Factors influencing the choice of flag: empirical evidence

Abstract

The aim of this paper is to analyse the decision-making process of shipowners when adopting flags of registration. More specifically, it is interested in examining the relative importance of the factors related to an individual company's decision to flag out. The decision to change flag is viwed as similar to any other strategic decision by a profit maximizing firm (shipping company) and therefore those variables which influence the attractiveness, for a given firm, of taking the flagging out decision are analysed. The approach is two-fold in that it employs both qualitative and quantitative analysis. The research is innovative in the sense that it uses an econometric approach and the analysis is based on original data which has been obtained by the authors via a questionnarie and personal interviews with members of the UK shipping industry. The results deal with two particular sectors namely the tanker and general cargo markets and provide an insight into the magnitude and significance of various factors which affect the choice of flag. It is able to provide indications of the likelihood of a particular vessel being flagged out under different cirumstaces and, further, to consider how changes in these circumstances might affect the probability of the event occuring. The paper is structured in six parts comprising an introduction, back ground, methodology, qualitative analysis, econometric analysis, and conclusions.

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