Flags of convenience while registering a ship


By Suha Abdulla, Strategic Planning Director, Folk Shipping

With the increasing mandatory regulations on the ship-owner and the unsteady market and political situation, ship-owners are more careful while registering their vessels in a particular country. Today ship-owners think strictly commercially and whether this registration will be one of convenience, Today flag of convenience is one the main aspects to convey commercial survival, while complying with stringent marine industry regulations.

Flag of convenience is the act of registering the vessel under a different state of that of the ship-owners in other words open registry. A ship with no registry is like an individual with no identity. International laws says that every ship must be registered with a particular country called flag state, and this flag gives the vessel the right to ffly its flag under certain rules and regulations imposed by that state which includes regular inspections and certifications of the ship’s equipment safety, pollution prevention and crewing.

Today one of the leading foreign entities for open registry is Panama, a small nation more than 8600 registered ships, making it the greatest fleet in the world, more than the United States of America and China put together. Many factors have provoked ship-owners to shift from national flags to flags of convenience.  

The factors that typically may influence this choice include: 

Crewing: This is the second largest cost after bunkering. Being able to reduce crewing cost will have a major impact on the overall cost of the ship-owners. Flags of convenience have minimum restrictions on the nationalities of the crew which allows flexibility on both wages and contract durations. Traditional flags on the other hand impose stricter regulations to man the vessels which add up to higher costs including bonuses, pension, entitlements, higher salaries and shorter working contracts which reduces the commitment rate to the vessel.

Taxation:  This is calculated depending on the regime of the flag state. Shipowners will be exposed to taxes on tonnage of the vessel and earnings generated by the vessel. Also some less favourable flags can impose taxes on wages of the crew which can add to the second largest shipping cost. 

 Naval protection: Some states are in position to offer ship-owners naval protection to the ships registered under their state flag. Some prefer registering under certain states even though it means payment of high taxes in order to guarantee protection in areas of high risk, such as piracy zones.

Corporate custom: Some ship-owners would have a close contact with the flag state administration who are responsible for the documentation surveys and certification. This close relationship might also be a reason for the ship-owner to stick to that certain flag to guarantee smooth and quick operations of the vessel.

Finally with the many regulations imposed by the flag states, and the competition arising from the open registries or flags of convenience, each nation must consider adopting their national companies for the support of their long term economic survival and growth. Shipping is the core of all businesses and its support is by itself the support of all the remaining business.