Could COVID-19 End Flags of Convenience?

MOL Pride flying the flag of Liberia and home-ported in its capital, Monrovia. Image

At the moment, there are 17 cruise ships at sea, prohibited from entering port due to onboard COVID-19 infections among the passengers and crew.  More significantly, these ships have more than 6,000 passengers trapped on board, unable to go ashore.  These ships have one thing in common. They are all sailing under flags of convenience. When the COVID-19 pandemic struck, they all received messages from the ports they were about to visit that they were being denied entry, and advising them to seek assistance from their national flag authorities.  Since many flags of convenience are held by small countries with very limited resources, this advice was not helpful.

The policy adopted by the U.S. Coast Guard is typical. The Coast Guard has advised foreign-flagged cruise ships to be prepared to care of people with COVID-19 for an indefinite time at sea or to seek help from countries other than the U.S. The safety bulletin explains that the COVID-19 pandemic has overloaded the health care system in Florida and that the U.S. health system in general is in danger of being overwhelmed. These instructions took effect during the last week of March and have no specified expiration date.

If a cruise ship must send someone ashore for medical care, its owner will be responsible for essentially every step of the trip, from arranging an evacuation to hiring a private ambulance and ensuring the person has a spot in a hospital. This is almost an impossible requirement to meet since it could be difficult to find any facility in south Florida, for example, that could take new COVID-19 patients.  U.S.-flagged ships are not affected by these regulations.

Countries listed as having a flag of convenience by the International Transport Workers’ Federation. Image

Flags of convenience are commonplace in the merchant ship industry. By registering ships in countries that have no national ownership requirement for ships entered on their registries (a practice known as “open registry”), a shipping operator can avoid tax, employment, and environmental laws.  This led to the practice of using flags of convenience being viewed in a pejorative context. Since the time-honored practice at sea is to aid a ship, or its crew, that is in danger or distress regardless of nationality, ships using flags of convenience were seen as freeloading on the rest of the maritime community.

With the advent of COVID-19, the traditional maritime countries are refusing aid and assistance to ships bearing flags of convenience and telling those companies that their ships should seek medical care in the countries where they are registered.  The problem is that most open registry countries don’t have those facilities.  This factor has hit cruise ships first because their cruise profiles and density of passengers make them particularly vulnerable to COVID-19. They already had problems with outbreaks of norovirus and influenza, but COVID makes those issues an order of magnitude more problematic. However, if the pandemic continues to spread, other ships will be affected and world trade, 80 percent of which goes by sea, will be badly impacted.  It is also worth noting that the USS Theodore Roosevelt, a nuclear-powered aircraft carrier, has been temporarily disabled by the COVID-19 virus.

At the moment it appears the worst of these effects are being concentrated on flag of convenience ships.  In the cruise ship industry this is becoming public knowledge, and a cruise company personnel report  indicates that a growing number of potential customers are asking which flag the ship sails under. There is already a trend toward future customers booking on ships from the traditional registries (the most prominent being British, American and Dutch) and avoiding known flags of convenience.  Ships, just like airliners, have to run at high load factors to be profitable, and if the preference for traditionally flagged ships reached a level where the traditional ships are overbooked and flags of convenience ships only partially filled, the profitability level my drive cruise ship operators back to the traditional flags. Another factor could be that insurance companies, seeing that flag of convenience ships can no longer be sure of receiving emergency assistance from other countries, will jack up insurance rates to the point where the cost advantages of flying a flag of convenience will evaporate.

It is unlikely that COVIDS-19 on its own will bring an end to flags of convenience, but it may start a cascade of events that will. If the principle of aiding all ships, passengers and crews in distress, regardless of nationality, is brought to an end and countries will only aid those that fly their flag, then flying a flag of convenience becomes similar to driving an automobile without insurance. It can be done, but it’s risky and the potential penalties are dire. It is possible to envision multinational mutual aid agreements between maritime powers evolving, with the preferred partners being navies that have a worldwide presence.  The implications of that are far-reaching.

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