FOCS AND SHIPBREAKING

As a general rule, there should be a “genuine link” between the country from where the ship is operated and the country of the flag under which it sails. Flag registries that do not have nationality requirements for the shipping companies that use their flag – often because they actually do not have any shipping companies incorporated – and that provide financial benefits, such as lower taxes, are commonly known as “flags of convenience” (FOCs).

For end-of-life vessels, the discrepancy between the countries of beneficial ownership and the ships’ flags is even higher than during the operational life of a ship. Certain FOCs are overrepresented at end-of-life; these FOCs are hardly used during the operational life of ships, but are particularly popular for the last voyages to the scrap yards. They are primarily used for ships that are beached in breaking yards in South Asia, rather than for ship recycling facilities elsewhere.

Over several years, we have analysed flag preferences at end-of-life and found that the flags of St Kitts and Nevis, Comoros, Palau and Tuvalu, and to a lesser extent Togo, Tanzania, St Vincent and the Grenadines, and Sierra Leone, which are less favoured flags during the operational life of the ships, are excessively popular flags for the end-of-life vessels broken in beaching facilities. These flags are all grey- or black-listed by the Paris Memorandum of Understanding (MOU), that is, these are flags known for their poor implementation of international maritime standards.

End-of-life registries such as St Kitts and Nevis, Comoros and Palau compete with each other by offering low-cost “last voyage” packages and expressly state that no nationality requirements need to be fulfilled in order to register under their flags – not even the setting up of a shell company. Typically, this includes fast-track registration procedures, valid only for a very limited period of time, at a special lower price. The popularity of certain end-of-life flags also varies over the years, with new end-of-life flags popping up every now and then.