A ship is flying flag of convenience if it is purposely registered in a foreign country to take the advantage of its softer regulations and to reduce operating costs.
Those in favor of the practice argue that a ship should have the freedom of choice to register in a jurisdiction that best suits its commercial interests. Such leave allows the domestic shipping company to enjoy the competitive advantages offered by another country for economy and cost effectiveness as well. Lower and affordable registration cost of a shipping registry makes it an attractive destination of the shippers.
Many of the jurisdictions that allow ships the facility of using its flag for convenience have in place a well developed system of admiralty law supported by a set up of admiralty courts well versed in maritime matters. Financing the acquisition or major renovation of vessels by mortgaging the same is far easier in such places. Shipping companies are often constrained to avoid flying the US flag due to its expensive and bureaucratic shipping registry.
Lower registration costs, lower taxes, lax labor laws, softer safety and environmental norms of a jurisdiction are often motivators behind many flags of convenience.
However, nowadays shipping standards are not only set by the flag that the vessel flies but also other considerations decide the same such as terms and conditions of the insurer, the regulations of concerned port authorities that the ship touches, the stipulations of the International Ship and Port Facility Security Code, etc.
Nations that have adopted the said International Ship and Port Facility insist on minimum standards for vessels entering their national waters. Moreover, the US Coast Guard takes annual inspection of vessels entering their national waters and may deny entry to those vessels that have not removed the defects pointed out in course of such inspection.
