The Panama Canal features prominently in Panamanian life. Panama, a small nation of just three million, has the largest shipping fleet in the world, greater than those of the US and China combined.
Panama only has one small shipping line as well as a number of companies providing supplementary maritime services around the ports and canal.
Most merchant ships flying Panama’s flag belong to foreign owners wishing to avoid the stricter marine regulations imposed by their own countries.
Panama operates what is known as an open registry. Its flag offers the advantages of easier registration, often online, and the ability to employ cheaper foreign labour. Furthermore the foreign owners pay no income taxes.
Under international law, every merchant ship must be registered with a country, known as its flag state. That country has jurisdiction over the vessel and is responsible for inspecting that it is safe to sail and to check on the crew’s working conditions.
The first transfer of ships to Panama’s register in 1922 involved two US passenger ships wishing to serve alcohol to passengers during Prohibition. More followed as shipowners sought to avoid higher wages and improved working conditions secured through US legislation.
After World War Two, Panama’s registry grew more rapidly as US shipowners sought to lower overheads while European ones switched flags to avoid high tax rates.
Panama now has the largest registry in the world, followed by Liberia, the Marshall Islands, Hong Kong and Singapore. By last year, almost three quarters of the world’s fleet was registered under a flag of a country other than its own.
The registry is lucrative for Panama, bringing in half a billion dollars for the economy in fees, services and taxes.
There is concern that Panama cuts corners in all these tasks, putting maritime workers at risk. Indeed, accidents involving Panamanian registered ships are high.
In 2000, International Transport Workers’ Federation general secretary David Cockroft was able to buy a Panamanian first officer’s certificate for $4,000 to navigate a ship, even though he had no maritime skills or experience.
Despite repeated assurances that the country was cleaning up its act, Roberto Linares, the head of the Panama Maritime Authority, resigned in June after it was discovered that workers were being certified without the proper qualifications.
With the new maritime administrator sworn in last month, it remains to be seen whether Panama will crack down on corruption and safety breaches or continue to live with the taint that still clings to flags of convenience.
Maybe it is time to force shipowners to register their vessels under a tighter regime.