Introduction: Regulatory compliance in global supply chains
There is widespread non-compliance with labour standards along two types of global supply chains – for products and for human resources (International Labour Office, 2016). Multinational companies relocate worksites to developing countries, where governments have limited capacity to enforce labour standards (Reference Locke, Amengual and ManglaLocke et al., 2009, Reference Locke, Rissing and Pal2013). Transnational labour intermediaries create labour supply chains, ‘exporting’ low-wage workers from developing countries (Reference GordonGordon, 2017). These overseas workers’ rights are difficult to enforce, due to jurisdictional and regulatory gaps in the international labour governance system (Reference James, Walters and SampsonJames et al., 2015; Reference Walters and BaileyWalters and Bailey, 2013).
To address violations of workers’ rights in global supply chains, global corporations – as well as non-governmental organisations – have been promoting employer-centred voluntary compliance programmes (Reference Locke, Amengual and ManglaLocke et al., 2009). Corporate social responsibility policies espoused in some types of multinational production may enhance workers’ rights in developing countries with low labour standards (Reference MosleyMosley, 2010). However, Reference Locke, Amengual and ManglaLocke et al. (2009) criticise such voluntary models for underestimating the power of multinational companies. While studies on employer-centred compliance programmes in global product supply chains are increasing (Reference AnnerAnner, 2017; Reference Graz, Helmerich and PrébandierGraz et al., 2020; Reference SalmivaaraSalmivaara, 2018), few studies examine regulatory compliance in the human resource supply chain.
This article reports the findings of research investigating whether multinational shipping companies and their labour intermediaries comply with the health and safety laws of the labour supply state, in particular in cases of workplace injuries and fatalities. Drawing upon a qualitative socio-legal study of Chinese seafarers’ workers’ compensation rights, we report two main findings. Where the ship-owners in the study were direct employers, the internal policy documents of the majority failed to comply with the legal obligations imposed by their governments. Moreover, foreign and privately owned shipping companies were using crewing agencies to evade their liabilities to injured seafarers. On this basis, we propose a joint liability mechanism between employers and their labour intermediaries, which requires full commitment to compliance by both ship-owning companies and their labour intermediaries.
Multinational companies’ compliance with labour standards has long been debated, in terms of the contrary trends within global supply chains of ‘racing to the bottom’ or ‘climbing to the top’. Participation in global production supply chains is an acknowledged source of employment, even while low profit margins and fierce competition among contract manufacturers and labour suppliers have led to poor working conditions and limited protection of workers’ rights (Reference Distelhorst, Locke and PalDistelhorst et al., 2015; Verité, 2004; Reference Zhao and AmanteZhao and Amante, 2005). Less attention has been paid to the global human resource supply chains whereby products are transferred, often in dangerous conditions. Nowhere is this clearer than when workplace accidents occur at sea, particularly under third-party crew managers, whose liabilities are ambiguous. Crew managers act as employers in the countries where workers, are recruited but have no control of seafarers’ offshore workplaces. Whether crew managers should assume workers’ compensation liabilities in the global human resource supply chain is unclear.
Despite these ‘race to the bottom’ tendencies, some optimism has been expressed about a possibility of climbing to the top. Reference Mosley and UnoMosley and Uno (2007) argue that foreign direct investment could potentially be associated with a strengthening of collective labour rights in the export-oriented economy. Reference Bhattacharya and TangBhattacharya and Tang (2013) suggest that proper use of client power in the supply chain could improve the occupational health and safety performance of low-tier suppliers. But such optimism seems more relevant in the product than in the human resource supply chain, where such self-regulation models may not work across borders. Crew agencies, which are usually located in less developed countries, may not have the incentive to adopt voluntary compliance programmes, when these incur undesirable costs, such as workers’ compensation. Solely relying on self-regulation models such as those developed in product supply chains may lead to a ‘race to the bottom’ in the human resource supply chains providing trans-shipping services.
Reference GordonGordon (2017) uses the ‘human supply chain’ concept to describe American employers’ channels for recruitment of temporary foreign workers through a transnational network of labour intermediaries. She argues that the human supply chain reduces labour costs for American companies while placing temporary migrant workers in situations of severe subordination. In contrast to the product supply chain, this human resource supply chain has not been examined systematically, although there is a growing body of research concerning immigrant workers and their labour rights. Violations of migrant workers’ rights are frequently reported, but compliance by employers and labour intermediaries is underexamined (Reference MacKenzie and FordeMacKenzie and Forde, 2009; Reference RefslundRefslund, 2016; Reference Sargeant and TuckerSargeant and Tucker, 2009; Reference Woolfson, Fudge and ThörnqvistWoolfson et al., 2014). To better understand the dynamics of the global human resource supply chain, it is necessary to integrate compliance mechanisms of employers and labour intermediaries within the analytical framework (Reference Cooke, Yao and JiangCooke et al., 2017; Reference Larsen, Allan and BryanLarsen et al., 2005).
The shipping industry and the human resource supply chain
Shipping is a globally organised and coordinated service sector, with the function of efficiently transporting commodities through global supply chains (Reference Walters and BaileyWalters and Bailey, 2013). More than 90% of world trade is carried by sea, by 1.3 million seafarers (Baltic and International Maritime Council and International Shipping Federation (BIMCO/ISF), 2010). Since it is integrated into global supply chains, maritime transport faces intensified pressure to meet client requirements such as on-time delivery, high service frequency and flexibility in the provision of alternative shipping solutions.
The recruitment of low-wage seafarers from developing countries has become a predominant business strategy in response to fierce competition (Reference Cariou and WolffCariou and Wolff, 2011). Reference Goulielmos, Giziakis and PallariGoulielmos et al. (2011) argue that the real competitive advantage in ship management is crew supply management at the offshore maritime centres, such as Singapore and Hong Kong, with lower social security costs and access to low-wage crew members from Ukraine, Russia, China, India and the Philippines.
Third-party crew management has become the driving force in developing maritime human resource supply chains. Reference Anastasiou, Visvikis and PanayidesAnastasiou (2017) argues that the human resource supply chain benefits both shipowners and labour supply states. The massive ‘production’ of seafarers through training can lower wages and hence shipowners’ operating expenses. Labour supply states see a reduced unemployment rate, an increase in remittances (Reference Anastasiou, Visvikis and PanayidesAnastasiou, 2017). Driven by this economic rationale, ship management companies open crewing agencies and establish maritime training institutions to source a cheap human resource from developing countries, such as the Philippines, China and India. As a result, maritime employment relations have become highly transnational – for example, a Chinese seafarer may work on a Panamanian ship owned by a Greek shipowner, or a Filipino seafarer may work on a Hong Kong vessel owned by a Chinese shipowner.
The global human resource supply chain is beneficial from an economic perspective for both shipowners and labour supply states. But seafarers are human beings, who can get sick, injured or even killed in ship operations. Working at sea is still one of the most dangerous jobs (Reference Walters and BaileyWalters and Bailey, 2013). The risk of mortality from workplace accidents in the British merchant navy is 26 times higher than for UK workers overall (Reference Roberts and MarlowRoberts and Marlow, 2005). A transnational study showed that 8.5% of seafarers suffered an injury during their most recent tour of duty (Reference Jensen, Sørensen and KaerlevJensen et al., 2004).
Between 2009 and 2014, seafarers’ personal injury claims accounted for 25% of the total costs of liability claims against ship operators for a leading liability insurer, the Standard Club (Reference WeeWee, 2016). Seafarers’ compensation claims are potentially complicated due to the involvement of multinational shipping companies and their crewing agencies, which all face potential liabilities from workplace accidents. In the current literature, compliance by maritime employers and crew agencies in handling seafarers’ compensation claims is rarely examined.
To fill this research gap, this article explores the pre-accident financial liability risk management practices of shipowners and crewing agencies which recruit seafarers from China, the world’s largest crew supply state. Drawing on qualitative interviews and documentary analysis, it evaluates whether current business management processes satisfy compliance obligations and whether ship managers and crew managers are motivated to maintain socially responsible human resource management.
Labour regulatory compliance in the shipping industry
There are two sources of maritime labour standards for occupational injuries: international and national labour standards. At international level, the Maritime Labour Convention, 2006 of the International Labour Organization (ILO) provides the main legal standards, having come into force in 2013. Regulation 4.2 of this Convention provides minimum standards for shipowners’ liabilities following workplace injuries: (1) bearing the cost for seafarers working on their ships in respect of sickness and injury occurring between the date of commencing duty and the date on which they are deemed duly repatriated; (2) providing financial security to assure compensation in the event of the death or long-term disability of seafarers due to an occupational injury, illness or hazard, as set out in national law, the employment contract or collective agreement; and (3) defraying expenses for medical care until the sick or injured seafarer has recovered, or until the sickness or incapacity has been declared of a permanent character. Shipowners are liable for payment of wages in whole or part from the time the seafarers are repatriated until their recovery. Member States that ratify the Convention are responsible for adopting laws and regulations requiring shipowners to bear the minimum liability set out in the standards. In addition, workers’ compensation is an important component of the social security system in many countries. In line with Regulation 5.3.1, the labour supply state is also responsible for ensuring the social security protection of seafarers who are its nationals or are resident or are otherwise domiciled in its territory.
At national level, the domestic laws of flag and labour supply states apply in determining shipowners’ liabilities following seafarers’ workplace injuries. However, not all member States have equal capacity to implement and enforce the ILO standards. Infringements have been frequently identified, including abusive treatment of seafarers, such as their abandonment overseas (Reference Alderton, Centre and OfficeAlderton et al., 2004; Reference Chen and ShanChen and Shan, 2017). Reference Walters and BaileyWalters and Bailey (2013) argue that the employment relations structure of the global maritime labour supply chain hinders effective implementation of labour standards. The ‘flagging out’ strategy enables maritime employers to avoid both inspection by maritime states and the intervention of trade unions (Reference Walters and BaileyWalters and Bailey, 2013). Reference SampsonSampson (2013) presents contemporary seafarers as transmigrants facing dilemmas of isolation, marginalisation and exclusion. Isolated in employment relations, they find it almost impossible to fight for better treatment from shipowners. There is nearly no contact between shipowner and crew, even in times of severe anxiety such as when a company’s cash flow chain is broken and seafarers’ wages are withheld. Seafarers are marginalised from the national protection of their home countries and not recognised culturally as workers of the flag states. Seafarers usually do not have easy access to the social security services in their home countries, and seafarers’ high mobility makes them workers who are invisible to the flag states’ societies. They may be excluded by the societies of both their homelands and of their workplace community (Reference SampsonSampson, 2013). Reference Sampson, Walters and JamesSampson et al. (2014) find that regulatory inspectors put efforts into checking cargo safety and environmental protection compliance, but pay little attention to safe working practices on ships. Yet non-compliance or irresponsible conduct by ship management may turn into a human rights crisis at sea, potentially harming the image and reputation of the shipping industry.
Research question and methodology
This article therefore investigates the question, what are the rights of injured Chinese seafarers? To what extent are these rights enforced in practice? It reports an investigation of legal compliance by employers and their crewing agencies in the event of workplace accidents, so as to discuss whether the current compliance practices are sufficient to ensure Chinese seafarers’ rights in the context of the global human supply chain.
Two qualitative research methods were applied in order to obtain a thorough understanding of maritime employers’ compliance in cases of workplace accidents: in-depth semi-structured interviews and documentary analysis.
In-depth semi-structured interviews were conducted with seafarers (and/or family members) who had made work-related injury insurance claims. Document analysis provided the core source for understanding the legal context through exploring the legal framework of the Chinese workers’ compensation system as applicable to seafarers’ workplace injuries. Legal documents – statutes and regulations – were collected from the website of the State Council of the People’s Republic of China (www.gov.cn). Judicial interpretations were collected from the website of the Chinese Supreme People’s Court (www.court.gov.cn).
Companies’ organisational management policies, crew management agreements between crewing agencies and shipping companies, and the employment contracts of seafarers were also collected. With the permission of shipping companies and their crewing agencies, the principal author collected seven crew management agreements containing organisational rules for workplace injury compensation for seven shipping companies.
Claim files and records from insurance companies and law firms provided important records of the processes and activities involved in seafarers’ claims. With permission, the authors collected these documents in photocopy and photographic form from shipping companies, crewing agencies, law firms, insurance companies and agencies, as well as seafarers. These constituted valuable sources of data in studying organisations’ compliance strategies in their management of workplace accidents and seafarers’ compensation claims.
The principal author conducted the fieldwork data collection in two phases between July 2013 and January 2014. In total, 41 interviews were conducted with injured seafarers and surviving family members and 33 interviews were undertaken with ship and crew managers, claims handlers, maritime judges and lawyers. Ethical approval was obtained from the Research Ethics Committee of the School of Social Sciences, Cardiff University. Written and oral informed consent was obtained from the interviewees, and all participants were given a considerable period of prior notice before the interview.
Companies with different ownerships were selected so as to compare different companies’ responses to seafarers’ liabilities, to legal compliance and to corporate social responsibility. The manager respondents were given ample opportunities to introduce their internal policies for workplace injury compensation, and their concerns, comments and opinions on the current Chinese labour standards that apply to seafarers.
The seafarer respondents were provided opportunities to tell their stories, share their feelings, explain any difficulties they had encountered and indicate the extent of loss they had suffered. All interviews with injured seafarers or family members were recorded and transcribed with the interview length ranging from 50 minutes to 4 hours and the average length being approximately 90 minutes. The participants were from 18 Chinese cities in 12 provinces. All interviews were conducted in Chinese. The interviewer translated the transcripts into English herself in order to minimise the loss of meaning in the translation process. All information provided by the participants was anonymised so as to protect their privacy, with the interviewees’ identities and company information being pseudonymised.
Analysis was undertaken of the crew management agreements collected during the fieldwork. The agreements include those for crew claim management between seven shipowners and their crew managers. Two shipowners were Chinese companies; the other five were from Singapore, Taiwan Province of China and the UK. One shipowner was owned by the Chinese state and the other six were privately owned by Chinese and overseas entities (see Table 1). The transcripts were managed and coded using Atlas.ti software. A thematic analysis approach was taken, aimed at identifying common themes in the interviewees’ experiences.
Table 1. Nationalities and ownerships of shipping companies.
Findings
In ship management practice, ‘Protection and Indemnity’ (P&I) insurance covers an owner’s liability for all deaths and personal injuries that occur on board, including death or injury to crew, passengers, stevedores, pilots and visitors to the ship (Skuld, 2015). This insurance coverage includes hospital, medical, funeral and repatriation expenses in respect of injured crews (Skuld, 2015). By entering into a P&I club mutual insurance scheme, shipping companies can reduce and dilute their legal risks arising from occupational accidents. The P&I clubs will not only cover costs and compensation arising from risks of crew injuries/claims, but will also provide an overseas claim handling service for shipowners (Reference Hazelwood and SemarkHazelwood and Semark, 2010).
The limits of coverage for seafarers’ casualties depend on shipowners’ choice of applicable compensation standard. Although crewing agencies may sometimes participate in the negotiation to ascertain compensation standards, seafarers are not represented by unions in this negotiation.
1: Compliance by shipping companies: A financial liability risk management approach
Finding 1a: Different employer incentives for management of financial liability risk
In their varied ownership types, shipowners usually have different incentives for their levels of financial liability risk management. Chinese state-owned shipowners tend to have a higher limit to compensation levels than foreign owners for total damages, medical treatment period and salary payment in the treatment period (see Table 2). Although CA has subcontracted crew management to its sibling company, and no longer employs seafarers directly, this company still requires the manager of its sibling crewing agency to arrange social security insurance for the seafarers working on its fleet.
Table 2: Comparison of shipowners’ workers’ compensation schemes.
* Ratings refer to skilled seafarers working under the supervision of officers and engineers on board, including bosuns, sailors, oilers and fitters. Cadets are officer and engineer trainees.
** A collective bargaining agreement approved by the International Transport Workers’ Federation.
CA’s liability insurance limit was CNY 1,000,000 (US$161,600), Footnote 1 higher than all foreign shipowners’ schemes studied. According to the chief manager of CA’s claim handling department, the current risk management scheme is designed to comply with Chinese labour law, as she explained below:
As a state-owned company, we have to take the maintenance of social stability as our political task. We proposed a plan to increase our liability insurance limit to CNY 1,000,000 and got it approved by headquarters as an organisational policy of our group enterprise. We have been very strict about social security coverage of our seafarers and will never accept any agency workers without work-related injury insurance, because none of us is able to assume this huge liability in relation to workers who are victims. Once headquarters started to investigate an accident, they would find that we have not arranged social security insurance for the seafarers. There would be an internal disciplinary punishment waiting for us. (Shipowner_CA)
However, risk management incentives for private shipowners are different. A manager of a Chinese private shipowner, with more than 70% of its tonnage registered overseas, explained,
We are different from state-owned companies. They have to control the rate of accidents and claims, and comply with the law as a good example because it is their political task. We do not need to worry about this kind of political task. We can report all of our seafarers’ casualty claims to the P&I Club according to the Work-related Injury Insurance Regulation. However, we cannot have Work-related Injury Insurance arranged for all seafarers, due to cost control. To maintain our manning company’s licence, we have to arrange this insurance for one hundred of our seafarers. (Shipowner_SDX)
Thus private shipowners rely on P&I Club liability insurance as a financial liability risk management measure, but have a passive attitude towards compliance with the Chinese Work-related Injury Insurance Regulation, owing to cost concerns. State-owned companies have a stronger incentive to provide sufficient work-related injury insurance than private companies, owing to greater political pressure from the government, whereas private companies are more profit-driven.
Finding 1b: Different choices in compensation standards
Choosing a definite and equal compensation standard for seafarers’ workplace injuries is supposed to help crewing agency managers to settle claims with seafarers efficiently and avoid disputes, as a crewing agency manager acting on behalf of Company CA explained,
We have similar standards for all seafarers. Both our officers and ratings have social security and shipowner’s liability insurance. If the seafarer refuses our compensation offer, we could show him the company policies, and explain to him: ‘It is not necessary for me to cheat you, and I do not need to pay the money out of my own pocket’. If we did not have these standards in our company policies, I would really worry about how to settle these claims, and it would be extremely hard to persuade seafarers to accept the compensation offer’. (Crew manager, CA)
For Company CA, with a large state-owned fleet of over 100 ships, enforcing a unified compensation standard can be efficient and effective. However, the situation of foreign shipowners is different. According to Table 2, different multinational shipowners have different internal compensation standards. The insurance limits range from US$60,000 to US$159,914. The periods for sickness payment vary from 90 days to 2 years. The treatment periods vary between 1 year and 2 years, or until the accidental injury is cured or a medical determination is made concerning degree of permanent disability.
Foreign shipping companies need their crewing agency managers to implement their compensation standards with their Chinese seafarers (see Table 2). A crewing agency can cooperate with several overseas shipping companies. Negotiating with their seafarers based on differing shipowners’ standards can be problematic, as a crewing agency manager acting on behalf of Companies TC, TD and UE explained,
This European company UE only provides USD 60,000 as an insurance limit for ratings, which is much lower than the two Asian companies TC and TD. We send our seafarers to serve with different shipowners, but they adopt different compensation standards, which make it very hard for us to negotiate with our seafarers. Company TD only gives 90 days basic wages as sick pay, while TC can give up to two years. We have a seafarer now who feels the 90-day sick pay limit is unfair, because this is much lower than the benefits for other injured seafarers. Even though we have shown the crew management contract to him and informed him of all of the shipowners’ policies, he still cannot accept this standard’. (Crew agency manager, XH)
Finding 1c: Limitation of shipowners’ measures for management of financial liability risk
The shipping companies that have entered their vessels in P&I clubs can choose different compensation schemes for seafarers. A crucial question has become whether the compensation scheme shipowners arrange prior to an accident is able to cover their highest liabilities to seafarers in China. As discussed, the state-owned company CA has the highest amount of insurance compensation among the 7 companies at CNY 1,000,000, along with work-related injury insurance. Among the other six non-state companies, the TF Company had the highest insured amount at US$159,914 (CNY 987,253.07) for senior officers, in line with the International Transport Workers’ Federation collective bargaining agreement. Company SDX had the lowest insurance limit, at US$30,000 (CNY 185,209.50). The insurance compensation range of the above non-state-owned companies was between US$30,000 (CNY 185,209.50) and US$159,914 (CNY 987,253.07) (Table 2).
According to the Work-related Injury Insurance Regulation (WIIR), one-off compensation in 2013 for domestic work-related death (non-fault based) was CNY 539,100 (US$87,374.40). According to the 2003 Judicial Interpretation on Personal Injuries and Death (JIPID), which presently regulates seafarer casualties, the highest level of compensation for death is CNY 858,880 Footnote 2 (US$139,202.60). According to Chinese law, shipowners’ liability for compensation should not be less than US$87,374.40, and the maximum liability may reach US$139,202.60. This payment is compensation for death only. If medical care expenses, funeral expenses, dependents’ allowance and damages for emotional distress are considered, compensation will be increased further. Therefore, the insurance coverage for Companies SDX and UE as stipulated in their crewing agency management contracts, were insufficient to cover their basic liabilities in China (see Table 2). The contractual compensation schemes for Companies TC, TD and SB would have been unable to cover their liabilities in some cases, if other expenses arose, including survivors’ benefits, medical fees and funeral fees.
This analysis suggests the P&I insurance schemes for many shipowners are lower than the statutory standards in China. In some cases, P&I Clubs promise a second level of insurance coverage, i.e. to cover shipowners’ higher liabilities arising from the law itself. But in order to compel shipowners to settle according to the law, the victim seafarer usually needs to initiate formal legal negotiations with a maritime lawyer’s help, or initiate maritime litigation, which will usually be time-consuming and costly. In this sense, settlement is beyond the shipping companies’ internal rules of management of crew claims. Non-compliance with Chinese labour law by the shipowners can only be corrected through external litigation.
2: Compliance by crewing agencies
Finding 2a: Increased legal obligations for crewing agencies
Unlike shipping companies, whose legal liabilities for damages from injury to seafarers are direct, the liabilities of crewing agencies can be controversial, particularly for those registered as independent crew management companies. These companies are licenced by the Chinese Ministry of Transport to export labour services to foreign ships. If crew management companies are regarded as agents on behalf of shipowners, then the shipowners’ insurance should cover these companies’ liabilities. It would thus be unnecessary for them to have separate risk management and compliance strategies. In most crew management companies studied in this research, the interviewees held this opinion. However, more regulatory obligations are imposed on crewing agencies or management companies, aimed at protecting Chinese seafarers. For example, according to the Rules for Dispatching Chinese Seafarers to Foreign Vessels (2011), crew management companies supplying seafarers on foreign vessels must formulate labour contract relationships with at least 100 seafarers, and ensure that all seafarers are covered by social security insurance. In addition, they are required to arrange extra commercial life insurance for the seafarers. According to the Labour Contract Law, if crewing agencies supplying seafarers on domestic vessels fail to contribute to the seafarers’ social security scheme, upon the occurrence of workplace accidents they must assume joint liability with the shipowners. Crewing agencies and crew management companies now confront higher legal liabilities than before (see Figure 1).
Figure 1. Insured liabilities in the process of recruitment of Chinese Seafarers.
This research reveals that societal and economic changes in mainland China have considerably increased victims’ needs in order to maintain their living standards. Increases in shipowners’ liability insurance has fallen behind Chinese cost of living increases. All manager interviewees indicated that they were thereby under pressure, as one manager complained about shipowners’ limited liability insurance:
One of our shipowners only provides USD 60,000 at most for injury and death compensation, which is far from enough to persuade any victim’s family to accept. If the shipowner is unwilling to contribute more, the situation will be very embarrassing, because we have to cover the gap to meet the victims’ claims. (MC_XM_L)
This gap between shipowners’ liability insurance and victims’ increasing needs has led crewing agencies to face increased risks. From the crewing agencies’ perspective, another factor increasing victims’ expectations is the increasing standards for compensation in public safety accidents. Following the Wenzhou Bullet Train Accident (2011) and the Xiamen Bus Rapid Transit fire accident (2011), compensation payments for passenger deaths exceeded CNY 900,000 and CNY 1,000,000. However, the foreign shipowners’ liability insurance cap is usually lower, between US$60,000 (CNY 372,456) and US$140,000 (CNY875, 063). Footnote 3 Thus, the compensation scheme provided by overseas shipowners is unable to meet claimants’ expectations, and the victims regard the crewing agencies as another source of compensation. Crew management companies can still classify themselves as ‘intermediaries’ rather than employers, arguing with victims that they should not be liable. However, crew management companies must work at the front line to negotiate compensation with the victims. The argument of lack of liability has resulted in a negotiation situation described as follows:
Sometimes the relatives of seafarers can be mad at us, and they would never listen to any of our explanations. They may gather all their relatives, friends and colleagues to occupy our office and even smash our computers and furniture. It has become more and more challenging for us to settle disputes, since the cost of living has risen so dramatically in recent years. Seafarers are more unwilling to accept solely the shipowners’ compensation schemes, gradually claiming more compensation from us, and therefore we are now encountering more liabilities. (MC_XM_H)
Finding 2b: Semi-compliance: Work-related injury insurance or commercial life insurance?
To control these increasing risks, many Chinese crew management companies have started to adopt relevant financial liability risk management measures for workplace accidents. The manager interviewed indicated that they have various insurance schemes for different types of seafarers:
We have purchased social security insurance for university graduates who have entered into a long-term labour contract relationship with us. For the freelancing seafarers sent to foreign vessels through our company, we will purchase a temporary life insurance policy’.
We have insurance coverage of CNY 350,000 for seafarers formally employed by us, taking into consideration that they already have social security insurance. For freelance seafarers, given that they don’t have social security we have coverage of CNY 550,000. If a fatal accident occurs, in combination with the P&I insurance coverage, we can have over CNY 1,000,000 for the victim’s families, and so far, this amount has been acceptable in China. (MC_QD_Y)
Thus, crew managers apply social security insurance and commercial life insurance to their seafarers employed on a long-term basis, but that for precarious seafarers, the companies apply commercial life insurance only. Nevertheless, to reduce the inequality between employee seafarers and freelancing seafarers, especially in the case of death compensation, crewing agencies may decide to insure freelance seafarers and ratings for a higher amount.
Finding 2c: Limits of crew managers’ strategy of semi-compliance
Applying work-related injury insurance and/or commercial life insurance, in addition to the shipowners’ P&I clubs’ liability insurance, provides the crew agencies with another source of compensation. However, weaknesses remain. First, the coverage rate of work-related injury insurance is insufficient. Due to resistance from crew management companies, policy-makers’ efforts to make work-related injury insurance for seafarers compulsory has turned out to be a compromise. Many crew management companies still insist that they have only signed contracts with seafarers on behalf of shipping companies, rather than having formed employment relationships with the seafarers – even though the regulation requires them to enter into a labour contract with seafarers. The crew managers believe the workplace, ship, is overseas and not under their control, so they should not be primarily liable for workplace injuries at sea. The Ministry of Transport requires that crew management companies form employment relationships only in cases where there are at least 100 seafarers. As a result, compared with the actual number of seafarers, only a minority are able to benefit from this regulation. Most of them are high-ranking officers and engineers, but ratings are usually unable to enjoy these benefits. As a manager from a crewing company, which places their seafarers on foreign ships, pointed out:
‘It is not financially realistic for us to formally employ all seafarers. It would dramatically increase our human resource cost, and the employers’ responsibilities are too strict. What we can do now is to just fulfil the minimum regulatory requirement: 100 employed seafarers at most’. (MC_SH_W)
Although the government makes regulatory efforts to standardise the forms of seafarers’ employment and regulates crew management companies as domestic employers for seafarers, the effects of the efforts are contradicted by the companies’ non-compliance.
Second, commercial life insurance is not reliable security for the victims. Crew management companies have the decision-making power on whether to contribute to life insurance, how much of the premium seafarers should contribute, the insured amount covered and the insurance period. However, seafarers usually cannot participate in this process. Since the aim of this insurance compensation is to help the crew management company settle a compensation dispute more easily (Ref: MC_XM_L), crewing agencies can choose the insurance scheme voluntarily, and there will be no liability in law if they fail to arrange insurance. Crew management companies can also shift the cost of this insurance to their seafarers by requiring them to contribute to the insurance scheme. In this sense, the fact is that the seafarers contribute to their own insurance, but the crew management company can take advantage of the insurance compensation to deny their liabilities. In addition, seafarers cannot claim insurance compensation directly from the insurer, because they do not have their own individual policies. All they can do is to rely on the assistance of the crew management companies in compensation claims. If the crew management companies refuse to assist seafarers to claim this compensation, the seafarers have no evidence at hand to prove the existence of this insurance contract.
Third, there is no legal consequence for crew management companies if they fail to purchase commercial insurance for the seafarers. Unlike compulsory social security insurance, commercial insurance is a profitable business. This means if insurance companies identify that the accident rate for seafarers is higher than they had estimated, they can either increase the premium or refuse to renew the insurance contracts. Therefore, whether commercial insurance is able to provide workplace accident victims with timely and stable compensation remains in doubt today.
To sum up: insurance policies purchased by crew management companies provides another source of compensation for seafarers, but the limited coverage of work-related injury insurance, the unpredictability of life insurance for seafarers and the lack of government supervision, together limit the outcomes of this semi-compliance practices by crew management companies.
Concluding discussion
Maritime logistics operations continue to generate considerable work-related injuries and fatalities. This article examines whether current compliance by shipping companies and crewing agencies is sufficient or not to ensure the seafarers’ entitlements to compensation as provided by the national labour standards of their home countries.
Transnational third-party crew management drives the development of the global labour supply chain in the shipping industry. Through recruiting Chinese seafarers, with their low wages and social security protection and lack of union affiliation, many international ship managers have gained a competitive advantage in the use of human resource supply chains. However, competition in labour costs may also affect the motivation of ship crew managers to comply with the law of the labour supply states, which may further threaten the sustainability of global supply chains.
This research shows that liability insurance coverage is determined by shipping companies based on their understanding of corporate social responsibility. As a result, compliance choices are highly diversified, and most shipowners’ coverage is far from enough to cover their liabilities once workplace fatalities occur. For the managers who have better legal compliance performance, two determining factors are government political pressures (for state-owned ship managers) and maintaining their licences (for private companies). The commitment to compliance is also weak: most companies rely on their agencies to handle claims with seafarers. The private companies have much lower incentives for compliance than state-owned shipping companies.
The crew managers’ liabilities are still ambiguous, in the context of the global human resource supply chain. With the development of third-party ship management, the interest of shipowners is for crew management companies to become independent employers of seafarers, thus transferring the liability risk from shipowners to crew managers. However, crew management companies cannot control safety management on ships operated by shipping companies. If safety management obligations and liabilities for workplace accidents are separated, and crew management companies are mainly responsible for crew claims, the incentives for ship operators to ensure a safe working environment may be reduced. If crew management companies are defined as agents of ship management companies, seafarers have to claim their rights against overseas ship managers. In such a situation, the health, safety and rights of seafarers will be compromised no matter which route is followed. Up till now, crew management agreements have been unregulated business contracts, although they stipulate the obligations and liabilities of crew and ship managers in the event of workplace accidents. As shown in the seven crew management agreements, most of the compensation standards agreed between crew and ship managers are unable to fulfil their legal liabilities according to Chinese law. We can see self-regulation practices in state-owned companies, due to political pressure within the management culture. However, most companies do not take such pressure into consideration, which means voluntary compliance is not realistic for ensuring that crew and ship managers establish pre-accident risk management measures in fulfilment of their legal obligations.
Depending solely on the voluntary compliance of ship managers and crew managers may drive liability management into a ‘race to the bottom’. In the cost-driven transnational third-party crew management business, liabilities for crew injuries and death have become an undesirable cost. Maritime centres with low social security cost for the crew are preferable for ship managers. Minimum standards are necessary for management of liability following crew injuries, although to some extent Maritime Labour Convention, 2006, Standards 4.2 and 4.5 address shipowners’ liabilities and social security protection for seafarers. Given the differing enforcement levels of the Convention in labour supply states, it remains questionable whether the Maritime Labour Convention, 2006 can be an incentive for ship and crew managers to comply. If the key competitive advantage in ship management is identified as crew costs, and liability management is simply treated as part of them. A legal compliance culture with strong corporate social responsibility would be very difficult to develop among ship managers and crew managers. To change this trend of a ‘race to the bottom’, it will be necessary to regulate the agreements between ship and crew managers. A joint liability system between employers and labour intermediaries should be established within the global human supply chain. To ensure decent occupational health and safety (OH&S) conditions for all people working in global supply chains, the Global Reporting Initiative promotes the GRI 403 Standard: Occupational Health and Safety 2018, which extends the definition of workers to ‘all workers who are not employees but whose work and/or workplace is controlled by the organisations’ and ‘all workers who are not employees and whose workplaces are not controlled by the organisation, but the organisation’s operations, products, or services are directly linked to significant occupational health and safety impacts on those workers by its business relationships’. This effort could ensure that organisations that benefit from the supply chain are liable for the OH&S of global supply chain workers. To ensure injured workers’ rights following a workplace injury, a similar definition of workers should also be adopted in workers’ compensation legislation in China, as well as in that of other major labour supply countries. With this legislative change, the liability of shipowners and crewing agencies will become joint in the maritime labour supply chain.
The traditional private maritime liability insurance – the P&I liability insurance fund – could provide a certain level of compensation for injured seafarers, but a more transparent claim handling process subject to public monitoring is necessary. The current private, internal compensation claim management process is not sufficient to achieve fair, just and legal outcomes. In addition, to protect the industry’s reputation and retain skilled crew in the shipping industry, the associations of ship managers should also adopt a commitment-oriented compliance programme to prevent liability shirking by shipping companies and crewing agencies following workplace accidents. Instead of outsourcing claim handling to crewing agencies, a joint problem-solving model should be developed between the principal employer and their crewing agencies.
Funding
The author(s) received financial support for the research, authorship, and/or publication of this article: The research for this paper was funded by the Nippon Foundation.
