Photo: Container Cargo at the Shipping Harbour of the Port of Hamburg, Germany. Credit: myLAM / Alamy Stock Photo.

NATO’s Missing Merchant Ships

Allied shipping has declined to dangerous levels in recent years. It’s a serious strategic weakness and it needs fixing.

By Gonzalo Vázquez

July 18, 2025

For the last 18 months, Yemen-based Houthis have been disrupting maritime commerce through the Gulf of Aden and the Red Sea. Their success in diverting large amounts of shipping and proving resilient in the face of Western navies has imposed significant limits on freedom of navigation and command of the seas.

While the naval implications of the ongoing crisis largely dominate current discussions, an additional and less-noticed problem is an increasing overreliance by many NATO member states on flags of convenience (FOCs), as an alternative to national flags and the shrinking size of their merchant fleets and pool of seafarers.

Both aspects would pose serious challenges and constraints in case of a wider-scale conflict with Russia.

A recent report by the London-based firm Nautilus International has highlighted the worrying trend among NATO merchant fleets, most of which have become overwhelmingly reliant on flags of convenience. Through the practice of using a different flag of registry rather than their national flags, shipowners are attracted by the lack of effective control, tax benefits, and the ability to hire international crews at lower costs, all of which reduce operational costs.

This is a long-standing issue, but it is worsening. Several of the top ship-owning nations in the alliance have a high proportion of FOCs in their fleets. Greece, for example, has 87.3% flags of convenience, while Germany has 89.9%. In fact, seven of the top 12 have at least 70% foreign-flagged vessels, with Panama, Liberia, the Marshall Islands, and Hong Kong as the most common flag states.

The fragmentation between ownership and registration has an impact on maritime security by diluting responsibilities in case of accidents — as is the case with Russia’s dark fleet — and favoring the rise of maritime crimes. The situation, far from ideal, requires a collective effort to revert such fragmentation and reaffirm the link between vessels and the flag state it represents.

The Western shipbuilding industry has likewise undergone years of decline (something now identified as a significant problem by the Trump administration). Without vessels and the ability to construct them, many NATO allies would struggle to provide enough logistical support to their navies and land forces in the event of crisis and war. For example, in the case of the US being involved in high-end conflict: “readily available American vessel capacity would only meet 65% of sealift needs. The shortage extends to personnel as well, with a deficit of at least 1,900 mariners.”

The shrinking merchant fleet will impair NATO’s ability to support military logistics and secure essential supply chains during conflicts, crises, and emergencies, including those with Russia.

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Moreover, beyond reducing the number of vessels under the effective control of NATO member countries, it also has an impact on the availability and security of NATO seafarers. Many of these vessels tend to have international crews, which include a significant number of Russian seafarers and seafarers from other Russian-supporting nations.

International crews on vessels would pose significant problems, considering that “in wartime or emergencies, ports in NATO countries would likely restrict entry to vessels with crew members from adversarial nations”.

The resulting decrease in the number of available ships would hamper logistics and undermine allied maritime operations.

In view of the existing deficiencies, member states must address the problem and enhance their support for vessels under national registries. Some proposals to improve the situation include prioritizing NATO registration for military protection, in line with Article 91 of the UN Convention on the Law of the Sea regarding the “need for a genuine link between the State and the vessel”.

Additionally, enhancing targeted state aid to incentivize shipowners to support national policy objectives that aim to grow the national fleet and national maritime skills base is also necessary, while restricting state aid eligibility only to vessels under national registries

Russia remains the first and most important threat to NATO. The key to a potential wide-scale war with Russia today would involve economic suffocation through allied sea power. As King’s College London’s Department of War Studies Professor Andrew Lambert has argued, Russia remains vulnerable to pressure exerted through sea control along its maritime flanks.

Thus, sea power will be a fundamental element of any conflict against Russia. It behooves NATO, then, to address the shortcomings now, while there is still time.

Gonzalo Vázquez is a research associate with the Center for Naval Thought at the Spanish Naval War College, and is currently pursuing an MA in War Studies at King’s College London’s Department of War Studies.

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.