Every ship must be registered and fly a national flag. At the same time the Convention on the Law of the Sea (UNCLOS), (IMO, 2005) http://www.imo.org/Safety/mainframe.asp?topic_id=1514&doc_id=7602 provides every state with the right to register ships given that there is a genuine link between the ship and the state. A ship flying a nation’s flag is part of that state for legal purposes. The ‘genuine link’ is not well defined, however and very state specifies their requirements. As a result, shipping firms have a wide choice when deciding where to register their ship and what flag and jurisdiction to apply. They may choose their national or an open register. Traditionally shipowners registered their ships in the national register. Shipping firms were subject to the standard national rules for firms concerning company, financial and employment regulations.
Open registers started in the 1920s and grew in importance after WWII. Open registers offers alternative registration to the national flag. Their success depends on their ability to attract shipowners and gain acceptance by regulatory authorities (port states and IMO). These flags were called “Flag of convenience” (FOC) because of the commercial advantages they offered shipowners by setting fewer restrictions and requirements.
Some shipping nations have established so-called international registers as alternatives to the traditional national register. They aim to offer similar commercial advantages as do open registers. Norway established The Norwegian international register NIS in 1987 after several years of flagging out from the national Norwegian register NOR to different open registers. http://www.nis-nor.no/?lang=. This was the first of the international register. Singapore, Hong Kong and Marshall Islands are other big international registers.
Shipowners evaluate states’ company, financial and tax laws when selecting a register and flag. They assess naval protection, access to coastal markets and political acceptability of a flag. They also assess whether the state has ratified conventions on maritime safety and other regulations. Crewing terms differ among registers and this has cost implications for the ship-owning firm and thus often influences the choice.
A ship may switch registers and change flag several times during its life time to get access to new markets, to exploit the commercial advantages of FOC’s or international registers or when sold to another shipowner for further trading. To facilitate ship identification a specific and permanent number that follows the ship irrespective of flag change was introduced in 2004; the IMO number http://www.imo.org/Facilitation/mainframe.asp?topic_id=388 (IMO 2002).
Figure 16: Flags of the Norwegian owned fleet, mill dwt
Source Based on data from Norwegian Shipovners Association (NSA, 2009 and 2012) http://www.rederi.no/default.asp?FILE=items/5396/263/
quarterly%20report%20no%201%202009.pdf & http://www.rederi.no/nrweb/cms.nsf/$all/