Source: Office of Maritime Administration, US Department of Transportation.
The share of open registry ships operated under a “flag of convenience” grew substantially after WWII. They accounted for 5% of world shipping tonnage in 1950, 25% in 1980, 55% in 1995, and 70% in 2017. The usage of a flag of convenience refers to a national beneficial owner choosing to register one or more vessels in another nation in order to avoid higher regulatory and manning costs. This enables three types of advantages for the shipowners:
- Regulation. Under maritime law, the owner is bound to the rules and regulations of the country of registration, which also involves requisitions in a situation of emergency (war, humanitarian crisis, etc.). Being subject to less stringent regulations commonly confers considerable savings in operating costs.
- Registry costs. The state offering a flag of convenience is compensated according to the ship’s tonnage. Registry costs are on average between 30 to 50% lower than those of North America and Western Europe.
- Operating costs. Operating costs for open registry ships are from 12 to 27% lower than traditional registry fleets. Most of the savings are coming from lower manning expenses. Flags of convenience have lower standards in terms of salary and benefits.
The countries having the largest registered fleets are offering flags of convenience (Panama, Liberia, Marshall Islands, Greece, Malta, Cyprus, and the Bahamas) and have lax regulations. The ship registry is a source of additional income for these governments; even the landlocked country of Mongolia is offering ship registry services. Still, ship registries have to abide by international standards, which are getting increasingly more stringent. Therefore, the regulatory arbitrage of registries is becoming less relevant. Many open flag registry countries have developed an expertise in the governance of registry regulations, implying an effective oversight of the involved regulations and recognized standards for ships registered under their flag.