Second ship registry in flag choice mechanism: The implications for China in promoting a maritime cluster policy

Abstract

In the highly competitive shipping industry, flagging out has become an important operation strategy for shipowners. To attract vessels to use their national flags, the traditional maritime countries (TMCs) have adopted various incentive-based and rule-based marine policies. Among them, the establishment of second ship registers is one of the most effective, as shown by the success of EU countries. To understand the influence of the second ship register upon vessel registration and the mechanism of flag choice decisions, this study transforms binary and nested logit models with individual-level data into aggregate-level models. The empirical estimate suggests that the policy of establishing second ship registers significantly affects the number of vessels register back to their national countries, though this effect varies for different countries. The results of the nested logit model in analyzing the flag choice mechanism suggest that the second ship register is clustered to the nest of foreign ship registers. This suggests that the second register is more similar to open ship registers in function than to national registers, which indicates the convergence of maritime policies between the TMCs and open registers. This result has significant implications for China as it develops as an international maritime center. This study strongly recommends that China reorient its maritime policy by incorporating Hong Kong as its second ship register to provide a competitive operational environment for shipping companies and thereby foster a maritime cluster.