allow these technologies to be purchased, installed, and employed on vessels in sufficient
numbers to meet regulatory timetables or have any significant impact on ballast water
While it is too early to fully assess and compare the costs and risks associated with implementing
available technologies under various circumstances, it is not too early to consider the one
treatment option with which all technology vendors are competing: no treatment. To succeed,
markets for ballast water treatment technologies, like all other markets, require only two things:
willing buyers and willing sellers. However, markets for these technologies are regulation-
driven, and the nuances of when and how the regulations are written, implemented, and enforced
determines when there will be willing buyers and whether willing sellers will be able to
In the previous section, we outlined the likely pattern of demand over time for ballast water
treatment technologies under the assumption that all ships will comply with IMO regulations,
once ratified by a sufficient number of countries and percentage of the world’s fleet. However,
this would require that these regulations be fully implemented, enforced and, most critically, that
enforcement provisions provide penalties and/or sanctions that are certain enough and
meaningful enough to provide incentives for shippers to comply. What kinds of penalties do we
expect, and who will pay?
Role of Protection and Indemnification (P&I) Clubs
The demand-side may also be complicated because of the way shipowners deal with liability
issues. An estimated 95% of the global shipping fleet is insured through protection and
indemnity, or “P&I” clubs, which are associations of shipowners who share each other’s
liabilities. In effect, the members of P&I clubs are both the insurers and the insured. There are
currently 13 P&I clubs, mostly based in the United Kingdom and Norway.
How will liability
for penalties for violating IMO BW regulations be distributed across the fleet? How will P&I
clubs discipline shippers and/or ship owners and/or ship operators or ship engineers who are
responsible for a ship failing to comply with ballast water regulations?
The “mutual” nature of P&I Clubs suggests that there is a joint interest among members in
working toward risk minimization, such as a high rate of compliance with ballast water treatment
regulations. If something with safety and environmental benefits
also has economic self-interest
for the members, this makes sense.
Owners reluctant to comply with international regulations are less likely to be allowed to join
P&I Clubs, and there is reduced incentive to switch clubs because the 13 major clubs also belong
to the International Group of P&I Clubs, which spreads the risk among the 13 clubs for larger
claims. An agreement between these clubs limits competition by not undercutting rates for a full
year after switching from one club to another.
However, the rise of Asian shipping and newly emerging Asian P&I clubs suggests that there
might be an incentive for London or Norway-based P&I Clubs to keep these shipowners in the
fold by lowering premiums, rather than having new P&I Clubs established in Asia.