Why Do Cruises Ships Fly Foreign Flags, or “Flags of Convenience”?

There is exactly one major cruise ship, Norwegian’s Pride of America, that is registered in the United States (i.e., that flies an American flag). Given the vastness of the American cruise market, this may come as a surprise. Why exactly are essentially all cruise ships registered in foreign countries, which means these cruise ships must fly a foreign flag, which is also known as a “flag of convenience”? Isn’t it somewhat strange that a cruise ship that is based at a U.S. port and owned by a U.S. company flies the flag of, say, Panama, Bermuda, or Malta, to pick a few popular countries to register a cruise ship in? Below we explain why so many cruise ships fly flags of convenience. We will also cover some of the complexities of what constitutes a cruise line or cruise ship’s “nationality.”

We’ll begin by making the obvious point that what counts as a “foreign flag” depends on the perspective from which you are examining the issue. From an American perspective, every cruise ship but the aptly named Pride of America is registered in a foreign country. From the Panamanian perspective, lots of cruise ships are domestically registered. The difference, of course, is that the major cruise companies primarily operate out of, and are headquartered in, the United States or Europe, and thus from an American or European perspective, most cruise ships are foreign-flagged.

Without getting unduly bogged down in the details, we’ll note that the situation is complicated, and it is somewhat hard to say what nationality a cruise line even is. For instance, Carnival Corporation, the largest cruise ship operator in the world that owns 10 cruise lines, is regarded as a British-American company. It is dual-listed company with headquarters in Miami, Florida and Southampton, England. However, it is technically incorporated in Panama, and the many ships they own spread across their 10 lines are not all registered in the same country. (A cruise ship can also be registered in multiple countries, to make matters even more complicated.) Even within a single cruise line, like the flagship Carnival Cruise Lines, ships are registered in Panama, the Bahamas, and Malta or a combination thereof, and they used to have ships registered in Liberia and Portugal as well. Carnival also owns Costa Crociere, which is called an Italian cruise line because it is headquartered in Genoa, and indeed all their ships are registered in Italy. (Some are registered in multiple countries, however.) So, are the ships in Costa’s fleet foreign-flagged, or are they domestically flagged because Costa is based in Italy? As we said, the situation is complicated.

As for why cruise ship fly “flags of convenience” in general, the answer is fairly simple: it makes business sense for the cruise line to do this. By registering in certain countries, cruise lines are able to pay lower operating costs or escape regulations imposed by the countries in which the ships primarily operate (e.g., the U.S.). The practice started in the 1920s, and the reason these early passenger ships registered in foreign countries perfectly illustrates, mutatis mutandis (Latin for “changing only those things which need to be changed”), why cruise lines still employ flags of convenience: in order to get around a ban of the sale of alcohol on U.S.-registered ships that was imposed during prohibition, ships simply re-registered in Panama. (For a relatively serious read on the complexities of maritime law from which this bit of trivia is pulled, you can peruse A Qualitative Study of Victimization and Legal Issues Relevant to Cruise Ships by Caitlin E. Burke at the University of Florida.)

Not surprisingly, utilizing flags of convenience can lead to problems, and cruise lines have been criticized for employing the tactic. For one, there is an obvious tendency to “race to the bottom,” to register in countries that have the loosest possible regulations that may not adequately protect, say, the environment or ship laborers. Cruise ships that are registered in a foreign country also operate under the laws of that foreign country, and this can lead to problems for passengers who want to address a problem with a cruise line legally. If an incident happens on the ship, what legal channels can be pursued, and in what country’s court system must any litigation take place?

So, to get back to our original question, cruise ships are registered in foreign countries primarily (and arguably exclusively) for financial reasons. Less regulations generally means more profit. That said, and as we noted above, there is some complexity inherent to the idea of a “foreign flag,” as the concept presupposes that every ship in some sense has a default nationality, and given the international nature of the cruise industry, this isn’t exactly the case. Regardless, it is obvious that essentially the entire cruise industry embraces the advantages of registering in a foreign country, even if “foreign country” is a little hard to precisely define.

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