Coffee & Classification Societies

In ancient and medieval times, trade was as important as it is today, and like today, vessels were the number one transportation unit. Ships were often built unstable, with pirates and storms making every journey an even greater risk.

To counter business risks, merchants and owners sought to assure themselves by financial means. Ancient Greek sources like Lex Rhodia (the very first recorded maritime law) indicate that this was done as early as 800 B.C. using bottomry, which was a ship loan that was repaid only when the goods had arrived safely. However, bottomry was not very common, of 61 known Athenian traders in the fourth century B.C., only six were proven to use bottomry with a further six assumed. Bottomry became popular during the time of the Hanseatic League, which was a defence and trading confederation of European cities.

Hanseatic League 1400: Plate 28 of Professor G. Droysens Allgemeiner Historischer Handatlas, Source: Wikipedia

Despite one source indicating the presence of a chamber of assurance in Bruges by 1310, current thinking  believes the first real insurance to be signed in Genova (Italy) in approximately 1340. Two centuries later, in 1547, we find the first proof of an English maritime insurance, still written in Italian but signed in Lombard Street, London.

The Very First Official Classification Society

In the latter half of the 18th century, merchants, captains and ship owners still had exactly the same problem as their medieval counterparts. Despite ships and goods being insured for the previous two hundred years, much of the detail about a particular ship, captain and equipment condition was up to gossip and guessing or private intelligence.

Up to 1666 underwriting is not known to have taken place in any other location than the private offices of bankers and lenders. After that date, coffee houses (the first in London opened 1652) became a game-changing factor as they opened up all over London. Here, deals were made to share losses with each other, in order to receive a part of the profit when all went well. Clearly, a professional method of evaluating risks was needed.

Lloyd’s Coffee House opened around 1688. It’s success came three years later after moving to Lombard Street (a street dedicated to maritime business) and publishing a weekly maritime news paper, later called Lloyd’s Lists. It developed into a place for owners, shippers and underwriters to meet.

Long after Edward Lloyd’s death (1713) the Register Society was formed in 1760 by a group of underwriters in Lloyd’s coffee house. Starting in 1764, an annual register of ships was published (later Lloyd’s Register), to classify the condition of each ship’s hull and equipment. The sole purpose was to evaluate the risk of insuring the ship or transported goods. To ensure expertise, the register contracted retired captains, sending them to the harbour to rate ships. This was later to become professional surveying. Safety was a by-product derived from indirect pressure – higher quality ships would pay lower insurance rates.

Meanwhile the old coffee house acquired a bad reputation and a second Lloyd’s was opened by one of its waiters also publishing a list, the New Lloyd’s List, which was the only one left by 1773. Just a year after, the Register Society changed its name to The Society of Lloyd’s.

Subscription Room of Edward Lloyd’s Coffee House, 1809 / National Maritime Museum, London, UK

Of course, the ship owners did not like this pressure and countered in 1799 with their own register – with almost all ships rated A1 (best). Perhaps due to this fact the list was never widely used among underwriters. However, the owners kept pressing and eventually in 1826 a joint committee proposed a new surveying system. It was clear that the cost of the new system could not be borne by selling lists or through membership fees.

When the UK government denied financial support, the ship owners were able to buy themselves into the publisher. In 1834 “Lloyd’s Register of British and Foreign Shipping” was derived and a central committee, equally elected by owners and underwriters, was set up. Now revenue came mainly from survey services sold to owners instead of selling lists to underwriters. The First Classification Society was born.

Later other registers opened up all over Europe, like The Bureau Veritas in Antwerp and Det Norske Veritas in Oslo. All would put up lists and surveyors to determine insurance risks. From this point, around 1860, binding rules developed on how to construct a vessel. Despite having the same interest all classes had different rules for each type of vessel (Class Rules).

The Problem Within the System

Today, class societies release construction regulations, conduct inspections to make sure rules are carried out, checking regularly on the state of each ship. Furthermore, they carry out audits on behalf of the IMO (e.g. ISM audit) and fulfill surveys in the name of flag states.

Classes do not assign quality levels anymore; the classification standard is either met or it is not. If a vessel is in serious bad condition or is not complying with the laws, it can be held from leaving the harbor by the Port State Control. In addition, vessels must meet life-long class surveys, if the operators want to retain their class. These surveys include the class renewal, intermediate, annual and hull surveys. Further items to audit are boilers, machinery, tail shafts and many more.

Every vessel owner must choose a class that will then hold surveys and confirm that the vessel is built and managed according to international law. Here lies a big problem, because a ship can change its classification society (class hopping). Classes are in competition and ship owners are looking naturally for classes that give them the least trouble. Throughout history up to the present day, this leads to a delicate situation.

“Up to within five or six years, we classed nearly the whole of the ships that were built in the colonies; but the Bureau Veritas stepped in, and when they found that we made concessions, they gave further concessions; for instance, if we gave a vessel an eight years’ class, they would give it nine; and if we gave it ten, they would give it eleven […]” Secretary of Lloyds Register, 1873

Despite shipping having the lowest environmental standards in the transportation industry, some classes have even lower standards. This strategy will establish classes as a cheap alternative for ship owners who are concerned about strict regulations. Such classes may have relaxed rules, but ships constructed under their regulations might not be allowed into certain ports and areas.

Despite this justified criticism, it should not be left unsaid that today crossing the oceans is safer than it ever was, which is due in part to the restless work of countless class surveyors and binding construction rules.

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