Each vessel normally flies the flag of the owner's country. That means it is registered in the national register of that particular country.
Flagging in is the process of adding a vessel to the national registry and "flagging out" is the process of removing a vessel from a national registry. Generally flagging out refers to the practice of switching the vessel's registration to another country to fly operate it under a "flag of convenience". However, some vessels that have been deleted from national registries end up operating under no flag at all.
Ships and fleets can be “flagged” out to countries (including land-locked nations with no historical maritime tradition) that offer lower-cost safety and labour standards and inadequate safety
supervisory and inspection structures.
Flagging out is generally driven by the wish to save costs or to escape effective regulatory control by the State in which the vessel or fleet is beneficially owned. The result is higher accident rates, proportionately more safety and security breaches, and lack of effective implementation of existing international safety, welfare and operational requirements amongst flagged out vessels.
Flagging out also brings difficulties in identifying the competent legal authority in situations as diverse as personal injury claims or pollution or environmental damage, as evidenced, for example, following the recent Prestige sinking in Northwest Spain. This vessel was Greek beneficially owned, registered through a Liberian shell company and flying the flag of the Bahamas.