Few industries can compare to shipping in terms of compliance. They must ensure that their drivers and personnel are licensed in the countries where they operate. However, they often have complex systems that include multiple departments, such as dispatch and customer support.
This means that they’ll have a lot of documents and data that must be processed properly. So, not only do they have to care about environmental regulations and local laws, they must pay attention to data security as well.
In this article, we’ll explore the importance of digital compliance for shipping companies and what steps they can take to ensure that they’re compliant with the necessary regulations. Regulations are tightening, and the faster these companies ensure compliance, the better.
Common compliance challenges
Despite the industry's global scale and technological advances in logistics operations, many shipping companies lag in compliance infrastructure. By compliance infrastructure, we mean systems, software, and educated personnel.
One of the first challenges includes the customer and partner onboarding process. This is often a manual, time-consuming process that involves scanning documents, conducting web searches, and manually cross-referencing sanctions or watchlists.
This can be a tedious task, and it’s not even that effective due to the chances of human error. Automating KYC through digital platforms can dramatically improve efficiency and accuracy. Then, we have more industry-specific problems.
Some shipping companies rely on outdated or superficial export control systems. This can lead to unknowingly transporting embargoed goods or doing business with blacklisted entities or individuals.
Modern shipping and logistics companies are increasingly reliant on digital improvements, communications, and dispatch systems. This opens up a lot of problems in the cybersecurity sphere. Many shipping companies continue to use unpatched or outdated software.
This makes vessels and company devices vulnerable to ransomware attacks, system outages disrupting operations, and data breaches.
Key areas to strengthen
The best way to ensure compliance is to hire expert personnel in the relevant categories. This means having a data compliance officer, attorneys with experience in environmental law, and cybersecurity experts.
However, there are many steps that you can take to ensure compliance immediately. Some of them can be done without any tools, while others require the necessary platforms to be executed properly.
Audit-ready recordkeeping
Regulatory bodies often require detailed logs of transactions, communications, and inspections. Maintaining audit-ready records means ensuring proper and secure access across multiple departments.
Furthermore, shipping-related communications must be digitally timestamped documents. This ensures that, in worst-case scenarios, problems can be traced back. However, it’s important that these documents are in proper formats.
You can use various converters, such as PDF to PPT, to ensure that the documents can be properly filed depending on their purpose. Then, it’s essential to know which documents can be kept, and for how long, and which should be deleted. This minimizes the risk of fines and makes responding to audits faster and less disruptive.
Sanctions and export control screening
Sanctions violations can put operations on hold and lead to severe financial penalties. Businesses in shipping and logistics must screen vessels, clients, goods, and destinations against constantly updated watchlists.
Manual checks are no longer sufficient, and automated sanctions screening tools are there to make the process more efficient and better. Furthermore, this type of software can be integrated into booking, cargo documentation, and client onboarding workflows.
This allows shipping companies to flag embargoed destinations or restricted goods in real time, and prevent transactions involving blacklisted entities. Companies ensure they don’t unknowingly facilitate illegal trade by embedding export control protocols into their digital infrastructure.
Compliance with financial regulations
Shipping companies increasingly operate as data processors and custodians, and they must comply with regulations, such as GLBA, to safeguard that data. This regulation, for example, requires businesses to disclose their data-sharing practices and give customers the option to opt out of having their information shared with non-affiliated third parties.
Digital KYC for clients and partners
KYC procedures are essential for vetting clients, suppliers, and charterers. In the shipping industry, this is especially vital due to frequent interactions with offshore entities and high-value cargo.
A modern KYC system enables rapid identity verification using official databases, which ensures the legitimacy of a client or supplier in real-time. Manually, this process could take a lot more time, which makes the shipping a lot more complex.
More importantly, this software allows screening for politically exposed persons. This is important for compliance with multiple anti-money laundering regulations. It also allows monitoring for changes in ownership or risk status, allowing companies to swiftly refuse deals or terminate contracts.
Cybersecurity
Cybersecurity and data protection have become critical, as already mentioned in the article. There are multiple reasons why shipping companies must pay attention to these. Nowadays, vessels are becoming increasingly more digitalized.
Through backdoor vulnerabilities, cyber attacks, and other means, hackers can be able to seriously disrupt shipping operations. This problem alone is enough to cause a lot of financial damage to the company, but it can also lead to a negative reputation.
Then, some attacks can even lead to leaked data, which can lead to breaches of various regulations, such as PIPEDA, GDPR, you name it. Having a robust cybersecurity system requires implementing proper software and hardware measures. Ensuring good code quality is essential for minimizing vulnerabilities that could be exploited during such breaches.
Furthermore, your employees must be trained to recognize cyber threats, such as phishing attacks.
Environmental compliance monitoring
Environmental concerns are growing every year, and the shipping industry is under pressure to reduce its ecological footprint. This means that shipping companies are expected to actively monitor, manage, and report their environmental impact.
This can be done through emission tracking software, which has features such as fuel consumption monitoring, distance tracking, and voyage efficiency. With the rise of AI, companies can even optimize their routes in order to reduce their CO2 emissions.
Complying with environmental regulations not only avoids fines but also opens access to “green lanes” at ports and improves ESG ratings. This can also positively impact long-term profits, as clients often prefer greener options.
Understanding the Bigger Picture
If you’re wondering why all this is so critical, here’s a snapshot of the ever-tightening regulations shipping companies must navigate:
- Trade restrictions and sanctions issued by bodies in the European Union, OFAC, UN, and the United States restrict certain entities, individuals, goods, or shipping routes.
- Anti-Money Laundering (AML) regulations are applicable in regions where shipping can be misused, illegal activities, such as money laundering or terrorist financing.
- Know Your Customer (KYC) mandates, which demand verification of customers, shipping partners, and third-party vendors to prevent misuse.
- Cybersecurity laws that safeguard systems managing navigation, billing, and sensitive customer data from external attacks or data breaches.
- Environmental regulations, such as the International Maritime Organization’s (IMO) MARPOL convention, Energy Efficiency Existing Ship Index (EEXI), and Carbon Intensity Indicator (CII), aim to reduce maritime pollution and emissions.
Then, we have data regulations, such as GDPR and CCPA, which can be applicable if companies have clients or customers from the EU or California, respectively. Of course, there are numerous other data regulations, but these two are great examples.
When you take a look at all of these different regulations, it can seem overwhelming, but there’s no other option than to comply with the ones applicable to your business.
Compliance can be a competitive advantage
All companies must comply with laws and regulations. However, not all of them are taking the right steps. Failing to comply can lead to various problems, and you don’t want that. If you’re one of the rare businesses that has a spotless portfolio in terms of lawsuits and compliance, customers and clients will prefer you over the competition.
However, it’s not only important to ensure compliance right now, but it’s crucial to keep up with changes in the law in the future. Quickly adapting to the changing regulatory landscape can help you get ahead of the competition.
Although implementing some of the strategies mentioned here can be costly, it’s much more affordable than suffering unnecessary fines and reputational damages caused by failure to comply. In the long term, it’s the only right choice to ensure compliance.
