Prof Guillaume Vuillemey of
HEC Paris in this voxeu piece
writes on the dark side of shipping industry:
The maritime shipping industry has been the backbone of globalisation, carrying 80% to 90% of global trade flows. This column shows that over the past four decades, shipping firms are being systematically structured to evade corporate responsibilities. Potential tort liabilities, for example in case of an oil spill, are evaded by registering each ship in a different subsidiary; regulatory standards are evaded by using flags of convenience; and long-term responsibilities related to ship recycling are evaded using so-called last-voyage flags.
These findings highlight a downside of globalisation: the drop in transportation costs over the past decades was partly achieved via the evasion of shipowners’ responsibilities, including environmental liabilities. Importers and exporters may not have been paying the true cost of their activity. Using the terminology by Rodrik (1997), globalisation may have gone ‘too far’.
My results also raise questions about the use of limited liability in parent-subsidiary relationships, particularly for tort liabilities. Indeed, limited liability enables group owners to externalise damages to society. The associated costs are more severe than those generated by standard risk-shifting (Jensen and Meckling 1976) since tort creditors are not contractual creditors and so cannot take action to protect themselves. Based on similar reasoning, some legal scholars have challenged the use of limited liability for torts (Hansmann and Kraakman 1991) or for fully-owned subsidiaries (Blumberg 1986). In general, limited liability and corporate responsibility may be much more closely linked than previously thought.
I sent this article to a friend in shipping industry. His comment:
Well there is truth in that, but that assessment is without context. If an upright shipping company, wants to take on all the responsibility then it will not be able to compete, as freight is highly commoditized. Will any company pay more on sea freight if I told him I am higher on the corporate responsibility ?
So to make a level playing field, you need a rules based ‘global body’.
That is the IMO (International Maritime Organization), which sets rules for safety, environment, and labor reform. One may argue that IMO is moving too slowly, and I would personally agree.
But again remember IMO is made up of member states, with the most powerful members being China, EU, Japan, and US.
So in the end, these member states need to move, to make shipping, or for that matter any industry/issue that has global (and not just sovereign) jurisdiction.