The Role of Shipping Companies in Co-Operative Mechanisms to Enhance Navigational Safety in the Straits of Malacca and Singapore
Robert Beckman, RSIS
Why private companies should assume some responsibility for the aids to navigation
There are several reasons why companies should assume some responsibility for maintaining aids to navigation and other measures to contribute to the safety of navigation in the Straits of Malacca and Singapore.
First, it is simply not fair or equitable to ask the littoral States to bear all the costs of aids to navigation in the Straits of Malacca and Singapore (Straits). A significant portion of the traffic through the Straits is 'through traffic' which does not stop in a port of any of the three littoral States. The littoral States benefit from ships passing through the Straits which enter their ports, and they can also collect port dues from ships entering their ports. However, ships transiting the Straits without stopping at any port in the littoral States pay nothing for their passage.
The littoral States are expected to continue to maintain, replace and improve aids to navigation in the Straits. The aids to navigation in the Straits enable ships enroute from the Europe and the Middle East to Northeast Asia to pass through the Straits of Malacca and Singapore without having to spend three extra days by taking the longer route through the Lombok and Makassar Straits. Thousands of oil tankers and other ships carrying hazardous cargo pass through the Straits annually, posing a risk to the marine and coastal environment of the littoral States. The littoral States bear the risk from the ships transiting the Strait, but they receive no benefits from their passage. It is unfair that the littoral States should have to bear the burden of providing, maintaining and replacing aids to navigation to assist ships transiting the Straits, while companies whose ships benefit from such aids to navigation pass through the Straits as "free riders".
Japanese companies and non-government organizations such as the Nippon Foundation have been contributing for many years to aids to navigation in the Straits through the Malacca Straits Council.1 If Japanese companies make contributions, while companies from other countries pay nothing, this puts the Japanese companies at a competitive advantage. It is also unfair.
Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept that suggests that private companies have a duty of care in all aspects of their business operations to all of their stakeholders, including members of community where their activities may affect the local environment or economy. Promoters of CSR argue that companies should make decisions based not only on financial and economic factors but also on the social and environmental consequences of their activities.
The emergence of private initiatives for corporate responsibility has been an important trend in international business over the last 25 years. The initiatives include the development of codes of conduct, management systems for improving compliance with these codes and non-financial reporting standards. For some, a commitment to CSR brings with it a need to institute "triple bottom line" reporting. In practical terms, triple bottom line accounting means expanding the traditional company reporting framework to take into account environmental and social performance in addition to financial performance.
The concept of CSR is also related to the United Nations Global Compact.2 The United Nations Global Compact is an initiative to encourage businesses worldwide to adopt sustainable and socially responsible policies, and to report on them. The Global Compact was first announced by United Nations Secretary-General Kofi Annan in an address to The World Economic Forum on January 31,1999, and was officially launched at UN Headquarters in New York on July 26,2000. The Global Compact seeks to promote responsible corporate citizenship so that business can be part of the solution to the challenges of globalisation.
CSR has been particularly popular in Europe. At the Lisbon Summit in March 2000, European leaders and governments challenged business alliances and stakeholders to mainstream CSR in business practice and policy making.3
The first Japanese shipping company to participate in the United Nations Global Compact was Mitsui OSK Lines (MOL). MOL recognizes that corporate social responsibility (CSR) is a key to sustainable growth. It was among the first companies to promote more effective corporate governance, a strengthened compliance system, safer navigation, and environmental protection. To develop a more effective group-wide approach to CSR, MOL has established the CSR and Environment Committee as well as a CSR and Environment Office in its Corporate Planning Division.4
The Secretary-General of the IMO, Efthimios E. Mitropoulos, has also indicated that the "environmental credentials" of the shipping industry are coming under greater scrutiny than ever before. He made the following comment in his message in IMO News, Issue 4, 2006:
In the world of global business today, it is not unusual to find major commercial companies freely embracing the notion that good environmental and social stewardship actually make good business sense. And shipping is no different from any other industry in that, both collectively and individually, shipowners and operators need to protect their brand image. Indeed, in almost every sphere of shipping,...one can discern a growing awareness of society's broader concerns. ...Commercial success may remain paramount, but the wise are increasingly realizing that they may need to explore new roads in order to achieve it.5
Shipowners and operators often complain that their industry has a poor reputation in the eyes of the general public. Some shipping companies have been searching for ways and means to improve the image of the industry in general and the brand of their company in particular. One way for shipowners and operators to improve their branding and image is to adopt the concept of corporate social responsibility towards the safety of navigation in vitally important straits used for international navigation. If shipowners and operators made voluntary contributions to a fund established to maintain and replace aids to navigation in the Straits, it could improve their image signficantly. In addition, it would make good business sense because it would improve safety.
Precedents for voluntary contributions from the shipping industry
Precedents exist for the payment of voluntary contributions from the shipping industry to maintain aids to navigation. One example is MENAS, the Middle East Navigational Aids Service.6 MENAS is a nonprofit charity registered in the UK. It maintains all of the aids to navigation in the Middle East for all the Gulf Arab States. The board consists of government representatives and shipping company executives. Its major revenues in the past were voluntary contributions from ships calling at ports in the Gulf, collected from their shipping agents. It now operates a vessel which maintains the buoys but also enters into contracts for other work from governments and companies. The commercial operations of their ship have brought in so much revenue to MENAS that they have been able to cut the amount required for voluntary contributions (which they call light dues) substantially.
MENAS can of course be distinguished from the Straits of Singapore and Malacca because the contributions are paid by ships calling at ports in the Gulf. However, it is important because it is an example of shipowners establishing a system to make voluntary contributions for aids to navigation in order to improve the safety of navigation.
What shipping companies may want in return for voluntary contributions
If shipping companies are going to be asked to make contributions to a fund for aids to navigation in the Straits of Malacca and Singapore, the companies are likely to make the demands that any reasonable businessman would make. First, as a matter of fairness, they will ask that as many shipping companies as possible, not just a selected few, be asked to contribute if they transit the Straits. Second, they will want assurance that their contributions to the Fund are used exclusively for projects that are essential to improving navigational safety. Third, they will want to advised regularly on exactly how the fund to which they are voluntarily contributing is being managed. Fourth, they are likely to insist that the managers of the fund follow best international practices with respect to accounting and that the fund be subject to external auditing. Fifth, they are likely to insist that a mechanism be established to ensure that the littoral States receive input from the shipping industry on how they can best cooperate to improve navigational safety in the Straits. Finally, if one of the major reasons companies engage in CSR is that it is good for their branding and image, some companies may want the managers of the Fund to find ways and means of formally recognizing the companies for their voluntary contributions, especially if they make large contributions.
One of the major concerns of the shipping industry is that the establishment of a system for voluntary contributions to improve the safety of navigation in the Straits of Malacca and Singapore will establish a precedent that will be followed in many other parts of the world for other straits . This is a legitimate concern. One method of dealing with the fear of establishing a precedent is to have the funding mechanism for the Straits of Malacca and Singapore established pursuant to an agreement under article 43 between the littoral States and major user States. In addition, other conditions could be added, such as formal endorsement by the IMO and the major shipping organizations. If the funding mechanism were established in this manner, there should be no fear that a dangerous precedent is being established.