CruiseThe Covid-19 pandemic puts a spotlight on why ships often fly flags of foreign countries.

Why are most cruise ships registered abroad?

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Norwegian Encore is owned by Norwegian Cruise Line but registered in the Bahamas.
Norwegian Encore is owned by Norwegian Cruise Line but registered in the Bahamas.

Norwegian Cruise Line’s (NCL) latest Norwegian Encore is owned by a company based in the US, but is named after Norway and registered in the Bahamas.

And it’s just one example of seemingly conflicting cruise origins, further complicated by current concerns that cruise companies might not be paying their fair share in taxes, especially while initially offloading guests and crew during Covid-19 outbreaks.

The reality is rather complicated, but an understanding of history and policies can help clarify.

Regarding NCL, the line was originally cofounded by a Norwegian, Knut Kloster, though it no longer has any ties to Norway. The country is now merely a namesake. Parent company Norwegian Cruise Line Holdings has since expanded and owns Oceania Cruises and Regent Seven Seas Cruises in addition to NCL.

That may clear up the nomenclature a bit. But why would the majority of US-based ships operated by NCL or any other American cruise line then be registered abroad?

I reached out to the “big three” cruise lines — Carnival Corporation, Royal Caribbean Group and aforementioned Norwegian Cruise Line Holdings, all of which are based in the US — to seek clarity on behalf of any confused travel advisors and clients.

In response, Carnival’s public relations team pointed to several in-house facts as well as data from Cruise Lines International Association (CLIA).

In short, nearly all cruise ships are incorporated — or flagged — outside of the US for several reasons. But one of the most crucial is that US law requires that ships registered domestically must also have been built in this country.

While there are local shipyards known for constructing military vessels, much smaller passenger craft and historic ocean liners, they are not equipped with the expertise, capacity and supply chain to assemble bigger contemporary cruise ships. In the modern era, European nations and shipyards have largely led this charge.

Interestingly, NCL operates the only notable exception. Its Pride of America is registered stateside because the vessel began construction in Mississippi as the failed Project America 1 before being acquired by Norwegian and completed in Germany. It took a special US government exemption to permit the multinational ship to sail under US flag, which now allows it to sail exclusively in the Hawaiian Islands.

Otherwise, the Passenger Vessel Services Act of 1886 dictates that foreign-flagged passenger ships carrying guests between US destinations must first stop at a foreign port. But that is not to say cruise lines do not pay domestic taxes.

In fact, according to CLIA data, the cruise industry pays billions of dollars in taxes as well as fees in the US annually. In 2019, that total was US$1.3 billion. And per Carnival, it alone paid more than US$700 million in domestic taxes and fees last year, US$600 million of which directly supported port cities in the US.

The truth is that all cruise lines contribute greatly to American and international economies. Cruise ships operate globally and, thus, are required to pay taxes and port fees wherever they go — not just in the US.

If the laws were to change, more cruise ships could potentially be registered domestically and have the means to sail itineraries closer to home without needing foreign ports of convenience. California coastal trips could visit Western cities without the need to detour away and call on Ensenada, Mexico, for instance.

But until that happens, cruise ships will continue to look like out-of-town cars sporting license plates from other states or, in this case, countries. At least now you know why.

This article was first published in TravelAge West.

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