Hey,

Take a container ship crossing the Atlantic right now. It's owned by a Greek shipping company. Built in South Korea. Crewed by Filipino and Ukrainian sailors. Managed from Singapore. And flying the flag of Liberia.

Has that ship ever been to Liberia? Almost certainly not.

Does Liberia have a meaningful merchant fleet of its own? No. What it has is a registry office in Dulles, Virginia.

Welcome to flags of convenience, the system that makes global trade possible, keeps costs low, and makes accountability almost impossible to pin down.

The logic is simple. Under international law, every ship must be registered under a flag state — a country whose laws govern the vessel, whose inspectors oversee it, and whose courts handle disputes involving it. In theory, there should be a genuine link between the ship and the country whose flag it flies.

In practice, that link disappeared decades ago.

Today, shipowners choose their flag the way other companies choose their tax jurisdiction. Panama, Liberia, and the Marshall Islands — three countries with a combined population of under 6 million — control 46.5% of the world's shipping capacity by deadweight tonnage. Panama leads in number of vessels. Liberia recently overtook it in gross tonnage. The Marshall Islands registry, meanwhile, operates out of Reston, Virginia. Not exactly the Pacific.

The appeal is straightforward: lower taxes, minimal crew nationality requirements, reduced regulatory burden, and faster registration processes. A Greek owner registers in Liberia, hires Filipino crew at internationally competitive wages, and avoids the stricter — and more expensive — requirements of flying a European flag. The math works every time.

Here's where it gets interesting — and where the system stops being just a tax story.

Flag states have voting weight at the IMO, the body that sets international maritime regulation for the entire planet. The more ships under your flag, the more influence you have over the rules governing all of them. Panama has so many vessels registered that its head delegate at the IMO is nicknamed "Mr. IMO" in industry circles. Not because Panama is a maritime powerhouse with centuries of seafaring tradition. Because shipowners chose Panama, and that choice translated directly into regulatory influence.

Think about what that means. Shipowners, in effect, get to choose which countries regulate their industry. They vote with their registrations. And the countries that win that vote are precisely the ones with the least incentive to make regulation more demanding.

It's a system that optimizes for itself.

The consequences of thin oversight aren't abstract. They show up in the numbers.

In 2025, seafarer abandonment hit record levels for the sixth consecutive year. According to ITF data, 6,223 sailors were abandoned across 410 ships — a 32% increase over 2024. These are crews left on vessels without pay, without fuel, sometimes without food, while owners disappear behind layers of shell companies and flag states that either can't or won't intervene. Of those 410 ships, 337 were flying flags of convenience. That's 82% of the total.

The ITF recovered over $45 million in unpaid wages from FOC vessels in 2025 alone across more than 9,000 inspections in 55 countries. One case that made it into U.S. federal records: the MS Melenia, a Djibouti-flagged oil tanker, abandoned for the third time in two years — crew stranded, no fuel, sanctioned by the U.S., disowned by its flag state. Nobody claimed responsibility. Nobody had to.

That's not an edge case. That's the system working exactly as designed.

If the traditional FOC system exists in a regulatory grey area, what emerged after 2022 pushed further into the dark.

Following sanctions on Russian oil, a new category of flag-hopping accelerated. Ships carrying sanctioned cargo began registering under flags like Gabon, Eswatini, and the Cook Islands — registries with minimal enforcement capacity and maximum opacity. By 2025, the average time between a vessel being sanctioned and reappearing under a new flag had fallen by half.

If you read the Sunday Compass edition on the dark fleet, you'll recognize the pattern. Flags of convenience didn't create the shadow fleet. But they built the infrastructure that makes it possible. The FOC system is the water the shadow fleet swims in.

Flags of convenience exist because the system is designed to allow them. Every flag state competes for registrations. Every shipowner optimizes for cost. Every regulator works within jurisdictional limits drawn before container shipping existed.

Nobody broke the rules. The rules were written this way.

That's a pattern worth recognizing beyond maritime. When a system consistently produces outcomes that seem obviously wrong — abandoned crews, unaccountable owners, sanctions evasion at industrial scale — the instinct is to look for bad actors. Sometimes the more honest answer is simpler: the incentives were never aligned in the first place.

Fixing that is harder than finding someone to blame. But it's the only fix that actually works.

Talk soon,

Fer

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