The Regulation of International Shipping: Flag State, Coastal State, and Port State Control

Shipping is a unique economic activity where carriers from multiple states compete with one another to move goods or passengers between ports (often between states) at the lowest cost. Shipping is inherently international in nature and mostly occurs between states or in waters outside the boundaries of any nation. This puts most shippers in the position of being regulated by two or more states while transiting their waters, in contrast to regulation under international law while operating on the high seas (areas beyond national jurisdiction, ABNJ).

At present, thirty-five states control 95 percent of the world’s shipping fleet. Of these states, Greece, Japan, Germany, Norway, the United States, and China control approximately 38 percent of the world’s shipping fleet, and since 2000, China has led the world in the growth of shipping. The most popular registries of ships (states in which ships are registered) are Panama, Liberia, and the Marshall Islands, which registered 11,636 ships in 2009. This amounts to more than 39 percent of the world’s shipping capacity.

The role of states in shipping. When on an international voyage, a ship transitions between ports through both the waters of the port states and often the waters of one or more third-party states. Furthermore, ships often voyage on the high seas, where they are governed by international treaties. States also have a vested interest in regulating shipping in their waters for:

- The safety of passengers, crews, and cargos
- The orderly movement of goods and people across waterways
- Access to domestic and international shipping routes
- Sufficient competition without compromising the ability of shipping companies, when necessary, to cooperate to provide scheduled, uninterrupted liner services

A coastal state is any state with a marine coastline. To protect their interests, coastal states establish laws and regulations with which vessels must comply. The jurisdiction, duties, and responsibilities of coastal states are set out in the United Nations Convention on the Law of the Sea, which establishes the rights and duties of states at prescribed distances from the shore. The right of innocent passage is a fundamental tenet of the convention.

Nearly all coastal states apply some elements of cabotage, where they reserve (protect) a portion of their domestic shipping trade for ships flying their national flag. States may require ships to be crewed or owned by domestic nationals, built at domestic shipyards, or registered under the country’s national flag.

A flag state is a state that a ship is registered with. Ships that are registered in states different from the states where they are owned or operated are termed flags of convenience. Traditionally, flags of convenience have been used to reduce costs (avoid taxation, utilize lower-wage crews) and avoid compliance with domestic regulations that may be more onerous. The most popular flags of convenience are Panama, Liberia, and the Marshall Islands. Flag states are responsible for verifying that domestic (national) ships comply with national laws and international conventions to which the flag state is a party. These responsibilities are known as flag state control.

A port state is responsible for verifying compliance (including inspections and boarding) with international conventions for ships in their territorial waters. These responsibilities are known as port state control (PSC). PSC regimes are regional, enabling states to share verification responsibilities.