What have Liberia, Panama and the Marshall Islands have in common? This might sound like the start of a bad joke but it is a legitimate question. The answer is that these nations are the leading Flag States in the world for shipping.
Every merchant ship must register with a country, known as a flagged state. Under the open-registry system, “flags of convenience” as they are sometimes known, can be flown by any vessel regardless of the nationality of the owners.
The term ‘Flags of Convenience’ comes into the news from time to time, usually when something bad has happened. Two weeks ago the cargo ship Stena Impero was seized by was sailing under a British flag but it is owned by a Swedish company and has no British nationals on board.
At one time, the number of ships registered under the UK was by far the largest in the world but now it is only the 9th largest such fleet with around 1,300 vessels and known as the Red Ensign Group, which includes the United Kingdom, the Crown dependencies (the Isle of Man, Guernsey and Jersey) and UK overseas territories (Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, the Falkland Islands, Gibraltar, Montserrat, St Helena and the Turks and Caicos Islands)
It’s very common for ships to fly the flag of a country that differs from that of the owners. But why is it done and who benefits? Chiefly it is for commercial reasons which often includes regulations, taxes and the quality of the service provided. Greece has the most ship but many of its vessels do not fly a Greek flag as they would have to pay more tax.
More developed nations can have tighter rules on who can own and operate these vessels and higher safety and environmental costs which makes them less desirable for cost-conscious organisations.
Nations who have large flagged fleets such as Panama can earn vital revenue. The Panamanian ship registry contributes tens of millions of dollars to the country’s economy. The system allows for the hiring of crew from anywhere in the world, which can lower costs.
However the whole “flags of convenience” has been criticised because of the potential for looser regulation and even the flouting of international maritime rules though international regulations are seen to improving the standards of even the rogue carriers in recent years.
Owners tend to choose to register with a flag state based on reputation or because major shipping registries have a presence in every major port. The safety record of large open registries is closing in on that of traditional fleets but despite that there is a lingering suspicion of a generally poorer standard and implication ship owners are somehow trying to avoid legitimate regulation for example registering under a different flag makes it more difficult to hold ship-owners to account over wage disputes or working conditions, according to the International Transport Workers’ Federation.
After signing up to a flag, the laws of that country are conferred on the vessel and each country is responsible for ships flying their flag. This includes ensuring that ships conform to relevant international standards – through survey and certification of ships, says the IMO.
Flag countries sign up to international maritime treaties and are responsible for enforcing them, with rules set by the IMO in regards to the construction, design, equipment and manning of ships.
Under the United Nations Convention for the Law of the Sea, flag states are required to take measures for ensuring safety at sea. Some flag-states don’t even have their registry office in their own country. Liberia is administered by an American company with its headquarters in Washington DC. Mongolia doesn’t even have a coastline but has a Registry is based in Singapore whilst the Comoros Registry is based in Bulgaria and Vanuatu has its base in New York.
Obviously the one obvious downside for registering with a nation such as Liberia is that the country is unable to even come close to protecting all its vessels militarily in the unlikely event of hostilities breaking out and similarly are unlikely to easily leverage diplomatic pressure in such circumstances. On the other hand, such shops are unlikely to be targets in the first place and not many people would see much point in attacking a Panamanian freighter.