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Thursday, July 25, 2019

Ship Registry, Flag of Convenience and more !


Flag perhaps would need no elaboration.  A flag – is a piece of fabric generally of rectangular design, used as a symbol, a signalling device or a decorative piece.  All political parties have distinctive flag and are known by the colour and the figure printed on it. It gets a different connotation when it symbolizes a country – that time lot of sentiment and National interests get attached to it.  It represents the country and needs to be reverred.  There are also maritime flags – those pieces used on ships, boats, and other water crafts.

Marine Insurance is as vast as the expanse of the sea – practitioners or anybody dealing with insurance of cargo whilst they are in transit from places, would sure have heard of the term ‘Flag of Convenience’.  In earlier days, when there was tariff, there were many extras charged – which included Overage, Under-tonnage, non-classification, non-approval and of these Overage again depended on whether the carrying vessel was flag of convenience.

The cargo ship Stena Impero, seized by Iran last week, was sailing under a British flag - but it was owned by a Swedish company and had no British nationals on board. This 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) is the ninth largest fleet in the world.   It's very common for ships to fly the flag of a country that differs from that of the owners. Just like Motor vehicles registered in Regional Transport Office, Ocean going ships are also registered.  Ship registration is the process by which a ship is documented and given nationality of the country that the ship has been documented to. The nationality allows a ship to travel internationally as it is proof of ownership of the vessel.  International law requires that every merchant ship be registered in a country, called its flag state.   The organization which actually registers the ship is known as its registry. A registry that is open only to ships of its own nation is known as a traditional or national registry. Registries that are open to foreign-owned ships are known as open registries, and some of these are classified as flags of convenience.

According to Maritime rules, 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.  Other systems of flagging have tighter rules on who can own and operate these vessels.  Panama, the Marshall Islands and Liberia are the leading flag states.  An interesting article in BBC on Ship flags states that there  are about 1,300 vessels listed on the UK Ship Register.  The reason for choosing a particular register would  include regulations, taxes and the quality of the service provided.  Quoting a maritime expert, the article points to Greece - the world's leading ship-owner. Many of its vessels do not fly the Greek flag, a big factor being they would have to pay more tax.  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.  This system of "flags of convenience" has been criticised because of the potential for looser regulation and even the flouting of international maritime rules. But shipping practices are generally seen as having improved significantly in the past three decades.  It is stated that the  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. 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.

However, it not uncommon for a flag registry to be managed in a different country.  For example, Liberia, is administered by an American company with its headquarters in Washington DC. The land-locked Mongolia Registry is based in Singapore.  The Comoros Registry is based in Bulgaria. Far-flung Vanuatu has its base in New York. The unusual geography of the registry system can pose security challenges.  It's unrealistic for a flag state to provide security to all the vessels registered to it, says Mr Chapsos, even though vessels are essentially an extension of that state.

Flag of convenience [FOC]  is 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. This term has been in vogue since 1950s and vessels with FOC are considered inferior. In 1968, Liberia grew to surpass the United Kingdom as the world's largest shipping register.

Indian Register of Shipping (IRS) is an internationally recognized, independent ship classification society, founded in India in 1975. It is a Non-Profit organisation, Public undertaking and a member of the 13 member International Association of Classification Societies(IACS). It was inducted into IACS along with Croatian Register of Shipping (CRS) and Polish Register of Shipping (PRS).  Now,  IRS acts on behalf of the Maritime Administration of the Indian government as the sole authority for final assignment of Load Lines in Indian flag vessels and also as the security organisation that determines compliance under the International Ship and Port Facility Security Code (ISPS) code for Indian flag ships and port facilities.

With regards – S. Sampathkumar
25th July 2019.

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