The event commemorates the work of merchant seafarers and their commitment and sacrifice during war and conflict.
Councillor Jacky Smith, Chairman of South Kesteven District Council, welcomed guests including Dave Edwards, on behalf of the Merchant Navy Association, members of Scout and Guide groups, the Royal British Legion and councillors, as well as representatives from other organisations.
Cllr Smith recited the Kohima Epitaph and read a message from HRH, The Earl of Wessex, offering his support to the "often unsung personnel of our Merchant Navy", before those present observed a minute's silence.
Mr Edwards read the seafarers' poem, Sea-Fever, by John Masefield: "I must go down to the seas again, to the lonely sea and the sky, and all I ask is a tall ship and a star to steer her by."
Father Stuart Cradduck, Rector of St Wulfram's Church in Grantham, led the prayers.
He quoted wartime Prime Minister Sir Winston Churchill's 1941 speech at the height of the Battle of the Atlantic, who said: "We are a seafaring race and we understand the call of the sea. You are worthy successors in a tradition of steadfast courage and high adventure, and we feel confident that that proud tradition of our Island will be upheld today wherever the ensign of a British merchantman is flown."
The Merchant Navy Association was formed in 1989 as a charitable body to build greater awareness of maritime heritage and the contribution of merchant seafarers and fishermen.
The flag was due to remain flying until Wednesday 4 September.
For media enquiries:Email the SKDC communications team at email@example.com or call 01476 406498 or 406440.