] involved an American-flagged ship and none of these incidents involved an American officer. American passengers taking cruises today, I believe, would feel a lot more comfortable and a hell of a lot safer if they knew they had American officers manning the bridge and engine rooms of these vessels".

However, this charge was dismissed as political nativism by Cruise Lines International Association (CLIA) CEO Christine Duffy, who wrote: "all crew members, regardless of nationality, undergo rigorous training before serving on a cruise ship and participate in continuous drills and exercises to hone their skills".

In the end, the problem isn’t a matter of skill or training as much as it is about accountability. The practice of sailing under "flags of convenience" has undermined maritime safety because passengers have no idea that American laws do not apply when accidents or crime occurs in international waters. When something bad happens, unlucky passengers have no choice but to hope that the flag state is serious about investigating the incident, which is usually not the case.  

"People don’t fully understand that when they sail out of U.S. territorial waters, they’re essentially in a no man’s land," noted Miami based maritime lawyer Jim Walker. "If there’s anyone overseeing the ship’s operation, it’s a country like Panama or the Bahamas".

Even though most flag states have signed the International Convention for the Safety of Life at Sea (SOLAS), which is a set of principles specified by the International Maritime Organization (IMO), enforceability is still questionable at best. As Walker explained to NBC News: "People talk about international maritime laws, but there’s no such thing as IMO law. There are no consequences when people break them".

The U.S. Coast Guard does its part by inspecting foreign flagged ships twice a year, but that is often not enough when a crime or accident occurs during international waters. The port states have a responsibility to investigate these incidents, but if there is no regulatory body that can hold port states accountable when there is a failure in prosecution or resolution.

The cruise ship industry, according to Nova Southeastern University maritime law professor Bob Jarvis "is a very fractured industry where customers are relying on the tender mercies of the businesses they’re patronizing. Because of the jurisdiction issues – the flag state, the port state, international waters – it’s just a mess".

That said, cruise ships are generally one of the safest vacation options overall. In the end, cruise companies will opt to do the right thing. As expensive as taxes, regulations, and upgrades can be; it’s still far less costly than the consequences of negative publicity.

A flag of convenience can be detrimental to Seamen

Maritime Articles

A “flag of convenience" is a popular loophole used by large boat owners to evade international maritime laws and save taxes. But this practice can be detrimental for mariners when a crisis strikes, as depicted by the insolence of Azal Shipping & Cargo, the owner of Iceberg 1, a ship that was assaulted by Somalian pirates, and the government of Panama, the flag of convenience for the Iceberg 1.

The International Transport Workers’ Federation (ITF) requested Panama to contribute financially to help the crew of the Iceberg 1, recently released from a hellish kidnapping. The sailors of the Panamanian-flagged ship remained nearly three years kidnapped by Somali pirates; they were subjected to torture, starvation and even mutilation before being released in December, 2012, after an armed confrontation.

The first officer is still missing, presumed dead, and one sailor committed suicide during captivity. The remaining 22 hostages are in their home countries, but they need urgent help to rebuild their lives. The trauma they were deliberately subjected to has left psychological scars. Many of them suffer medical problems.

On top of the brutal kidnapping, the mariners’ employer, Azal Shipping & Cargo, stopped their pay as soon as they were captured. Some of the abused sailors have returned home to families who have been devastated by the nearly three-year interruption of financial support.

ITF seafarers’ section chair Dave Heindel stated: “There is a good understanding across the shipping industry of just how much these seafarers and their families have suffered over the last three years, and it’s no surprise that some people in the industry have offered financial support. However, we’d particularly like the flag state, which in this case is Panama, to join them and us in sponsoring this relief effort".

He continued: “It is unfortunate that the flag state has not discharged its duty of care set out by the IMO to these seafarers during their captivity, even though they were serving on a vessel flying its flag. There is now an opportunity for it to contribute to their support and rehabilitation."

He concluded: “The cruel and barbaric treatment meted out to these mariners must serve as a constant reminder of why pirates have to be fought, pursued and prosecuted."

The Iceberg 1 had been held by Somali pirates since March 2010. The ship owner, Azal Shipping of Dubai, abandoned the vessel uninsured when it was captured. The company paid no wages to either the seafarers or their families. Twenty-two crew members were freed during gun battles in December, 2012: eight Yemenis, five Indians, four Ghanaians, two Pakistanis, two Sudanese and one Filipino. One seafarer, Wagdi Akdram, a Yemeni, was driven to suicide by his ordeal. The fate of the Indian chief officer, Dhiraj Tiwari, is unknown. He was tortured and separated from the other crew. Another hostage had his ears mutilated. All the mariners were subjected to torture and starvation. Panama, the flag of convenience state, has not provided assistance to the captured crew. This situation demonstrates one of the many problems arising from the use of flags of convenience. The flag of convenience state may not take the needed and required responsibilities when abuses occur. Not only did Azal Shipping get away with not paying its workers, Panama ignored its responsibilities to the captured sailors and their families.

Flag of convenience and abuse of international maritime law

Maritime Articles

The International Law of the Sea is, although vast, incomplete, having significant gaps. Its application is uneven and patchy, largely determined by the non-binding nature of certain agreements or the wide margins of discretion that much of this legislation grants to governments.

In April 29, 1958, the first United Nations Convention on the Law of the Sea (UNCLOS) signed the Geneva Convention on the High Seas (CHS). This convention establishes in article five that “Each State shall fix the conditions for the grant of its nationality to ships, for the registration of ships in its territory, and for the right to fly its flag. Ships have the nationality of the State whose flag they are entitled to fly. There must exist a genuine link between the State and the ship; in particular, the State must effectively exercise its jurisdiction and control in administrative, technical and social matters over ships flying its flag”.

Protected by this Convention, large shipping companies and cruise lines choose to register their vessels in certain countries, taking advantage of their lax laws of convenience, avoiding high international standards – this practice is known by the term "flag of convenience".

Understanding the importance of international maritime trade, it would be easy to assume that there should be a relationship between the most developed countries and the number of vessels that carry their flag. This leads us to assert that countries with more vessels would have to correspond with the major economic powers: USA, England, Germany… but we would be mistaken.

In 2007, 22.2% of the world tonnage was registered in Panama, followed by Liberia, with 9.8% of the world fleets. Bahamas was third with 5.6% of the world fleet. It should be noted that 51.9% of the merchant fleet of bulk carriers are registered in Panama, while 50.6% are oil tankers are registered in Liberia. 50% of the world fleet of cruise ships is registered in the Bahamas.

Maritime accidents due to the use of a flag of convenience from countries with low requirements

The data presented reveal that the vast majority of shipping companies choose to flag their ships by the tax breaks they could gain from the flag State or, worse, by the weakness or lack of rigor in compliance with the flag states’ international requirements. This will have increased the so-called "flags of convenience" phenomenon characterized by the registration of ships that do not meet minimum safety conditions for transporting dangerous goods and cause several preventable accidents.

This situation constitutes a major safety breach and requires a solution. States should be required to comply with the rules of international maritime law on the supervision and control of ships registered in their territory. Shipping companies and cruise liners should be restricted in their choice of their flag, requiring a clear link between the ship and the flag State.

When economic interests impair maritime safety

Maritime Articles

Aging boats and low staffing levels are two factors with a high degree of responsibility in many maritime accidents, and examples of this are the accidents suffered by petroleum tankers such as the Aegean Sea and the Braer.

In the early hours of the 3rd of December in 1992 the Greek petroleum tanker Aegean Sea entered in the port of La Coruña (in Galicia, Northwest Spain) with adverse weather conditions, winds of over 100 km/h and visibility of under 100m. Because of a swelling of the sea – according to the ships’s captain – or due to an incorrect maneuver – according to the Marine Merchant General Directorate -the vessel deviated from the planned course and ended up grounded against the rocks 100 meters from the coast and close to the entrance to the port. This accident caused significant ecological damage. The 80,000-tons spillage of petroleum affected 300km of coastline and killed around 26,000 animals.  

In January of 1993 in Great Britain the British petroleum tanker Braer, which was registered in Liberia, crashed against the rocks of the coast of the Shetland Islands in Scotland. The vessel was a single hulled tanker of 89,730 tons which belonged to the North American company Braer Corp flying the flag of Liberia for convenience. In the morning of the 4th of January, with a storm force of 10 to 11 and with waves of more than 10 meters, the ventilation of the diesel tanks of the machine room broke. Seawater began to enter and contaminated the vessel’s diesel. At 4.40 am the main motor went out, leaving the Braer without propulsion and in darkness.   

These two regrettable maritime accidents were caused to a large degree by the interests of some ship owners who, in order to obtain a bigger economic profit, cut back on safety. The staffing of the two petroleum tankers previously mentioned were similar; a Greek command and a mainly Philippine crew. 

The diversity these petroleum tankers’ crew continues to be a recurring characteristic with current mariners, given that between the European sailors and those from the Philippines and other Third World countries there is no much difference to ship owners. This is largely determined by the companies, which in the search for higher profit, contract the cheapest workforce available, frequently reducing crew size – although there are minimum levels which can’t be ignored – limiting with these constant staff changes the opportunities for the crew members to get to know the vessel well.    

In many cases the crew is made up of people from different countries and the marines can’t understand each other or, worse still, their English is so poor that they aren’t capable of understanding the captain’s orders when they are slightly complex.

This problem is so serious that the German government proposed – within a range of measures put before the European Community – the introduction of a work language exclusively for boats and the communications between crews and the maritime authorities. They also proposed the need for more rigorous controls when petroleum tankers dock in community ports. Currently, with the Montreal Protocol, the port authorities are authorized to review 25% of the vessels which dock. However, this control is regrettably limited to a check of the vessel’s documentation.

It was further proposed that petroleum tankers should be obliged to sail further away from the coast. In the case of the Braer, it is believed that if they had chosen to go around the north of the islands instead of choosing the southern channel the ecological disaster would have been avoided. 

Economic Reasons Influence the Vessels’ flags

Profit is also the determining factor in the adoption of flags of convenience; the Braer was sailing under a Liberian flag. The Aegean Sea was almost 20 years old when she sunk and the petroleum tanker that crashed in the Shetland Islands had already been around for more than 17 years. They formed part of a wide group of petroleum tankers that were built during the 1970s and as such didn’t include the security specifications which were later implemented by the International Maritime Organization for newly built petroleum tankers. These older vessels lack a double hull and still have 10 years in front of them without the need to modernize, factors which have led to them being categorized as “almost pirate”.

This is a truly alarming situation when you take into account the fact that there is approximately 1,500 million tons of petroleum transported around the seas of the world every year.