“Flags of Convenience” or Privilege denote registry of a merchant ship under a foreign flag. A "Flag of Convenience" ship is one that flies the flag of a country other than the country of ownership. Cheap registration fees, low taxes and freedom to employ cheap labour, and leniency in safety requirements are the motivating factors behind a shipowner's decision to 'flag out'.
Till 1960s ships registered in ‘Flags of Convenience’ countries used to fly the merchant flag of a ‘PANLIBHONCO’ (Panama - Liberia - Honduras – Costa Rica) country to enjoy nominal registration fees, liberal tax concession of investment, no compulsion to employ nationals of the flag country and many such handouts.
Panama extended the first "Flag of Convenience" and soon the practice of FOC ships grew in popularity. In order to control the monopoly of the Panamanian registry, in 1948, the United States helped Liberia create its "open registry". The Liberian registry attracted American oil companies and Greek shipowners who sought to avoid high labour costs.
The Liberian ship registry--set up by U.S. shippers after World War II--is cheaper than nearly any other in the world, Liberia, founded by freed American slaves, has always enjoyed a close trading relationship with the U.S. Today Liberia’s merchant marine is one of the world's largest. The success of Liberia's registry encouraged the opening of other competing registries.
As of 2009, Panama, Liberia and the Marshall Islands are the world’s three largest registries in terms of Dead Weight Tonnage (DWT). Other significant "Flags of Convenience" includes the Bahamas, Malta, Cyprus, Antigua, Bermuda, St. Vincent and Cayman Islands.The International Transport Workers' Federation's (ITF) Fair Practices Committee (a joint committee of ITF Seafarers' and Dockers' Unions), which runs the ITF campaign against FOCs maintains a list of 32 (thirty two)Registries it considers to be FOC registries.
The Marshall Islands Maritime Registry is highly acknowledged throughout the world, not only by the Yachting community, but by the entire maritime industry due to its easy registration processes.
On October 8, 2007, the Marshall Islands Postal Service issued a series of new stamps featuring yachts registered in the Marshall Islands. The stamps in this issue reflect colourful photographic images of the magnificent yachts to sail under the flag of the Republic of the Marshall Islands.
The Slogan of the Franking meter reads PATRONISE NATIONAL FLAG SHIP BY INDIAN SHIP. There is concern at the increasing use of Flags of Convenience to enable ship owners to escape obligations inherent in using the Flag of ship’s owners home country and thereby jeopardizing the safety, the environment and seafarers conditions.
According to the International Chamber of Shipping (ICS), presently, more than half of the world's ships are registered with "Flags of Convenience".
Mansi Choksi of the 'Times of India' reports (August 14, 2010), "According to the United Nations Conference on Trade and Developments (UNCTD)'s latest Review of Maritime Transport of 564 ships owned by Indian nationals, 69 ships (roughly 12%) had been registered in foreign states. Of the 69 Indian-owned ships registered in other countries, 25 were registered in Panama. "The popular "Flags of Convenience" with Indian ship owners are usually Panama, Liberia, Singapore and the Marshall Islands. Some countries even land-locked ones, such as Mongolia offer their Flags to pretty much anyone who pays a fee and the ships are technically under their jurisdiction of the country whose flag they fly".