Commercial Shipping (M08)

 Learning objectives:

 Describe the various categories of ships’ costs;

 Explain how ships are managed;

 Understand ship management sectors;

 Explain key instruments of ship management;

 Understand various regulations affecting the human element.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 The costs of running ships

 Ship management
 Technical management
 Crew management
 Commercial management
 Key instruments of ship management
 Management agreement
 Vessel operating budget
 Vessel operating report
 Safety and quality management system
 Regulations affecting human elements
 ISM
 STCW
 Safe manning
 ILO 147 and ILO 180
 Ship registration
J.Fei AMC Semester 2, 2008
 Commercial Shipping (M08)

The costs of running ships

 capital costs
 operating costs

 periodic maintenance costs

 voyage costs

An example (a 10-year capesize bulk carrier at 1993 price)

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

Ship management
 covers various types of management services involving all aspects of
daily vessel operations;
 separation of ship management and ship owners;
 no common shareholding interest between the ship owner and the
ship manager;
 functions as a separate cost centre and provides equitable services to
all clients according to well defined contracts and detailed budget
agreed between the two main contracting parties;
 is required to ensure that vessels always comply with international
rules and regulations, are run in a safe and cost efficient manner and
is maintained so as to preserve as far as possible its asset value.
 The ship owner is the risk taker.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

Ship management
The ship owner can select to use either a comprehensive range or just
one service from a number offered by the ship manager. These
services break down into three main groups:

 technical management
 crew management
 commercial management.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 Technical management
The primary objective: safe, pollution-free and cost-efficient vessel
operation in accordance with international rules and regulations
and where due consideration is given to the protection of asset
value, including following elements:
 purchasing
 maintenance
 inspection
 performance monitoring
 budgeting
 quality management
 reporting
 dry-docking
 certification
 insurance

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 Crew management
 The primary objective: the provision of well trained and suitably
experienced crew of the nationality required by the shipowner/charterer
to ensure safe and efficient operation of a vessel according to
international regulations:
 selection and engagement
 manning levels
 certification control
 performance appraisal
 management of payroll
 provision of training
 provision of insurance
 reporting
 welfare
 drugs and alcohol
 travel

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 Commercial management
 the provision of various shipbroking services relating to the
employment of a vessel according to instructions laid down by the
shipowner. Main activities:

 marketing/voyage estimating
 chartering
 post fixture
 voyage accounting
 payments
 agency

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

Key instruments for the provision of ship

management services
 management agreement
 vessel operating budget

 vessel operating report

 safety and quality management system

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 Management agreement
 governs the relationship between the ship manager and the
shipowner; determine the roles and responsibilities of the respective
parties.
 are based on the law of agency as interpreted by English law and
under which the ship manager does not conduct business in his own
right but acts as an agent on behalf of a principal (the shipowner).
 are either prepared by the ship management company itself, based
on its own experience over time and in consultation with legal
advisors, or utilise a standard format, such as BIMCO’s SHIPMAN.
 differs in the range of services provided, but includes two main
types: a) a comprehensive range of technical and crew management,
and b) the provision and management of crew.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 Vessel operating budget

 includes items such as crew costs, insurance, purchasing and
lubricants, repair and maintenance, and administration costs.

 is initially prepared by the ship management company on the basis

of certain assumptions such as condition of the vessel, stores and
supplies on board etc. and is submitted as a quotation to a potential
client. The end result of this initial budgeting process is the creation
of a 12-month budget forecast which is agreed with the shipowner.

 is a forecast – when the ship management company takes over the

vessel, the budget changes as it is refined after a pre-takeover
inspection that determines the actual condition of the vessel and
factors such as the level of stores and spares on board and any
outstanding technical and/or operational items requiring
extraordinary expenditure.
J.Fei AMC Semester 2, 2008
 Commercial Shipping (M08)

 Vessel operation report

 is provided on a quarterly basis in the form of a vessel operating

report;
 presented in a standardised format so that the ship owner can
monitor the performance of his ship in a consistent way over a
period of time;
 Contains up-to-date information on all technical, financial and
operational aspects of the vessels under management.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 Vessel operation report

 shall contain following sections:

 Executive summary: main budget items, explanation of variances and
estimated expenditure
 Condition report: equipment, gears, hull, deck and fittings, piping,
values, main engine and generators, boiler and any major works in
progress
 Operational performance: port and sea time, average speed and
consumption, and off hire report applicable
 Personnel report: planned and actual crew changes, performance of
master and senior officers
 Insurance report: accidents and incidents leading to H & M or P & I
Claims

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 Safety and quality management

 This concern with safety especially followed the IMO’s adoption of

the International Safety Management (ISM) Code in 1994 as a
mandatory requirement from 1998 onwards for ship operating
companies.

 Safety and quality management systems are more recent

provisions, different from management agreements, vessel
operating budgets and vessel operating reports that are long-
established instruments which have been refined by ship
management companies over many years of usage.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

Regulations affecting the human element

Four very substantial and important sets of regulations
which have a direct relevance on people:
 The International Safety Management Code (ISM Code)
 The International Convention on Standards of Training,
Certification and Watchkeeping as amended (STCW)
 Safe manning
 The ILO Convention, Number 147 – Merchant Shipping
(Minimum Standards) and the ILO Convention, Number
180 – Seafarers’ Hours of Work and the Manning of Ships

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 ISM Code
 The International Safety Management (ISM) Code became
international law on 1 July 1998 and has been made mandatory by
incorporating it into the International Convention for the Safety of
Life at Sea (SOLAS) 1974 as a new chapter IX.

 The ISM Code establishes safety management objectives:

 to provide for safe practices in ship operation and a safe working
environment;
 to establish safeguards against all identified risks;
 to continuously improve safety management skills of personnel,
including preparing for emergencies.

 The ISM Code has had a major impact on ship management

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 STCW Convention
 The revised STCW Convention is based on three important
elements:
 new uniform standards of competence for seafarers.

 new measures to ensure that governments actually fulfil their

obligations under the Convention.
 new responsibilities on shipping companies to ensure that
seafarers employed on board ships are properly trained and are
carrying properly documented certificates.

 The convention required governments to advise IMO of the steps

taken to implement its regulations, and this has meant a need for
openness on the standards of training.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 Safe manning
 Ocean-going vessels are required to specify on a minimum safe
manning certificate a minimum number of persons on board the
ship.

 The Minimum Safe Manning Certificate is issued by the Flag State

administration upon request by the ship operator. The minimum
number of seafarers included in the certificate will be determined
by the Flag State after taking into account the size, operational
profile and technical equipment of the vessel.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

 International Labour Organisation (ILO)

 The ILO 147 convention covers accommodation standards,

hospitals and medical scales and working and living conditions, as
a means of enforcing minimum standards.

 The second ILO convention, No 180, is intended to regulate both

hours of rest and hours of work on board ship.

J.Fei AMC Semester 2, 2008

 Commercial Shipping (M08)

Ship registration
 The principles of the freedom of the high sea with two basic rules:
 Jurisdiction over a vessel on the high seas resides solely with the state
to which the vessel belongs; and that
 All vessels using the high seas must possess a national character.

 Opposition to flags of convenience (FOC)

 Low wages
 Manning level and competencies of crew
 Vessel’s seaworthiness
 Compliance with international conventions

J.Fei AMC Semester 2, 2008