FLAG CHOICES OF TURKISH SHIPOWNERS AND THE IMPACT ON

FLEET STRUCTURE Ali Cemal TOZ

LecturerMaritime Faculty

Marine Transportation Engineering DepartmentDokuz Eylul University

E-mail : ali.toz@deu.edu.tr

Flag and Flagging Out The flag is an enduring symbol of the

nationality of a ship but although this nationality is conferred upon a ship under international law as the sovereign right of state, in many cases it has very little relevance, significance, or association from a nationality or patriotic perspective to the owners and crew of the ship (Mansell, 2009).

History of Flagging Out

16 th century --- British ships--- Spanish flag

17 th century --- British ships--- French flag

18 th century--- Genoese ships ---French flag

18 th century--- Genoese ships ---Austrian Flag

18 th century--- Neapolitan ships--- Austrian Flag (Llacer, 2003; 2)

Registry Definitons in Literature

(Traditional Maritime Nation),

(Embedded Maritime Nation,)

(National flag), (Classic Register,) (Open Register), (Opportunist

Register),

(International Open Register),

(International Register),

(Closed Register), (Second Register), (Dependent

Territory Register),

Cont. (bogus maritime

flags), (cheap flags), (easy registry,) (fictitious flags), (flags of

accommodation), (flags ofattraction), (flags of necessity), (flags of

opportunity),

(flags of refuge), (free flags), (free registry), (nominal flags), (pirate flags,

freebooters), (runaway flags), (shadow flags), (tax-free flags) Offshore Register, (Flag of

convenience).

Source: International Journal of Marine ve Coastal Law 1999, p. 139 Source: International Journal of Marine ve Coastal Law 1999, p. 139

Reasons of Flagging-Out

Tonnage Tax Comparison

5 year old 18000 Nt 20000 Gt Cargo vessel Liberian Model : 5600$ Dutch Model :10293 € Greek Model : 10000 € Turkish Nat Model: 17000 € Turkish Int. Reg. Model: 13000 €

Beneficial Ownership

Source: UNCTAD, 2010

Turkish Shipping Legislation Structure

Turkey has two-registry system.

National ship registry

International ship registry.

The Act on the Turkish International Ship Registry

The individuals resident in Turkey, regardless of their nationality, and the companies established in Turkey in compliance with the relevant Turkish regulations can register their ships under the Turkish International Ship Registry (TISR).

During the registry of ships, a total fee of USD 10 000 and USD 1 for each net ton is charged.

● USD 1 per each net ton shall be charged annually.

The ships registered under the Turkish Lloyd shall pay the registry fee and the annual charges at a 50 % reduction.

● The revenues gained from the operation, sale, or transfer of the ships registered under TISR are exempted from all sorts of taxes and fees.

The earnings of the crew employed on board the ships being operated under the TISR are exempted from any means of taxes or fees

● On board a ship whose owner is a foreigner the master is to be Turkish.

● On board a ship whose owner is a Turkish the master and 51 % of the crew is also to be Turkish.

● The social insurance premium deduction for the Turkish crew is to be met by shipowner. If the foreign crew is under the umbrella of any social insurance organization in their states, no premium deduction for their social insurance is in question.

Turkish Fleet Structure Statistics in the book issued by the undersecretariat

suggest that as per 1 January 2010 Turkish owned fleet over 100 GT totals 2,222 vessels accounting for 18.9 million dwt. Taking 1,000 GT and over into consideration, Turkish flagged fleet capacity is 6.7 million dwt while capacity outside the flag amounts to 8.6 million dwt. 

The report also reveals that from 2003 and onward, Turkish owners opted for FOC’s to register their new acquisitions. National tonnage has been steady for the past 7 years whilst foreign flagged Turkish fleet has increased from 2 million dwt to some 10 million dwt (Chamber of Shipping, 2010).

Progress Of Turkish Merchant Fleet

(1000 GRT and over)

YEARSNATIONAL FLAG FOREIGN FLAG TOTAL FLEET CONTROLLED

NO 1000 DWT % NO 1000 DWT % NO 1000 DWT

1998 427 8.349 95,82 35 364 4,18 462 8.713

1999 448 8.697 90,48 69 915 9,52 517 9.612

2000 456 8.269 90,63 96 855 9,37 552 9.124

2001 445 7.321 82,00 107 1.607 18,00 552 8.928

2002 451 7.815 83,77 117 1.514 16,23 568 9.329

2003 432 7.045 79,90 147 1.772 20,10 579 8.817

2004 408 6.556 75,23 163 2.159 24,77 571 8.715

2005 420 6.427 70,23 237 2.725 29,77 657 9.152

2006 432 6.844 65,47 353 3.609 34,53 785 10.453

2007 446 6.464 58,16 424 4.650 41,84 870 11.114

2008 490 6.592 50,00 513 6.591 50,00 1003 13.183

2009 520 6.736 43,9 636 8.592 56,1 1.156 15.328

2010 560 7.246 42.1 665 9.954 57.9 1.225 17.201

Turkish Flag (000 dwt)

Foreign Flag 1000dwt

0

2.000

4.000

6.000

8.000

10.000

12.000

14.000

16.000

18.000

20.000

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Analysis Of Registries (Number)

(dwt)

Source: Chamber of Shipping, 2010

Flags Chosen by Turkish Shipowners

Turkish controlled 2,222 vessels are scattered across 42 country flags, which include European countries like Sweden and Italy as well as Tanzania, Togo and Dominican Republic which are less prominent. Malta tops the chart in terms of tonnage with 228 vessels representing 4.7 million dwt. Second most favored flag appears to be Marshall Islands who gained much in popularity lately. 70 vessels with an aggregate tonnage of 2.7 million dwt fly Marshall Islands flag while the age profile is 6.1. Maltese flagged fleet seems to be older and average age profile is 11.5. However Turkish national fleet with 1,136 vessels average 24 years, only to be surpassed by the age profile of Panama flagged Turkish vessels that score an average of 25 (Chamber of Shipping, 2010).

CONCLUSION This study aimed to examine the reasons

how the Turkish shipowners prefer to have their ships fly foreign flags, which has been in an increase in the last decade. Turkish shipowners choose registering a ship in an FOC country typically involves much less paperwork than in countries with national registers. Sometimes the registration can be completed in as little as a few hours – in Panama's case, by fax.

Turkish Shipowner Registry Selection Hierarchy

Registering a ship makes it subject to the laws and the country of its flag state, regardless of the nationality of the ship's owner. In FOC states, those laws can be substantially weaker than those in Canada, the U.S. or Europe. The Bahamas, for instance, does not require oil tankers to have a double hull

Popular sources of cheap labor include the Philippines, India, Indonesia, and Eastern Europe. In some FOC countries, working conditions aboard ships are seldom monitored and international maritime conventions are rarely enforced. The ITF has documented cases where workers on board some FOC-flagged ships haven't been paid for a year, or lived in substandard conditions aboard ship with no shore leave.

There is meaningful correlation between type of ship and registry of Turkish fleet. Statistics reveal that tanker owners prefer national registries other than F.O.C. countries. The main reason is that there are many inspections only for tankers which are performed strictfully by major oil companies. The best way to meet the requirement is establishing the high level working standards and many frequent self assessments. For example although intervals of port state control are six months for any vessel, Turkish government reduced the intervals to one month to catch the higher working standards to meet the requirements.

An overall analysis of the foreign flags mainly preferred, all these flags are recorded in the “white list” of the Paris MOU port state control organization. The overall picture also reveals that the shipowners who prefer to operate their ships under foreign flags are inclined to choose the flags of those nations who meet the requirements of the relevant international requirements, at the minimum rates at least, as well as the requirements favoring the environmental protection and safety and who also provide them with certain bureaucratic and financial ease enabling them to carry out their shipping activities as smoothly as possible.

Thank You For Your Attention