jasdooit

A vessel that exploded and caught fire in the Strait of Hormuz on the night of the 4th is managed by the South Korean shipping firm HMM, although its official country of registration is Panama. Why does the ship display the Panamanian flag rather than the South Korean one, despite being operated by a Korean company?

The shipping sector states, “It is typical for the nationality of the company that owns or manages a vessel to be different from the country where the ship is officially registered,” and notes, “This practice is used to minimize tax obligations and to more easily manage crew employment and other regulatory requirements.”

Each vessel must be registered with a particular nation and display its flag during service, with the registering country known as the ‘flag state.’ Nevertheless, the flag state does not always reflect the nationality of the ship’s owner or operator. A ship managed by a South Korean firm may fly the Panamanian flag, while a vessel owned by a Japanese individual could be registered under Liberia. This is why terms such as “a Panamanian-flagged ship operated by HMM” are commonly used.

This method, in which ship owners register their ships under foreign countries rather than their own, is known as the ‘flag of convenience’ system. As per the United Nations Conference on Trade and Development (UNCTAD), the leading three nations for ship registration globally are Liberia, Panama, and the Marshall Islands.

These countries offer straightforward registration processes, minimal tax obligations, and adaptable rules concerning crew hiring and administrative standards. From the shipowner’s point of view, this lowers expenses and improves operational effectiveness. For the nations where the ships are registered, they gain by collecting registration fees and maintenance costs from foreign vessels, even if they do not construct or manage the ships themselves.

Indeed, South Korean shipowners have a combined total of 98,530,000 DWT (deadweight tonnage) in vessels, with 77,890,000 DWT (79.1%) registered under foreign flags. Similar trends are observed in other nations: by early 2025, 88% of the tonnage owned by Greek shipowners and 84% of that owned by Japanese shipowners is also registered under foreign flags.

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