If you’ve ever been on a cruise or are considering taking one you may be wondering why almost all ships are registered to foreign ports. There are a number of reasons for doing this which we will discuss in this article.
Flying a foreign flag is known as having a Flag of Convenience, the countries flag that is being used is called the flag state.
90% of cruise ships that call at a US port have a foreign flag according to the Cruise Line International Association. – source.
Why Do Cruise Ships Fly Foreign Flags?
Cruise ships fly foreign flags in order to benefit from laws and regulations in other countries. Flying a foreign flag affects employment, taxes, and many other regulations that may be favorable for the cruise line. It is relatively easy to register a ship in a foreign country and the practice has been carried out for decades.
The most popular countries for cruise ships to register their flags to are Panama, Bermuda, Italy, Malta, and the Netherlands.
A ship’s registration can be seen on the aft below the name. Below is a photo of Royal Caribbean’s Symphony of the Seas who is registered in Nassau.
Why Do Cruise Ships Have to be Registered to a Country?
Every ship is required by law to be registered in a country. The laws of the country in question are used if there are any private maritime disputes.
The country to which the ship is registered has control over the ship in regards to things like regulations and procedures.
They’re also in charge of regulations in regards to pollution although the cruise lines do take this very seriously and consistently perform better than the minimum requirements. The countries where the ships are sailing also are able to monitor and enforce regulations.
How Can Cruise Ships Fly a Foreign Flag?
It’s surprisingly easy for a cruise ship to fly a foreign flag.
Most countries have closed registries which means that the ship usually has to be owned and/or constructed by the country in order to fly the flag. This also affects employment with a certain amount of the employees working onboard having to be from that country.
On the other hand, some countries have what is called open registries. This means that almost anybody can register a ship to the country in question and in some situations you’re able to just apply online. Some countries that have had open registries in the past have since changed to closed registries due to problems with crime.
There are still plenty of countries with open registries where it’s relatively easy to register a ship there if you’d like to.
Both of the Carnival ships shown below are registered in Panama.
One of the main reasons that a cruise ship would sail under a foreign flag is because it gives them the ability to hire employees from countries that have lower wage requirements. On the majority of cruises, you’ll find that the crew are from places like the Philipines, China, or India.
Ships that are registered in the Bahamas and Panama have the highest number of crew members from the Philippines.
There are also some tax benefits for people from the Philipines who work on cruises. Providing that they work on an overseas vessel that operates exclusively in international trade.
What does this mean for the crew onboard:
- The cruise line can pay lower wages than would be paid to US citizens.
- The crew can be made to work longer working hours.
- The crew can be given fewer breaks/less leave.
You’ll often find that on a cruise the majority of waiters, room stewards, and bartenders will be from countries other than the US. However, you may find musicians, performers, and officers from the US or other parts of Europe with higher wage requirements.
It isn’t uncommon to find people with similar or the same jobs being paid different amounts based on the country that they come from.
One of the biggest reasons that a cruise ship could fly under the flag of another country is that they have to pay tax under that flag rather than the place where they actually operate.
This means that cruise ships sailing in the US, but registered to another country, don’t pay US taxes in the same way as they would if they were registered there.
The saving can be HUGE and for some large companies, this can easily run into the millions of dollars.
After the Coronavirus crisis of 2020, many people said that cruise ships shouldn’t receive any bailouts or help from local governments because they had chosen to register in foreign countries.
There are also other reasons for registering a ship in another country such as getting access to things such as being able to conduct weddings at sea. Cunard registered all of its ships in Bermuda in 2011 which meant that the captains could marry couples at sea.
Being able to host weddings is a big moneymaker for cruise lines. It’s not only the cost of the cruise that is good for the cruise line but also the fact that the wedding party will usually book out a number of cabins and will normally pay for other things above and beyond the base cost of the wedding.
Many people get married at sea because it can be better value than getting married on land. It’s possible to get married both on the ship and also in port on a port day.
Weddings do vary by cruise lines and some even offer vow renewal ceremonies too. Celebrity Cruises recently registered their ships in Malta so that they could conduct same-sex marriages on board, something that they couldn’t do before they changed flag.
Why do Cruise Ships Not Fly The American Flag?
There are a number of reasons why so few cruise ships are registered in the US. It isn’t just because of the benefits listed above but also because it is much easier for a cruise ship to be foreign-flagged. The American flag has very little benefits for cruise lines.
Are There Any US Flagged ships?
There is one cruise ship flagged in the US. Norwegian Cruise Line’s Pride of America. She cruises exclusively around Hawaii and has to adhere to US labor laws and taxes.
Registering a Ship in the US
For a ship to be US-flagged they ship must have been built in a US shipyard. The majority of large cruise ships are built in either Italy or Germany, while US shipyards build military and cargo vessels.
Originally ordered by American Classic Voyages using US government loans, construction on Pride of America started in Mississippi, but was halted after ACV filed for bankruptcy.
To sell the unfinished ship & get their money back, the US government and NCL negotiated a deal. NCL was granted an exemption to finish the ship in Germany and still register under the US flag.
The ship also has to pay the US minimum wage and have a certain percentage of US crew members onboard. NCL is also responsible for paying their US crew overtime, which can be substantial for the hour’s cruise ship crew typically work. This can be VERY expensive when compared to paying for the crew from places like the Philipines.
When Did Flying a Foreign Flag Start?
The history of flying a foreign flag for the purposes mentioned above goes back to the 1920s and the time of prohibition. At the time companies started registering their ships in Panama and many kept this after prohibition ended.
By doing this ship owners started to learn about the benefits of flying a flag of convenience and others around the world started to follow.
The term flag of convenience wasn’t used in the 1920s and it wasn’t until around the 1950s that this started to become a common phrase.
Is It Good That Ships Fly Foreign Flags?
The question of it it’s good or bad that ships fly foreign flags is constantly up for debate. Many argue that it allows cruise lines to pay staff much less than they otherwise would, avoid taxes, and even commit crimes.
Others argue that cruise lines wouldn’t be able to operate without flags of convenience and that they give people from poorer countries the opportunity to travel and earn a good living.
Whichever argument is right, I don’t think we will see this changing anytime soon.
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