For the dimension of power, the analysis of declarative data was structured according to three groups of indicators (see Table 1): (1) ability to influence classification societies (reward, sanction), (2) level of dependence on information resources (need vs availability), (3) level of the added value of the services of classification societies (appropriation and contribution of added value). The associated verbatim are presented by category of actors.
Ability of classification societies to influence
The relationship between classification societies and shipowners appears asymmetrical. While classification societies can reward the quality of vessels, shipowners are not in a position to sanction the veracity of the classification. According to shipowners interviewed in Shanghai, “classification societies have the right to deny a shipowner the right to operate a ship internationally” (SOA, Shipowner). This is reported by the trade press, which confirms that “no charterer will risk giving goods to an unclassified vessel, and that vessel would no longer have any value in the cargo market or on the used vessel market” (Marasi News, 2017). On the other hand, this preponderance is undermined because large shipowners have strong bargaining power (Goh and Yip, 2014). Indeed, they benefit from the possibility to change the flag of registry of a vessel and the classification society if it is in their interest (Cariou and Wolff, 2011).
States may or may not recognise a classification company as a Recognised Organisation, allowing it to carry out ships’ statutory control. The IMO can put pressure on classification societies, particularly in the wake of maritime disasters, to develop their standards. Indeed, according to a former classification company executive, “general pressure through IMO, in particular following a series of accidents (as those with bulk carriers) or outstanding singular events with high profile, is one of the prime movers for this development” (Hormann, 2006). The verbatim interview transcripts converge to illustrate the variety of situations observed and the permanence of asymmetry in the power relationship between classification societies and other supply chain players.
Level of information resource dependence
In the established power relationship, classification societies cooperate to share information to varying degrees depending on the partner. Indeed, “classification societies have a long-term relationship with their shipowners’ clients, so they are more available to shipowners than to other players, especially shipyards. In particular, classification societies offer information and training sessions for logistics companies, not just shipowners.” Moreover, “if the shipowner says ‘no I don’t see it that way’, then it is rare that the classification company will favors the shipyard that has placed the order!” (SYA, Shipyard).
As a result, supply chain companies depend on classification companies for their knowledge of maritime safety. According to a group discussion with logisticians in the Shanghai area, “all classification societies provide many training courses, which are very expensive, especially about new regulations. They award certificates, sometimes for the individuals who participate, and mostly certify companies” (Focus Group LSP). While states generally need the assistance of classification societies during IMO maritime safety debates, their availability is limited. Indeed, according to a professional of classification societies, “every national delegation has people from the administration, and invites people from classification societies when it has them within its reach... They are always takers, there is no problem” (CSA, Classification Society). This result highlights how information is shared: scarcity and significant commercial value.
The active participation of classification societies in IMO meetings enables them to have early access to first-hand information. In addition, the technical knowledge of classification societies is crucial to the development of regulations. According to one respondent, classification societies are “very close to what happens in terms of regulations. [...] If you are very close to what is happening, if you are in the working groups, then you are informed first and you also have influence” (CSA, Classification Society). This underlines the preponderance of classification societies in the press-justified news channel which confirms that “data, information and advice are so vital for adopting various safety conventions” (Marasi News, 2017). By collecting data at the source, classification societies have all the elements needed to be proactive in developing international standards and maintaining their dominant position.
Value-added level of classification society services
While the classification certificate is crucial for shipowners, large shipowners also have significant weight in possible negotiations with classification societies. 70% of the professionals surveyed agreed that “it is sometimes uncomfortable for classification societies to cancel the classification or bother a big client” (SOA, Shipowner). The results indicate that the power of classification societies is contained by a more balanced power relationship with large clients.
However, classification societies are given the mandate to act on behalf of states to comply with their statutory obligations. This role, granted by states, gives classification societies an undeniable predominance in power relations with the players in the supply chain. Classification societies address problems associated with flag verification and enable states to meet their statutory obligations. As one representative of the classification societies explains, “Port State Control is something we would like to do without. It is a backup to flag state survey, which, if they were working correctly, would render Port State Control useless. But currently, the coastal states are not confident enough that the ships have been surveyed correctly, so they need this back-up system” (CSC, Classification Society). The results indicate an area of uncertainty about how classification societies exercise the delegation of public services and the extent to which they defend the public interest versus their particular interests. Nevertheless, prior research confirms that Port State Control inspections have enabled the industry to lower the costs associated which the risk of detention and loss of ships (Knapp et al., 2011).
The IMO can create regulations, which give classification societies more legitimacy and more markets. Indeed, in the words of a professional of classification societies, “every time there is a new regulation, there is a market, that’s for sure. Whether it’s big or not, it depends” (CSA, Classification Society). For example, Resolution A.739(18) can also be considered as a tool designed by IMO, not without the support of IACS, to help “maritime administrations in formalising the delegation of authority to organisations, for statutory surveys and certification” (Maritime Port Authorities of Singapore, 2002). The present results indicate the duality between the public service mission of classification societies and their business activities, creating conflicts of interest by changing the competitive game.
Overall, these results are consistent with the literature, notably with the works of French and Raven (1959), of Emerson (1962), Cox (2001), Filser (1989) and Filser, and des Garets, V. and Paché, G. (2012). The authors identify the power of reward and punishment, the dependency relationship, the ability to create value and improve processes as major sources of the power from which classification societies benefit massively in their asymmetrical relationships with the supply chain players.
For leadership, the analysis of declarative data was structured into three groups of indicators (see Table 1): (1) Third-party recognition (expertise, legitimacy, creation of a common vision), (2) Leader’s weight (size, the scope of activity, client portfolio), (3) Leader’s position in the network (central or peripheral, mode of coordination of activities, the role of the pivot to satellites).
The classification certificate is the minimum criterion for a ship to be insured. Classification societies can positively or negatively influence the reputation of shipowners in the market. Indeed, “the classification of ships has a strong impact on the corporate image that shipowners have towards other market players” (International Commission on Shipping, 2000). Thus, a prestigious classification will improve shipowners’ recognition of the quality of a shipowner’s services. According to shipowners in the Shanghai area, “if the ships are certified by a classification society which is a member of IACS, it will favorably influence the image of the company and of the quality of its services. The choice of classification society depends on what image the shipowner has of themself” (SOB, Shipowner).
However, the position of classification societies can be paradoxical when they provide services to the private sector and the governments which are supposed to govern it. Accordingly, the International Chamber of Shipping explains that there are “conflicts of interest in classification societies working for both the shipowner and the flag state” (International Commission on Shipping, 2000). Classification societies are recognised for their expertise by IMO. “IMO provides the opportunity for classification societies to have a collective voice in providing technical expertise, advice and feedback in the development of the regulatory framework for the global shipping industry” (Sadler, 2013). These results indicate that classifications granted by classification societies represent a major commercial issue for shipowners. The leadership of classification societies is based on their expertise in awarding classification certificates.
In terms of legitimacy, classification societies benefit from recognising States that see them as the actors most able to ensure compliance with ship safety standards, including carrying out technical inspections of ships bearing their flags. So, for example, as one classification company representative explained, “we don’t have to employ so many government employees to do the statutory work” (CCS, Classification Society).
Finally, this recognition by states generates a common repository on maritime safety. For example, classification societies have argued for “recognition of the fact that many flag administrations do not have adequate technical experience, manpower or global coverage to undertake all the necessary statutory inspections and surveys using their own staff” (IACS - International Association of Classification Societies, 2011). As a result, a clear majority of the flag states autonomously decided to delegate their authority to classification societies.
The client portfolio of classification societies includes the two most influential players in maritime safety, including shipowners and states (Lissillour, 2017). However, their activities have significant implications for other players who are not considered customers. Their scope of activity starts as soon as the ships are built. For example, classification societies are involved in shipowners’ relationships with shipyards. According to a representative of a French shipyard, “there are many things, during the development of the ship, that will give rise to interpretation, give rise to discussion and often the classification company arrives a bit as an arbiter between the shipowner and the shipyards, and technical advisor (is it in accordance with the regulations?)” (SYA, Shipyard). Classification certificates are also used by insurers, clubs that provide coverage for the unlimited risks that traditional insurers are reluctant to insure, charterers, etc.
The leadership of classification societies is enhanced by their ability to encompass many players’ activities throughout the life cycle of ships. Although the core business of classification societies is historically maritime safety, they are now large groups with a very diverse portfolio of activities, including certification outside of the maritime, training and consulting arenas. Bureau Veritas, for example, no longer defines itself as a classification company but as a service company which, according to its CEO Didier Michaud-Daniel “has always supported its clients to mitigate risks through our applied expertise in Quality, Health, Environment, Safety, Privacy & Progress” (Bureau Veritas, 2020).
Classification societies are represented by their multiple offices and work with most countries. “Governments were trying to save money and said “we are allowed to delegate, so why don’t we use those who are out there for class items and have them do the statutory work as well, and then we don’t have to employ so many government employees to do the statutory work” (CSC, Classification Society). Every government around the world has followed this economic reasoning. Although classification societies are very dynamic players, they depend on the states to carry out their work at IMO. “IACS can be a catalyst, but at the IMO we do not have the authority to procedurally even raise a new item in the discussion unless we have at least one Member State as a co-sponsor. We have to persuade a Member State” (CSC, Classification Society).
Classification societies have a central role for all players in the marine supply chain because certifications are “widely used by all sectors of the marine industry as an indication that a vessel is reasonably fit for the purpose for which it is intended” (Jones, 2003). In addition, classification societies are the organisations that centralise the majority of statutory inspections for states: “Much of the statutory work is still carried out by classification societies” (CSA, Classification Society).
The IMO has a central position in the network of classification societies: “It is also the forum where all actors meet for formal and informal discussions. [Our network] helps us at the IMO because we are in contact with other administrations [other than that of our home country], our bureau in Italy is in contact with the Italian administration, so the Italian administration can ask us for advice” (CSA, Classification Society).
The present results are consistent with the literature (Fabbe-Costes, 2010; Defee et al., 2010; Bowersox and Closs, 1996; Ellram and Cooper, 1990; Lavastre et al., 2016). The authors identify sources of leadership such as third-party recognition, the leader’s weight and its central position, enabling it to impact the entire chain by coordinating it, impelling a dynamic, performance-generating influence process. By their status, weight and influence, classification societies appear to be undisputed leaders in the chain, holding the attributes of leadership.
For the conflict dimension, the analysis of declarative data was also structured into three groups of indicators (see Table 1): (1) their causes, (2) conflict resolution methods, and (3) management strategies implemented.
Maritime stakeholders have an ongoing disagreement over priorities between safety and profit, and competition encourages lobbying to influence the development of regulations and their implementation (Størkersen, 2015). Moreover, classification societies have a particular situation that is often at the root of their conflicts with other players: “We act as auditors for states, but from a classification point of view, we are between shipowners and shipyards, and commercially they have very divergent objectives and interests” (CSC, Classification Society).
Both shipowners and shipyards are concerned about safety, but they may have different solutions for achieving it. In this case, the classification company does the arbitration. The financial implications of classification and verification can be significant for shipowners who can put pressure on classification societies who must, however, rigorously apply existing standards and respond classically: “No, our technical opinion is that, we recognise the disagreement of shipowners because it is expensive, but we will talk to IMO to see what they say” (CSC, Classification Society). Shipowners can then lobby Member States to oppose IACS.
The present results indicate various conflict resolution methods depending on the types of actors with which classification societies interact. Classification societies dominate the shipowners because they decide whether the vessel can be operated or not. According to shipowners’ representatives, “surveyors have the power to decide if the ship reaches the standard. You cannot negotiate. From the point of view of shipowners, the surveyors are high level, we listen to them” (SOB, Shipowner). However, classification societies are more accommodating with the most important shipowners.
Classification societies and states cooperate because their inspections focus on other safety aspects than those of classification societies. From the port authority’s perspective, it is argued that “PSC officers may require the crew to execute a full-scale simulation to show that they know the emergency procedures. Most of our attention goes to the crew rather than the equipment. We generally trust the classification societies for the annual inspections they carry out” (MPAA, Port Authority).
When the texts proposed by the IMO are too vague and are open to many practical interpretations, classification societies propose a unified interpretation of the texts. “Most of our papers are submitted to provide unified interpretations, which is when the text of the IMO is vague, and sometimes that happens because it is the only way the IMO can reach an agreement because they write the words so that everyone can agree to it, since it satisfies their understanding. But then when we go out into the practical world and have to apply that, then we find that the wording is not good enough. It allows for too many different interpretations, so we write unified understandings, and we have hundreds of them, which are all published on our website” (CSC, Classification Society).
Classification societies adopt different forms of strategy, depending on the importance of the players involved. Thus, if a shipowner chooses to attack a classification company and settle the dispute in court, the outcome of the judgment is generally not favourable towards them. According to shipowners interviewed in groups in Shanghai, they “can sue classification societies after a maritime casualty has occurred because an accident costs the owner a lot of money. The classification society issued the classification certificate, and the accident happened despite the ship having passed the classification survey. But in most cases, the classification societies win” (SOB, Shipowner).
A joint conflict management strategy is reflected in how regulatory texts are drafted and promoted between jurisdictions, IMO and classification societies. This work involves formal and informal discussions during which the parties negotiate a consensus on the draft text. According to the representative of a classification company, “you may need support in a discussion that you are told about in a prior session, such or such has spoken on the subject, and therefore it is of interest and it is relevant to prepare before it is discussed formally. From one assignment to the next, we have a little idea of who is interested, to whom we must explain a given case... either it is done very informally very early on, and you may have to be co-sponsored in the end, or convince other members when sponsoring a paper - or you can be contacted, solicited, to sponsor someone else’s paper as well. Finally, in the end, the prior agreements are formal, since you are co-sponsor of a document or a proposal. Whether it is something that happens in the corridors or during the coffee break, it is something that works well and is very common” (CSA, Classification Society). Finally, conflict management methods depend both on the strategic importance of actors and show that classification societies have a predominant role.
These results are more contrasted concerning the authors of the literature. While the causes of conflict and their modes of resolution are more about coercion than consultation (Angelmar and Waldman, 1975; Dant and Schul, 1992), these results are partially consistent with these authors on conflict management strategies. By their status, weight and influence, classification societies make greater use of coercion management strategies, such as a ‘public’ actor. The present theoretical contribution demonstrates how classification societies adopt different conflict resolution strategies depending on the importance of the players involved. These strategies oscillate between domination and cooperation, depending on the weight of the actor involved.
For cooperation, the analysis of declarative data was also structured into three groups of indicators (see Table 1): (1) types of cooperative approaches, (2) major feature and (3) modes of cooperation.
Types of cooperative approaches
International conventions stipulate that ship operations must be carried out in partnership with classification societies. SOLAS 1974 formally states that “ships shall be designed, constructed and maintained in compliance with the requirements of a classification society, recognised by the Administration, or with applicable national standards of the administration which provides an equivalent level of safety” (SOLAS, Chapter II-1, Regulation 3–1).
Classification societies cooperate with states, which can thus compensate for their lack of skilled manpower for public service, because “When civil servants come to do port state control, they do not have the experience to do the initial survey work” (CSC, Classification Society). Ultimately, “certification, which is a public service performed by the classification societies as authorised agents of many flag states consists of verifying compliance with regulations of vessels registered under these flags” (Bureau Veritas, 2016).
The IMO considers the classification certificates as a tool for operational compliance with international conventions. According to “some conventions, certificates are required to be carried on board ship to show that they have been inspected and have met the required standards. These certificates are normally accepted as proof by authorities from other States that the vessel concerned has reached the required standard, but in some cases further action can be taken” (IMO - International Maritime Organisation, 2019).
From shipbuilding to annual reviews, classification societies carry out many activities throughout the life of ships. Likewise, the players in the supply chain carry out many activities to meet the construction and operating standards involved by classification societies. According to a shipyard official, “the classification company issues the certificate of navigation allowance which is a key element for the shipowner to proceed with the receipt of the ship and pay the few million dollars that remain to be paid because 80% of the shipbuilding is pre-financed by the shipyard” (SYA, Shipyard).
An ongoing process of repetitive activities was formalised by international conventions as early as 1930. As an illustration, the Load Lines Convention states: as according to “the Rules attached to this Convention, ships which comply with the highest standard laid down in the rules of a classification society recognised by the Administration are regarded as having sufficient strength for the minimum freeboards allowed under the rules, the Conference recommends that each Administration should request the Society or Societies which it has recognised to confer from time to time with the Societies recognised by other Administrations, with a view to securing as much uniformity as possible in the application of the standards of strength on which freeboard is based” (Recommendation No. 2, 1930).
The IMO relies on classification societies throughout developing technical texts dealing with ship safety because the actors have a common goal, including the creation of texts that are put into practice. “The first time we write a unified interpretation, around 80% of the unified interpretations are agreed by the whole IMO (which means all the members who are active, those who keep quiet just have to accept what goes on around them) the first time we present them at the IMO” (CSC, Classification Society).
Modes of cooperation
The cooperation between shipowners and classification societies is operational and technical because the details of the ship orders are co-written with the classification societies. “Classification societies play an important role in negotiations with the operator during construction because in the regulatory part, the order is the subject of a joint order specification between the two. In this order specification, one of the important elements is that the ship will be classified according to the rules of, for example, Bureau Veritas and must comply with its regulations” (SYA, Shipyard).
Sovereignty implies that states can choose between strict or lax control of statutory service providers. This choice has a significant impact on the attractiveness of the country to foreign shipowners. States use classification company certificates to streamline audit efforts by port authorities. “Governments were trying to save money” (SYA, Shipyard) using the resources of classification societies. The port authorities regard international conventions as instruments “to be implemented positively with absolute obedience. We will double-check vessels that are not classified by IACS members twice as frequently. In addition, if they are classified as IACS, we will apply an easier standard than for unclassified IACS vessels” (MPAB, Port Authority).
Classification societies and IMO have forged successful cooperation as it is highly operational and strategic, as stated by the IMO Secretary General’s speech states. “The practical work that you do in surveying, assessing and verifying compliance with existing international standards is something the industry and its regulators rely on, every day of the year – and which chimes perfectly with our special focus for 2014 on the implementation of IMO conventions. [ …] But, moreover, your input, through IACS, in the process of modifying and improving existing standards and, where appropriate, developing new measures, is of immense value” (IMO - International Maritime Organisation, 2014).
These results are in line with the literature (Garrette and Dussauge, 1995; Dornier and Fender, 2001). Because of the status of a public service delegation conferred on classification societies, the latter benefit from strategic alliances with states and with the IMO. These responsibilities lead the various levels of the chain’s activities: strategic, tactical and operational. By their status and capacity for influence, classification societies play a central role in cooperation between players in the maritime chain.