TIM CARTER AND KRIS DE BAERE

B.6.1 History

Since ancient times shipping and insurance are closely related. Phoenicians, Greeks and Romans knew the principle of hull insurance. The combined value of ship and cargo became so important that ways of protecting by transferring or sharing risk became necessary.

During the 18^th century, merchant shipping was a growing industry and the shipping community started to feel the need for insurance to protect their growing assets. Initially, this was done on a mutual basis at Lloyds’ in London. Later, specialized and private insurance companies were founded.

In the 18th century, all involved in shipping gathered at Edward Lloyds’ coffee house in London to gossip and make deals including sharing the risks and rewards of individual voyages. This became known as “underwriting” after the practice of signing ones name to the bottom of a document pledging to make good a portion of the losses if the ship didn’t make it in return for a portion of the profit.^[2]

In the early days, Lloyds (London) gathered an insurance monopoly and ship owners from outside London felt excluded and decided to insure each other against losses, a concept that exists still today in the Protection and Indemnity clubs or P&I clubs. As Kenneth Bilbrough, put it in 1903, ‘The whole principle of Mutual Clubs is, if there is a loss all owners contribute, and if there is a gain all owners get the return’.^[3]

However, the underwriters needed a way to evaluate the risk they were insuring and thus had to find a way to assess the quality of the ships.

At that time, an attempt was made to 'classify' the condition of each ship’s hull and equipment on an annual basis. The condition of the hull was divided into 5 classes according to the state of its construction and its continuing soundness (or lack thereof). The purpose of this classification system was not to assess safety, fitness of the construction and its equipment or seaworthiness of the ship. It was to evaluate risk. On this basis, in the 19^th century, various “Classification Societies” were founded. 

A classification society is a non-governmental organization in the shipping industry, often referred to as 'Class'.

B.6.2 Classification of Ships today

The practice of dividing vessels into different classifications has changed. Classification Societies today have drawn up elaborate sets of technical requirements on how ships have to be designed and built to meet minimum standards of technical quality. Known as the rules and regulations of the Classification Societies, they are based on the major international regulations, conventions, standards and codes or have been developed at the request of the shipping industry.

Today a ship either meets the relevant class society’s rules or it does not. Therefore it is either 'in' or 'out' of 'class'. Classification societies do not issue statements or certifications that a vessel is 'fit to sail' or 'unfit to sail', merely that the vessel complies with the required codes.

Obviously, for different types of vessels, different sets of (additional and/or specific) regulations have been developed.

The area of interest of the Classification Societies is not limited to a vessel’s construction, but also involves cranes, pumps, engines, firefighting installations and other equipment vital to the ship's function.

As well as providing classification and certification services, the larger societies also conduct research at their own facilities in order to improve the effectiveness of their rules and to investigate the safety of innovations in shipbuilding.

Classification societies are private organisations and not official bodies. In case of an accident with a ship that does not meet the classification standards, the society will not take any responsibility.

B.6.3 Classification Process

Classification Societies set technical rules and confirm that designs and calculations meet these rules. They also survey ships and structures during the process of construction and commissioning.

The Classification Society issues a certificate once a vessel has been built and they have confirmed that it meets the technical requirements, as stipulated in their rules and regulations.  The “Classification Certificate”, is sometimes split into separate certificates such as “Classification Certificate for Hull” and “Classification Certificate for Machinery”.

However, Classification Societies are not only engaged in the designing and building process of ships, Even more importantly, they constantly follow up the condition of vessels and its equipment through periodical inspections (surveys). These may be yearly, bi-yearly up to every five years depending on the specific item inspected. In addition, at regular intervals, a Class surveyor inspects the whole vessel and its equipment to confirm the safe condition of the vessel. As a worst case scenario, the “class” can be suspended, if anomalies exist.  However, as a daily practice, a “condition of Class” or “recommendation” is issued. This gives the ship owner time to rectify the technical problem before further action is taken.

Such a comprehensive inspection takes time and to avoid a vessel having to wait to allow these necessary inspections, and delays in the commercial operation of the vessel, “Class” societies have introduced the “continuous surveys”. 

Continuous surveys spread the required inspections over a period of time, allowing the ship owner to call for a specific survey when this fits into the commercial schedule of the vessel. However this also means that a vessel is in practice almost constantly under inspection.

Whereas the principal involvement of Classification Societies is the classification of ships, which sets standards of quality and reliability during their design, construction and operation, “Class” also carries out statutory inspections for national administrations, to verify the requirements set by international shipping conventions and codes.

All maritime nations require that ships and other marine structures flying their flag meet certain technical standards; in most cases these standards are deemed to be met if the ship has the relevant certificate from a member of the International Association of Classification Societies (IACS) or the European Maritime Safety Agency (EMSA).^[4]

Classification Societies may be authorized to inspect ships, oil rigs, submarines, and other marine structures and issue certificates on behalf of the Flag State under whose flag the ships are registered.^[5]

B.6.4 International Association of Classification Societies (IACS)^[6]

The International Association of Classification Societies (IACS) is an association of ten classification societies and states that it is

 “Dedicated to safe ships and clean seas, IACS makes a unique contribution to maritime safety and regulation through technical support, compliance verification and research and development. More than 90% of the world's cargo carrying tonnage is covered by the classification design, construction and through-life compliance Rules and standards set by the ten Member Societies and one Associate of IACS”.

The IACS has a consultative status with IMO.  It is the only non-governmental organization with observer status that is able to develop and apply rules. These rules have resulted in the International Convention for the Safety of Life at Sea (SOLAS).

The members of IACS are:

• The American Bureau of shipping
• Bureau Veritas
• China Classification society
• Det Norske Veritas /Germanischer Lloyd
• Korean Register of Shipping
• Lloyd’s Register
• Nippon Kaiji Kyokai (Class NK)
• Registro Italiano Navale
• Russian Maritime Register of Ships
• Croatian Register of Ships
• Indian Register of Ships
• Polish Register of Ships

Classification societies and their responsibilities

^[7]

A Classification Society governs design, construction and maintenance of a ship and provides the ship with all necessary documents throughout its life.

Class societies are private organisations and not official bodies. In case of an accident with a ship that does not meet the classification standards, the class society will not take any responsibility. 

However, the responsibility of the Classification Societies in case of an accident is currently controversial and a matter of legal debate.

B.6.5 Class hopping and the Transfer of Class Agreement

Most ships start their life under one of the reputable high end Class Societies. However, after a few years (15 years on average) maintaining the high standards of a top classification society can become costly and ship owners may consider transferring to a society with less stringent demands.

The cost of complying with the maritime regulations on which classification is based varies hugely depending on the conditions the classification society applies to a vessel. Estimates range from 2,750 USD/day to 7,500 USD/day for a 20 year-old bulk carrier of 30,000 dwt and from 3,100 USD/day to 9,500 USD/day for a 14-year old product tanker of 40,000 dwt^[8].

This tactic of continuing to seek classification at the lowest cost finally compromises the safety of the ship and crew. The TOCA or Transfer of Class Agreement existing between IACS members tries to remedy this weakness. 

The objectives of TOCA are double. First, TOCA is designed to allow for traceability of ship’s class and secondly “class-hopping” should be discouraged by requiring the “gaining society” in a class transfer to perform a “Special Survey” or “Intermediate Survey” for ships aged 15 years and over.

In addition, TOCA requires the transfer, to the “gaining society”, of the ship’s classification survey history.

B.6.6 References

1. International Association of Class Societies, IACS, Classification societies what, why and how? London, IACS, 2006
2. Fayle, E, A history of Lloyds Register, Macmillan and Company Ltd, http://brittlebooks.library.illinois.edu/brittlebooks_closed/Books2009-09/wrigch0001hisllo/wrigch0001hisllo_ocr.txt [accessed August 2018].
3. Watson N, 150 Years of the London P&I Club 1866-2016, London P&I Club, https://www.londonpandi.com/documents/150th-history/ [accessed September 2019]
4. Maritime connector, Classification society & IACS, http://maritime-connector.com/wiki/classification-society/ [accessed September 2019]
5. International Association of Classification Societies, IACS, iacs.org.uk [accessed August 2018].
6. Morgan M. Are classification societies demigods in Shipping Industry?, 1 june 2016. Available from: https://www.linkedin.com/pulse/classification-societies-demigods-shipping-industry-meredith-morgan [accessed August 2018].
7. Cariou P. and Wolff F-C. Do Port State Control inspections influence flag- and class-hopping phenomena in shipping ?. 2010. <hal-00455155>. Available from: https://hal.archives-ouvertes.fr/hal-00455155/document. [accessed August 2018].
8. Pagonis T, The Chartering handbook. Piraeus: Hellenic Shipbrokers Association; 2009. 85p.

^[1] International Association of Class Societies, IACS, Classification societies what, why and how? London, IACS, 2006

^[2] Fayle, E, A history of Lloyds Register, Macmillan and Company Ltd, http://brittlebooks.library.illinois.edu/brittlebooks_closed/Books2009-09/wrigch0001hisllo/wrigch0001hisllo_ocr.txt [accessed August 2018].

^[3] Watson N, 150 Years of the London P&I Club 1866-2016, London P&I Club, https://www.londonpandi.com/documents/150th-history/ [accessed September 2019]

^[4] Pagonis T, The Chartering handbook. Piraeus: Hellenic Shipbrokers Association; 2009. 85p.

^[5] Maritime connector, Classification society & IACS, http://maritime-connector.com/wiki/classification-society/ [accessed September 2019]

^[6] International Association of Classification Societies, IACS, www.iacs.org.uk  [accessed August 2018].

^[7] Morgan M. Are classification societies demigods in Shipping Industry?, 1 june 2016. Available from: https://www.linkedin.com/pulse/classification-societies-demigods-shipping-industry-meredith-morgan [accessed August 2018].

^[8] Cariou P. and  Wolff F-C. Do Port State Control inspections influence flag- and class-hopping phenomena in shipping ?. 2010. <hal-00455155>. Available from: https://hal.archives-ouvertes.fr/hal-00455155/document. [accessed August 2018].