What does the flag on the back of a ship mean?
A flag state is the term for the nation’s flag that is flown by a ship. An owner does not need to flag their ship under the flag of their home country. In fact, there may be some advantages and disadvantages to flagging under another nation’s flag. When a flag flown by a ship is different from the country where the owner is domiciled, it's called a flag of convenience (FOC).
A registry is a private agency that has government authority to act on behalf of the country in caring out the duties of the flagging country. Registries are traditional or open. Traditional registries only allow local owners to register. Open registries allow FOC registrations. These open registries may require the ship owner to hire a percentage of its crew from the flag state.
Once the ship is flagged in a state it has to follow the maritime laws and regulations of that state and is subject to international law as applied in that state. These international laws come from treaties and conventions adopted by these member countries. The flag state is the state with jurisdiction to punish the vessel for not adhering to international law. The flag state ensures compliance by inspecting and monitoring the vessel baring its flag. This includes issuing safety and environmental protection documents, certifying the vessel, and the crew. Some of the benefits an owner might experience with their choice of flag state are tax benefits, certification, cheaper labor, and security.
The owner can choose the flag state before the ship is even built. When choosing a state the owner might consider that the choice will affect the vessel’s purchase, delivery of the newly built ship, financing, leasing options, mortgages, etc. Other factors include the flag state’s reputation, expense of the registry, and the type of shipping the owner is planning to engage in. Choosing a FOC may have adverse effects, like making the owner liable for injuries caused negligence if defects are not found during inspection or inspections are not performed.
A ship can be registered in two countries at once. The first under the FOC and the second under what’s known as a second registry (or offshore registry). These registries are either formed by statute or by a territory operating under the authority of the parent country. They encourage the movement of the vessel back to the home country with certain favorable conditions that do not exist in the traditional registry.