FLAG OF CONVENIENCE

SARATH CHANDRAN P
R310210017
MBA PSM 2010-12
 SHIP REGISTRATION

 Every ship should be registered in a FLAG STATE. ( Certificate of Registry)

Ship of a flag state is bound by the Duties and National obligations of
that flag state.
 There are 5 major types of Ship registration system :-
a. National or Domestic Registry
b. Open registry or Flag of Convenience (FOC)
c. Bareboat Charter or Parallel registries
d. International Registries
e. European Union registration System ( Proposed)
 FLAG OF CONVENIENCE

It’s the business practice of registering a merchant ship in

a sovereign state different from that of the ship's owners, and flying that
state's civil ensign on the ship.

ITF defined an FOC as follows: "Where beneficial

ownership and control of a vessel is found to lie elsewhere than in the
country of the flag the vessel is flying, the vessel is considered as sailing
under a flag of convenience."
 HISTORY OF FLAG OF CONVENIENCE

 Developed in US ( Between 1915 and 1922) to overcome the stringent

regulations due to Seaman Act of 1915.
 Belen Quezada, is the first foreign ship flagged in Panamanian
registry.
 Opening of Liberian open registry by Edward Stettinius
 WHY DO SHIP OWNERS USE FLAG OF CONVENIENCE

 The flag state allows non-citizens to own and control vessels.

 Access to and transfer from the register is easy.
 Taxes on shipping income are low or non-existent.
 Flag state is more interested in tonnage fees.
 Manning by non-nationals is freely permitted.
 The country lacks the power (or the willingness) to impose national or
international regulations on its' ship-owners.
FLAGS OF REGISTRATION WITH THE LARGEST REGISTERED
DEADWEIGHT TONNAGE, AS AT 1 JANUARY 2010

Share of world Share of world DWT Growth

Sl No Flag of registration No of vessels DWT ( 1000)
total Vessels total DWT 2010/2009

1 Panama 8100 7.93 288758 22.63 5.4

2 Liberia 2456 2.4 142121 11.14 12.8
3 Marshal Islands 1376 1.35 77827 6.1 13.7
4 China, Hong Kong 1529 1.5 74513 5.84 16.1
5 Greece 1517 1.48 67629 5.3 7.29
6 Bahamas 1426 1.4 64109 5.02 3.38
7 Singapore 2563 2.51 61660 4.48 1.42
8 Malta 1613 1.58 56156 4.4 10.84
9 China 4064 3.98 45157 3.54 12.9
10 Cyprus 1026 1 31305 2.45 -0.26

Source: Compiled by the UNCTAD secretariat, on the basis of data supplied by IHS Fairplay. A Ships of 100 GT and above; ranked by deadweight tonnage.
 TRUE NATIONALITY OF 3 MAJOR OPEN AND INTERNATIONAL
REGISTRY FLEETS, AS AT 1 JANUARY 2010
Panama Liberia Marshal Islands
Country or territory of
ownership No of No of No of
1000 DWT % 1000 DWT % 1000 DWT %
Vessels Vessels Vessels

Greece 457 18728 7.6 437 27888 21.5 313 18629 28.2
Japan 2294 130879 52.8 111 7359 5.7 32 3118 4.7
China 567 26262 10.6 13 399 0.3 13 963 1.5
Germany 31 3386 1.4 977 42239 32.5 243 10898 16.5
Republic of Korea 355 24017 9.7 1 1 0.0 19 1608 2.4
United States 159 3808 1.5 54 2541 2.0 169 11877 18.0
Norway 111 3294 1.3 45 952 0.7 72 3286 5.0
Hong Kong, China 123 5119 2.1 69 4391 3.4 5 125 0.2
Denmark 41 1335 0.5 4 244 0.2 7 355 0.5
Singapore 103 3124 1.3 36 4434 3.4 27 2514 3.8
India 19 740 0.3 1 150 0.1 6 549 0.8

Source: Compiled by the UNCTAD secretariat, on the basis of data from IHS Fairplay
 Top Ten Countries with largest controlled Fleet
Number of Vessels Deadweight Tonnage
Country or
Territory of Foreign flag as a % of World Total
Ownership National Flag Foreign Flag Total
% of total DWT DWT

Greece 741 2409 3150 69 15.96

Japan 720 3031 3751 92 15.73
China 2024 1609 3633 61 8.96
Germany 458 3169 3627 84 8.91
Republic of Korea 775 425 1200 58 3.85
United States 920 945 1865 48 3.54
Norway 820 1148 1968 65 3.48
China, Hongkong 350 330 680 38 2.95
Denmark 360 580 940 61 2.85
Singapore 598 387 985 47 2.80
India 443 66 509 17 1.47
 THE EFFECT OF FLAG OF CONVENIENCE

1. The concealed ownership

2. Crime
3. Terrorism
4. Working Conditions
5. Environmental factors
6. Port State targeting
7. Wages
 HOW TO TACKLE THE WORST ASPECTS OF FOC

1. Establish clearly who is the real owner.

2. Employment of crew with minimal language differences.
3. Deposit capital or Asset by the owner in the flag state
4. Increase port state control to meet the safety standards