Chambers Shipping Guide - Trends and Developments
Originally published in Chambers and Partners
Panama's role as a maritime country is undeniable. For centuries, Panama's geography has provided a bridge for communication between people from different countries and continents, through its water passageways. Through its maritime infrastructure and services, Panama has created a competitive and efficient logistics hub which has shortened distances and barriers for world trade.
The maritime industry in Panama consists of activities that are generated in several sectors, including the Panama Canal and its ports, the sale of marine fuels, agencies and shipping lines, fisheries, transport by rail between the port terminals in the Pacific and the Atlantic, domestic shipping, pipelines, port terminals, other maritime auxiliary services and the Ship Registry of Panama. These activities never stop and are a constant source of income, which supplies an important economic contribution of approximately 33.5% to the gross domestic product (GDP) of the Republic of Panama.
The Ship Registry of Panama
It is a matter of great pride for the nation of Panama to have a Ship Registry which has provided quality service to the international maritime community for over 100 years, comprising the largest merchant marine fleet in the world to date.
Throughout 2020, and despite the enormous limitations brought by the COVID-19 pandemic, the Panama Maritime Authority (AMP), through its General Directorate of Merchant Marine, was able to incorporate 1,033 vessels into its fleet and 29.7 million gross registered tonnage (GRT). From this group, 339 vessels corresponded to new-builds, representing a growth of 6.22% when compared to the total numbers obtained from 2019. In addition, deletions and transfers to other flags were reduced to 25.8%, which represents the best statistical facts in the last ten years.
With these positive results, for the first time ever, the Panamanian flag reached a total tonnage of 230,577,081 GRT, from 8,516 registered vessels, which roughly comprises 16% of the world's merchant fleet.
The size of the records can also be reflected in relation to their contribution percentage in the budget of the International Maritime Organization (IMO) which Panama, as an “A” member country, represents one of its ten major contributors.
Trends and Developments
The major trend in the maritime sector of Panama has been the modernisation of the Panama Ships Registry in order to update its procedures into the digital era.
The new applications integrate into a single platform, the technological systems utilised by the General Directorate of Merchant Marine and the General Directorate of the Public Registry of the Property of Vessels, to include innovations, adapting to the existing technology, and to undertake improvements to the workflow of the Panama Ship Registry.
Some of the applications worth mentioning are the following.
Integral management of the naval registration process – this contemplates the integration of the workflow at the Panama Ship Registry, for the purpose of facilitating "red tape" for the user.
Unification of the database – it will solve the problem that is presented by the incongruities of the different databases that are kept in both General Directorates.
Remote presentation of documents – through the web platform, users may enter the system, load and present their documents upon both General Directorates. In this respect, as of 27 April 2020 remote reception of Public Deeds for titles of ownership and mortgages was initiated as part of the technical modernisation plan for the maritime administration. The implementation accelerated the process and reduced timeframes. Up to 31 December 2020, about 4.089 documents (68% of the registration procedures) were received remotely.
Electronic signature – all the documents (including Public Deeds) will be signed electronically, at the external level as well as the internal level; this functionality involves an agreement with the Panama Public Registry and the General Directorate of Electronic Signatures. Public Deeds will be authorised by public notaries who will use duly registered electronic signatures certified by the Panamanian government, thus increasing legal certainty.
Payment gateway – this contemplates the different payment methods utilised at present, such as credit and debit cards.
Registry calculator – users may calculate the costs for each one of their operations through the web platform.
Issuance of certifications electronically – through the webpage, users may request and receive their certifications of property and encumbrances signed electronically; the certifications will be bilingual.
Electronic apostille – the respective legalisation paperwork is filed before the Ministry of Foreign Relations of the Republic of Panama, thus the electronic modernisation of the issuance of the apostille in Panama will increase the level of satisfaction of the user and the competitiveness of the Panama Ship Registry.
Notification of online procedures – implementation of an application for mobile devices for follow-up of the procedures executed before both directorates and the issuance of alerts by electronic mail.
Bilingual platforms – the new web platform utilised to carry out the paperwork before the Panama Ship Registry will be in the English or Spanish language.
Statistical module – the technological platform will permit the management of reports, dynamic graphs and management indicators for the purpose of extracting statistical data to facilitate decision-making and marketing by the national merchant marine.
Validation of certificate of good standing – the physical presentation of the certificate of good standing will not be necessary for the paperwork required before the General Directorate of the Public Registry of the Property of Vessels, as the validation will be effected through the system.
Electronic consular validation – the notarial certifications effected by the privative consuls of the merchant marine may be effected through the system and backed by their electronic signatures for the purpose of safeguarding registration safety.
Unique window for maritime financing – this technological platform will contemplate the necessary paperwork for the procurement of the certifications of the entities established in Panama for the purpose of offering shipping financing or developing bankable maritime projects, for the procurement of fiscal, labour and migratory incentives, as established in Law 50 dated 28 June 2017.
Amendment of the law of the public registry of vessels
In view of the upgrade being implemented on the technological platform of the registry's procedures, the maritime authorities of Panama, along with members of the Maritime Lawyers Association of Panama (APADEMAR), integrated a commission creating the project of a new decree amending Executive Decree No 259 of 31 March 2011, which regulates the different filing and legal documentation of the Public Registry of Vessels.
This new Decree will update and simplify the procedures for registration of title of ownership and mortgages, cancellation and correction of documents filed, registration of orders from administrative and judicial institutions, and certifications, as well as authentications.
The new Decree is expected to be approved by early 2021.
Creation of the law for maritime purpose companies
Panama's Company Law No 32 dates back to 1927. This has been the regulatory framework which maritime companies have incorporated in Panama, to date.
In order to keep up with other jurisdictions and with the new corporate trends, maritime authorities and members of APADEMAR have in addition established a commission to study the creation of a new law in order to incorporate maritime purpose companies. The new law anticipates being user-friendly for all types of maritime operations and at the same time upgrading its standards to present transparency and compliance requirements from the OECD and other international entities.
Throughout 2020, the effects of the COVID-19 pandemic have impacted numerous commercial areas of the world's economy, including the maritime sector which accounts for almost 90% of total world trade.
A greatly affected sector has been the crew on board vessels and the need to apply the protocols set by the International Maritime Organization for change of crew and repatriation to their country of origin, with which Panama has complied to the letter, with excellent results.
While the application of vaccines and a possible end to the pandemic are awaited, similar conditions for 2021 or part thereof may still be expected. Therefore, the maritime administration will need to keep being resilient and adapt its procedures according to the short-term situations which may be presented along the way. Furthermore, the administration will need to make sure that conditions and treatment of crew are up to the standards required by the Maritime Labour Convention (MLC) 2006.
The LNG and LPG market and the situation in Panama
One of the most dynamic sectors in shipping is the LNG and LPG market, in which many of its vessels form an integral part of the Panamanian flag. LNG is a sensitive product and therefore requires specialised ports for handling, with many of these being in Asia and Europe.
The Panama Canal is one of the main navigating routes for LNG between continents. There is, however, a traffic-jam situation in the Panama Canal as well as a stronger demand for consumer goods, due to the pandemic. This situation has forced LNG ships either to wait in line or to take other routes. Not reaching their destinations on time has caused LNG prices to increase.
The Panama Canal Authority (ACP) is very keen to have LNG and LPG traffic travel into its main waterway, due to its economic return, and the challenge will be how to increase the efficiency of its operations without decreasing the levels of security which are necessary for the handling of these types of ships.
Change of LIBOR
In the ship finance market, the projected deadline for the change of LIBOR to loan agreements is looming large. The issue covers both LIBOR loan agreements already executed as well as all LIBOR-based transactions that are likely to continue after 2021.
Based on the present Law No 55 of 6 August 2008, the change to LIBOR would entail the necessity to register possibly thousands of mortgage addenda in order to cover such an amendment of interest to the principal obligation. This additional documentary burden would be severely cumbersome for the shipping industry. It will still be necessary to wait and see what developments appear during this year with regard to this matter in order to decide what approach to follow. However, Panama must be prepared potentially to opt for a change of law, for the benefit of the present and future flag users.
Despite the recession and obstacles caused by the pandemic, with fewer vessels in the market as well as the pressure imposed by other flag competitors (mainly Liberia and the Marshall Islands), the Ship Registry of Panama has obtained positive results in its fleet growth. Prioritising the update of technology in the procedures has been positive, thus assuring the continuity of services. As an example, during the most crucial months of the pandemic, the General Directorate of Public Registry of Ships processed a total of 5,951 documents for registration as mortgages, titles of ownerships, certifications, etc. This policy should continue in order to sustain constant development.
Many challenges lay ahead; however, Panama should be ready to address these with its usual responsible and flexible business approach.
Originally published in Chambers and Partners