Japanese-flagged ships, crews priced out of market

But officials, unions seek to save fleet in case emergencies arise, despite cheaper foreign labor

by

Faced with fierce competition from cheap foreign labor, Japanese-flagged ships and seamen are now on the verge of extinction.

Since the yen’s dramatic rise in value since the Plaza Accord of 1985, Japanese flag carriers and crewmen have disappeared from many of the nation’s merchant fleets, replaced by chartered foreign ships with foreign crews who work for lower wages.

“(The union) won’t last another 10 years if the current pace of decrease continues,” said Makio Nakamoto, director of the foreign trades department of the All Japan Seamen’s Union, the sole industrywide union for seafarers.

He pointed out that the number of Japanese seamen, which now stands at 4,000, decreased by about 10 percent every year in the late 1990s as shipowners curbed hiring and many sailors reached retirement age.

In 1985, the number of Japanese-flagged ships stood at 1,028, accounting for 42 percent of the 2,435 in the Japanese merchant fleet at that time.

But by 1998, the number of Japanese-flagged ships had plummeted to 168, accounting for only 8.5 percent of the total 1,970 ships operated by Japanese shipping companies.

Now about 52 percent of union members are 45 or older, according to Nakamoto. Many seamen hang up their boots when they reach 55, when they can begin receiving pensions.

Some industry observers say Japan simply has followed in the footsteps of other advanced countries, where personnel costs are much higher than those of developing countries.

According to the Japanese Shipowners’ Association, a Japanese crewman’s wages are on average nearly four times more than that of a Southeast Asian crewman.

But the government claims Japanese-flagged ships are necessary in emergencies such as wars and disputes around the nation’s critical sealanes.

Transport Ministry officials said about 300 Japanese-flagged ships will be needed to maintain a lifeline to Japan in emergencies, such as times of economic sanctions. The All Japan Seamen’s Union believes that 500 ships, or 25 percent of the existing Japanese merchant fleet, should be Japanese-flagged.

To increase Japanese-flagged ships, the government, shipowners and the seamen’s union introduced a new vessel registration system this month.

The new International Ship System allows a shipping company to operate a Japanese-flagged ship with all foreign crew members except for the captain and chief engineer.

Under previous regulations, a Japanese-flagged ship had to have at least six Japanese crew members, the main reason personnel costs soared and shipping firms opted to replace Japanese-flagged ships with cheap chartered foreign ones.

But many industry observers remain skeptical that the new system will work.

“It will help stem the decrease of Japanese-flagged ships to a certain extent. But I doubt the new system will lead to an increase,” said Makoto Igarashi, general manager of the planning group at major Japanese shipping firm NYK Line.

Igarashi pointed out that personnel costs for ships with fewer Japanese crewmen will still be much higher than those for “flag of convenience” ships, which are registered in another country with foreign crew but are controlled by Japanese shipping companies through a local subsidiary.

According to an estimate by the Transport Ministry, the annual personnel cost of a Japanese-flagged ship under the new system will be $1.03 million, while that of an FOC ship with all Southeast Asian crew members will be $650,000.

“As far as pure economic rationality is concerned, there is no advantage for a shipping firm to have Japanese-flagged ships,” he said.

Members of the All Japan Seamen’s Union have mixed feelings about the new system. The members basically support the new system because they believe some measures are needed to stem the rapid decline in Japanese crewmen.

However, fearing that cutting the required number of Japanese crewmen on a Japanese ship may drastically reduce their job opportunities, they argue that the new system should be applied only when a shipping firm builds a new ship or coverts FOC ships into Japanese-flagged vessels.

Meanwhile, shipping companies claim they cannot put such a limit on the new system, and the differences between shipowners and unions have yet to be resolved.

Only three ships were registered at the outset of the new system, based on a temporary agreement by the shipping companies and unions.

But it remains unclear where the negotiations between the shipping firms and unions will go, and thus the future of the new system designed to save Japanese-flagged ships also has a question mark hanging over it, industry sources said.