Why Are All the Ships From Panama?
By Andrew Broadley (he/him)
If you’ve ever watched the cargo ships coming into the docks (you probably haven’t) you may have noticed one thing they all have in common. Actually, they have quite a few things in common. But one sorta unexpected thing. They’re all from Panama?
Panama is home to the largest shipping fleet in the world. Larger than that of China or the United States. But it has little to do with Panama being the powerhouse of the seas, and more the powerhouse of making a little extra cash on the side. The OG side hustle. Like OnlyFans except, OnlyFlags.(That joke will make more sense later.)
Cargo ships spend most of their life on the open seas and because the open sea is big and scary it’s pretty important that ships have their current rego and WOF (I don’t think that’s what it’s called). Because of this, a ship needs to have a place where it is registered. The place where it’ll get its engine cleaned up and new rims and window tints done. So every country has a ship register where they keep track of all their ships and all the ships need to be in one of these registers. And you would think a ship would be in the registry of the country it operates from or the place where the business is based.
You would think wrong. Some countries, such as Panama, don’t really have any requirements to go into their big boat registry. In fact, they have what is called an open registry. You don’t have to be from there, or live there, or have a business there. You can just go online and be like:
“hey, I own a boat, can I register it in Panama?”
And they will be like “Yeah no worries, that's cool, just pay us a little cash.”
Congratulations. You are now the proud owner of this ship that’s... sorta... from Panama.
So Panama doesn’t have a lot of rules about registering your boat in their country, and Panama also doesn’t have a lot of rules about what is and isn’t okay to do with your boat or the people, and stuff, that is on it. And this is a pretty big deal when it comes to ships.
Ships spend a lot of time in international waters. And despite what movies and TV tell you, anything doesn’t go in international waters. When in international waters, you obey the laws of the ship's registered country. So while it’s not illegal to commit murder in international waters (I guess?), it is probably illegal in the country where your ship is registered.
If your boat is spending a lot of time in international waters, it is spending a lot of time obeying the laws of the country where it is registered. And if your country is particularly strict when it comes to your boat WOF and your boat is somewhat shit, you may be inclined to go register your boat somewhere that is less strict. Or say you have a crew of hardworking individuals that are desperate enough to work for little money and know to keep quiet about human rights violations? Well, there may be a few places that are going to be more relaxed about it.
Sounds convenient right?
Well I present to you, the ‘flag of convenience’. Rich shipping companies are conveniently registering their boats overseas to avoid taxes and stricter labour laws and health and safety obligations. And Panama is an OG in the ‘flag of convenience’ game. Their open registry lets just about anyone fly their flag (See – OnlyFlags) in exchange for some levies and fees and stuff.
This all started in the 1920s during Prohibition when some clever ship owners figured out they could register their ship overseas and then serve alcohol onboard their now ‘not American’ boats. Panama became that country. After prohibition ended, the shipowners saw the convenience of avoiding American laws and the open registry boom began.
Developing countries saw an open register as an easy means of cash, and many joined Panama in offering their flag of convenience. It’s hard to blame them, it brings Panama over half a billion dollars a year. Most of these nations are simply trying to find a way to combat years of colonisation, corruption, and systemic exploitation. But it does come with a cost. A fight to offer the best shipping rates and deals can only be done by keeping costs low. Costs can only be kept low when workers are underpaid and costly repairs and maintenance is avoided.
Ships flying under a flag of convenience also have a higher rate of illegal activity due to their lack of oversight. Honduras shut down their registry after it was revealed it was being used for a wide range of criminal activity and in 2000, a Cambodian representative famously said,
“We don't know or care who owns the ships or whether they're doing 'white' or 'black' business ... it is not our concern."
This was after it was revealed that Cambodian flagged ships were breaking trade embargos, smuggling drugs into Europe and engaging in human trafficking. If your business model relies on attracting as large a number of vessels as possible you are not going to do much enforcing. To try to combat this, Port State Control has been implemented, allowing countries to inspect ships that dock at their ports, but this is more of a band-aid fix.
It is worth mentioning Panama is no longer ‘black listed’ but many nations operating an open registry are. Statistics suggest operating conditions overall are improving but there is a risk that as countries such as Panama improve their regulations, shipping companies will turn to other registers. It is clear that something needs to be done, and it’s also pretty clear abandoning the flag of convenience system is probably that thing. It would go a long way in improving safety and transparency, and combating illegal trade.
Because OnlyFans may be a great side hustle, but OnlyFlags probably shouldn’t be.