Masthead29_Mar2014 - page 6

Flags of Convenience
Continued from page 1
Advantages of ForeignFlag (FOC)
One is that theowner of the shipor
yachtwill usually avoidmany or even
all taxes on the vessel inhis or her real
home country. Another is that the
regulations the shipor boat has to
complywithmay be less complex and
costly than thoseof the truehome
country. For example, included in the
U.S. regulations for U.S. registered
(U.S. flag) vesselsare requirements
that threequarters of the crewbeU.S.
citizens and that all crewbe legal U.S.
You can thinkof aboats registration
or “flag” as itspassport. A vessel could
bebuilt inAustralia, ownedby aU.S.
citizen, withaBritish captainand
mateand largelyMexicanand
Philippine crew, but sailedunder a
Cayman Island flag. Theboat is still
consideredaCayman Island vessel
wherever it goes.What’smore, thewagespaid to crews
from variousdeveloping-nation countriesareusually
considerably less thanU.S. or European crews command.
Regulations andRestrictions
Nationswhich can register boats are signers of the
InternationalMaritimeOrganization (IMO) and therefore
technically enforceSOLAS (Safety of Lifeat Sea),MARPOL
(International Convention for thePreventionof Pollution
FromShips), and International Load LineConventions. In
practice,many (thoughnot all) nations offering flags of
convenience (foreign registry) are lax inenforcing rulesand
regulations, oftenbecause they lack the resourses for this
largeand complex task. This too leads to savings for the
shipor boat owner, but it canalso lead to
Becauseof the lax restrictions andenforcement on
many FOC vessels, theUSCoast Guardgrades
flags of convenience relative to their past
experiencewithpoormaintenance, quality control,
andobservationof regulations. SomeFOCs are
almost automatically singledout for special
inspectionand thuspossibledetentionanddelays
onenteringport. Further, these lax regulations, and
the lower pay its crewmaybe receiving, donot
makemaritimeor International Transport
Federation (ITF) unions very happy, nor do they
make for safe vessels. Usinga flagof convenience
is a cost savingmeasureand you shouldbeaware
that it canbe frownedupon. (Thereare some
shipping companieswhouse flags of convenience,
butwhodowork responsiblywith ITFs toensure
safeworking conditions, fairwages, andproper
The flip sideof this is FOCswhose vesselshavea
detention rateof less than1% for three
consecutive years. Under theQuality of Shipping for
the21st Century (Qualship21), created in2001,
FOCs in this categorymeetQualship21, andare
March 2014 Page6
Development of Flags of Convenience
Contrary towhat youmight expect, theU.S. hashadan important
part in the spreadinguseof flags of convenience. Itwas in the
1920s, when theUnitedFruit Company instituted theHonduran
registry to reduce the cost of shipping itsbananas fromSouth
America to theU.S.
U.S. Prohibition resulted in the creationof Panamanian registry in
the1920saswell. ThiswasbecauseU.S. flag vesselswanted to
serve liquor to their passengers. TheU.S. government allowed them
to switch toPanamanian flag toget around the “dry” laws of the
As early as1933 ITFunionsbegan contesting transfersof ship
registry toPanama. AfterWorldWar II, the trend to foreign flag
increased, encouragedby a low-cost surplus ships and strict, costly
U.S. regulations. Panamanian registry hadgrown toover three
milliongross tons by1948. Liberian registry increaseddramatically
during theColdWar. Liberiawas createdas a colony of freedU.S.
slaves in1821, and—chronicallypoor—itwas seekingadditional
sources of revenue. At the same time, U.S. shippers, andothers,
neededaneutral flag toenter portsduringperiods of U.S./Soviet
tension. In1976 Liberian flag tonnage surpassedU.K. flag tonnage
as the largest fleet in theworld, though thenumber of tons under
LiberianandPanamanian flags (andothers) has fluctuatedover the
decades since.
Flying theU.S. Flag
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