Prof Ir Dr. Ab Saman b.

Abd Kader
PEng, MIEM, MCIT
Faculty of Mechanical Engineering, UTM
 International law requires that merchant ships are
registered in a host country.
 Registration gives the ship the right to fly a civil ensign,
more commonly known as a country’s flag. The ship
operates under the laws of its flag, and its host country is
required to inspect the ship periodically.
 A flag of convenience refers to a situation where the ship
is registered in a different country than the one where the
ship’s owner resides or holds citizenship.
❑ A flag of convenience country may possess some
or all of the following features:

◦ It may be a small country, which is poor and has few

resources with which to raise foreign currency.

◦ Manning by non-nationals may be permitted and so

strongly developed trade unions may exist

◦ There may be a very low tax levy

◦ No adequate administrative may exist to enforce

international safety regulations
Why do ship owner use Flag of convenience?

 Freedom from taxation. This is a major advantage only

during profitable periods.

 Greater operational freedom, i.e few government-

imposed restrictions.

 Possible reduction in operating costs, particularly for

America owners due to the high costs of America crews.

 Avoidance of disadvantages, restrictions and the

possibility of being discriminated against if operation
under one’s own flag.

 Bypassing laws that protect ship workers’ wages and

working conditions
What is the Difference Between an Open Registry and
a Flag of Convenience?

 A registry that does not have nationality or

residency requirements is called an “open registry.”

 Shipowners can register their vessels in these

countries and follow the laws of the registry.

 Flag of convenience refers to the flag of the open

registry country that is being flown by the
shipowner.
Which Countries Have Open Registries?

 There are a number of countries functioning as

open registries.

 Panama is one of the most popular, as it offers

online registration, the ability to employ low-cost
labor, and no income tax to foreign owners.

 According to the International Transport Workers

Federation (ITF), there are over 40 additional
countries that offer open registries. Here is the
flag of conveniences country list:………………
Choosing a Registry

➢ Simply choosing a top registry like Panama or

Liberia might not get the results you need. The
rules differ among the nations with open
registries. The right one for your needs depends
on…

1. What type of shipping is performed

2. The reputations of the country of registration
3. The convenience and expense of registration
 Chief Users

 Of the Liberian fleet 33 percent is reckoned to be

America, 50 percent Greek and it is mainly used
for tanker and bulk carriers

The Effects of Flag of Convenience

 The tax avoidance, it is said, gives their owners

an unfair trading advantage and encourage the
shipping entrepreneur to the responsible ship
owner.
Flags of Convenience: Pros

1. There are a number of advantages of having an

open registry system. Liberia, which has the
second-largest open registry in the world,
generates 25% of its country’s national income
from its registry.
2. Ship owners can use open registries to control
operational costs. Those savings are passed along
to consumers, who are able to buy goods at lower
prices.
3. Flags of convenience can also offer political
advantages under certain circumstances.
Flags of Convenience: Cons

1. Some open registries allow shipowners to remain

legally anonymous. This makes it difficult to take civil
or criminal legal action against shipowners.
2. The ITF has been fighting against open registries for
years. Ships flying flags of convenience are known for
paying very low wages, providing poor working
conditions, serving inadequate food and contaminated
drinking water, and having abysmal working
conditions.
3. Flags of convenience are also used to hide criminal
activities. Smugglers take advantage of low oversight
to traffic drugs, facilitate human trafficking, and
engage in illegal, unreported, and unregulated (IUU)
fishing. This makes it more difficult for organizations
to understand the true risk of vessels flying flags of
convenience.
 A large volume of tonnage without national traditional ties
or international shipping involvement means that they do
not carry their fair share of responsibility in the world
shipping community.

 Most Flag of Convenience countries are members of Inter-

governmental Maritime Consultative Organization (IMCO)
but not noticeably active ones.

 Few are not members of the international Chamber of

shipping nor are they concerned with the expensive
problem of training seafarers as they can gain their crews
by poaching from the traditional maritime countries.

 Further, when times are bad, they accept no responsibility

for the crew who then return to accentuate any
unemployment or redundancy problem in their own native
country.
History of Flags of Convenience

➢ The term “flag of convenience” was coined in the

1950s. However, the practice of raising another
country’s flag goes back hundreds of years.
Shipowners would use different flags to secure
safe passage near pirates and avoid military
conflicts.
➢ Panama was the first country to have an open
registry. Facing tightening shipping laws in the
United States, many ship owners began
registering their ships there. During the early
stages of WWII, the United States government
authorised transferring ship registration to
Panama, so that the government could deliver
goods to Britain while officially remaining neutral.
➢ In 1948, former U.S. Secretary of State
Edward Stettinius worked with the Liberian
government to open its registry. At the time,
Panama’s registry was losing popularity in the
United States. By 1968, Liberia had surpassed
the United Kingdom as the world’s largest
registrar.
➢ As of December 2021, the top three ship
registries in the world were:

1. Panama – 8,558 registered vessels

2. Marshall Islands – 5,158 registered vessels
(Feb 2022)
3. Liberia – 5,000+ registered vessels
Flags of Convenience: Critism

➢ One is that these flag states have insufficient

regulations and that those regulations they do
have are poorly enforced.
➢ In many cases, the flag state cannot identify a
shipowner, much less hold the owner civilly or
criminally responsible for a ship's actions.
➢ As a result of this lack of flag state control, flags
of convenience are criticized on grounds of
enabling tax avoidance, providing an environment
for conducting criminal activities, supporting
terrorism, providing poor working conditions for
seafarers, and having an adverse effect on the
environment.