Shipping used to be built on long charters (in the 1970s over 80% of tankers were on long charters to oil majors), but this fizzled out in the 1980s. For years shipowners hoped they would return, but they never did, leaving ships exposed to a spot market, where there always seemed to be too many of them.

In the 1980s recession, the struggle to come to terms with this change kick started a trend to “flagging out”. Initially it was a matter of financial necessity. In the 1980s the OPEX of a Panamax bulker under German flag was $5,000/day, but by switching to a foreign flag the job could be done for $3,300/day. At a time when earnings were often only $3,500/day flagging out was an obvious strategy. Admittedly, some "foreign flags" (mainly known as Open Registers) had a mixed reputation, but in a desperate market survival was the aim. Not surprisingly “foreign flag” registers grew, reaching 237m dwt by 1989.

But even when the recession was over, the foreign fleet kept on growing. The line in the graph shows that the fleet of the top 34 shipowning nations under a foreign flag (i.e. ships registered abroad), passed one billion dwt in 2012, and reached 1.14bn dwt in 2013. It now accounts for 77% of the total fleet, so four out of five ships are under a foreign flag. Each year the “foreign” share goes up by 1%. Meanwhile, for the last 20 years, the tonnage of ships flying the owner’s “national flag” has been struggling along at only 3-400m dwt.

This mass switch to foreign registration raises many issues about the nature of the shipping business today. From a legal viewpoint, the shipping industry is no longer part of the developed world. With the exception of China, the top ten flag states make little contribution to the world's GDP.

One consequence is that “foreign” flags have few resources to provide for vessel protection. The convoys operating off East Africa today are largely operated by national flags, not by the “foreign” flags. Another is that the regulatory system has been adapting, with an increase in Port State control. A cynic might say that this is associated with a diminishing interest in shipping affairs by the voting public in the top 34 shipowning nations, and may be why the industry is right to be always worrying about its image.

So there you have it. Since 1989 national fleets have lost market share each year. If the trend continues, in 20 years the whole fleet will be under a foreign flag. Unlikely – or is it? In recessions the cost pressure is on and that’s where we are today.

(Hellenic Shipping News, 4 February 2013)