Why Risk Management in Shipping?

Extracts of the Speech by Mr. W.A. O'Neil, Secretary-General of IMO Executive Session on Maritime Risk Management, Malm (Sweden), 9 October 2000

Mr. Chairman, Ladies and Gentlemen, Thank you for inviting me to be with you today and to speak at this Executive Session on Maritime Risk Management. I am delighted to do so, first because the location has special resonance for me as this hall is named after Mr. C. P. Srivastava, my distinguished predecessor in the post of Secretary-General of IMO and, second, because this event comes just a day after what for me is always one of the highlights of the maritime industry year, the graduation ceremony at this excellent centre of maritime education, the World Maritime University. . Very few of them will have the words "risk management" in their job title. But I believe risk management as a discipline is beginning to move out of the province of the specialist and into the mainstream of many activities. By this I mean that everyone involved in the shipping industry needs to be aware of risk and of how to manage it, if the industry is to thrive. When I was asked to address this group, the organizers requested that I take as my theme: "Why Risk Management in Shipping?" I dont think anyone need look further for the answer than the terrible tragedy that befell the Express Samina in the Aegean Sea two weeks ago, or the Erika incident which we were debating with considerable passion in IMO at the Marine Environment Protection Committee just last week. Here were two cases in which the risks involved in the operation were clearly not identified and managed properly. The outcomes were tragic. The overall objective of a shipping operation might be defined as "to transport cargo or passengers safely and cost-effectively from origin to destination." You cannot do this unless you identify and manage the risks inherent in the process. But, as these incidents so graphically remind us, in shipping, the potential downside of not managing the risk effectively goes far beyond financial loss: people die and our environment is damaged. I should make it clear from the outset that I am not a specialist in Risk Management and others will doubtless speak to you about the intricacies of hazard identification, of ranking risks as intolerable, tolerable or negligible, of risk reduction and of cost/benefit measurement. I am, instead, going to offer you some thoughts on how risk management has become a key factor in a whole new approach to the culture of safety that we in IMO are striving to promote. What I would like to stress is the importance of understanding instinctively what it means to develop and implement a "safety culture" which, by its very nature, incorporates a consideration of risk. So, what do we understand by the term "risk"? It is undoubtedly one of those elusive words that means different things to different people, even though they might be operating within the same industry. A shipping banker, for instance, will understand risk as the level of his investment exposure in a shipping venture. To an insurer, risks are those occurrences that he has given cover against. Academics, and I know that several of you here today fall into that category, balance the likelihood of an event taking place against the severity of its potential outcome in other words, its probability versus its 1/4

consequence. And an officer-of-the-watch on a ships bridge sizing up just when and by how much to reduce speed in gradually worsening visibility has an altogether different and perhaps more tangible understanding of what risk means. But, whatever particular field we may specialise in, all of us share an intuitive understanding of what the concept of risk means to us. "Safety culture" is one of those terms that tends to slip through the fingers when you try to pin a formal definition on it. It is perhaps far easier to agree on a definition of what a safety culture is not. It is not a culture of unthinking compliance. It is not a culture in which the principal objective of a shipping companys safety manager is simply to ensure that his ships meet all the prescribed standards and all the necessary certificates are up-to-date and in place. It is much, much more than that. Compliance is, of course, a pre-requisite a starting point, if you will. But, beyond mere compliance is a mind-set in which safety managers plan and set their own performance standards and goals actively managing safety as a routine part of their everyday work rather than just responding to external events. This is the beginning of a safety culture. If risk awareness and risk management can also be embraced by those who do not necessarily have those words in their job title, then real progress can be made. In a safety culture, every small action to minimise risk is part of a cumulative process that ends in a safe and efficient operation. At IMO, the value of this form of management culture has been recognised for some time and is now being embodied not only in the legislation currently coming into effect, such as the International Safety Management Code which seeks to provide a blueprint for the way shipping companies manage and operate their fleets, but also in proposed new methods for shaping the way in which we frame future regulations and standards. A process known as Formal Safety Assessment is now being applied to IMOs ap proach to rule-making. FSA was originally developed, at least in part, as a response to the Piper Alpha disaster of 1988 when, as you will recall, an offshore platform exploded in the North Sea and 167 people lost their lives. Interim guidelines for the application of FSA in the context of the IMO were adopted in 1997 and IMO Members have been invited to carry out trials on its use and to report the results back to the Organization. It consists of five steps: identification of hazards, assessment of risks, risk control options (in this case, devising regulatory measures to control and reduce the identified risks), a cost/benefit assessment to determine the cost effectiveness of each risk control option and, finally, recommendations for decisionmaking determining which risk control options should be selected. Application of FSA will be particularly relevant to proposals for regulatory measures that may have far-reaching implications in terms of costs to the maritime industry or the administrative or legislative burdens that may result. FSA can be used as a tool to help evaluate new regulations or to compare proposed changes with existing standards, enabling a balance to be drawn between the various technical and operational issues, including the human element, and between safety and costs. It has been described as a rational and systematic process for assessing the risks associated with shipping activity and for evaluating the costs and benefits of IMO's options for reducing these risks. It is appropriate to speak about safety regulations in terms of cost benefit because we cannot overlook the fact that if legislation is to be effective, it must be seen to add something to the value chain. I recognise that safety requires an investment, and that people naturally want to see a return on the time, effort, expertise and, yes, money, that they invest.

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I believe that principle needs to be more widely recognised. The worlds consumers of raw materials and finished products who, quite rightly, demand that shipping continues to develop and improve its safety culture, must understand and be prepared to accept that doing so costs money. That cost must, eventually, be shared by the consumer. The economic consequences of safety legislation must always be thoroughly weighed. Never has this been more apparent than in the debate about the accelerated phasing out of single-hull oil tankers in the aftermath of the Erika sinking. The principle that this type of ship should be phased-out has long been established and a timetable for doing this was built into MARPOL. When it became apparent that some IMO Member States wanted to see this timetable brought forward, there was a very real possibility that, if the wrong decision should be taken, the ability of the worlds tank er fleet to move the crude oil and oil products required by the global economy could be severely compromised. That is why I commissioned a study into the full effects of certain proposals that had been placed before MEPC, so that delegates would have the information they needed to make a properly informed decision. The study focussed on four points - the number of tankers that would be taken out of service annually; the ability of the worlds shipbuilding industry to cope with any consequent sudden upsurges in demand; the impact of both these measures on the world tanker fleets continued ability to carry the oil demanded by the global economy and, finally, the ability of the ship-recycling industry to absorb the extra demand created by the accelerated phase-out. The evaluation of the consequences was instrumental in helping delegates reach their decisions. In an ideal world, a safety culture embracing properly managed risk should not be seen as a cost but rather as a way of improving efficiency. The line "if you think safety is expensive, try having an accident" has been attributed to many people, but it has currency because it embodies a truth. Take the ISM Code, for instance. Although it is too early to assess the full impact of the implementation of the Code on the first tranche of ships it applies to, there are signs that it has already been effective, especially in making shipping company managements more aware of their responsibilities. But, more than that, there are clear indications that ISM certification is providing real commercial value, too. I saw a claims analysis which shows that vessels which were required to comply with the ISM Code by 1 July 1998 now have around 30 per cent fewer claims than vessels covered by the second deadline of 2002. And, in the months after the Erika sinking, the daily rates for chartering younger oil tankers reached new highs clear evidence that, even in the cut and thrust of the commercial market, people do understand that quality costs money and are prepared to pay for it when they see the benefits. One of the things that has been highlighted by many of the high profile marine casualties in recent months has been that, in shipping, no one can stand in isolation. Everyone who is party to a shipping enterprise, be they the ships crew, shipowners, charterers, cargo interests, classification societies or any of the many other groups of people involved, form what might be described as a risk chain. Failure to identify, manage and reduce risks in any part of the chain will inevitably have consequences elsewhere. Everyone from a seafarer on board a ship, to a director in the boardroom of a shipping company and the administrators of a national registry share a responsibility to play their part. Seafarers used to have an instinctive way of managing their part of the risk chain. It was called oldfashioned seamanship. It took years to develop, could not be measured or certificated, was passed on from "hand to mouth" and often required the possessor to go through many experiences, both bad and good, in order to learn it. When traditional seamanship works and most of the time it does it works very well, notwithstanding advances in technology.

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Nowadays, of course, there is a requirement to move on from this largely experienced-based method to something more structured: something which embodies all the qualities of old-fashioned seamanship but builds on them and puts them in a context that befits todays highly specialised shipping industry. This requirement is met in the risk-based approach to safety and risk management and is therefore at the heart of modern as opposed to traditional seafaring. .. Shipping needs to manage its risks, because the worlds economy and the global environment depend on it to do so. The application of good seamanship, in the widest possible sense of the word, in all our undertakings, is a very effective way of ensuring that we succeed. Ladies and gentlemen, thank you.

The full Speech can be read at the following website:

http://www.imo.org/blast/mainframe.asp?topic_id=83&doc_id=370

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